Posts By Terence P. Stewart

The future of the WTO — restoring relevance

The World Trade Organization has 164 Members at present with 23 more countries or territories in the process of accession. Nearly all international trade in goods and services is handled by WTO Members and those seeking accession.

At the beginning of 2020, the WTO officially turned 25 years old. Despite some successes in the first 25 years in terms of negotiated improvements, the WTO set of agreements are largely reflective of the world in the 1980s. Advances in technology, manufacturing make-up and importance of certain service sectors (e.g., e-commerce) are not covered by the existing agreements.

The WTO’s negotiating function has been nearly moribund on a multilateral level for more than a decade, with most successes at the WTO keyed to actions by plurilateral groups of Members (action by the willing). A system built on consensus decision making has been the hallmark of activity during the GATT and now during the WTO years but has proven unworkable in moving many topics forward amongst an expanded membership.

Similarly, the dispute settlement function of the WTO, long referred to as the “jewel” of the WTO, has been in a state of crisis for the last several years and now has a nonfunctioning Appellate Body (“AB”) as longstanding systemic concerns of the United States about the Appellate Body’s operation and adherence to the Dispute Settlement Understanding (“DSU”) have led to the United States blocking appointments of Appellate Body members until the system is corrected consistent with the DSU. With only one of seven AB members still in place as of December 11, 2019, the AB is unable to hear appeals (as all appeals must be heard by three AB members).

At the same time, many WTO Members have not kept current with notification requirements contained in each Agreement and intended to help Members understand actions of trading partners and their likely compliance with WTO Agreement obligations. This lack of full transparency limits the ability of Members to address issues and seek compliance with underlying obligations.

With the increased importance of China and other countries with economic systems not consistent with the GATT’s and now WTO’s architecture, there have also grown concerns by some Members on the ability of the WTO to handle different economic systems under the existing rules with the U.S., EU and Japan seeking new rules addressing some of the major elements flowing from the different systems.

The WTO, unlike other multilateral institutions, has a process of self-selection of developing country status. Least developed countries do have a clear definition consistent with other organizations. As there has been substantial economic development of many countries describing themselves as “developing” during the first 25 years of the WTO’s existence, there is conflict on the need to change current classification and/or the need for special and differential treatment.

On top of all of these ongoing concerns, the COVID-19 pandemic has resulted in WTO Members acting first for their own domestic interests, particularly in light of huge shortfalls in global supplies and capacity for medical supplies versus the needs of countries facing spikes in the number of cases. The result has been dozens of export restraints (styled as temporary) and dozens of unilateral actions by countries to reduce duties, simplify or prioritize entry procedures for medical supplies. While the WTO has established a webpage for COVID-19 information and provides information on actions taken by Members (either export restraints or import liberalizing), the WTO Members have not agreed on a course of action for all Members to pursue.

The COVID-19 pandemic has also disrupted the functioning of the WTO as in-person meetings have been cancelled for the last several months, and many developing countries have insisted that virtual meetings not be used for decision making, essentially halting the negotiations on areas like fisheries subsidies.

The challenges reviewed above raise the question about the WTO’s continued relevance and as importantly what reforms are needed to restore the WTO’s relevance going forward. The short-term challenges for the WTO are compounded by the decision by Director-General Azevedo to step down at the end of August which will divert much energy at the WTO into the process for finding a replacement Director-General.

Deputy Director-General Alan Wolff’s virtual presentation at a webinar hosted by the Korean International Trade Association

Earlier today, the WTO’s Deputy Director-General Alan Wolff made a virtual presentation in a webinar that was hosted by the Korean International Trade Association. The title of the presentation was “COVID-19 and the Future of World Trade. A link to the presentation can be found here. https://www.wto.org/english/news_e/news20_e/ddgaw_27may20_e.htm.

Everyone interested in the future of the multilateral trading system should take the time to read DDG Wolff’s presentation. The presentation reviews actions needed by WTO Members to respond to COVID-19, measures WTO Members can take to assist with the economic recovery from the pandemic, and systemic reform that WTO Members should consider. It is the last of these that takes up the bulk of the presentation.

In talking about reform, DDG Wolff states that —

“It is necessary to understand what values the multilateral trading system is designed to promote before it can be reformed.

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

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

“(2) to determine if the values of the current system enjoy the support of all WTO Members, and

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

“My list of the underlying values of the WTO has 16 entries. They include a number of basic principles.

“The first two, not obvious to all of us today, are supporting peace and stability. This was the key concern of the founders of the multilateral trading system in 1948 and the central objective of conflict-affected and fragile acceding members today.

“Other values, such as nondiscrimination, transparency, reciprocity, international cooperation and the rule of law are more obvious. Still others are more nuanced, less obvious perhaps, and emerge only upon reflection. They include well-being, equality, sovereignty, universality, development, market forces, convergence and morality.

“A recent addition to the list is sustainability.

“A serious discussion of WTO reform is long overdue. The pandemic simply adds to the urgency of it taking place.”

Not surprising, DDG Wolff’s review of the sixteen entries is well done and presents a much broader understanding of the importance and value of a global trading system than trade negotiators, businesses, workers, and governments generally bring to the table.

I won’t review the presentation in detail as the value of the presentation in my view is in reviewing the entirety. While DDG Wolff presents the detailed analysis as a possible road to a better future, there are issues identified which similarly suggest the need for a new set of agreements. Consider his discussion of “convergence”:

“Convergence

“A corollary of the principle that market forces are to dictate competitive outcomes is that the rules of the WTO are based implicitly, but without doubt, on convergence and not coexistence. If the desire is to have systems where market forces are not allowed to operate and deliver results, an underlying unstated assumption of the multilateral trading system would not be valid.

“Coexistence would require a different WTO. Where there is no agreement on convergence, a new modus vivendi will inevitably be sought. The arrangement is likely to settle at a lower level of trade than the WTO rules would otherwise provide.”

The United States has in fact raised this exact issue with the WTO Membership in reviewing the market economy basis of the WTO and the incompatibility of state-directed/controlled economies like that of the People’s Republic of China (and others).

Will WTO Members be able to rise to the current needs to engage in reform that supports the 16 principles reviewed in DDG Wolff’s paper? The future relevance of the WTO and the future dynamism of the global trading system depend on it.

COVID-19 — new hotspots amidst continued growing number of confirmed cases

On May 25th, there is continued global growth in the number of COVID-19 cases despite apparent control of the virus in its origin, China, and in a number of Asian countries that had early case loads. There also has been a sharp contraction in western Europe which had been a major hot spot for March and April and some decline in the United States, the country with the largest number of cases. Despite the positive news from some parts of the world, there have been sharp upticks in South America, in Russia, in various countries in the Middle East and in parts of Asia. While the numbers remain relatively low in Africa, there are also countries in Africa going through significant growth in the number of cases.

The European Centre for Disease Prevention and Control puts out a daily compilation of the global situation and includes epidemiological curves for the world broken by continents (as they have characterized countries and continents). The link to today’s issue is here and shows the bulk of the volume of new confirmed cases continuing to be from the Americas, with increasing volumes of new cases also coming from Asia. The data show reduced volumes of new cases from Europe and growing volumes of new cases (though still quite small) from Africa. https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases.

In South America, Brazil’s case load is skyrocketing, and the country now has the second most cases after the United States. Peru, Chile, Colombia, Argentina, and Bolivia are other countries in South America going through rapid growth rates in the number of new COVID-19 cases in the last two weeks.

In North America, Mexico’s cases are increasing rapidly, and the U.S., while having apparently peaked and started a decline, still shows the largest number of new cases of any country in the last two weeks.

In Europe, Russia, while appearing to have peaked, still has very large numbers of new cases and has the third largest number of cases of any country.

In the Middle East, a number of countries have large increases in the number of new cases, including Saudi Arabia, Kuwait, Qatar and the UAE.

In Asia, India and Pakistan are seeing large increases in the number of new cases.

In Africa, just two countries have as many as 10,000 confirmed cases — South Africa with 21,343 cases and Egypt with 16,613. Both countries have seen large increases in the last two weeks.

So the bottom line is that five months since data started to be collected on COVID-19 cases, the world is seeing continued growth in the number of new cases reported daily with a significant shift in the number of cases from China, Western Europe and parts of Asia to new hot spots in Russia, South America, the Middle East, certain large countries in Asia and in Africa.

Looking at twenty-two countries who were either early countries with COVID-19 confirmed cases or countries who have seen large increases in the first five months, there are other take-aways. The table in the embedded document below was compiled from the ECDC data base through May 24 (with updates for the U.K. and Spain for 5/24 since the 5-24 publication stopped at 5-23 for those two countries). The table has eleven columns of fourteen day periods from Jan. 6, 2020 through May 24, 2020 and a twelfth column showing data for the six day period Dec. 31, 2019 – January 5. The twenty-two countries shown accounted for 4,289,037 confirmed cases of the 5,273,572 global total cases shown in the May 24th publication (81.33% of all cases). Yet despite the presence of China, Japan, South Korea, Singapore, Taiwan, France, Germany, Italy and Spain among the 22 (all of whom show sharp declines in new cases in the last month or so), the number of new cases from the 22 countries collectively continues to increase each two weeks.

COVID-19-geographic-disbtribution-worldwide-2020-05-24

Countries who have dealt with COVID-19 most successfully had relatively short periods of peak numbers of new cases and sharp contractions of new cases within a month of the peak. The United States has had a relatively longer-term plateau of high infection rates and more limited reductions after the peak. Some of the new hot spots are still growing and so haven’t even peaked. If their internal efforts to control the spread of COVID are not more successful than the experience of the United States, the world is likely to continue in a period of upward growth of global cases which will keep extreme pressure on the global supply of medical goods needed by first responders and the public more generally. New hot spots will also necessarily mean a shifting of where health care systems are overwhelmed by rising numbers of cases.

In a prior post, I reviewed the recent G20 Trade and Investment Ministers statement and agreed program to support keeping trade flowing during the COVID-19 pandemic and addressing longer term needs, including increased capacity for medical goods. See G20 Trade and Investment Ministerial Meeting – Meaningful Help for COVID-19 Response and WTO Reform? https://currentthoughtsontrade.com/2020/05/17/g20-trade-and-investment-ministerial-meeting-meaningful-help-for-covid-19-response-and-wto-reform/.

There have been various articles reviewing some of the increased production occurring in China, in the EU and in the United States, among other countries. Such increased production provides the hope that the gap between supply and demand has been reduced or eliminated for some products. Declining number of new cases for many countries also means that their internal needs have decreased, which should permit redirecting supplies to countries in need.

For example, with the expansion of U.S. production of ventilators and the peaking of new cases about a month ago in the U.S., the U.S. has shifted from searching the world for ventilators to indicating it will export ventilators to countries in need (including the recent export of 50 U.S.-made ventilators to the Russian Federation). The level of increased production in the United States, an increase of more than 100,000 units, should significantly reduce any global supply deficiency for ventilators going forward. See https://www.npr.org/sections/coronavirus-live-updates/2020/05/21/860143691/u-s-sends-ventilators-to-russia-in-5-6-million-coronavirus-aid-package; https://www.politico.com/news/2020/04/21/trump-ventilators-africa-aid-199006.

One risk that remains is whether any increased production will be maintained over time or permitted to atrophy once the pandemic’s first phase has run its course.

Another risk goes to whether countries will address whatever barriers or disincentives exist to develop the needed capacity, increase the reliability of supply chains (with the possibility of some reshoring or building in greater redundancies in supply chain capabilities), or develop the inventories of medical supplies needed for addressing a phase 2 or some subsequent pandemic.

Finally, dozens of countries have imposed export restraints on medical goods to address domestic demand needs as the number of cases were increasing in the individual country. While the WTO provides flexibilities for countries to impose such restraints, the flexibilities are intended to be used only for temporary purposes. Many of the restraints imposed have not been removed by countries even if their current situation should permit the reduction or elimination of the restrictions. Hopefully the WTO review process and agreements by G20 and other groups will facilitate a rapid elimination of such restraints when no longer needed or justified.

Conclusion

Most of the developed world has come through the first phase of the COVID-19 pandemic in terms of controlling the spread and reducing the number of new confirmed cases. Countries who have gotten past their peak infection rates are now starting to reopen their economies to reduce the economic damage that has already been extraordinary for many countries.

Unfortunately, other countries, who have not been the hot spots for COVID-19, see increases in cases that surpass the declines in those who have gotten through the peaks of infections in their countries. Thus, total new cases continue to increase even after five months since data were first collected.

The growing number of confirmed cases make collective efforts to keep markets open and any export restraints imposed temporary in fact, to expand production of medical supplies, to share best practices, to ensure adequate financial resources for the world’s poorest countries and to expedite development of vaccines and therapeutics critical if the extent of the economic and human damage from this pandemic is to be capped and reduced going forward in the second half of 2020.

Continued Stress in U.S.-China relations — Reduced Cooperation in Multilateral Fora

The two largest economies in the world view each other as competitors and potential adversaries. With significantly different political and economic systems and ideologies, the United States and China have had different perspectives on commitments and obligations undertaken in the economic sphere.

U.S. concerns

Specifically, the United States has viewed its bilateral trade negotiations with China and the later conclusion of China’s accession to the World Trade Organization (“WTO”) as having created a commitment by China to continue on market-based reforms with the eventual conversion of the Chinese economy into a market-economy consistent with the basic rules of the WTO. There have been high level dialogues between the two countries for years with a feeling in the U.S. that repeated commitments by China to fulfill commitments have not been honored and that the bilateral relationship had growing serious problems.

China concerns

China has had a different view of the world and its obligations to other countries through its joining the WTO. Reforms continued for a while but were replaced with a growing focus on state direction, state investment and heavy subsidization of a widespread number of sectors. China has viewed the United States as attempting to prevent its economic growth and global role and as not respecting its “right” to view itself as a developing country within the WTO and hence to have fewer obligations than a developed country.

Trump Administration changes approach

Under the Trump Administration, the United States has taken a more aggressive approach to dealing with what it perceives as distortions in economic competition and lack of meaningful reciprocity in the bilateral trade relationship. The U.S. has also looked at bilateral and multilateral approaches to address the problems it perceives China has created and is creating with the functioning of the global trading system.

Bilaterally, the U.S. has conducted its 301 investigation on a host of longstanding concerns of the U.S. business community on Chinese policies and practices. The adverse findings from the USTR investigation has led to the U.S. imposing additional tariffs on Chinese goods when resolution of the underlying issues was not achieved followed by retaliation by China and a series of additional rounds of more tariffs and more retaliation. The U.S. and China did engage in negotiations to see if they could resolve the underlying concerns of the United States. A phase 1 agreement was signed in January 2020, with a phase 2 process supposed to have commenced by May.

At the same time, the United States has pursued reform at the WTO (1) to address longstanding and bipartisan concerns with the WTO dispute settlement system, (2) to address rule changes to address some of the distortions that flow from China’s nonmarket economy, (3) to modify the self-selection nature of which Members are “developing” and (4) to improve transparency.

On transparency, many countries are not current on the various notification requirements, but major concerns have existed with China and India in terms of the number and dollar value of subsidy programs that are not being reported in their notifications to the WTO.

Some of the reforms of interest to the United States are being pursued as well by others, such as the EU and Japan on state-invested companies and industrial subsidies and various other countries on transparency.

But the WTO has been struggling to achieve forward movement on many issues of importance to different Members in part due to lack of consensus on issues and a lack of leadership/coordination among major players.

COVID-19 Complicates the Bilateral Relationship

The COVID-19 pandemic has complicated the situation for the WTO and for U.S.-China relations both because of the global reach of the health problem resulting in reduced functionality of the Missions in Geneva and the current inability to hold face-to-face meetings and the widespread use of export restraints on medical goods (including personal protection equipment like masks, gloves, shields, gowns, etc.) as demand in nations with significant number of infections has grossly exceeded existing inventories and production capabilities both in country and globally.

In terms of U.S.-China relations, the lack of complete transparency by the Chinese in the early months of the COVID-19 outbreak, some slowness of action by the World Health Organization, and both missteps on testing and slowness of initial action within the United States (and resulting massive unemployment, costs to the economy and multiple trillion dollar government response) has added finger pointing on the pandemic to the already tense bilateral relations. It has also resulted in the U.S. distrusting the WHO and temporarily suspending U.S. funding for the organization.

With the collapse in global trade, the pandemic has also made it far less likely that China will honor its increased import commitments from the U.S. in 2020 as contained in the Phase 1 Agreement. See U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/. That said, the U.S. continues to identify important advances being made at least in agriculture with China. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/usda-and-ustr-announce-continued-progress-implementation-us-china-phase-one-agreement.

On trade, the pandemic has crippled the economies of many countries with the resulting declines in imports and exports in the March-April time frame and likely going forward for some period, though China as the first country through the outbreak and a major producer of medical goods actually saw increased overall exports to the world in April.

United States Strategic Approach to The People’s Republic of China

Earlier this week, the White House forwarded to Congress a document required by the 2019 National Defense Authorization Act, United States Strategic Approach to The People’s Republic of China. On the trade/economic front, the paper repeats the concerns that the Administration has laid out in other documents most of which are summarized above (not including the COVID-19 issues). The U.S. views challenges from China to three broad areas — (1) economic challenges (largely failure to continue reforms to become a market economy, failure to honor commitments made to the US, use of predatory practices, insistence on being a developing country, etc.); (2) challenges to U.S. values; and (3) security challenges. The link to the document is here and the text is embedded below. https://www.whitehouse.gov/wp-content/uploads/2020/05/U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20.pdf.

U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20

Challenges for the WTO

The WTO remains able to move forward where issues are limited to a subset (the “willing”) as progress on e-commerce talks would support. But in a consensus based system, distrust between major players will paralyze large parts of any agenda. Indeed, with the large number of WTO Members (164) at various stages of economic development, there will almost always be a wide divergence of views on any issue. In such a situation, leadership and cooperation among major economies become important to develop a consensus. So it is hard to see how the WTO advances a reform agenda without improved relations between the organization’s two largest Members.

With the recently added challenge for the WTO of selecting a new Director-General, the sour relationship the U.S. and China will likely make finding a candidate who would be supported by a consensus of the Membership that much harder, suggesting at a minimum a process that takes the full six-month time for selection (versus any hoped for expeditious resolution in light of DG Azevedo’s departure at the end of August) and perhaps extended time lines. If the selection process breaks down into highly polarized camps (the existing procedures were developed to try to prevent such an outcome), the ability to move forward the WTO’s reform and existing negotiating agenda will be delayed by certainly months and perhaps longer.

Conclusion

At a time when the world is struggling with a global pandemic which continues to cause huge health challenges to many countries in the world and has devastated the global economy at least temporarily, costing tens of millions of workers jobs, and likely closing hundreds of thousand of businesses around the world while requiring government financial support that will likely exceed ten trillion dollars, there is an unfortunate lack of global cooperation between the major economic players and distrust at least from the U.S. of multilateral institutions viewed as either ineffective to deal with China’s economic system or not operating in an unbiased manner.

A major part of the challenge flows from the distrust that exists between the world’s two largest economies that precedes the pandemic but that has been worsened by the pandemic’s development and handling. The two countries have different economic systems which are essentially non-compatible, have different political systems and different ideologies and view each other as competitors and potential adversaries.

In a change of approach, the United States has decided to take a more aggressive approach to achieve reciprocity in fact with China and not merely on paper or from spoken promises. The change in approach has resulted in the U.S. acting unilaterally in certain situations. China has appeared unable to understand or agree with the concerns raised by the U.S. (and others) and harbors a belief that the real motive behind U.S. actions is “to keep China down”. This mutual distrust has resulted in both hard feelings and an inability to achieve cooperation on a large number of trade, economic and other issues.

The current U.S.-China relationship increases the problems for many multilateral organizations, but certainly for the WTO both in terms of selecting a new Director-General and in developing WTO reforms and moving ongoing negotiations forward.

Look for a challenging second half of 2020.

WTO selection of a new Director-General — One Individual from a Developed Country Previously Reviewed Could Shorten the Process

In my post from May 15, I reviewed the procedures the General Council uses for selecting a new Director-General (“DG”). May 15, 2020:  World Trade Organization – Search for a new Director-General, https://currentthoughtsontrade.com/2020/05/15/world-trade-organization-search-for-a-new-director-general/. With the current DG Roberto Azevedo having announced his intention to depart at the end of August this year, the WTO’s Chairman of the General Council, Amb. David Walker (NZ) is exploring with the Members whether the nine month normal selection process can be expedited to reduce or eliminate any gap period between DG Azevedo and the next DG. It is expected that with DG Azevedo having been from a developing country (Brazil), the next DG will be from a developed country. If true and if few or no developing countries put forward candidates, the WTO may face a smaller number of candidates put forward during the one month nominating process than was true in 2012-2013.

Amb. Walker today via email to the Members has suggested May 25th as the start date for the selection of a new DG. After that date, candidates can be put forward by their Member governments with a one month deadline (June 25). [UPDATE from May 20, start date will be June 8 will all candidates to be put forward by July 8. https://www.wto.org/english/news_e/news20_e/dgsel_20may20_e.htm].

As noted in my prior post on the subject, there was one developed country candidate who was put forward in 2012/2013. If that individual, former New Zealand Minister of Trade, Minister for Climate Change Issues and Associate Minister of Foreign Affairs and former New Zealand Ambassador to the WTO Tim Groser is put forward by New Zealand when the nominating process commences, Members could decide on expedited procedures because of their familiarity with the Honorable Tim Groser, his proven strengths, his knowledge of the WTO and his ability to work with all governments and the review of him by the Members that took place in 2013. While such an approach will likely not be followed by the WTO Membership, if followed, there could be a relatively seamless transition with a very strong candidate taking over from the current DG at the end of August. For an organization facing the challenges the WTO is at the present time, such a smooth transition should be viewed as highly desirable.

The Hon. Tim Groser’s Curriculum Vitae in 2012 and later developments

When New Zealand put Groser forward as a candidate in 2012, he was in the middle of his service as New Zealand’s Minister of Trade, Minister for Climate Change Issues and Associate Minister of Foreign Affairs. He also had extended service in Geneva both during the Uruguay Round and in early years of the Doha Development Agenda negotiations. While in Geneva he served as Chair of the Rules negotiations for a period of time and later served as the Chair for the Agriculture negotiations. https://www.wto.org/english/news_e/news12_e/biography_timgroser_newzealand_e.pdf .

biography_timgroser_newzealand_e

He continued in his capacity as New Zealand’s Minister of Trade and Minister for Climate Change Issues and Associate Minister of Foreign Affairs through 2015. From 2016 through 2018, Groser was New Zealand’s Ambassador to the United States and also served as a Special Envoy to the Pacific Alliance. Since 2019 he has headed up Groser & Associates, a trade consultancy. So the Honorable Tim Groser has a lifetime of commitment to trade expansion and the multilateral trading system.

January 30, 2013 Statement to the General Council

In early 2013, the problems facing the global trading system started with the inability of the WTO Members to conclude negotiations, a situation which has continued and, with few but important exceptions, worsened to the present time. The concerns that candidate Groser reviewed in his statement to the General Council on January 30, 2013 as part of the selection process included challenges to the dispute settlement system in terms of timeliness of decisions and the fundamental challenge of the breakdown in the negotiating function. The threat to the WTO at the time was perceived by candidate Groser to be to the continued relevance of the organization. He also believed that while there is an important political element to negotiations, the key is for progress at the technical and Geneva level before turning to senior trade officials for resolution of remaining issues.

The opening statement of candidate Groser from 2013 has continued relevance in 2020, although the challenges facing the WTO and its Members have gotten more complicated since 2012 with the impasse on the Appellate Body, the need to update the WTO rule book to make it relevant to technological developments, the changing makeup of membership with differing economic systems, and the changing economic capabilities of Members — all issues subsumed under the term “WTO reform”. Moreover, the COVID-19 pandemic has understandably occupied the energies of many countries and the work of much of the WTO to help the global economy keep markets open and support economic recovery.

The 2012 statement of the Honorable Tim Groser is embedded below.

jobgc32newzeland_e

WTO Members were also able to raise questions to the candidates, though the time limitations meant that during the General Council meeting only selected countries could raise questions to a given candidate. The Q&A session for candidate Groser is included in the minutes of the General Council meeting held on January 29-31, 2013. See, e.g., WT/GC/M/142 at Annex D, Questions and Answers, pages 46-55. During the 75 minutes of questioning, twenty-four WTO Members were able to ask candidate Groser questions — Singapore, Czech Republic, Italy, Canada, Trinidad & Tobago, Dominica, Chile, the United States, Uruguay, Croatia, China, Spain, Nepal, Thailand, the Netherlands, Paraguay, Haiti, Malaysia, Saint Lucia, Brunei Darussalem, Ecuador, Argentina, Dominican Republic, Japan.

Finally, all candidates were given the opportunity to have a press conference following their meeting with the General Council. The link to candidate Groser’s press conference is here. His comments to the media summarized his main points from his direct presentation and then responded to media questions. https://www.wto.org/audio/2013_01_30_dg_sel_groser.mp3.

Personal observation

Over the last thirty years, I have spent a great deal of time in Geneva meeting with government officials from many Members and with many GATT and now WTO Secretariat staff. I have been privileged to know many of the Ambassadors and other Mission staff over that thirty year time period, including Amb. Groser. I know of no one that I met with who did not have a very high opinion of the capabilities of Amb. Groser when he was in Geneva. The Secretariat staff who worked with Amb. Groser on the Rules negotiations or the Agriculture negotiations are similarly personally familiar with his leadership ability and ability to find paths forward on seemingly impossible issues.

As one friend from Geneva recently said to me, “I have seen literally thousands of officials, Trade Ministers and experts pass through the GATT and WTO in the decades I worked for the system. If I had to pick one person who I think has the capacity and integrity to address these systemic issues it would be the Honourable Tim Groser – New Zealand’s Trade Minister for seven years and prior to that a legendary official in Geneva from the moment he arrived in the mid-1980s as his country’s senior negotiator at the start of the Uruguay Round.”

Conclusion

As DG Azevedo has made clear, the WTO faces enormous challenges going forward. With his departure in a little over three months, the WTO needs a new Director-General who will oversee the member-driven effort to address the challenges. Specifically, the new Director-General will need to help the Membership approach the postponed 12th Ministerial Conference sometime in 2021, hopefully conclude ongoing multilateral negotiations on fisheries subsidies and plurilateral talks on e-commerce. The new Director-Gernal will also need to help the Membership deal with the complex issues of WTO dispute settlement reform and the restart of the Appellate Body, the pressing need to modernize the WTO’s rule book to cover new technologies and current issues, revitalize the negotiating function, and reflect the changing makeup of the Membership and the relevance of existing rules to different economic systems of Members.

While there are likely many potential candidates who would be “well qualified”, the normal selection process could take to the end of the year with implementation possibly delayed until sometime in 2021, requiring use of an acting Director-General. That process could be significantly reduced if (1) New Zealand chose to renominate the Honorable Tim Groser and (2) the major Members of the WTO viewed his strong credentials as a basis for reducing the number of candidates to permit expedited selection of a new Director-General. One can always hope.

G20 Trade and Investment Ministerial Meeting — Meaningful Help for COVID-19 Response and WTO Reform?

On May 14, 2020, the G20 trade and investment ministers held a virtual meeting to consider proposals for joint action pulled together by the Trade and Investment Working Group (“TIWG”) on the topic of “G20 Actions to Support World Trade and Investment Through the COVID-19 Pandemic”.

The Ministerial statement released on the 14th endorsed the TIWG proposals which were attached to the statement and contain both short-term actions designed to “alleviate the impact of COVID-19” and longer-term actions intended to “support the necessary reform of the WTO and the multilateral trading system, build resilience in global supply chains, and strengthen international investment.” https://g20.org/en/media/Documents/G20SS_Statement_G20%20Second%20Trade%20&%20Investment%20Ministerial%20Meeting_EN.pdf.

The WTO’s Director-General Roberto Azevêdo welcomed the Ministerial statement and provided the following characterization of its content:

“DG Azevêdo hails G20 pledges on trade cooperation in COVID-19 response

“WTO Director-General Roberto Azevêdo welcomed G20 ministers’ endorsement of collective action measures to mitigate the impact of the COVID-19 pandemic on trade and investment and help foster
global economic recovery. The initiatives were endorsed at a virtual meeting of the G20 trade and investment ministers on 14 May.

“The actions include short-term responses designed to prevent trade logjams and facilitate trade in products needed to contain COVID-19, as well as longer-term support to reform the multilateral trading system, build resilience in global supply chains, and strengthen international investment.

“The G20 ministers pledged to promote WTO reform and ‘support the role of the multilateral trading system in promoting stability and predictability of international trade flows’. They agreed to ‘explore COVID-19 related WTO initiatives’ to promote more open and resilient supply chains, and expand production capacity and trade in pharmaceuticals, medical and other health-related products

“’These commitments by G20 ministers represent an important collective response to the trade-related challenges raised by the COVID-19 pandemic,’ said DG Azevêdo. ‘Maintaining stability and predictability in trade relations is critical to ensuring that essential medical supplies are available to save lives, and that global food security and nutrition do not become a casualty of this pandemic.’

“Echoing language from their first crisis meeting in late March, G20 ministers said that any emergency restrictions on trade in vital medical supplies and services should be targeted, proportionate, transparent and temporary, and should not create unnecessary barriers to trade or disrupt global supply chains. They also agreed to strengthen transparency and notify the WTO of any trade-related measures taken. They urged governments to refrain from excessive food stockpiling and export restrictions on agricultural products.

“In addition, the G20 ministers endorsed trade facilitation initiatives, including accelerated implementation of provisions in the WTO’s Trade Facilitation Agreement, such as pre-arrival processing and expedited shipment, which could speed up access to essential goods during the pandemic. They also called for streamlining customs procedures and encouraging greater use of international standards to reduce sanitary and technical barriers to trade.

“Ministers also agreed to work together to identify key areas where investment is needed, in particular for critical medical supplies and sustainable agriculture production, and to encourage
investment in new production capacity for medical supplies.

“The extraordinary meeting of G20 trade and investment ministers was organized by the Kingdom of Saudi Arabia, which currently holds the group’s rotating presidency.”

https://www.wto.org/english/news_e/news20_e/igo_14may20_e.htm.

Because the G20 member countries have differing views on flexibilities needed, already taken, and potential space that may be needed in the future, much of the “actions” agreed to are more aspirational than commitments to avoid trade restrictive actions.

ANNEX to Ministerial Statement of May 14, 2020, G20 Actions to Support World Trade and Investment in Response to COVID-19

The Annex to the Ministerial Statement contains 19 “short-term collective actions” broken into five areas — “trade regulation”; “trade facilitation”; “transparency”; “operation of logistics networks”; and “support for micro, small, and medium-sized enterprises (MSMEs)”.

Trade regulation

On trade regulation, the three specific actions don’t ban export restraints for medical goods or agricultural products but rather provide avenues for such actions to be taken.

On medical goods, the action taken merely repeats the prior statement from the trade and investment ministers that any such actions are “targeted, proportionate, transparent, temporary” and “do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules”. Para. 1.1.1.

Similarly, on agricultural restrictions, G20 countries agree to “refrain from introducing export restrictions” “avoid unnecessary food-stockpiling” but “without prejudice to domestic food security, consistent with national requirements.” Para. 1.1.2.

Finally, there is an aspirational action to “Consider exempting humanitarian aid related to COVID-19 from any export restrictions on exports of essential medical supples, medical equipment and personal protective equipment, consistent with national requirements.” Para. 1.1.3.

Considering the number of G20 countries who have had in place or continue to have in place export restraints on medical goods and the history of export restraints on agricultural goods and/or buildup of food stockpiling by some G20 countries, it is not surprising that more ambitious objectives have not been possible. For example, information compiled by the WTO Secretariat shows that nearly all G20 countries have had or continue to have export restraints on medical goods flowing from the COVID-19 pandemic. Indeed, the US, EU, Argentina, Australia, Brazil, India, Indonesia, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey and the United Kingdom are in the WTO data. While China is not included, their export restrictions on medical goods likely predated the data collection done by the WTO Secretariat. See https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. Similarly, Russia has agricultural export restraints in place and China, India and Indonesia have used them in the 2007-2008 food shortage challenge.

Trade facilitation

The Annex includes eight agreed “actions” under the heading of trade facilitation. Most of these actions are similarly not binding but are aspirational or encouraged. In fact five of the eight include the word “encourage”. Others include language like “to the extent possible” or “as appropriate and according with applicable national legislation”.

That said, many of the G20 countries and others have been taking actions to streamline the release of imported medical goods and other actions that are consistent with the objectives of the Trade Facilitation Agreement.

Two of the provisions under trade facilitation really go to the issue medical goods capacity, product availability and capacity expansions and are noteworthy as encouraging sharing of information on producers of product and also encouraging expansion of medical goods capacity. Paras. 1.2.4 and 1.2.5. As I have noted in prior posts, there has been and continues to be an imbalance between global capacity to produce the medical goods needed to fight COVID-19 and the demand for countries experiencing outbreaks. See, e.g., Shifting Trade Needs During the COVID-19 Pandemic, https://currentthoughtsontrade.com/2020/04/28/shifting-trade-needs-during-the-covid-19-pandemic/. If the world doesn’t address the supply/demand imbalance, it is highly improbable that most countries won’t enact export restraints to prevent the loss of needed goods that are in country during surging demand. While neither G20 agreed action is binding, both are helpful to improve knowledge of available supplies and hopefully to expand that supply.

The last trade facilitation action merely calls for G20 countries to “Support the efforts of international organizations (WTO, FAO, WFP, etc.) to analyze the impacts of COVID-19 on global agricultural supplies, distribution chains and agri-food production and trade.” Para. 1.2.8. Many of the G20 are signatories to statements indicating they will not impose export restraints on agricultural goods or urge restraint on the use of such restraints. There has not been a food shortage in 2020, and mechanisms put in place after the 2007-2008 food shortages to monitor food supplies have helped to provide governments with better information on likely problems. At the same time, the COVID-19 pandemic has created challenges in getting agricultural products harvested, processed and distributed. If these challenges are not properly handled, the world could find local or regional food shortages not because of lack of product but from an inability to get the product harvested, processed and distributed. With COVID-19 outbreaks in meat processing plants in various countries (United States, Canada, Germany to name just three) and with travel restrictions limiting movement of temporary farm workers, the challenges are real. Work of the international organizations is important for information gathering and dissemination.

Transparency

There are two action items under transparency — to share experiences and best practices; to notify trade-related measures to the WTO as required by obligations to the WTO.

The first should be helpful depending on openness of governments and willingness of governments to share experiences in fact. The latter action reflects the fact that countries (whether G20 or otherwise) have in some cases been slow to provide notifications or have taken limited views of their obligations to report certain trade related activities.

Operation of logistics networks

The four agreed actions under this title all involve trade ministers encouraging G20 Transport Ministers to take actions that will speed the movement of medical goods, increasing air cargo capacity, improve transparency on enforcement measures and “to abide by international practices and guidelines to ensure the movement of goods through maritime channels.” Paras. 1.4.1 – 1.4.4.

Support for micro, small, and medium-sized enterprises (MSMEs)

There are two action items for this topic — calling for reports from international organizations that would look at the “disruption of global value chains caused by the pandemic on MSMEs”; and encouraging enhancement of communication channels and networks for MSMEs, including through deepened collaboration with the private sector.” Paras. 1.5.1 and 1.5.2.

MSMEs are important engines of economic growth for all countries and are significantly adversely affected by the governmental actions needed to address the COVID-19 pandemic. For many countries, the bulk of the response for MSMEs will be through financial support legislation as can be seen by summaries of actions taken compiled by one or more of the international organizations. See, e.g., IMF, Policy Responses to COVID-19, https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19 Thus, the two actions contained in the G20 trade and investment ministers statement are helpful for considering future actions but don’t address the core immediate needs which are handled by other ministers.

Longer-term collective actions

The Annex also contains nineteen specific agreed actions for the longer term. The actions are broken into three topics — supporting the mutilateral trading system; building resilience in global supply chains; and strengthening international investment.

Like the short-term actions, the agreed list reflects the limitations on achieving G20 consensus because of different perspectives of G20 members. Some members like the EU have an interest in pursuing tariff eliminations on medical goods, an issue that the U.S. is not willing to explore until the pandemic has passed. Thus, there is no action item to achieve tariff elimination on such products in the longer-term actions.

Supporting the multilateral trading system

There are seven action items which include WTO reform (para 2.1.1), how the G20 can support work at the WTO (para 2.1.2), strengthening transparency and WTO notifications (para. 2.1.3), working “together to deliver a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and to keep our markets open” (para. 2.1.4), “work to ensure a level playing field” (para. 2.1.5), importance of interface between trade and digital economy and need for e-commerce agreement (para. 2.1.6), and exploring “COVID-19 related WTO initiative to promote open and more resilient supply chains, and expand production capacity and trade” in medical goods (para. 2.1.7).

These action items will have very different meanings depending on the G20 member who is interpreting them. Thus, the EU, Japan and the U.S. would have very different interpretations of ensuring a level playing field than would China and possibly others. India and South Africa have different views on e-commerce and making permanent no tariffs on digital trade than would the U.S., Japan and others

Still support for WTO reform, global rules on e-commerce, increased transparency and the other issues should help provide some focus in the ongoing efforts at the WTO for a future agenda and reform.

As noted in the short-term actions, greater focus by G20 countries on the supply/demand imbalance in medical goods is critical to avoid many of the same shortage issues in future pandemics or future waves of the COVID-19 pandemic. Thus, the support for para. 2.1.7 is potentially important.

Building resilience in global supply chains

There are five action items included under this topic which are positive. These include sharing best practices, strengthening cooperation on regulation of trade (including customs and electronic document management), ensuring transparency of trade-related information useful to MSMEs, encouraging cooperation between multinationals and MSMEs, and establishing voluntary guidelines that would permit essential cross-border travel during a health crisis. Paras. 2.2.1 – 2.2.5.

While these action items could be useful going forward, there is a major omission in this important category. Does building resilience in global supply chains necessitate building in increased redundancy or for onshoring some products or inputs? This is an important issue that has raised concerns among some G20 members that there is too great dependence on certain countries for input materials and that supply chains don’t have sufficient redundancy or are too “global” and not sufficiently regional or national. The United States, for example, has expressed concerns about over dependence on other countries and has been looking at encouraging domestic production of some key products/inputs. Such an approach is not supported by the EU or China. See statement of Ambassador Lighthizer at the virtual G20 Trade and Investment Ministers meeting of May 14 and the statements of the U.S., EU and Chinese Ambassadors to the WTO’s virtual General Council meeting on COVID-19 responses lays out the different perspective on this and some other issues. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/second-g20-extraordinary-trade-and-investment-ministers-meeting-remarks-ambassador-robert-e; https://geneva.usmission.gov/2020/05/15/statement-by-ambassador-dennis-shea-at-the-may-15-2020-general-council-meeting/; https://eeas.europa.eu/delegations/world-trade-organization-wto/79401/eu-statement-informal-general-council-meeting-15-may-2020_en; http://wto2.mofcom.gov.cn/article/chinaviewpoins/202005/20200502965217.shtml. While G20 countries generally all agree that it is not possible to be self-sufficient in the medical goods area, that view doesn’t answer the question of whether supply chains should be changed or whether there are certain products where a country or countries could decide self-sufficiency is sufficiently important to take different actions. From the very different views on this topic, it is not surprising that the G20 collective long-term actions were limited in the building resilience group of actions, and such differences also likely influenced the language used in the third section on strengthening international investment.

Strengthening international investment

The last seven long-term collective actions focus on the obvious need for improved investment in medical goods to reduce the stress on the global system that has flowed from the imbalance in supply versus demand and the lack of adequate national, regional and global inventories.

Collective actions include sharing best practices on promoting investments in sectors where there have been shortages (para. 2.3.2), working together to identify key areas where additional investment is needed in both medical goods and agriculture (para. 2.3.3), and four paragraphs (2.3.4 – 2.3.7) encouraging investment in new capacity, working with the private sector to identify opportunities, and other items. The last action item calls on G20 governments to “Encourage cooperation on technical assistance and capacity building provided to developing and least developed countries on investment promotion.” Para. 2.3.7.

Because many countries have been encouraging expanded production of medical goods since the outbreak of the pandemic, there is a great deal of investment that has been happening, including converting (at least short term) production lines to medical goods in short supply. Missing from the collective actions is any encouragement to the Finance Ministers to ensure the international organizations work with developing and least developed countries to ensure adequate regional inventories of medical goods to help such countries address outbreaks of COVID-19.

The G20 Trade and Investment Ministers Statement of May 14 is embedded below.

G20SS_Statement_G20-Second-Trade-Investment-Ministerial-Meeting_EN-1

Conclusion

The COVID-19 pandemic continues to infect millions of people around the world and has resulted in massive economic dislocations and the loss of tens of millions of jobs just in the United States. The G20 has been doing a reasonable job of providing leadership in how to address the pandemic and how to help the world recover as the pandemic recedes. The significant differences between G20 members on some issues have resulted in actions being taken that are either aspirational or simply encouraged, as stronger action was not possible absent consensus. But the May 14 Ministerial Statement is another positive step and provides ongoing recognition of needing to address the supply/demand imbalance to permit all countries to be able to obtain medical goods needed when the pandemic creates hot spots in their countries.

World Trade Organization — Search for a new Director-General

On May 14, 2020, the WTO’s Director-General Roberto Azevedo announced during a virtual meeting of all WTO Members that he would be stepping down from his position on August 31st, one year ahead of the end of his second four year term which ends August 31, 2021. His message to the membership was that the decision was personal and was intended to permit the WTO to choose a new Director-General hopefully before his departure and to avoid a dilution of effort needed for the next Ministerial Conference which has been postponed from June 2020 to either summer or winter of 2021. The current Chair of the WTO General Council, Ambassador David Walker of New Zealand, indicated that he would be notifying Members shortly of the start of the selection process and would be consulting to see if the process could be expedited in light of DG Azevedo’s departure in three and a half months. Both statements are linked here and reproduced below. https://www.wto.org/english/news_e/news20_e/dgra_14may20_e.htm.

WTO-_-2020-News-items-DG-Azevêdo-announces-he-will-step-down-on-31-August

Procedures for the Appointment of Directors-General

Since 2003, there have been procedures for the appointment of directors-general adopted by the General Council of the WTO (10 December 2002), The procedures are included in WT/L/509.

The timeline laid out in the procedures calls for the process to start nine months prior to the “expiry of the term of an incumbent Director-General.” WT/L/509, para. 7. So the current situation will either run over beyond DG Azevedo’s departure (indeed potentially to as late as sometime in February 2021) or will have to be seriously expedited (as potentially permitted under para. 23).

While expediting the process is possible, the various steps required by the process suggest that it is highly unlikely a new WTO Director-General will have been agreed to by the time DG Azevedo steps down. Thus, the WTO will likely face a vacancy for some period of time. Para. 23 of the procedures agreed to would then require the General Council to designate one of the four Deputy Directors-General to serve as Acting Director-General until the selection process for a new Director-General is completed. Thus, if there is a vacancy beginning September 1st, the General Council will be selecting an Acting Director-General from among these individuals — Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wolff (US) and Yi Xiaozhun (China).

Timing of Steps Absent Expedition

The procedures (WT/L/509) provide for the following timeline if a selection process occurs within the nine months outlined:

  1. “Members shall have one month after the start of the appointment process to nominate candidates. Nominations shall be submitted by Members only, and in respect of their own nationals.” Para. 8.
  2. Chair of the General Council has materials distributed to members as received and sends a consolidated list of candidates after the close of the one month period. Para. 10.
  3. “The candidates nominated shall then have three months to make themselves known to Members and to engage in discussions on the pertinent issues facing the Organization.” Para. 8.
  4. “As early as possible after the close of the one-month nomination period, candidates shall be invited to meet with Members at a formal General Council meeting. Candidates will be invited to make a brief presentation, including their vision for the WTO, to be followed by a question- and-answer period.” Para. 14.
  5. Months 5 and 6 after initiation, “the General Council shall proceed, through a process of consultations, to narrow the field of candidates and ultimately to arrive at its choice for appointment.” Para. 15.
  6. The process which is led by the Chair of the General Council and several facilitators, looks to find the candidate “around whom consensus can be built.” Para. 17. Depending on the number of candidates, there can be successive rounds to find candidates least likely to attract consensus who are then expected to withdraw. Para. 18.
  7. If successful, the Chair of the General Council with the support of the facilitators will “submit the name of the candidate most likely to attract consensus and recommend his or her appointment by the General Council.” Para. 19.
  8. “The process shall conclude with a meeting of the General Council convened not later than three months prior to the expiry of an incumbent’s term, at which a decision to appoint a new Director-General shall be taken.” Para. 7
  9. If General Council can’t take a decision by consensus, Members can “consider the possibility of recourse to a vote as a last resort.” Para. 20.

The full list of procedures is embedded below (WT/L/509).

WTL509

Assuming Amb. Walker sends out a notification in the next day or so, a normal process would result in a General Council decision in the second half of November. If there is a vacancy, the new Director-General should be able to assume responsibilities as soon thereafter as his/her schedule permits, even if not three months after the decision.

Process in 2012-2013

The selection process in 2012 started in December with nine applications received by December 31. The WTO press release showing the candidates and linking to their statements, CVs and other materials is linked here. https://www.wto.org/english/news_e/news13_e/dgsel_03jan13_e.htm. There was interest by many developing countries in seeing that the selection process kept in mind paragraph 13 of the procedures dealing with representativeness of candidates which states,

“13. In order to ensure that the best possible candidate is selected to head the WTO at any given time, candidatures representing the diversity of Members across all regions shall be invited in the nominations process. Where Members are faced in the final selection with equally meritorious candidates, they shall take into consideration as one of the factors the desirability of reflecting the diversity of the WTO’s membership in successive appointments to the post of Director-General.”

Because the DG slot at the WTO had been filled by three Europeans, one New Zealander and one from Thailand (with Pascal Lamy of France the last DG), many developing countries sought a developing country candidate assuming there were well qualified candidates from many countries. See WT/GC/M/139 at 13-15 (paras. 50 – 60).

Of the nine candidates, eight were from countries that classify themselves as developing countries within the WTO (Ghana, Costa Rica, Indonesia, Kenya, Jordan, Mexico, the Republic of Korea and Brazil). The sole developed country candidate was from New Zealand. All candidates had solid credentials.

Meetings with the candidates by the General Council occurred in late January (29-31) where each candidate was given 15 minutes for an opening statement and then participated in a question and answer session of an hour and fifteen minutes. See, e.g., WT/GC/M/142 (minutes of meeting held on Jan. 29-31) posted 16 May 2013.

Three rounds of consultations were held beginning in early April, with the result that at a General Council meeting on May 14, the Chair of the General Council put forward Roberto Azevedo from Brazil as the candidate most likely to achieve consensus and the General Council agreed. WT/GC/M/144 (minutes of meeting held on May 14) posted 4 July 2013.

Mr. Azevedo then assumed the role of Director-General as of September 1, 2013 and was reappointed for a second four years in 2017.

Prognosis for 2020

One would expect that there will be a number of developed country Members who put forward candidates in the next thirty days on the assumption that the pattern will be developed, developing, developed, developing and Brazil has just completed seven years with their candidate as DG.

Canada, Australia, New Zealand, Japan, Switzerland, Norway, the United Kingdom and one or more member countries from the EU would seem to be possibilities. The U.S. is not included in the list simply because of its prior lack of putting forward candidates and current Administration and Congressional concerns with the WTO, although the U.S. concern with the need for reforms could result in a surprise. The Republic of Korea is not included as it has considered itself a developing country, though it may still put forward a candidate and note that it is not seeking special and differential treatment on current or future negotiations in light of its development. I would be surprised if the United Kingdom puts forward a candidate just based on the serious trade negotiations that the U.K. is engaged in with the EU and the United States and their recent resumption of trade policy responsibilities following Brexit.

Developing countries are not prevented from putting forward candidates, and I assume that there will be some candidates put forward. Singapore would fit a profile similar to Korea in that it has indicated it will not seek special and differential treatment on current or future negotiations. Africa has not had a Director-General selected from among its candidates, and there has been only one Asian candidate selected previously.

What isn’t known is the willingness of the Members to streamline the nomination and selection process to permit a resolution while DG Azevedo is still active. If there are very few candidates, it may be easier for Members to agree to expedited procedures.

With the serious issues facing the world economy and the global trading system, maximum cooperation in selecting a new Director-General would be very important to helping focus a global response and updating of the WTO. Let’s hope that this is an issue on which the membership can agree to act quickly.

U.S.-China Phase I Agreement — Some Progress on Structural Changes; Far Behind on Trade in Goods and Services

In prior posts, I reviewed the U.S.-China Phase I Agreement and the commitments made by the parties. See https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/. While for many the promised start of a Phase II was viewed as the more important in light of the issues not reached in the partial deal that was struck in January, the COVID-19 pandemic has absorbed much of the global energy for both countries, and no new talks have started.

Moreover, with both countries exchanging charges against the other in terms of the origin of the virus causing the pandemic and more recently concerns about transparency on the virus in China, there have been heightened tensions between the two countries. with some comments in the press calling for an end of the agreement by each country.

A recent telephone call between U.S. Treasury Secretary Mnuchin, USTR Ambassador Lighthizer and China’s Vice Premier Liu He seemed aimed at keeping the Phase I Agreement moving forward. The US press release on the call is reproduced below.

“USTR and Treasury Statement on Call With China

“05/07/2020

“Vice Premier Liu He, U.S. Treasury Secretary Steven T. Mnuchin, and Ambassador Robert Lighthizer participated in a conference call today. They discussed economic and trade issues, including the recently concluded Phase One agreement. The parties shared updates on COVID-19 and their assessments of its effects on economic growth as well as the measures their countries are taking to provide support to their economies.

“The parties discussed the ongoing process of implementing the Phase One agreement between the two countries that went into effect February 14. Both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success. They also agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner. Meetings required by the agreement have been conducted via conference call and will continue on a regular basis.”

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/ustr-and-treasury-statement-call-china.

Indeed, notices on Chinese Ministry websites as well as statements from U.S. government officials have made clear that China has been making progress on a number of the changes to laws and regulations where commitments were undertaken in the Phase I Agreement. For example on the large number of agricultural program changes that China agreed to make, USDA and USTR released a joint statement in late February, shortly after the Agreement took effect, reviewing the progress being made. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/february/usda-and-ustr-announce-progress-implementation-us-china-phase-one-agreement.

USDA-and-USTR-Announce-Progress-on-Implementation-of-U.S.-China-Phase-One-Agreement-_-United-States-Trade-Representative

Similarly, the United States has taken steps to address obligations that it undertook in the Agreement such as authorizing the importation of citrus products from China. See 85 FR 20975-20983 (April 15, 2020; https://www.aphis.usda.gov/aphis/newsroom/stakeholder-info/sa_by_date/sa-2020/sa-04/china-citrus.

“APHIS Authorizes Importation of Fresh Citrus Fruit from China

“Last Modified: Apr 14, 2020 Print

“The U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) is authorizing the importation of five types of commercially produced fresh citrus fruit from China into the continental United States. After thorough analysis, APHIS scientists determined that pummelo, Nanfeng honey mandarin, ponkan, sweet orange, and Satsuma mandarin fruit from China can be safely imported into the United States under a systems approach to protect against the introduction of plant pests. 

“A systems approach is a series of measures taken by growers, packers, and shippers that, in combination, minimize pest risks prior to importation into the United States. In this case, the systems approach includes importation in commercial consignments only, registration of places of production and packinghouses, certification that the fruit is free of quarantine pests, trapping program for fruit flies, periodic inspections of places of production, grove sanitation, and postharvest disinfection and treatment. This completes agreements on another Chinese commodity listed in Annex 11: Plant Health of the Economic and Trade Agreement between the United States of America and The People’s Republic of China, Phase One.

“This notice of authorization will go into effect on the date of publication in the Federal Register, April 15, 2020. The docket with information about this decision is available here upon publication on April 15, 2020: http://www.regulations.gov/#!docketDetail;D=APHIS-2014-0005.”

Expanding Trade -Growing Exports to China from the U.S. by $76.7 Billion in 2020

One of the important parts of the Phase I Agreement was the chapter on Expanding Trade and the commitments by China to increase imports from the United States by some $200 billion over 2020 and 2021 above the 2017 figures (i.e., U.S. exports to China ahead of the additional tariffs imposed by the U.S. and then China against goods from each other). The figures for 2020 were for increases of $76.7 billion, $64.9 billion in certain goods and $12.8 billion in certain service sectors.

The challenges to the Chinese economy in the first quarter because of COVID-19 and to the United States (and many other countries) for part of the 1st quarter and at least the second quarter of 2020 because of the pandemic makes the large increase in purchases seem unlikely. Certainly, first quarter figures for U.S. domestic goods exports paint a picture suggesting 2020 will not meet objectives. The goods categories that were included in Annex 6.1 and the Attachment thereto of the Phase I Agreement accounted for 59.1% of U.S. domestic exports to China in 2017 (the base year)– $70.9 billion of $119.9 billion total U.S. domestic exports to China. In the first quarter of 2020, the goods categories covered by the Annex showed U.S. domestic exports of $12.7 billion which would leave $122.1 billion to be exported in the last nine months of 2020 ($13.57 billion/month or greater each month than the U.S. exported in the first quarter of the year).

The remaining $49 billion of U.S. domestic exports don’t have particular export targets, but are running well below 2017 levels and indeed are more than 21% lower than the first quarter 2019 levels, suggesting 2020 levels of just $28.29 billion.

The table below shows the US exports for 2017-March 2020 and the objective for 2020 included in Annex 6.1. All figures are in $ Billions.

Product2017201820191st Qtr.
2019
1st Qtr.
2020
Manufactured goods
1. industrial machinery$10.949$12.288$11.062$2.318$2.500
2. electrical equip. &
machinery
$4.311$4.586$4.283$1.008$1.078
3. pharmaceutical
products
$2.089$2.126$2.362$0.483$0.665
4. aircraft* $0$0$0$0$0
5. vehicles$10.093$6.487$7.050$1.888$1.049
6. optical and medical
instruments
$3.135$3.398$3.527$0.763$$0.806
7. iron and steel$1.176$0.652$0.285$0.075$0.069
8. other manufactured
goods
$10.702$11.168$11.914$3.167$3.021
Total MFG goods$42.456$40.705$40.484$9.702$9.188
Agriculture
9. oilseeds$12.225$3.119$7.989$1.696$1.028
10. meat$0.559$0.440$1.193$0.110$0.727
11. cereals$1.358$0.696$0.313$0.015$0.119
12. cotton$0.973$0.921$0.707$0.197$0.290
13. other agricultural
commodities
$4.504$4.121$3.680$0.765$0.768
14. seafood$1.234$1.055$0.822$0.200$0.132
Total Agriculture$20.852$10.353$14.704$2.983$3.063
Energy
15. liquefied natural
gas
$0.424$0.464$0.063$0.036$0.059
15. crude oil$4.304$5.374$2.478$0.405$0.182
17. refined products$2.444$1.781$0.469$0.185$0.141
18. coal$0.403$0.311$0.127$0.047$0.048
Total Energy$7.575$7.930$3.138$0.674$0.429
Total Phase I Goods HS$70.882$58.987$58.326$13.360$12.680
Other domestic exports$49.028$50.593$36.005$9.435$6.798
Total domestic exports
to China
$119.911$109.580$94.331$22.795$19.478

Annex 6.1 has manufactured goods increasing $32.9 billion above 2017 levels for a total of $75.356 billion for 2020; leaving $66.168 billion for the last nine months of the year or $7,352 billion/month for the last three quarters.

Similarly, Annex 6.1 has agriculture imports by China from the U.S. increasing $12.5 billion over 2017 levels to $33.354 billion for 2020 which would leave $31.015 billion for the last nine months of 2020 ($3.446 billion/month).

Finally, Annex 6.1 shows energy increasing by $18.5 billion in 2020 over 2017 levels. That means 2020 has a target of $26.075 billion with $25.646 billion needing to be exported over the last nine months ($2.86 billion/month).

With the ongoing pandemic and Chinese industry operating below full capacity and U.S. industry and agriculture still coping with the market problems in the U.S. from efforts to cope with COVID-19, it is hard to see the goods commitments being met in 2020.

The challenges for the US service sector in exports to China are equally daunting. Total U.S. exports of services to China in 2017 were $56.009 billion of which $55.458 billion are in categories covered by Annex 6.1. Specifically, category 19, charges for use of intellectual property were $7.591 billion in 2017 for U.S. services exports to China. Business travel and tourism (category 20) showed U.S. exports to China of $32.705 billion in 2017. Financial services and insurance (category 21) had exports to China of $4.208 billion in 2017, while other services (category 22) showed exports of $10.030 billion to China. Finally, cloud and related services had exports to China in 2017 of $0.924 billion.

U.S. services export data for 2020 doesn’t show the breakdown by category by country. However, China has a much larger percent of U.S. services exports in the travel and tourism category (about 25% for all countries vs. 58.4% for China). U.S. data for the first quarter of 2020 show exports of travel and tourism services to the world down 19.5% with March being down more than 50%.

With the travel limitations in place in the U.S. and that have been in place in China and with the slow ability of the U.S. to reopen much of the travel and tourism related sectors (transportation, hotels, restaurants, entertainment venues, etc.), there seems to be no realistic scenario by which US service exports to China grow $12.5 billion in 2020.

Conclusion

The U.S.-China Phase I Agreement was an important step in trying to find a path forward for normalized trade relations between the world’s two largest economies. The path requires the start of a Phase 2 but importantly needs the building of confidence between the two countries based on achieving results in implementing the Phase I Agreement.

There have been extraordinary events clouding the global community as nations struggle to address the COVID-19 pandemic. Those events have complicated the ability of the U.S. and China to achieve in 2020 what the Phase I Agreement contemplates, at least in terms of expanded trade. That said, both China and the U.S. have implemented certain provisions of the Agreement, and there has been a recognition by the U.S. Administration of efforts by China to comply with modifications to laws, regulations, etc. agreed to in the Phase I Agreement.

The first two months that the Agreement has been in place have not resulted in significant movement on implementing the important chapter of expanding trade. For the United States, struggling to right its economy amidst the pandemic, a strong effort by China to honor its commitments to expand trade significantly in 2020, would be a welcome development and hopefully lead to the reengagement by the two countries to start and complete a phase 2 Agreement.

The COVID-19 Pandemic – An Update on Shifting Patterns of Infections and Implications for Medical Goods Needs

Since late March there have been significant shifts in the number of COVID-19 cases being reported by countries and within countries. Many countries where the virus hit hardest in the first months of the year have been seeing steady progress in the reduction of cases. Some in Asia, Oceania and in Europe are close to no new cases. Others in Europe and some in Asia have seen significant contractions in the number of new cases. Other countries have seen a flattening of new cases and the beginnings of reductions (e.g., the U.S. and Canada). And, of course, other countries are caught up in a rapid increase of cases (e.g., Russia, Brazil, Ghana, Nigeria, India, Pakistan, Saudi Arabia).

As reviewed in a prior post, the shifting pattern of infections has implications for the needs for medical goods and open trade on those products. https://currentthoughtsontrade.com/2020/04/28/shifting-trade-needs-during-the-covid-19-pandemic/. As the growth in number of cases is seen in developing and least developed countries, it is important that countries who have gotten past the worst part of Phase 1 of the pandemic eliminate or reduce export restraints, if any, that were imposed to address medical needs in country during the crush of the pandemic in country. It is also critical that the global efforts to increase production of medical goods including test kits and personal protective equipment continue to eliminate the imbalance between global demand and global supply and to permit the restoration and/or creation of national and regional buffer stocks needed now and to address any second phase to the pandemic. And as tests for therapeutics and vaccines advance, it is critical that there be coordinated efforts to see that products are available to all populations with needs at affordable prices.

While there is some effort at greater coordination on research and development as reviewed in a post last week (https://currentthoughtsontrade.com/2020/05/06/covid-19-the-race-for-diagnostics-therapeutics-and-vaccines-and-availability-for-all/), concerns exist that as nations get past the first phase of the pandemic, countries will turn their focus to other needs and not in fact address the severe gaps between pandemic supply needs and existing capacity and inventories. Such an outcome would exacerbate the challenges the world is facing from the current pandemic and its likely phase 2 later this year.

The following table shows total cases as of May 11 and the number of cases over fourteen day periods ending April 11, April 27 and May 11 as reported by the European Center for Disease Prevention and Control. The data are self-explanatory but show generally sharply reduced rates of new infections in Europe and in a number of Asian countries, though there are increases in a few, including in India and Pakistan and in a number of countries in the Middle East, such as Saudi Arabia. North America has seen a flattening of the number of new infections in the U.S. and Canada with some small reductions in numbers while Mexico is seeing growth from currently relatively low levels. Central and South America have some countries with rapid increases (e.g., Brazil, Chile, Peru). The Russian Federation is going through a period of huge increases. While there are still relatively few cases in Africa, there are countries who are showing significant increases, albeit from small bases.

Countrycases
through 5-11
14 days
to 4-11
14 days
to 4-27
14 days
to 5-11
Austria15,7875,8631,252598
Belgium53,08119,38316,4876,947
Bulgaria1,965342625665
Croatia2,187909430157
Cyprus89843318481
Czechia8,1233,4531,413719
Denmark10,4293,7732,4011,854
Estonia1,73968333496
Finland5,9621,7441,6021,386
France139,06357,71229,17214,488
Germany169,57569,07632,17714,382
Greece2,7161,045392210
Hungary3,2849671,125701
Ireland22,9965,9689,6073,734
Italy219,07061,07941,31221,395
Latvia939332161127
Lithuania1,47964138730
Luxembourg3,8861,618442163
Malta4962117048
Netherlands42,62714,49412,2584,782
Poland15,9964,5664,9434,379
Portugal27,58111,2047,2793,717
Romania15,3624,1754,7364,326
Slovakia1,45742063778
Slovenia1,45752820250
Spain224,39092,96343,04516,756
Sweden26,3226,6398,1577,682
EU271,018,867370,221220,830109,551
United Kingdom219,18355,72968,56166,343
EU27 + UK1,238,050425,950289,391175,894
United States1,329,799396,874408,339363,889
Canada68,84817,45822,51921,964
Mexico35,0223,12710,01620,345
North America1,433,669417,459440,874406,198
Japan15,7983,8486,1302,413
South Korea10,909972201171
Singapore23,3361,17711,0929,712
Australia6,9412,860391228
New Zealand 1,1476195825
Subtotal58,1319,47617,87212,549
China84,0101,058990-189
India67,1526,57418,74039,260
Indonesia14,0322,4664,6415,150
Iran107,60335,86018,79517,122
Turkey138,65741,33153,17428,527
Israel16,4777,3734,2531,079
Bangladesh14,6573764,7959,241
Kazakhstan5,1266471,7562,409
Krygyzstan1,016281276321
Malaysia6,6562,1851,097876
Pakistan30,9413,5917,95417,613
Saudi Arabia39,0482,54713,06021,526
Taiwan4401134111
Thailand3,0151,38234393
Vietnam2888660
Sri Lanka86391313340
Subtotal529,981105,961130,234143,397
Russian Federation209,68810,88165,179128,739
Ukraine15,2321,9856,2326,223
Belarus22,9731,8877,88512,510
Georgia635153229149
Subtotal248,52814,90679,525147,621
South Africa10,0158332,3735,469
Egypt9,4001,2992,2545,081
Morocco6,0631,1032,4041,998
Algeria5,7231,4561,4682,341
Burkina Faso751302135119
Cameroon2,579715801958
Cote d’Ivoire1,700379576550
D.R. of the Congo1,024165225565
Djibouti1,280137809187
Ghana4,2632419842,713
Guinea2,1462078441,052
Kenya672158158317
Mali70483273315
Mauritius33222480
Niger821428167125
Nigeria4,3992249503,126
Senegal1,7091463911,038
Somalia1,05418411618
Sudan1,363122181,126
Tunisia1,03244424283
U.R. of Tanzania50919268209
subtotal57,4698,59315,95927,990
Switzerland30,22212,1243,7581,244
Liechtenstein832030
Norway8,0992,6631,090594
Iceland1,801785919
Subtotal40,20515,5924,9421,847
Argentina5,7761,2851,5642,009
Brazil162,69916,22139,719100,811
Chile28,8661,9346,11815,535
Colombia11,0631,9342,6035,684
Dominican Republic10,3472,0393,1684,212
Ecuador29,5595,53415,2536,840
Panama8,4482,1882,3792,669
Peru67,3075,26219,99839,790
Costa Rica79229510097
El Salvador958105173660
Subtotal325,81536,79791,075178,307
All Other Countries131,67726,78038,80955,215
Total of all countries4,063,5251,061,5141,108,6811,149,018

The WTO maintains a data base of actions by WTO members in response to the COVID-19 pandemic which either restrict medical goods exports or which liberalize and expedite imports of such products. As of May 8, the WTO showed 173 measures that the WTO Secretariat had been able to confirm, with many countries having temporary export restrictions on medical goods, some restraints on exports of food products, and a variety of measures to reduce tariffs on imported medical goods or expedite their entry. https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. Some WTO Members other than those included in the list have had and may still have informal restrictions.

The EU and its member states are presumably in a position now or should be soon to eliminate any export restrictions based on the sharp contraction of cases in the EU as a whole over the last six weeks – last 14 days are roughly 59% lower than the 14 days ending on April 11. Similarly, countries with small numbers of cases and rates of growth which seem small may be candidates for eliminating export restrictions. Costa Rica, Kyrgyzstan, Taiwan, Thailand, Vietnam, Malaysia, Georgia, Norway and Switzerland would appear to fit into this latter category. Most other countries with restrictions notified to the WTO appear to be either in stages where cases continue at very high levels (e.g., United States) or where the number of cases is growing rapidly (e.g., Russia, Belarus, Saudi Arabia, Ecuador, Bangladesh, India, Pakistan). Time will tell whether the WTO obligation of such measures being “temporary” is honored by those who have imposed restrictions. Failure to do so will complicate the efforts to see that medical goods including medicines are available to all on an equitable basis and at affordable prices.

COVID-19 — US International Trade Commission report on U.S. imports and tariffs on COVID-19 related goods

In a post from April 6th, I reviewed a WTO document on medical goods relevant to COVID-19. https://currentthoughtsontrade.com/2020/04/06/covid-19-wto-report-on-medical-goods-fao-report-on-food-security/. As reviewed in that post, the data compiled by the WTO were useful but both over- and underinclusive. Because tariffs are harmonized for most countries at the 6-digit HS level, comparable data was only available at that level for the WTO’s analysis even though virtually every category included many products that are not relevant to treating COVID-19. The list also doesn’t include input materials as recognized by the WTO. I had suggested that it would be useful to have WTO Members supply information at their most disaggregated level of detail to see if a tighter fit of at least finished products could be identified in terms of trade.

The United States has now provided a report that provides its data at the 10-digit HTS level of detail for imports into the United States. It would be helpful if other major trading nations similarly provided their detail data to the WTO and for public release. Hopefully, the U.S. will provide similar data for its exports in the coming months.

Development of U.S. import data

USTR has been exploring possible elimination of duties on medical goods needed for the U.S. response to COVID-19 and is accepting comments through late June. The U.S. International Trade Commission (“USITC”) was asked by the Chairman of the U.S. House of Representatives Ways and Means Committee and the Chairman of U.S. Senate Committee on Finance to conduct “a factfinding investigation to identify imported goods related to the response to COVID-19, their source countries, tariff classifications, and applicable rates of duty.”. The report from the USITC’s Investigation 332-576 was completed in late April and is now available from the USITC webpage. USITC, COVID-19 Related Goods: U.S. Imports and Tariffs, Publication 5047 (April 2020). Updates to the report may be made through June 2020. See https://www.usitc.gov/press_room/news_release/2020/er0504ll1540.htm

In the report, the USITC compiled data on 112 10-digit HTS categories but noted that many of these categories which are generally more detailed than the 6-digit categories used in the WTO paper still contain large quantities of goods that are not relevant to the COVID-19 response. Thus, the U.S. data, while more refined that the 6-digit data used by the WTO are still overinclusive. To the extent major input data for products needed to address COVID-19 are not included in the USITC investigation, the results are underinclusive as well.

The USITC Executive Summary notes that of the 112 HTS categories:

6 cover COVID-19 test kits/testing instruments,

9 cover disinfectants ad sterilization products,

22 cover medical imagining, diagnostic, oxygen therapy, pulse oximeters, and other equipment,

20 cover medicines (pharmaceuticals),

19 cover non-PPE medical consumables and hospital supplies,

27 cover personal protective equipment, and

9 covered other products.

Looking at what tariffs were applied, the ITC looked both at ordinary customs duties (Column 1 rates) and also whether additional duties on products from China were owed because of the 301 investigation and subsequent actions by the Administration. The USITC indicated that 76 products (68%) were duty-free for ordinary customs purposes and that 36 products (32%) were subject to duties, though one or more countries’ goods entered duty free for each of the 36 products.

For goods from China, 59 categories were not subject to additional 301 duties, 55 products were subject to additional duties (39 products at 25% additional duties; 16 products at 7.5% additional duties) although 28 of the 55 categories were subject to exclusions (total exclusions for 13 product categories; partial exclusions for the remaining 15 categories).

The Commission pulled import data for 2017-2019 (including for several categories which expired before 2020 for completeness of the underlying data). The data show US imports by HTS category and then show the top 5 source countries by HTS and the all other country customs value.

The data from the investigation will be used by USTR and Congress to inform Administration decisions on which products should receive tariff reductions/eliminations.

Using the ITC’s list, the trade data can presently be updated through March 2020 as March 2020 data are now publicly available.. The total for the 112 categories for 2019 was U.S. imports for consumption of $105.3 billion up from $81.3 billion in 2017 and $93.7 billion in 2018. Imports in the first quarter of 2020 were $28.6 billion up from $24.6 billion in the first quarter of 2019.

The top 15 sources of imports into the U.S. in 2019 are the following. Data also show the percentage change in the first quarter of 2020 compared to the first quarter of 2019.

Top sources of imports Customs Value 2019 % change 2019-2020

Ireland $14.173 billion +12.77%

China $12.313 billion -14.13%

Germany $12.228 billion +20.35%

Mexico $ 8.791 billion + 4.44%

Canada $ 6.026 billion +19.57%

Belgium $ 5.952 billion +63.21%

Switzerland $ 5.082 billion +39.80%

Japan $ 4.144 billion +28.38%

United Kingdom $ 3.409 billion +11.42%

India $ 2.816 billion +16.71%

South Korea $ 2.694 billion -30.68%

Netherlands $ 2.545 billion +94.16%

Italy $ 2.177 billion +75.66%

Malaysia $ 2.163 billion + 7.65%

Costa Rica $ 1.693 billion +22.50%

All Other $16.574 billion +15.13%

Total $105.267 billion +16.16%

Different supplying countries focus on different parts of the medical goods needs of the United States. For example, the top four HTS categories imports from Ireland accounted for more than $10 billion of the $14.173 billion from the country in 2019 and all were medicines. In comparison, the top two HTS categories of imports into the U.S. from China were basket categories (other articles of plastic; other made up articles) which are presumably personal protective equipment (“PPE”) products and were $5 billion of the $12.313 billion. While ventilators were also a significant item, most other major items appear to fit within the PPE category.

Conclusion

The purpose of the USITC investigation and report are to provide information to the Congress and Administration to help identify which imported products relevant to the COVID-19 response by the United States are dutiable and which products from China are also subject to additional tariffs from the 301 investigation. The Administration and Congress will use the information as part of the Administration’s review of which imported products should face a reduction or elimination of tariffs at least during the pandemic.

However, the data also provide useful information for broader use in understanding the extent of trade in goods actually relevant to the global response to COVID-19. Hopefully, the U.S. will compile comparable data on the country’s exports and other major trading nations will supply comparable data to the WTO and to the public.

COVID-19 — the race for diagnostics, therapeutics and vaccines and availability for all

With the mounting global death toll, with confirmed infections of over 3.6 million and continuing to climb, with no known effective vaccine and just the beginnings of finding possible therapies to reduce the severity or length of illness from the infection, it is clear to most that there is no full return to normalcy until effective vaccines are developed and made available to all in the world community. Because the costs to the global economy from the pandemic are measured in trillions of dollars and job losses in the hundreds of millions, there is a global urgency to advance medical solutions, despite a history with prior infectious disease outbreaks which would suggest that solutions could be years away.

The severity of the pandemic has led to some extraordinary efforts to have international organizations, pharmaceutical companies, universities and government labs work collaboratively and share data. There have also been a wide range of statements made by international organizations such as the World Health Organization, governments, NGOs, and the pharmaceutical industry that diagnostics, therapeutics and vaccines developed to address the COVID-19 pandemic must be developed on an expedited basis, be available equitably and be affordable. The phrase “no one is safe until everyone is safe” sums up what many leaders are saying is the goal.

Many countries with a pharmaceutical industry, university research center invloved in medical research, government agency that addresses disease control and prevention or the safety of medical supplies are engaged in research that may be company specific, university or lab specific or collaborative within the country and across countries. Governments are providing substantial financial assistance to spur research and development.

With the various infectious disease outbreaks of the last few decades, there are also groups which focus on improving the healthcare infrastructure in developing countries and least developed countries and in working to get needed tests, medicines and vaccines to countries unable to address such needs on their own. Groups like CEPI, GAVI, FIND, UNITAID are involved and are supported by the generosity of various governments and other organizations. They are all actively engaged in the response to COVID-19.

G20 Involvement

The G20 countries issued a statement on COVID-19 after an Extraordinary G20 Leaders’ Summit on March 26, 2020 which stated in part,

“We further commit to work together to increase research and development funding for vaccines and medicines, leverage digital technologies, and strengthen scientific international cooperation. We will bolster our coordination, including with the private sector, towards rapid development, manufacturing and distribution of diagnostics, antiviral medicines, and vaccines, adhering to the objectives of efficacy, safety, equity, accessibility, and affordability.”

https://g20.org/en/media/Documents/G20_Extraordinary%20G20%20Leaders%E2%80%99%20Summit_Statement_EN%20(3).pdf.

G20_Extraordinary-G20-Leaders’-Summit_Statement_EN-3

The G20 presidency on April 24, 2020 noted its support of the Access to COVID-19 Tools (“ACT”) Accelerator whose purpose is to speed development, production and equitable distribution of new COVID-19 diagnostics, therapeutics and vaccines. The initial cost estimate for the early research and development efforts was estimated at $8 billion. The statement is embedded below

G20SS_PR_G20-ACT-Initiative-Launch_EN

European Union led initiative to obtain pledges for $8 billion

The European Union and a number of individual countries co-led an international pledging event, the Coronavirus Global Response, on May 4 which developed pledges of 7.4 billion Euros ($8 billion) The countries co-leading with the EU were France, Germany, Japan, Norway, Canada, Italy, Spain and the United Kingdom. European Commission President Ursula von der Leyen moderated the event. Her opening statement is below and reflects the reality that “we will have to learn to live with the virus – until and unless we develop a vaccine”. Collaboration is critical and the objective is to see that vaccines, diagnostics and treatments against coronavirus are deployed “to every single corner of the world. And we must ensure that they are available and affordable for all.” https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_804.

Opening_remarks_by_President_von_der_Leyen_at_the_Coronavirus_Global_Response_international_pledging_event

Besides comments from the EC’s president, other speakers included leaders from the European Council; the United Nations; the UN World Health Organization; France; Germany; Japan; Norway; Canada; Spain; United Kingdom; Saudi Arabia (2020 G20 Presidency); Jordan; South Africa (on behalf of African Union); Monaco; Turkey; Italy; Switzerland; Israel; the Netherlands; the Bill and Melinda Gates Foundation; Luxembourg; Sweden; Portugal; Croatia; Estonia; the Global Preparedness Monitoring Board; Bulgaria; Ireland; Serbia; Czechia (for itself, Slovakia, Hungary and Poland); Poland; Australia; Denmark; Greece; Austria; Malta; Belgium; Wellcome Trust; Latvia; South Korea; Mexico (for Latin America); Kuwait; Slovenia; Lithuania; Oman; Romania; Finland; United Arab Emirates; China; World Economic Forum; European Investment Bank; World Bank; CEPI (Coalition for Epedemic Preparedness Innovations); GAVI, the Vaccine Alliance; FIND (Foundation for Innovative New Diagnostics); UNITAID; IFPMA (International Federation of Pharmaceutical Manufacturers & Associations), and the DCVMN (Developing Countries Vaccine Manufacturers Network).

The pledging event goes on through the month of May. The kick-off event lasted just under three hours. The list of speakers was impressive covering international organizations, countries (from Europe; parts of Asia, North America and the Middle East; and South Africa), NGOs, philanthropic groups, pharmaceutical companies.

The message from all was fairly uniform – collaboration is crucial to speed the findings of solutions; solutions must be available to all on an equitable basis that is affordable. The $8 billion is simply the first step in a much larger endeavor once new diagnostics, therapeutics and vaccines are found and one turns to the need for broad production and distribution.

Press accounts have raised questions about some of the countries which did not participate in the May 4th event – the United States, Russian Federation, India, Brazil to name four countries with active pharmaceutical industries — and with whether the pledges largely reflect expenditures already made or committed versus new commitments. For many of the no shows (and for China which was apparently a late addition and only from the Ambassador to the European Union), important pharmaceutical companies were represented by either IFPMA or by DCVMN. Moreover, there is yet time to join. And these countries all have their own research underway which is generally being done in a collaborative effort within country or with others and are making data available to other players.

There is little doubt that the pharmaceutical companies, the university research centers, and the government labs will be important players in the research and development stage. Consider the following document from IFPMA which reviews how major pharmaceutical companies are engaged in various segments of the R&D effort. IFPMA reviews how its member companies are engaged in (1) repurposing existing and testing new treatments, (2) sharing real-time trial data with governments and other companies; (3) speeding up R&D on safe and effective vaccines; (4) developing diagnostic testing and securing supply; (5) securing essential supplies for medicines and vaccines; (6) increasing and sharing capacity for medicines and vaccines; and (7) supporting global health care systems. See https://www.ifpma.org/print/?url=covid19-print&options=–viewport-size%20%221200×50%22%20–zoom%201.5%20–orientation%20%22Landscape%22.

download

Will a global solution available to all present challenges for holders of intellectual property?

There are billions of dollars being spent by private companies, by research universities, government labs, and various NGOs, philanthropic groups and others in the global race to develop new diagnostics, therapeutics and vaccines. Much of the money spent will not result in effective solutions. Some, hopefully, will. Patent rights will arise for those developing the new products and there will thus be questions about how the new products can be made available to all at affordable prices.

Some individuals and companies may make any breakthroughs they are responsible for available to all at no cost (we have seen some of that in the past on medicines and recently on PPE products).

It is also the case, that governments can invoke exceptions to patent rights under certain circumstances and subject to certain limitations. See TRIPS Art. 31 (compulsory licensing).

Some governments (e.g., France) at the pledging event recognized the need to see that the innovators received a fair return on their investment, but also characterized COVID-19 products as “public goods”. The IFPMA in its activities has joined collaborative undertakings and has recognized the need for new diagnostics, therapeutics and vaccines to be available to all at affordable prices. But it is unclear what that means to the company or companies who develop a breakthrough product in terms of patent rights and revenues.

While the U.S. pharmaceutical industry has indicated that they are working with governments and insurers to see that new drugs and vaccines are available to all and affordable, they also have a blog post on the continued importance of intellectual property for pharmaceutical companies ability to tackle COVID-10. See The Catalyst, What they are saying: Intellectual property protections are critical as we work to defeat COVID-19, https://catalyst.phrma.org/what-they-are-saying-intellectual-property-protections-are-critical-as-we-work-to-defeat-covid-19.

What-they-are-saying_-Intellectual-property-protections-are-critical-as-we-work-to-defeat-COVID-19

With possible breakthroughs in the next six months or so, how this important trade aspect of rewarding innovation in the fight against COVID-19 plays out could complicate or simplify the core desire of getting effective solutions to all at affordable prices.

Other trade issues

There are already efforts underway to get WTO Members to eliminate customs duties on medical supplies needed to address COVID-19. If not already covered by that effort, one would think it would be doable to get WTO Members to agree to trade any new diagnostics, therapeutics and vaccines for treating COVID-19 as duty-free articles (and presumably add the inputs to such new products).

Update on food security amidst COVID-19 pandemic

On May 1, I reviewed the challenges being faced in the United States and Canada because of the large number of meat and poultry processing plants that had large numbers of workers who had tested positive for COVID-19 with facilities closing temporarily as a result. In the United States, President Trump issued an Executive Order to require the meat processing plants to remain open, but it is unclear whether steps taken by the plants will provide adequate protection to the workers to get sufficient workers back in the plants or to restore prior production levels. Indeed, the AFL-CIO’s Richard Trumka has indicated many changes in meat processing plants are needed to protect workers including increased supplies of personal protective gear, daily testing and more. See https://www.foxbusiness.com/money/coronavirus-meat-plant-workers-afl-cio-richard-trumka-1

Shortages of meat and poultry products start to appear in the United States

The concern about short-term shortages of meat and poultry products in the United States is starting to play out as news reports indicate that several hundred Wendy’s fast food facilities ran out of hamburger on May 5 and several retail operators have limited what customers can buy of meat and poultry products — Costco and Kroger, with more grocery chains and some other fast food operators noting concerns about availability as well. See May 5, 2020, New York Times, A Wendy’s With No Burgers as Meat Production Is Hit, https://www.nytimes.com/2020/05/05/business/coronavirus-meat-shortages.html.

As noted in the earlier post, there are adequate upstream supplies (cattle, pigs, chickens) in the United States and Canada but a short-term reduction in processing capacity, with the result of large numbers of animals being killed without being processed. There are, however, also reportedly large supplies of frozen meat products available. Id.

The European Union has a temporary surplus of beef and some other products

At the same time, the European Union has experienced shifts in demand as restaurants have been closed in many countries as governments have sought to reduce the spread of COVID-19. Similar shifts in demand have occurred in the United States and many other countries. Shifts in demand (including declines in demand for some products) in the EU have resulted in excess supplies of many agricultural products, including beef, sheep and goat meat products. The EU’s response has been in part to permit temporary waiver from EU competition law to permit certain agricultural producers to coordinate production and to stockpile some excess product. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_788.

Coronavirus__Commission_adopts_package_of_measures_to_further_support_the_agri-food_sector-1

To the extent that there are short-term shortages in the United States, Canada or other countries because of the COVID-19 infections at processing plants, governments could work with trading partners facing surpluses to reduce retail price volatility. This is undoubtedly complicated for some suppliers (e.g., Australia to the U.S.) because of higher costs of air cargo shipments with the huge reduction in commercial flights. The issue will also be politically sensitive because of the challenges facing U.S. ranchers and farmers already.

Efforts by some WTO Members to reduce food security concerns

There are eighteen countries or territories that have active or inactive export restraints on some food products. Twelve of these are active and affect 9.9% of the global trade in agricultural goods subject to export restraints. See, IFPRI’s Food Export Restrictions Tracker, https://public.tableau.com/profile/laborde6680#!/vizhome/ExportRestrictionsTracker/FoodExportRestrictionsTracker?publish=yes.

Because the COVID-19 pandemic is a health crisis, and there is no current significant global shortage of agricultural products in fact, many WTO members are working together to keep agricultural markets open to prevent concerns about food security.

For example, on April 22, 2020, Canada submitted a statement on its own behalf and that of 22 other WTO members (including the EU and the US) which contained the following “commitments”:

“1.6. To help ensure well-functioning global agriculture and agri-food supply chains in response to this crisis we therefore are committed:

“a. To ensure that supply chains remain open and connected so that international markets can continue to function in supporting the movement of agricultural products and agriculture inputs, which plays an instrumental role in avoiding food shortages and ensuring global food security.

“b. To exercise restraint in establishing domestic food stocks of agricultural products that are traditionally exported so as to avoid disruptions or distortions in international trade.

“c. Not to impose agriculture export restrictions and refrain from implementing unjustified trade barriers on agriculture and agri-food products and key agricultural production inputs.

“d. That emergency measures related to agriculture and agri-food products designed to tackle COVID-19 must be targeted, proportionate, transparent, and temporary, and not create unnecessary barriers to trade or disruption to global supply chains for agriculture and agri-food products. Any such measures are to be consistent with WTO rules.

“e. To inform the WTO as soon as practicable of any trade related COVID-19 measures affecting agriculture and agri-food products, including providing scientific evidence in accordance with WTO agreements if necessary, to ensure transparency and predictability. Members should be given opportunities to review new measures.

“f. To ensure that updated and accurate information on levels of food production, consumption and stocks, as well as on food prices is widely available, including through existing international mechanisms.

“g. To support the efforts of the WTO and other international organizations in analysing the impacts of COVID-19 on global agriculture and agri-food trade and production.

“h. To engage in a dialogue to improve our preparedness and responsiveness to regional or international pandemics, including multilateral coordination to limit unjustified agriculture export restrictions, in particular at the WTO.”

RESPONDING TO THE COVID-19 PANDEMIC WITH OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS,
STATEMENT FROM: AUSTRALIA; BRAZIL; CANADA; CHILE; COLOMBIA; COSTA RICA; EUROPEAN UNION; HONG KONG, CHINA; JAPAN; REPUBLIC OF KOREA; MALAWI; MEXICO; NEW ZEALAND; PARAGUAY; PERU; QATAR; SINGAPORE; SWITZERLAND; THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU; UKRAINE; UNITED KINGDOM; UNITED STATES; AND URUGUAY, WT/GC/208, G/AG/30 (22 April 2020)(Emphasis added).

208-1

On May 5, 2020, Switzerland submitted a statement from 42 WTO members pledging not to impose export restraints and to refrain from unjustified trade barriers on agricultural trade.

“1.5. We also stress the necessity of maintaining agriculture supply chains and preserving Members’ food security. We, therefore, pledge to not impose export restrictions and to refrain from implementing unjustified trade barriers on agricultural and food products in response to the COVID-19 pandemic.”

STATEMENT ON COVID-19 AND THE MULTILATERAL TRADING SYSTEM BY MINISTERS RESPONSIBLE FOR THE WTO FROM AFGHANISTAN; AUSTRALIA; BARBADOS; BENIN; CAMBODIA; CANADA; CHILE; COLOMBIA; COSTA RICA; ECUADOR; EL SALVADOR; GUATEMALA; GUYANA; HONG KONG, CHINA; ICELAND; ISRAEL; JAMAICA; JAPAN; KENYA; REPUBLIC OF KOREA; THE STATE OF KUWAIT; LIECHTENSTEIN; MADAGASCAR; MAURITIUS; MEXICO; REPUBLIC OF MOLDOVA; MONTENEGRO; NEPAL; NEW ZEALAND; NIGERIA; NORTH MACEDONIA; NORWAY; PERU; SAINT LUCIA; KINGDOM OF SAUDI ARABIA; SINGAPORE; SOLOMON ISLANDS; SWITZERLAND; UKRAINE; UNITED ARAB EMIRATES; UNITED KINGDOM AND URUGUAY, WT/GC/212 (5 May 2020).

Brazil, the EU, Malawi, Paraguay, Qatar, Taiwan and the United States were part of the April 22 statement but not the May 5 statement. The two together cover 75 WTO members (counting the 27 members of the EU).

Missing from either of these statements are important WTO Members who are also important agricultural producers — Argentina, China, India, Indonesia, Malaysia, Russia, and Vietnam. Some of these Members have export restraints on some agricultural products in place now (e.g., Russia and Vietnam) and others imposed such restraints back in 2007-2008 (e.g., China, India, Indonesia, Malaysia).

There has also been a joint statement from the LDC countries urging the importance of keeping markets open both for medical supplies and food products. See SECURING LDCS EMERGENCY ACCESS TO ESSENTIAL MEDICAL AND FOOD PRODUCTS TO COMBAT THE COVID-19 PANDEMIC.
COMMUNICATION BY CHAD ON BEHALF OF THE LDC GROUP, WT/GC/211 (4 May 2011) . There are currently 36 LDCs who are members of the WTO. Seven of the 36 were part of the April 22 or May 5 statements (Malawi on the April 22 statement; Afghanistan, Benin, Cambodia, Madagascar, Nepal, and the Solomon Islands on the May 5 statement). Adding the 29 LDCs not already counted in the April 22 and May 5 statements, brings the total number of WTO Members advocating for maintaining open markets for agricultural trade to 104.

211

There have also been statements provided by the ASEAN countries and by APEC on COVID-19 supplied to the WTO, although any commitments on trade in agricultural goods are limited. ASEAN DECLARATION AND STATEMENTS ON COVID-19, WT/GC/210 (1 May 2020); Statement on COVID-19 by APEC Ministers Responsible for Trade, Kuala Lumpur, Malaysia (05 May 2020), https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_trade

210

Statement-on-COVID-19-by-APEC-Ministers-Responsible-for-Trade

Conclusion

The world is better prepared to deal with a future wave of export restraints on agricultural products than it was in 2007-2008 with an improved understanding of production and supplies around the world and with notification systems and with groups tracking government actions. Fortunately, 2020 does not present a situation of acute food shortages of core products although lockdowns, stay at home orders and the collapse of air travel and reduction in ship traffic creates potential challenges for both production and distribution of food articles.

While there have been a number of countries who have imposed export restraints and others that are imposing some barriers (including increased tariffs), a major group of countries and territories involved in international trade in agriculture has committed either not to impose export restraints or to do so only under limited circumstances and only temporarily.

The temporary shortage of meat and poultry products occurring in the United States will receive a fair amount of press attention. With frozen meat supplies reportedly plentiful in the U.S. and with efforts to get temporarily closed processing plants back on line (dependent on ability of processors to improve protection for workers), hopefully concerns about U.S. and Canadian meat supplies will dissipate in the coming weeks.

It is also the case that other major meat producing countries may have significant surpluses which could alleviate shortage issues if they continue for a period of time, if policy makers are willing to work together to address the short-term needs.

So hopefully COVID-19 does not also become a food security crisis in 2020.

Update on the collapse of travel and tourism in response to COVID-19

In a post from April 30, I provided information on the importance of travel and tourism to the global economy and the sharp contraction flowing from national efforts to stem the growth in COVID-19 infections. Travel restrictions, stay at home orders and other actions have seriously limited travel and tourism in recent months and will likely continue to do so for at least several more months going forward.

A series of documents from the World Travel & Tourism Council provide an overview of the importance of the sector to various geographic areas of the world in 2019, what had been growth projections to 2030 and the projected job losses in the sector for 2020 because of the pandemic.

In 2019, some 330 million jobs were in the travel and tourism sector globally or one in ten jobs. Travel and tourism in 2019 accounted for 10.3% of the global economy with higher growth rate versus the total global economy (3.5% vs. 2.5%). The COVID-19 pandemic is projected to cost the world 100.8 million jobs in 2020, a loss of 31% from 2019. The loss in global GDP is projected at $2.7 trillion. Truly staggering projected losses from the pandemic are hitting countries and territories around the world.

EIR_Global_Economic_Impact_from_COVID_19_Infographic

The percent of total GDP and total employment in a region was highest in 2019 for the Caribbean at 13.9% and 15.2% respectively, followed by South East Asia at 12.1% and 13.3%, Oceania at 11.7% and 12.6%, North East Asia at 9.8% and 10.0%, the European Union at 9.5% and 11.2%, North America at 8.8% and 11.1%, North Africa at 8.5% and 9.3%, the Middle East at 8.6% and 8.8%, with other areas somewhat lower. International travel and tourism in 2019 was 28.7% of the total with domestic being 71.3%; 21.4% of expenditures were by business travelers with the remaining 78.6% being leisure travel and tourism. 179.7 million jobs in travel and tourism were in Asia in 2019, 37.1 million in Europe, 45.4 million in the Americas, 24.6 million in Africa and 6.7 million in the Middle East.

Projections for 2030 (before the pandemic) were for travel and tourism to capture 11.3% of global GDP and increase employment to 425 million jobs. Depending on the damage from the pandemic and the recovery time , presumably the effects through 2030 will show much smaller employment numbers and a smaller percent of GDP going to travel and tourism.

EIR2020-importance-of-travel-infographics.indd_

While travel and tourism expenditures reflect the size of the overall economy in terms of total dollars, the fastest growth is often in smaller countries, including island countries and territories.

EIR-global-infographic-2020-v2

As seen in these data from the World Travel and Tourism Council, the growth of travel and tourism as a sector in 2019 exceeded growth rates in healthcare, retail and wholesale, agriculture, construction and manufacturing while lagging just information and communications and financial services. Moreover, travel and tourism effect other sectors of the economy when expanding or when contracting. The challenges facing companies like Boeing and Airbus at a time when most commercial fleets are largely not operating would be one obvious example.

For there to be a rapid return to economic growth in many parts of the world as the COVID-19 pandemic recedes, all countries will need a return to the use of restaurants, hotels, transportation services, entertainment venues and other elements of the travel and tourism sector.

With the enormous losses being suffered by the sector and the large part of the sector populated by small- and medium-size businesses, many countries are likely to find far fewer travel and tourism businesses operating in the coming months than was true in 2019 even after reopening. Governments in various countries are working to provide financial support to workers and businesses, but it unclear how many businesses will nonetheless go out of business and how many jobs will be lost even after reopening. This is complicated by the social distancing requirements that are either recommended or required by countries who are starting to open up (or in the United States, in the states that are starting to reopen). For example, restaurants typically operate on small margins. Requirements to limit seating to half of capacity (or worse depending on density of current seating arrangements) to be able to implement social distancing recommendations in restaurants could make operating many restaurants uneconomic going forward.

Moreover, for many consumers and businesses, travel and tourism activities will likely be greatly curtailed pending development and distribution to the world’s population of an effective vaccine. This is regardless of government actions to reopen economies and flows from the understandable concern for many people about enjoying normal life when the invisible enemy has no cure. While there are substantial efforts by pharmaceutical companies and government researchers to achieve an unusually quick breakthrough, 2021 is a very optimistic timeline. Whatever the timeline actually is will determine when the travel and tourism sector is able to fully help in rebuilding economic momentum around the world.

From a trade policy perspective, governments can reduce the costs to the state and local governments and to businesses and consumers by keeping markets open, lowering duties, expediting customs clearance and working to expand production of medical goods to eliminate the gap in global supply during periods of peak demand. The latter is the only realistic answer to temporary export restraints by countries who find themselves in a situation of surging infection rates and inadequate supplies where they are significant domestic producers. Moreover, with a second wave of the pandemic possible in the fall/winter, a global ramp up of capacity and production of needed supplies and creation of regional inventories is a need if the world is to avoid further trade disruptions from the pandemic coming back later this year.

Other actions by governments such as stimulus programs and safety net projects, reinforcing healthcare infrastructure, ramping up testing, tracing and quarantining, and addressing the financial needs of developing and least developed countries are all being pursued to some extent by international organizations and by individual countries, though the stress on the global economy complicates the extent of some of these efforts going forward.

Conclusion

The pandemic is projected to result in the loss of more than 100 million jobs in the travel and tourism sector in 2020 – a staggering situation and certainly among the most difficult of the global challenges to economies from COVID-19. The reality will be that travel and tourism will trail other parts of the global economy in rebounding as economies are reopened absent an effective vaccine which in all likelihood is a year or more (at a minimum) away. Governments and international organizations need to focus on steps which can reduce the challenges for the sector in the coming months. The UN World Tourism Organization has prepared a series of recommendation that were reviewed in my earlier post. They are a good starting point.

Food security – how will COVID-19 infections at meat processing plants affect?

COVID-19 is a health pandemic. However, because of the various restrictions placed on movement of people within countries and internationally, there have been concerns that there could be disruptions in food supplies and the possibility of a food crisis. With travel curtailed and many restaurants closed, there has been a sudden shift in demand patterns as demand in food service (restaurants, caterers) has largely dried up and demand in grocery stores has sharply increased. This has led to problems in processing and distribution and a sharp contraction in the demand for some food products where demand was concentrated in food service.

The concerns about a possible food crisis have been amplified by the actions of some countries or territories to impose export restrictions on certain agricultural products and the actions of some other countries to increase tariffs on certain imported agricultural products to protect domestic producers amidst falling food prices. The concerns arise during a period (2020) when there is ample food production globally, and hence a food crisis should be avoidable.

For the WTO, FAO and most governments, the actions of dozens of countries in 2007-2008 who imposed export restraints on certain food products remain fresh of mind. The vast majority of trade restrictions then were on rice and wheat, two staples for populations around the world. The introduction of export restraints by one or more countries led to similar actions by others. The result was serious shortages of products for import dependent countries and highly volatile prices which affected most countries.

In an earlier post I reviewed actions taken by the G20 agriculture ministers and a group of WTO Members to pledge to work to keep markets open for food products during the COVID-19 pandemic. Deputy Director-General Alan Wolff provided a virtual statement yesterday looking at food security and the increased reliance on international trade in food for many WTO Members. Similarly, different groups monitor countries who are imposing export restraints on food. See DDG Wolff, “Reliance on international trade for food security likely to grow,” https://www.wto.org/english/news_e/news20_e/ddgaw_30apr20_e.htm; https://public.tableau.com/profile/laborde6680#!/vizhome/ExportRestrictionsTracker/FoodExportRestrictionsTracker?publish=yes.

Today’s post looks at the challenges being experienced in North America, Europe and globally from the high level of infections of COVID-19 at meat and poultry processing plants. These infections have resulted in thousands of workers testing positive, many being very ill, some dying and many plants closing for some period of time to achieve a safer working environment. In the U.S. and Canada, a large number of facilities that handle a significant part of total U.S. and Canadian production have been affected. Workers are understandably concerned about returning to work when the facilities reopen despite an Executive Order by President Trump invoking the Defense Production Act to mandate the continued functioning of the meat and poultry processing facilities. See https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-taking-action-ensure-safety-nations-food-supply-chain/;https://www.whitehouse.gov/presidential-actions/executive-order-delegating-authority-dpa-respect-food-supply-chain-resources-national-emergency-caused-outbreak-covid-19/

But the consequences of the large number of infections in meat and poultry processing plants have been a reduction in operating capacity, reduced supply to domestic markets, possible reductions in export supplies and massive waste of cattle, pigs and chickens which are being killed and not processed because of the challenges and with downward prices to farmers and ranchers.

While it is not known if the problem will be very short term, a sudden reduction in capacity or production can lead to imbalances in the supply/demand ratio which could result in higher prices, reduced supplies and possible actions to satisfy domestic demand needs, including export restraints.

Because to date there has been no evidence that COVID-19 is transmitted from food or food packaging, there should not be any reason for food embargoes of meat and poultry imported from countries where facilities have closed temporarily due to COVID-19 worker infections. See https://www.who.int/images/default-source/health-topics/coronavirus/eng-mythbusting-ncov-(19).tmb-1920v.png; https://www.fda.gov/food/food-safety-during-emergencies/food-safety-and-coronavirus-disease-2019-covid-19; https://ec.europa.eu/food/sites/food/files/safety/docs/biosafety_crisis_covid19_qandas_en.pdf

Problems in meat processing plants in the U.S. and Canada

There have been a host of articles in the press in recent weeks in both the U.S. and Canada reviewing the huge number of plants that have had COVID-19 confirmed cases. As many as 30 plants in the U.S. and Canada are involved with more than 3,000 workers testing positive. More than 70% of beef processing in Canada has been affected and some 25% in the United States. See, e.g., https://time.com/5830178/meat-shortages-coronavirus/; https://www.ctvnews.ca/health/coronavirus/these-are-the-meat-plants-in-canada-affected-by-the-coronavirus-outbreak-1.4916957; https://globalnews.ca/news/6857867/alberta-covid-19-meat-processing-beef-production/; https://nevalleynews.org/13141/news/meat-processing-plants-close-in-u-s-and-canada-as-covid-19-spreads-through-work-force/.

Not surprisingly, the eruption of COVID-19 cases in processing plants and the resulting need to close facilities at least temporarily has led to concern about worker safety as well as the economic effects of a sudden reduction in meat supplies. The Center for Disease Control issued guidelines for meat processing plants to permit improved safety for workers. See CDC, Guidance for Meat and Poultry Workers and Employers, https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/meat-poultry-processing-workers-employers.html. The guidance is embedded below.

Guidance-for-Meat-and-Poultry-Processing-Workers-and-Employers-_-CDC

It has also led to reductions in production of processed meats and poultry and the wasting of cattle, pigs and chickens unable to be processed in recent weeks. USDA reports on beef and pork in the last week show sharp contractions in production. For beef, the USDA data show collapsing production and falling prices for cattle and rising prices for beef.

4-27-2020-USDA-data-on-beef

For pork, hog slaughter which had been up significantly through March has seen sharp declines in April with prices for pork products falling til April and then increasing rapidly.

4-30-pork-production-USDA

For poultry, USDA data through April 24, show relatively steady production volumes although press reports have reviewed millions of chickens being killed because of lack of access to processing facilities.

4-24-2020-USDA-poultry-data

Challenges in Canada would be similar or greater since a larger part of their beef processing facilities has been affected.

Meat Production Outside of the U.S. and Canada

An article by IHS Markit from March 31, 2020, reviews challenges of COVID-19 in meat processing facilities around the world as well as other challenges flowing from COVID-19 (shift in mix as restaurants shut down; export challenges with transportation limitations). “Meat industry on a knife-edge as COVID-19 disruption deepens,” https://ihsmarkit.com/research-analysis/analysis-meat-industry-covid19-disruption.html. The challenges differ in terms of pressures on meat supplies and prices as transportation problems would reduce the ability to export and thus reduce prices in exporting countries while presumably increasing prices in importing countries. By contrast, plant closures and/or reduced operating levels will reduce supply and hence increase prices of meat products in the producing country and in any export markets. There are reported issues in the EU, in Australia and potentially in Brazil.

The last forecast from USDA on U.S. exports of meats and poultry continues to show generally growing U.S. exports around the world, but the report predates some of the COVID-19 outbreaks in meat processing plants in the U.S. and the resulting concerns from communities and workers. https://apps.fas.usda.gov/psdonline/circulars/livestock_poultry.pdf

Conclusion

It is likely that over the next several months, there will be a temporary shortage of meat and poultry products in at least several important consuming and producing nations. Reduced supplies could lead to reduced exports and concerns about food security in importing countries. Reduced supplies could also lead to higher prices and internal political pressure to increase domestic availability. One such approach to increase supplies for domestic consumption for exporting countries is to restrict exports.

Fortunately, most of the major producing nations of beef and pork and at least some of the major poultry producing nations are parties to the joint statement to the WTO of April 22 2020 indicating their commitment to keeping trade flows open for agricultural products. Many are also part of the G20 and hence similarly supporting the need to keep agricultural trade open. See my prior post on the G20 agriculture ministers and the statement of Members to the WTO, https://currentthoughtsontrade.com/2020/04/23/food-security-complications-from-covid-19-recent-un-information-and-g20-and-wto-member-statements/.

In the United States, the Executive Order of President Trump can send a signal to meat and poultry processors to work to keep facilities open, but the Executive Order can’t force workers to return to working environments which workers see as unsafe. The CDC’s guidance to workers and employers should be helpful but both increase costs for employers and likely reduce productivity of facilities. The increased costs are necessary for worker safety as may be reduced productivity. Both, however, will likely result in higher prices to consumers and lower prices to farmers and ranchers.

The bigger question will be whether more countries who currently don’t have export restraints on food products introduce such restraints on non-meat and poultry products from fear of spreading food security issues.

Hopefully, the world will not find itself with dual pandemics – COVID-19 and food security. Stay tuned.

The collapse of tourism during the COVID-19 pandemic

As any of us knows all too well, the COVID-19 pandemic and resulting government efforts to control the spread of the virus has led to sharp reductions in the use of various services, including restaurants, hotels, entertainment venues and travel. This has been true domestically in many countries and has been even more obvious when one looks at international travel and tourism.

In a news release from the UN World Tourism Organization (“UNWTO”) on 28 April 2020, the toll on global tourism is reviewed, and the facts are shocking. See https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2020-04/200428%20-%20Travel%20Restrictions%20EN.pdf. The news release is copied below and is followed by the full report (embedded).

“100% OF GLOBAL DESTINATIONS NOW HAVE COVID-19 TRAVEL RESTRICTIONS, UNWTO REPORTS

Madrid, Spain, 28 April 2020 – The COVID-19 pandemic has prompted all destinations worldwide to introduce restrictions on travel, research by the World Tourism Organization (UNWTO) has found. This represents the most severe restriction on international travel in history and no country has so far lifted restrictions introduced in response to the crisis.

“Following up on previous research, the latest data from the United Nations specialized agency for tourism shows that 100% of destinations now have restrictions in place, of these, 83% have had COVID-19-related restrictions in place already for four or more weeks and, as of 20 April, so far no destination has lifted them.

“UNWTO Secretary-General Zurab Pololikashvili said: ‘Tourism has shown its commitment to putting people first. Our sector can also lead the way in driving recovery. This research on global travel restrictions will help support the timely and responsible implementation of exit strategies, allowing destinations to ease or lift travel restrictions when it is safe to do so. This way, the social and economic benefits that tourism offers can return, providing a path to sustainable recovery for both individuals and whole countries.’

Tracking Restrictions by Time and Severity

“As well as a general overview, the UNWTO research breaks down the type of travel restrictions that have been introduced by destinations in all of the global regions, while also plotting the evolution of these restrictions since 30 January – when the World Health Organization (WHO) declared COVID-19 a Public Health Emergency of International Concern. The latest analysis shows that, of 217 destinations worldwide:

“• 45% have totally or partially closed their borders for tourists – ‘Passengers are not allowed to enter’

“• 30% have suspended totally or partially international flights – ‘all flights are suspended’

“• 18% are banning the entry for passengers from specific countries of origin or passengers who have transited through specific destinations

“• 7% are applying different measures, such as quarantine or self-isolation for 14 days and visa measures.

“Against this backdrop, UNWTO has been leading calls for governments worldwide to commit to supporting tourism through this unprecedented challenge. According to Secretary-General Pololikashvili, the sudden and unexpected fall in tourism demand caused by COVID-19 places millions of jobs and livelihoods at risk while at the same time jeopardising the advances made in sustainable development and equality over recent years.” (emphasis and italics in the original)

TravelRestrictions-28-April

UNWTO data show roughly 1.5 billion arrivals of travelers around the world in 2019 following a long-term growth record in arrivals, accounting for 10% of global jobs and $1.5 trillion of international tourism receipts. See https://www.unwto.org/healing-solutions-tourism-challenge. The UNWTO in late March projected a decline in international tourism receipts for 2020 of 20-30% from 2019 (or $300-450 billion). See https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2020-03/200327%20-%20COVID-19%20Impact%20Assessment%20EN.pdf. The situation is likely more precarious as we enter May with the continued global economic harm flowing from government actions to address the continued strong expansion of number of confirmed cases worldwide and deaths. As noted, every government with international tourism has introduced and continues to maintain travel restrictions. Stay at home orders have closed restaurants (other than take out or delivery), hotels, entertainment venues and more.

While all countries and territories are adversely affected by the toll on international tourism from the pandemic, the harm is greater to island nations and poorer countries where tourism is a high percentage of total GDP. Even for advanced countries, the importance of tourism can be critical to a functioning economy. In the EU, a recent article indicates that 10% of GDP is from tourism with some countries (Greece and Malta) having much higher percentages (20-25%). See https://www.dw.com/en/when-and-how-post-coronavirus-travel-in-the-eu-is-up-in-the-air/a-53273416

Commitments for tourism and travel services under the World Trade Organization

Many World Trade Organization Members have undertaken tourism and travel-related service commitments. As noted on the WTO webpage on Tourism and travel-related services, https://www.wto.org/english/tratop_e/serv_e/tourism_e/tourism_e.htm, more than 125 WTO members have made services commitments in the tourism area (hotels, restaurants (including catering), travel agencies, tour operator services tourist guide services, etc.). A note from the WTO Secretariat in 2009 provides information on commitments undertaken by Member (at that time, more countries have joined the WTO in the decade since the note) as well as providing other information on travelers by country and receipts. See S/C/W/298 (8 June 2009) embedded below.

SCW298

But, as with trade in goods, trade in services has general exceptions which permit Members to adopt or enforce measures “necessary to protect human, animal or plant life or health” as long as such measures “are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services”. GATS Article XIV(b). Measures adopted in response to the COVID-19 pandemic restricting travel (and resulting effects on other services) have not been challenged at the WTO and would be likely found permissible even if challenged.

Many of the actions governments are taking to keep supplies of medical goods and food moving are only tangentially relevant to tourism in the broad sense, though of assistance to those needing to travel or moving goods. Removal of restrictions will likely occur over time and tourism’s return will also depend on confidence of consumers in the safety of travel, of dining out, of staying in hotels and of attending entertainment events. That confidence is likely going to flow primarily from the adequacy of testing, tracking and quarantining of those found to be infected, and ultimately with the development and widespread availability of a vaccine.

UNWTO recommendations for actions to address the pandemic and accelerate recovery

In a publication released on April 1, 2020, the UNWTO identifies 23 actions they seek governments to embrace broken into three topics:

1, “Managing the crisis and mitigating the impact” (1-7);

2. “Providing stimulus and accelerating recovery” (8-16)’

3. “Preparing for tomorrow” (17-23).

The 23 action recommendations are listed below. The full UNWTO document is embedded after that. As the list of action recommendations reveals, some of the action recommendations are included in actions already taken by major countries including China, the EU and its members, the United States and others. Actions reviewed in earlier posts by the IMF and others may permit some of these action recommendations to be implemented by some of the developing and least developed countries. Many of the recommendations will likely not be addressable in the near term but may encourage collective activity post pandemic.

“1. Incentivize job retention, sustain the self-employed and
protect the most vulnerable groups

“2. Support companies’ liquidity

“3. Review taxes, charges, levies and regulations impacting
transport and tourism

“4. Ensure consumer protection and confidence

“5. Promote skills development, especially digital skills

“6. Include tourism in national, regional and global economic
emergency packages

“7. Create crisis management mechanisms and strategies

“8. Provide financial stimulus for tourism investment and
operations

“9. Review taxes, charges and regulations impacting travel and
tourism

“10. Advance travel facilitation

“11. Promote new jobs and skills development, particularly
digital ones

“12. Mainstream environmental sustainability in stimulus and
recovery packages

“13. Understand the market and act quickly to restore
confidence and stimulate demand

“14. Boost marketing, events and meetings

“15. Invest in partnerships

“16. Mainstream tourism in national, regional and international
recovery programmes and in Development Assistance

“17. Diversify markets, products and services

“18. Invest in market intelligence systems and digital
transformation

“19. Reinforce tourism governance at all levels

“20. Prepare for crisis, build resilience and ensure tourism is
part of national emergency mechanism and systems

“21. Invest in human capital and talent development

“22. Place sustainable tourism firmly on the national agenda

“23. Transition to the circular economy and embrace the SDGs.” (Sustainable Development Goals).

COVID19_Recommendations_English_1

Conclusion

As the world is exploring ways to reopen individual economies as the worst of COVID-19 (at least phase 1) passes, governments will be under enormous pressure to reopen as quickly as is responsible to do. As data from the UNWTO demonstrate, travel and tourism is a labor intensive sector which has outgrown overall economic growth in the last decade and which can help facilitate recovery when economies are able to reopen.

There are huge challenges in the short- and medium-term for the sector including the depth of the decline, the fragility of many of the businesses financially and the challenges to restoration of consumer confidence. With the United States alone having recorded nearly 30 million people filing for unemployment over the last six weeks, the size of the economic challenge globally is obviously massive. The UNWTO recommended actions address an array of certain needs for many players. For those businesses that survive the pandemic, restoring consumer confidence and having governments withdraw restrictions safely will become the biggest challenges to forward movement. Government actions during the pandemic to provide safety nets for businesses and workers will influence how many businesses and jobs remain when markets do reopen.

Shifting Trade Needs During the COVID-19 Pandemic

As of April 28, the number of confirmed COVID-19 cases around the world is over three million. The EU/UK and U.S. have dominated the number of cases and number of deaths to the present time after the start of the pandemic in China. The EU and UK have more than one million cases and more than 120,000 deaths. The United States will likely surpass one million cases by the end of April 28th with deaths above 55,000. . Together they accounted for roughly 70% of cases through April 27 and 84% of deaths.

But the rate of growth is expanding in other parts of the world while number of new cases is shrinking in Europe and flatlining in the United States. The data below look at the number of cases on April 27 and the percent growth of new cases measuring a fourteen day period ending on April 27 compared to a fourteen day period ending on April 11. What the table makes clear is that Europe has been going through a period of declining numbers (percentage less than 100%), North America (based on the US) is close to zero growth (though Mexico’s 14 day numbers more than tripled) , while parts of Africa, Central and South America and some countries in Asia are experiencing rapid growth, albeit generally from low levels. China has largely gotten through the first wave and so numbers for both fourteen day periods are quite low even though the ratio is close to 100%.

Country/Area Number of cases April 27 ratio 14 day cases 4-27/4-11

EU27 908,316 59.65%

UK 152,840 123.03%

4 (Switz., Nrwy, Icel, Lich) 38,358 31.70%

United States 965,910 102.89%

Canada 46,884 128.99%

Mexico 14,677 320.31%

Japan 13,385 159.30%

South Korea 10,738 20.68%

Singapore 13,624 942.40%

China 84,199 93.57%

India 27,892 285.06%

Iran 90,481 52.41%

Turkey 110,130 128.65%

Russia 80,949 599.02%

21 African countries 29,479 185.71%

8 South & Central America 146,515 249.48%

World Total 2,914,507 104.44%

Source; European Centre for Disease Prevention and Control, situation update worldwide, as of 27 April 2020 and 11 April 2020.

As the growth in the number of new cases slows in many developed countries while ramping up in other countries, there will be increasing needs for medical supplies (medicines, equipment, personal protective equipment and other supplies) in countries or territories that heretofore have not had large supply needs.

At the same time, needs for some types of equipment may be reduced in countries that have gotten past the worst of the first wave. Ventilators would be a case in point. In the United States, as hard hit areas like New York see lower hospitalization rates, the state has been able to forward some ventilators to other states with growing case loads. Similarly, the United States has moved from a situation of buying ventilators abroad to being able to send ventilators abroad. That ability is presumably increasing as expanded U.S. production of ventilators kicks into higher gear as we get to the end of April.

Countries like China that have largely gotten through the first wave of COVID-19 have moved from being large importers of medical supplies to being able to export significant quantities of various supplies, including personal protective equipment. They have also ramped up production of some medical supplies and so should be able to both handle any internal needs and continue to expand exports to the world.

However, for countries that have gotten into a period of declining new cases or even flat growth, needs for personal protective equipment, disenfectant, testing equipment and supplies will continue to grow as these countries deal with both ongoing needs for hospital care and the significant increase in testing and tracing needed for a safe reopening of countries and the likely change in protective gear needed for citizens freed from stay at home orders.

Prior posts have reviewed efforts by the multilateral organizations like the WHO, IMF, World Bank, FAO, WCO and WTO to facilitate transparency, financial and other needs of the world during the pandemic as well as efforts at coordinated actions by the G20.

Faced with the worst pandemic in more than a century, the world was generally caught flat footed and without adequate supplies to address the needs of individual countries or the world as a whole.

Transparency and efforts to keep markets open are two of the trade focuses of governments and the WTO. However, a health crisis during a time of grossly inadequate medical supplies has resulted in many countries taking at least temporary actions to secure medical supplies needed for domestic demand. This has occurred through export restraints, commandeering domestic production, using laws aimed for national emergencies and other actions which favor the large and wealthy over other parties.

There appears to be little or no international efforts to coordinate expansion of critical supplies or to monitor demand vs. supply availability to maximize utilization of the scarce supplies that are available in areas hardest hit. If in fact, the pandemic is gaining steam in developing and least developed countries, there is an increasing need for coordinated action in supporting these countries in the weeks and months ahead.

In that regard, Deputy Director-General Alan Wolff provided virtual remarks on April 20th to an event hosted by the Center for China and Globalization in Beijing on the role of the WTO in assisting in the response to the COVID-19 pandemic. The link to the presentation is here and the materials off of the WTO webpage are embedded below. https://www.wto.org/english/news_e/news20_e/ddgaw_20apr20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff_-Policy-coordina

While DDG Wolff recognizes that any action by the WTO is based upon initiatives from Members, he includes a series of “[a]genda items for a WTO COVID 19 Response”. Some of the agenda items have been pursued by individual WTO members as well as being part of an agreement between Singapore and New Zealand. These would include tariff suspensions on relevant medical supplies and enhanced trade facilitation for medical supplies. The WTO membership has already authorized transparency on actions taken, although Members have at best a spotty performance in providing the transparency agreed to.

The proposed agenda includes items that appear to be more aspirational in nature, at least during the current pandemic, including an agreement on codes of conduct on topics such as “guidelines on allocating scarcity”, “an accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form)”. Such issues will likely have greater likelihood of success after the pandemic has passed.

Of great interest to me is the last posting under “Codes of conduct, best practices and international understandings resulting in” which is “Coordinated efforts to enhance manufacturing of medical equipment and supplies”. It is possible that there are efforts within the WTO or the OECD or other groups to gather information on current capacities and planned expansions. Such an effort if not currently occurring should be made a priority during the pandemic and going forward. As China’s experience demonstrated (where demand in China for masks exceeded China production by ten-to-one during the peak increase in cases), supply is unlikely to meet demand in individual countries without better coordination amongst countries and without a greater global inventory buffer to address extraordinary demand surges.

The last agenda item proposed by DDG Wolff is the “Formation of a WTO Member Emergency Covid 19 Response Committee (ERC) or Task Force”. One would hope that an ERC could be quickly created within the WTO although many Members have shown reluctance during the pandemic (at least during the time where in-person meetings are not possible) to agree to any substantive decisions, although being open to collect information. It is also unclear how quickly an ERC, if created, would be able to advance proposals of interest to Members. But it could certainly be a group focused on gathering greater information relevant to supplies and demand as well as restrictions and liberalizations.

Finally, DDG Wolff in looking at planning for the future advances the idea of creating a WTO Committee for Policy Planning. “It is necessary to assure that there is dedicated policy planning capacity within the WTO Secretariat and networked with Members, including experts in capitals who would be able to participate remotely.” Such a Committee could hopefully, inter alia, help WTO Members come up with policies and rules that would better prepare the world for any future pandemics. While much of what is required to minimize the effects of future pandemics is not within the WTO’s jurisdiction, there are certainly areas that are. Many of those include the items DDG Wolff has included in his suggested agenda for the WTO in response to COVID-19. Hopefully, if not doable during the pandemic, such agenda items will be addressed aggressively after the pandemic, perhaps through a Committee for Policy Planning.

Conclusion

The current health pandemic is continuing at a high level but with growing infections starting to shift geographical areas of interest. As developing countries and least developed countries become areas of increased cases, the challenges of ensuring adequate medical supplies to those in need will become greater and be complicated by health infrastructure in many countries, financial resources, and continued supply/demand imbalances. The best hope for positive outcomes is greater coordination of activity and expanded financial resources available to those in need. The seemingly largest gap in coordinated activity is in the area of current supply abilities, growth in capacity and shifting demand needs. Hopefully international organizations like the WTO can help fill the gap.

Oil and gas sector suffers declining demand, collapsing prices, expanded state involvement — skewed economic results damage much of the global economy

The United States and many other countries view the World Trade Organization as the forum for global trade rules that support market economies. One of the challenges for the WTO going forward is what to do with the important Members whose economic systems are not anchored in market economic principles. While China is the most frequently mentioned WTO Member whose economic system is causing massive disruptions for market economies, there are other countries with important sectors that are state-owned, controlled and directed. The United States, European Union and Japan have been working on proposals for modifications of WTO rules to address distortions flowing from massive industrial subsidies and state controlled sectors that do not operate on market principles.

While WTO reform is not likely to see serious engagement by WTO Members before the COVID-19 pandemic is brought under control, the sharp contraction of economic activity in many countries is highlighting the importance for WTO Members actually addressing the role of the state in industry and rule changes needed to avoid the massive distortions that state involvement too often created.

Oil and Gas as an Example

Few industrial sectors have as much state ownership and control as the oil and gas sector. While there are countries with privately owned producers, much of the world operates with producers that are state owned or state controlled. Since the 1960s, a number of countries have engaged in cartel-like activity to collectively address production levels to achieve desired price levels. While many of these countries are part of the Organization of Petroleum Exporting Countries (“OPEC”), OPEC meets with other countries as well in an effort to achieve production and pricing levels. Current OPEC members include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela.

The activity has resulted in artificial pricing levels in export markets as compared to prices in home markets of OPEC members and periodic price shocks based on collective action. Large price increases in the 1970s led to high levels of inflation and rapid changes to manufacturing operations in some countries.

  1. Economic contraction as countries struggle to limit spread of the coronavirus

There has been a sharp contraction in demand for petroleum products in 2020 as countries have shut down movement of people in an effort to control the spread of COVID-19. Air travel has been decimated in many parts of the world and there are significant reductions in automobile travel. Manufacturing has also seen significant reductions. The contractions have resulted not only in national reductions in use of petroleum products but also international reductions both directly (reduced air traffic and ship traffic) and because of disruptions to supply chains which have reduced downstream production.

The U.S.-China Economic and Security Review Commission released a staff research report on April 21, 2020 entitled “Cascading Economic Impacts of the COVID-19 Outbreak in China” which reviews information on the wide range of economic impacts from the COVID-19 pandemic as felt in the U.S. https://www.uscc.gov/sites/default/files/2020-04/Cascading_Economic_Impacts_of_the_Novel_Coronavirus_April_21_2020.pdf. The report includes a section entitled “Turmoil in Energy Markets” which states,

“The standstill in Chinese production and halt in flows of goods and people has drastically depressed Chinese demand for energy products such as crude oil and liquified natural gas (LNG), adding pressure to an oil supply glut that had materialized at the end of 2019.99 In December of 2019, Institute of International Finance economist Garbis Iradian had forecasted a supply glut, pointing to high output from Brazil, Canada, and the United States.100 The COVID-19 outbreak exacerbated this challenging outlook. As the Organization of the Petroleum Exporting Countries (OPEC) reported in April 2020: ‘The largest ever monthly decline in petroleum demand in China occurred in February 2020.’101 Chinese oil demand ‘shrank by a massive 3.2 million barrels per day’ over the prior year.102 Research by OPEC forecasted China’s 2020 demand for oil will decrease by 0.83 million barrels per day over 2019.103 As the largest oil importer,104 Chinese oil consumption has a significant impact on global demand. In 2019, China accounted for 14 percent of global oil demand and more than 80 percent of growth in oil demand.105 Following the outbreak in China, the OPEC Joint Technical Committee held a meeting on February 8 to recommend new and continued oil production adjustments in light of “the negative impact on oil demand” due to depressed economic activity, “particularly in the transportation, tourism, and industry sectors, particularly in China.”106 In LNG markets, on February 10, Caixin reported Chinese state-owned oil giant China National Offshore Oil Corp. (CNOOC) requested a reduction of an unknown quantity in LNG shipments, invoking a “force majeure” clause due to COVID-19.107 S&P Global Platts, an energy and commodities analysis group, stated China’s LNG imports in January and February fell more than 6 percent over the same period in 2019.108

Prices have also dropped in this period. OPEC’s reference price index fell from $66.48 per barrel in December 2019 to $55.49 per barrel in February 2020, a drop of 19.8 percent.109 These price cuts are causing financially strapped* U.S. energy producers to cut back investment in oil and gas projects as profits erode. The U.S. Energy Information Administration forecasts that the current drop in oil prices will lead to lower U.S. crude oil production beginning in the third quarter of 2020.110″

The complete report is embedded below (footnotes 99-110 can be found on page 22 of the report).

USCC-staff-research-Cascading_Economic_Impacts_of_the_Novel_Coronavirus_April_21_2020

2. State-owned or controlled oil companies create further crisis

With a sharp contraction in oil demand, one would expect falling oil prices and reductions in global production over time. OPEC efforts to achieve reductions in production amongst themselves and Russia didn’t work out with Russia walking out of talks to reduce production to prevent further price declines. Russia and Saudi Arabia then engaged in a price war which resulted in further sharp price reductions in March and early April, large surpluses of oil in the market, with dwindling storage capacity for surplus production. See, e.g., https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war (and sources cited therein). Below is a graph of crude oil prices from 2015 through April 2020.

3. April Agreement to Reduce Production Beginning in May and June 2020

The United States, concerned with the collapse of oil prices and the effects on U.S. producers and oil/gas field companies, engaged in outreach to both Saudi Arabia and Russia to seek a solution. OPEC members, Russia and many others (including the United States) agreed to global production reductions of close to 10 million barrels/day beginning in May and carrying through June, with smaller reductions for later periods, in an effort to bring about balance between supply and demand. See, e.g., April 12, 2020, AP article, “OPEC, oil nations agree to nearly 10M barrel cut amid virus,” https://apnews.com/e9b73ec833e9a5ad304a69e3b9b86914. The U.S. Department of Energy has a webpage that reviews statements by members of Congress and others on the OPEC+ deal.

Because the agreement kicks in at the beginning of May, the continued production and reductions in available storage for oil resulted in further declines in oil prices, with prices on April 20 going negative for the first time in history. Prices have recovered somewhat in the last several days. https://www.cnbc.com/2020/04/24/oil-prices-could-remain-under-pressure-according-to-satellite-imagery-analysis.html; https://oilprice.com/Latest-Energy-News/World-News/OPECs-No3-Already-Started-Cutting-Oil-Supply.html.

WTO Challenges

Joint action during the global COVID-19 pandemic may be understandable and in keeping with the resort to extraordinary measures by governments during the crisis to preserve health and economies. Nonetheless, the extraordinary distortions that flow to global commerce from joint government activity limiting production of oil and gas products or establishing minimum prices for export have been ignored within the GATT and now the WTO for decades. This is unfortunate as the distortions affect both competing producers of the products in question in other countries and also downstream users and consumers more broadly. The overall distortions over time are certainly in the trillions of dollars.

GATT Art. XX(g) permits governments to enforce measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.” While there have been some cases where Art. XX(g) has been examined, actions by OPEC or OPEC+ countries to limit production (and hence exports) have never been challenged.

While there are national antitrust laws in many countries, such laws (such as those in the United States) don’t make government interference in the economy or government restrictions on export actionable despite the harm to consumers and to downstream manufacturers.

In a consensus based system like the WTO, the likelihood of obtaining improved rules on state-owned or state-invested companies or to restrict governments’ ability to unilaterally or jointly restrict production and exports seems implausible. This is especially true on oil and gas with Saudi Arabia and Russia as WTO Members. The US-EU-Japan initiative hasn’t yet fleshed out possible rule changes for state entities, so one may see some efforts in the coming years that could be useful if accepted by the full membership. But if there is to be meaningful WTO reform, agreeing on rules for the actions of governments that affect production and trade in goods and services is clearly of great importance. Without such rules, the WTO will not actually support market economies in critical ways.

Modifying antitrust laws is the other option, but one which legislators have been unwilling to address over the last fifty years. It is not clear that there are current champions of such modifications in the United States or in other major countries.

Conclusion

There are many sectors of economies that are being seriously adversely affected by efforts to control the spread of COVID-19. Governments are taking extraordinary actions to try to prevent their economies from collapsing under the strains of social distancing.

The oil and gas sector is one where there has been significant negative volume and price effects. Unfortunately the extent of the negative volume and price effects is driven in large part by the actions of governments who are preventing the global market for these products from functioning correctly, just as government actions have interfered in the functioning of these markets for the last fifty-sixty years.

The recent agreement to slash global production by nearly 10 million barrels per day was needed in light of the extensive government interference that has characterized the market and the actions by Russia and Saudi Arabia in March and early April.

More importantly, the long-term government involvement and interference with the functioning of the sector should cause trade negotiators and legislators to be looking at how to reform the WTO and/or modify national laws to prevent government ownership, control or cartel-like actions from distorting trade flows and economies. The need is pressing, but don’t hold your breath for action in the coming years.

Food Security Complications from COVID-19 – Recent UN Information and G20 and WTO Member Statements

With the global health crisis flowing from the COVID-19 pandemic ongoing, the world is also facing the specter of mass starvation flowing from a combination of ongoing armed conflicts, weather events, export restraints on food and potential disruptions in food supply. Export restraints and disruptions in food supply are increasing based on actions to address the COVID-19 pandemic.

Governments of the world are understandably focused on the health pandemic where known deaths since December are approaching 200,000 with confirmed cases over 2.5 million and continuing to increase. To date Europe and the United States and a few other countries account for the vast majority of confirmed cases and deaths from COVID-19, though nearly all countries have some cases and many other countries could see rapidly growing cases in the weeks and months ahead.

In contrast, the number of people in the world facing acute hunger and possible starvation is staggering with death projections for 2020 in key months of likely shortage as high as 300,000/day or more without concerted efforts to prevent! On April 21, David Beasley, the UN World Food Programme Executive Director made a virtual presentation to the UN Security Council. https://www.wfp.org/news/wfp-chief-warns-hunger-pandemic-covid-19-spreads-statement-un-security-council. His statement is reproduced below.

Forgive me for speaking bluntly, but I’d like to lay out for you very clearly what the world is facing at this very moment. At the same time while dealing with a COVID-19 pandemic, we are also on the brink of a hunger
pandemic.

“In my conversations with world leaders over the past many months, before the Coronavirus even became an issue, I was saying that 2020 would be facing the worst humanitarian crisis since World War II for a number of reasons.

“Such as the wars in Syria and Yemen. The deepening crises in places like South Sudan and, as Jan Egeland will no doubt set out, Burkina Faso and the Central Sahel region. The desert locust swarms in Africa, as Director General Qu highlighted in his remarks. And more frequent natural disasters and changing weather patterns. The economic crisis in Lebanon affecting millions of Syrian refugees. DRC, Sudan, Ethiopia. And the list goes on. We’re already facing a perfect storm.

“So today, with COVID-19, I want to stress that we are not only facing a global health pandemic but also a global humanitarian catastrophe. Millions of civilians living in conflict-scarred nations, including many women and children, face being pushed to the brink of starvation, with the spectre of famine a very real and dangerous possibility.

“This sounds truly shocking but let me give you the numbers: 821 million people go to bed hungry every night all over the world, chronically hungry, and as the new Global Report on Food Crises published today shows, there are a further 135 million people facing crisis levels of hunger or worse. That means 135 million people on earth are marching towards the brink of starvation. But now the World Food Programme analysis shows that, due to the Coronavirus, an additional 130 million people could be pushed to the brink of starvation by the end of 2020. That’s a total of 265 million people.

“On any given day now, WFP offers a lifeline to nearly 100 million people, up from about 80 million just a few years ago. This includes about 30 million people who literally depend on us to stay alive. If we can’t reach these people with the life-saving assistance they need, our analysis shows that 300,000 people could starve to death every single day over a three-month period. This does not include the increase of starvation due to COVID-19.

“In a worst-case scenario, we could be looking at famine in about three dozen countries, and in fact, in 10 of these countries we already have more than one million people per country who are on the verge of starvation. In many places, this human suffering is the heavy price of conflict.

“At WFP, we are proud that this Council made the historic decision to pass Resolution 2417 in May 2018. It was amazing to see the council come together. Now we have to live up to our pledge to protect the most vulnerable and act immediately to save lives.

“But this is only in my opinion only the first part of the strategy needed to protect conflict-riven countries from a hunger pandemic caused by the Coronavirus. There is also a real danger that more people could potentially die from the economic impact of COVID-19 than from the virus itself.

“This is why I am talking about a hunger pandemic. It is critical we come together as one united global community to defeat this disease, and protect the most vulnerable nations and communities from its potentially devastating effects.”

Lockdowns and economic recession are expected to lead to a major loss of income among the working poor. Overseas remittances will also drop sharply – this will hurt countries such as Haiti, Nepal, and Somalia just a name a couple. The loss of tourism receipts will damage countries such as Ethiopia, where it accounts for 47% of total exports. The collapsing oil prices in lower-income countries like South Sudan will have an impact significantly, where oil accounts for 98.8% of total exports. And, of course, when donor countries’ revenues are down, how much impact will this have on life saving foreign aid.

The economic and health impacts of COVID-19 are most worrisome for communities in countries across Africa as well as the Middle East, because the virus threatens further damage to the lives and livelihoods of people already put at risk by conflict.

“WFP and our partners are going all-out to help them we’ll do everything we possibly can. For example, we know that children are particularly vulnerable to hunger and malnutrition, so we are prioritizing assistance to them.

“Right now, as you may now 1.6 billion children and young people are currently out of school due to lockdown closures. Nearly 370 million children are missing out on nutritious school meals – you can only imagine when children don’t get the nutrition they need their immunity goes down. Where nutritious school meals have been suspended by school closures, we are working to replace them with take-home rations, wherever possible.

“As you know, WFP is the logistics backbone for the humanitarian world and even more so now for the global effort to beat this pandemic. We have delivered millions upon millions of personal protective equipment, testing kits and face masks to 78 countries on behalf of the World Health Organization. We are also running humanitarian air services to get frontline health professionals doctors, nurses, and humanitarian staff into countries that need help, especially while passenger air industry is basically about shut down.

“But we need to do so much more, and I urge this Council to lead the way. First and foremost, we need peace. As the Secretary-General recently said very clearly, a global ceasefire is essential.

Second, we need all parties involved in conflicts to give us swift and unimpeded humanitarian access to all vulnerable communities, so they can get the assistance to them that they need, regardless of who they are or where they are. We also need in a very general sense humanitarian goods and commercial trade to continue flowing across borders, because they are the lifeline of global food systems as well as the global economy. Supply chains have to keep moving if we are going to overcome this pandemic and get food from where it is produced to where it is needed. It also means resisting the temptation to introduce export bans or import subsidies, which can lead to price hikes and almost always backfire.

“WFP is working hand in glove with governments to build and strengthen national safety nets. This is critical right now to ensure fair access to assistance and help maintain peace and prevent rising tensions among communities.

Third, we need coordinated action to support life-saving humanitarian assistance. For example, WFP is implementing plans to preposition three months’ worth of food and cash to serve country operations identified as priorities. We are asking donors to accelerate the (US) $1.9 billion in funding that has already been pledged, so we can build stockpiles and create these life-saving buffers, and protect the most vulnerable from the effects of supply chain disruptions, commodity shortages, economic damage and lockdowns. You understand exactly what I’m talking about.

“We are also requesting a further USD350 million to set up a network of logistics hubs and transport systems to keep humanitarian supply chains moving around the world. They will also provide field hospitals and medical evacuations to the frontline humanitarian and health workers, as needed and strategically.

“Excellencies, two years ago the Security Council took a landmark step when it recognized, and condemned, the devastating human toll of conflict paid in poverty and hunger. Resolution 2417 also highlighted the need for early warning systems, and today I am here to raise that alarm.

“There are no famines yet. But I must warn you that if we don’t prepare and act now – to secure access, avoid funding shortfalls and disruptions to trade – we could be facing multiple famines of biblical proportions within a short few months.

“The actions we take will determine our success, or failure, in building sustainable food systems as the basis of stable and peaceful societies. The truth is, we do not have time on our side, so let’s act wisely – and let’s act fast. I do believe that with our expertise and partnerships, we can bring together the teams and the programs necessary to make certain the COVID-19 pandemic does not become a humanitarian and food crisis catastrophe. So Mr. President, thank you, thank you very much.

Emphasis added. See also https://news.un.org/en/story/2020/04/1062272.

The 2020 Global Report on Food Crises mentioned in Mr. Beasley’s statement can be found here and is embedded below. https://docs.wfp.org/api/documents/WFP-0000114546/download/?_ga=2.200353390.1965067900.1587648297-1190105299.1587648297.

GRFC_2020_ONLINE_200420

Fifty-six countries or territories are listed as at various levels of concern for hunger in 2019 and potentially for 2020 and are summarized on pages 214-215 of the report. Eleven of the fifty-six countries or territories are categorized as at a phase 4 level (emergency) for the country as a whole or for particular parts. These include Afghanistan, Angola, the Central African Republic, the Democratic Republic of Congo, Haiti, Nigeria, South Sudan, Sudan, Yemen, Zambia, and Zimbabwe. Twenty-one others are categorized as phase 3 (crisis). These include Burkino Faso, Cameron, Chad, Eswatini, Ethiopia, Guatemala, Honduras, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mozambique, Namibia, Niger, Pakistan, Senegal, Sierra Leone, Somalia, Uganada, and the United Republic of Tanzania. Eight countries or territories were ranked phase 2 (stressed). These included Cabo Verde, Cote d’Ivoire, El Salvador, Gambia, Guinea, Guinea-Bissau, Kenya and Nicaragua. Two countries or territories were listed as phase 1 (minimal)(Burundi and Rwanda). The remaining fourteen countries or territories had not been given a specific phase, some because the problem related to the presence of large numbers of refugees and what might happen during the year; for others the descriptions of the hunger challenges would suggest serious problems. These countries or territories include Bangladesh, Colombia, Djibouti, Ecuador, Iraq, Lebanon, Liberia, Libya, Myanmar, Palestine, Syrian Arab Republic, Turkey, Ukraine, and Venezuela.

While the bulk of the concerns raised in the report go to ongoing conflicts and weather problems, trade restrictions are potentially important contributors. As reviewed in an earlier post, a number of countries have imposed export restraints on certain agricultural goods. With the exception of Myanmar and Ukraine who are listed in the 2020 Global Report on Food Crises, the other countries reviewed in my earlier post are not included in the report. These countries include Russia, Kazakhstan, Vietnam, Malaysia, the Philippines, Thailand, Indonsia and Cambodia. The earlier post is linked below.

G20 Agriculture Ministers Communique

Following a virtual meeting on April 21, G20 Agriculture Ministers released a Ministerial Statement that reaffirmed “the importance of working to ensure the continued flow of food, products and inputs essential for agircultural and food production”. The Statement can be found here. https://g20.org/en/media/Documents/G20_Agriculture%20Ministers%20Meeting_Statement_EN.pdf. The statement covers a fair amount of ground but doesn’t prohibit export restraints per se in agriculture but rather repeats the limitations (reflecting existing WTO flexibilities) that trade ministers articulated for medical supplies – any restraints should be targeted, proportionate, transparent, and temporary. The full statement is reproduced below.

“We, the G20 Agriculture Ministers, are deeply saddened by the devastating human losses and suffering caused by the spread of COVID-19. We commit to cooperating closely and taking concrete actions to safeguard global food security and nutrition.

‘We reaffirm the importance of working to ensure the continued flow of food, products, and inputs essential for agricultural and food production across borders in line with our Leaders’ Statement on COVID-19 of March 26, 2020. We acknowledge the challenges of minimizing the risk of COVID-19 while keeping food supply chains functioning. We will continue to work to ensure the health, safety, welfare, and mobility of workers in agriculture and throughout the food supply chain.

We will guard against any unjustified restrictive measures that could lead to excessive food price volatility in international markets and threaten the food security and nutrition of large proportions of the world population, especially the most vulnerable living in environments of low food security. We agree that emergency measures in the context of the COVID-19 pandemic must be targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global food supply chains, and are consistent with World Trade Organization (WTO) rules. We recognise the importance of transparency and commend the Trade and Investment Ministers’ commitment to notify the WTO of any trade-related measures taken, including those related to agriculture and essential foodstuffs. We reaffirm our agreement not to impose export restrictions or extraordinary taxes on food and agricultural products purchased for non-commercial humanitarian purposes by the World Food Programme (WFP) and other humanitarian agencies.

“We emphasize the work of the G20 Agricultural Market Information System (AMIS) and take note of AMIS’ assessment that at present global food supplies are adequate and food markets remain well balanced. As members, we commit and call on other members to continue providing timely and reliable information on global food market fundamentals to help markets, countries, and consumers make informed choices. Where appropriate, we will coordinate policy responses, supported by the AMIS Global Food Market Information Group and the AMIS Rapid Response Forum. We call for continued support for AMIS, including through voluntary financial contributions.

“We will work together to help ensure that sufficient, safe, affordable, and nutritious food continues to be available and accessible to all people, including the poorest, the most vulnerable, and displaced people in a timely, safe, and organized manner, consistent with national requirements. Acknowledging the critical role of the private sector in food systems, we call for enhanced cooperation between the public and private sectors to help mobilize rapid and innovative responses to impacts of this pandemic on the agriculture and food sectors.

“Under the current challenging circumstances, we stress the importance of avoiding food losses and waste caused by disruptions throughout food supply chains, which could exacerbate food insecurity and nutrition risks and economic loss. We stress the need to strengthen the sustainability and resilience of food systems globally, including to future shocks from disease and pest outbreaks, and to the global challenges that drive these shocks. In line with the One Health approach, we call for strengthened mechanisms for monitoring, early warning, preparedness, prevention, detection, response, and control of zoonotic diseases, and developing science-based international guidelines on stricter safety and hygienic measures for zoonosis control.

“We deeply thank farmers and workers, and small, medium and large scale agri-food businesses for their continuous efforts to ensure our food supply. We will intensify our efforts, in line with WTO rules and the 2030 Agenda for Sustainable Development, to support them to sustain their activities and livelihoods during the crisis and to assist their recovery afterwards. Our efforts will support rural communities, especially small-scale farmers and family farms, to be more economically prosperous, resilient and sustainable, and to have improved food security and nutrition, giving special attention to the needs of developing and low-income countries.
We will continue our cooperation with relevant international organizations and within their mandates work to: reinforce international cooperation; identify additional actions to alleviate the impacts of COVID-19 on food security and nutrition; share best practices and lessons learned, such as addressing barriers to supply chains; promote evidence and science-based information and combat misinformation; provide capacity building and technical assistance; and promote research, responsible investments, innovations and reforms that will improve the sustainability and resilience of agriculture and food systems. This work could build on the Food and Agriculture Organization’s (FAO’s) evolving response to COVID-19, the International Fund for Agricultural Development’s (IFAD’s) evolving efforts to support a strong recovery from the effects of COVID-19, policy monitoring and analysis by the OECD, and other relevant initiatives, such as the preparation for the 2021 UN Food Systems Summit.

“We will continue our close cooperation and as necessary update our response to the COVID-19 pandemic and our broader G20 agriculture and food agenda. We stand ready to reconvene as required.” (Emphasis added)

The virtual meeting of G20 Agriculture Ministers included information received from the various UN organizations with expertise. See http://www.fao.org/news/story/en/item/1272058/icode/

The Ministerial Statement is helpful in encouraging nations to maintain open markets, to not tax humanitarian food aid and to provide transparency in actions taken. But the Ministerial Statement does not commit the G20 members to avoid trade restrictions where such restrictions are temporary, targeted, transparent and proportionate. Based on actions taken by China and India during the 2007-2008 food crisis, it is not surprising that the G20 could not get hard commitments to avoid agriculture export restrictions from all G20 members.

As international organizations are serving as transparency fora and are encouraging joint action, it is not surprising that the Ministerial Statement was warmly received by the WTO as the statement supports transparency and WTO consistency of any actions taken.. https://www.wto.org/english/news_e/news20_e/dgra_21apr20_e.htm.

Communique from Various WTO Members

On July 22, twenty-three WTO Members (including the EU) submitted a joint statement to the WTO entitled RESPONDING TO THE COVID-19 PANDEMIC WITH OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS, WT/GC/208, G/AG/30. The statement is embedded below.

WTGC208

The statement cautions countries to avoid actions to address the COVID-19 pandemic that would adversely affect trade in agricultural goods. Absent from the joint statement are important Members who have in the past used or who at present are using export restraints on certain agricultural products including China and India (past export restraints) and Russia, Kazakhstan, Vietnam, Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia (current export restraints).

The joint statement has strong language on keeping markets open (including the negative effects of export restrictions on agriculture and agri-food products), avoiding waste, maintaining effective transport and logistical services, the importance of transparency in actions taken as well as food production and stocks. Nonetheless, because of existing WTO flexibilities provided to Members, the commitments made by the 23 Members include one which maintains the right to emergency measures that are “targeted, proportionate, transparent and temporary, and not create unnecessary barriers to trade or disruption to global supply chains”.

The joint statement is certainly a positive step with eight specific commitments taken by WTO Members who account for 63% of global agricultural exports and 55% of global agricultural imports. Time will tell if the list of supporters of the commitments expands to other major Members.

Conclusion

Based on current and projected food supplies, there should be no crisis in food supplies to the world if there is collective efforts to keep markets open, provide food aid for populations experiencing severe shortages due to conflict, adverse weather events and any adverse effects from the COVID-19 pandemic. Much of what the UN and its World Food Programme seek (cease fires; access to people regardless of conflicts or sanctions) is not likely to happen based on actions by certain major countries. But keeping world markets open and food aid funded hopefully will occur. The consequences of failure in this regard would greatly exacerbate the health and economic costs already experienced from COVID-19.

WTO dispute settlement in 2020 – forward movement or further crisis?

As of April 20, 2020, there has been relatively limited new activity within the WTO on dispute settlement. Indeed just two requests for consultations were filed in the first quarter of 2020. While not the lowest number for the first quarter, it is one of the lowest over the first 25+ years of the WTO existence. The reason or reasons for the low number of disputes is not known. However, many WTO Members are focused on the COVID-19 pandemic at home reducing the focus on WTO activities. Moreover, the pandemic has disrupted the ability of the WTO to conduct business as usual, with no meetings in person having taken place over the last month and with many Members arguing against making substantive decisions during the pendency of the pandemic lockdown in many countries. See https://www.wto.org/english/news_e/news20_e/hod_17apr20_e.htm

There have been a few Appellate Body reports on disputes where Appellate Body hearings had occurred before December 10, 2019 and some panel reports issued in ongoing cases. The Appellate Body will not issue further reports after the plain packaging cases pending a resolution of the impasse on the functioning of the Appellate Body.

Arbitration under Art. 25 of the Dispute Settlement Understanding

The EU and fifteen other WTO Members have agreed to a Multi-Party Interim Arbitration Agreement to permit signatories to use arbitration along agreed lines as a substitute for an appeal within the WTO until the Appellate Body is back functioning. While the agreement has not been notified to the WTO as yet, pending signatories clearing domestic hurdles, the agreement is open to other WTO Members who wish to participate. See March 27 post, https://currentthoughtsontrade.com/2020/03/28/march-27-2020-agreement-on-interim-arbitration-process-by-eu-and-15-other-wto-members-to-handle-appeals-while-appellate-body-is-not-operational/

In an introductory statement by Commissioner Phil Hogan at an informal meeting of EU Trade Ministers on April 16, Commissioner Hogan stated that

“Working with like-minded WTO members since the effective collapse of the Appellate Body last December, we have developed the Multi Party Interim Arbitration Arrangement as a stop-gap to maintain an independent, two step dispute settlement function.

“There are 15 co-signatories alongside the EU, including some of the biggest users of the system, such as Brazil and China. I have also extended a broad invite to the entire membership to join, underlining the inclusive nature of the arrangement.

“There will be 10 arbitrators on the MPIA roster. The EU has the option of nominating a candidate. The nominee will need to be submitted by the end of May. We will notify the TPC of work on this in due course, respecting best practices used for the nomination of members of the Appellate Body heretofore.”

https://ec.europa.eu/commission/commissioners/2019-2024/hogan/announcements/introductory-statement-commissioner-phil-hogan-informal-meeting-eu-trade-ministers_en.

EU’s efforts to retaliate without WTO authorization where Appellate Body is not functioning and defending party does not agree to arbitration

The EU has also been working to develop regulatory authority to impose sanctions without WTO authorization on Members against whom the EU has brought disputes when such Members lose panel decisions at the WTO, don’t participate in arbitration and rather file an appeal when the Appellate Body is not functioning, preventing retaliation at the WTO. See https://www.europarl.europa.eu/meetdocs/2014_2019/plmrep/AUTRES_INSTITUTIONS/COMM/COM/2020/02-19/COM_COM20190623_EN.pdf.

COM_COM20190623_EN

The EU Council and Parliament need to meet to agree to a modified final text. It is assumed that a major target of the EU actions is the United States. There are two pending disputes that the EU has with the US where panels are underway, including the EU challenge to the US Section 232 actions on steel and aluminum and the EU challenge of a countervailing duty order on olives from Spain.

On the 232 dispute, the EU did not pursue a challenge prior to taking retaliation, claiming that the US use of the national security law (Section 232 of the Trade Expansion Act of 1962, as amended) on steel and aluminum was in effect a safeguard action. Thus, the EU claimed it was justified in retaliating to a certain extent immediately consistent with the Safeguard Agreement. The U.S. has filed a dispute challenging the EU’s retaliation as the U.S. action was not taken under U.S. safeguard (escape clause) law but pursuant to a national security law making the EU retaliation inappropriate. Both disputes are pending before panels at the WTO.

The interesting element of the EU’s pursuit of new regulatory authority is its willingness to act outside of the WTO while wrapping itself in the mantle of champion of the multilateral system.

China’s challenge of U.S. tariffs following Section 301 of Trade Act of 1974 investigation (and retaliations by China)

In August 2017, USTR commenced an investigation into whether certain actions of the Chinese government violated Section 301 of the Trade Act of 1974. Forced technology transfer, cybertheft of intellectual property and other issues were investigated by USTR and resulted in a determination in early 2018 of violations of U.S. law. The USTR fact sheet issued in 2018 is attached and embedded below. https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/section-301-fact-sheet.

Section-301-Fact-Sheet-_-United-States-Trade-Representative

Original tariffs imposed when the unfair practices were not addressed by China were $50 billion. Those amounts were increased as China retaliated against the U.S. without authorization from the WTO. Ultimately, the U.S. imposed tariffs on more than $360 billion and China imposed retaliatory tariffs on nearly all of U.S. exports to China.. https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/section-301-fact-sheet.

China filed a WTO dispute after the initial tariffs imposed by the United States. WT/DS543. It filed two additional requests for consultations as the U.S. expanded tariffs on other products, although both of these requests for consulation remain in the consultation phase. WT/DS565 and WT/DS587. The U.S. filed a challenge to China’s retaliation. WT/DS558.

While the panel proceedings have been underway in Geneva, the United States and China reached a Phase One Agreement in January 2020. See prior posts, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/; https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/.

The WTO dispute settlement panel provided a notice to the parties that the panel decision would be available to the parties by the end of June (a little more than two months from now). See WT/DS543/9 (15 April 2020). Because the dispute involves the largest amount of trade (at least when considering the additional actions by both the U.S. and China) of any trade dispute in the history of the WTO, the panel decision will not only be carefully watched by all members but could result in major rifts within the organization by one or both of the parties.

China’s briefs in disputes are typically not publicly available. The U.S. always releases public versions of its briefs. The below excerpt from the first U.S. submission in WT/DS543 gives a glimpse of the importance of the case from the United States perspective. The entire first brief is embedded.

“I. INTRODUCTION

“1. Technology, intellectual property, and innovation are the foundation of the competitiveness of the United States and many other Members in the world economy. China has chosen to adopt a range of policies and practices to obtain an unfair competitive edge over other Members by stealing or otherwise unfairly acquiring their technology and intellectual property. Where those policies or practices can be addressed through WTO rules, the United States is pursuing WTO dispute settlement. Most of China’s practices, however, are not covered by existing WTO disciplines.

“2. In these circumstances, the United States is pursuing its sovereign right to protect its fundamental economic competitiveness from China’s unfair, predatory, and harmful technology-transfer policies. The purpose of the U.S. tariff action is to obtain the elimination of China’s unfair practices, and thereby to promote a fair and sustainable trading system for the United States and all other Members that rely on technology and intellectual property for their competitiveness in world markets. Unfortunately, China has responded not by reforming its unfair technology-transfer policies, but instead by imposing retaliatory tariffs on most U.S. goods.

“3. In pursuing this course of action, China has demonstrated what the Panel should conclude in response to China’s pursuit of this dispute – namely, that this is a bilateral dispute between the United States and China concerning key economic issues not covered by existing WTO rules. In short, this dispute is fundamentally not about WTO rights and obligations.

“4. China’s decision to pursue this dispute represents a profound misuse and abuse of the WTO dispute settlement system. Having already adopted retaliation in response to the U.S. measures aimed at obtaining a fair world trading system, China knows full well that any WTO findings will not contribute to the resolution of the matter. Rather, China’s pursuit of this dispute is a cynical and hypocritical attempt to try to have the WTO side with China in the ongoing dispute involving China’s unfair technology transfer policies. To elaborate:

“5. In bringing this dispute, China seeks to abuse the WTO dispute settlement system by attempting to use it as a shield for a broad range of unfair and trade-distorting technology transfer policies and practices not covered by WTO rules. In doing so, it is China, and certainly not the United States, that – as China puts it – ‘is undermining’1 the viability of the multilateral trading system.

“6. China’s decision to launch this dispute is hypocritical. China is currently retaliating against the United States by imposing duties on most U.S. exports – over $100 billion of trade. China cannot legitimately challenge measures at issue for being “unilateral”2 and WTO-inconsistent, while at the same time openly adopting its own unilateral tariff measures in connection with the very same matter.

“7. The matters related to this dispute are currently subject to bilateral discussions between the Governments of China and the United States. The parties are holding these discussions at multiple levels, including between the leaders of the two disputing parties. It is those bilateral discussions, and not any possible findings to be adopted by the Dispute Settlement Body (“DSB”), that will resolve the important issues arising from China’s unfair and harmful technology transfer policies, from the U.S. response to those policies, and from China’s unilateral retaliation.

“8. Under these circumstances, the outcome of a dispute settlement proceeding would be pointless, and, worse – a misuse by China of the dispute settlement system by trying to have the WTO side with China in support of its fundamentally unfair technology transfer policies. As noted, China has already taken the unilateral decision that the U.S. measures cannot be justified under WTO rules, and on that basis, already imposed tariff measures on most U.S. goods. Accordingly, addressing China’s legal claims would not ‘secure a positive solution to [this] dispute,’3 as China has already adopted the response that China unilaterally has determined is appropriate.

“9. Fundamentally, both the United States and China have recognized that this matter is not a WTO issue: China has taken the unilateral decision to adopt aggressive industrial policy measures to steal or otherwise unfairly acquire the technology of its trading partners; the United States has adopted tariff measures to try to obtain the elimination of China’s unfair and distortive technology-transfer policies; and China has chosen to respond – not by addressing the legitimate concerns of the United States – but by adopting its own tariff measures in an attempt to pressure the United States to abandon its concerns, and thus in an effort to maintain its unfair policies indefinitely.

“10. By taking actions in their own sovereign interests, both parties have recognized that this matter does not involve the WTO and have settled the matter themselves. Accordingly, there in fact is no live dispute involving WTO rights and obligations. Therefore, in light of each party’s action settling the matter, the report of the Panel should “be confined” to a brief description reporting that the parties have reached their own resolution, as provided for in Article 12.7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (‘DSU’).4

“11. Even aside from the fact that the parties have settled the matter through their actions, were the Panel to examine China’s contentions, the Panel would find that the U.S. measures at issue would be justified under WTO rules.

“12. The United States adopted the measures at issue in this dispute to combat China’s longstanding policy and practice of using government interventions, coercion, and subterfuge to steal or otherwise improperly acquire intellectual property, trade secrets, technology, and confidential business information from U.S. companies with the aim of advantaging Chinese companies and advancing China’s industrial policy goals. Although China’s conduct is not addressed by current WTO rules, it is unfair and contrary to basic moral standards. No WTO Member endorses forced technology transfer policies and practices such as those employed by China.

“13. Indeed, such fundamentally unfair policies and practices undermine support for an international trading system that permits such practices to escape discipline, undermine U.S. norms against theft and coercion, and undermine the belief in fair competition and respect for innovation, all of which are key aspects of U.S. culture (as well as that in a number of other Members). ). The United States does not undertake these activities against Chinese citizens or companies. China’s non-reciprocal and morally wrong behaviour further threatens to undermine U.S. society’s belief in the fairness and utility of the WTO trading system, if that system creates the conditions for, and fails to address, a fundamentally uneven playing field. Accordingly, the measures at issue in this dispute are legally justified because they are measures “necessary to protect public morals” within the meaning of Article XX(a) of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”).

“14. Finally, the United States notes that one of the U.S. measures that China is challenging in this dispute is not within the Panel’s terms of reference because it was issued and took effect after China requested the establishment of a panel. Accordingly, for this additional reason, there is no legal basis for the Panel to examine or make any findings with respect to that measure.

“15. The United States emphasizes that a world trading system where one Member can adopt policies to steal or unfairly acquire technology and intellectual property from its trading partners, and where the organization responsible for overseeing world trade would entertain a request to issue findings in support of the Member adopting these unfair actions, is simply unsustainable. In order to maintain the viability and relevance of the WTO, this Panel must reject China’s request that the Panel make findings that China might use as support for maintaining its fundamentally unfair technology transfer policies and practices.

“1 See China’s First Written Submission, para. 5.

“2 See China’s First Written Submission, paras. 3, 4, 5, 24.

“3 See DSU Article 3.7 (Providing in part that “The aim of the dispute settlement mechanism is to secure a positive solution to a dispute.”).

“4 See DSU, Article 12.7 (‘Where the parties to the dispute have failed to develop a mutually satisfactory solution, the panel shall submit its findings in the form of a written report to the DSB. In such cases, the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes. Where a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.’). (emphasis added).”

US.Sub1_.DS543.fin_.public

Canada’s dispute with the U.S. over Countervailing Duty Order on Supercalendered Paper from Canada

Canada pursued a challenge to a countervailing duty investigation and order on supercalendered paper from Canada conducted by the United States and received reports from the panel and Appellate Body that the U.S. actions were inconsistent with WTO obligations. Canada pursued the challenge despite the fact that the order had been revoked retroactively by the United States. In a submission posted today on the WTO website, Canada has given notice that it intends to seek retaliation at such time as the DSB is able to convene (recognizing the present inability to meet because of the COVID-19 lockdown in place). WT/DS505/11 (20 April 2020).

Because the United States has viewed the panel and Appellate Body as having erred in their decisions in the case and because of the importance to the United States of its countervailing duty law in addressing other countries subsidy practices, any such action by Canada is likely to worsen the dynamics in Geneva and in capitals in terms of reaching reform of the dispute settlement system.

Needed reforms of the dispute settlement system

While there has been activity to put in place for some Members an arbitration system, there is little indication of any effort to pursue resolution of the underlying reform needs to the dispute settlement system outlined by the United States over the last several years. See prior posts, https://currentthoughtsontrade.com/2020/03/07/impasse-on-the-wto-appellate-body-any-progress-likely-by-the-12th-ministerial/; https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/; https://currentthoughtsontrade.com/2020/01/30/wto-appellate-body-impasse-how-and-why/.

The COVID-19 pandemic has made forward movement more difficult as attention of most countries, understandably, is focused on the immediate needs of their populations to address the global pandemic.

Conclusion

With the 12th WTO Ministerial Conference already postponed, with meetings at the WTO cancelled through at least April, there has been increasingly diminished hopes for what the WTO can achieve in 2020. While the dumbing down of expectations appears true across the board of the WTO’s reform program and pending negotiations, it is certainly true for reform of the dispute settlement system. The EU and China have engaged in unilateral action regardless of WTO rules (generally where the U.S. has taken actions that the others disagree with and don’t want to work through the WTO system or pursue reform). The U.S. has taken aggressive actions in a number of situations, though they have articulated WTO justifications for the actions which justifications are currently subject to WTO dispute settlement (but usually in situations where the Members challenging the U.S. have unilaterally retaliated without WTO authorization).

With important panel decisions due out yet this year and with EU actions to give itself retaliation rights regardless of WTO authorization while the Appellate Body is nonfunctioning, the likelihood of WTO Members focusing on dispute settlement reform are seemingly nonexistent for the foreseeable future. The ride is likely going to get a lot bumpier in the coming months.

COVID-19 – G20 Finance Ministers and Central Bank Governors April 15, 2020 Communique and G20 Action Plan

With the COVID-19 pandemic continuing to expand globally, with confirmed cases roughly 2.2 million on April 17 and with deaths exceeding 150,000, the world’s major economies continue to meet to promote policies and take individual and collective actions to address the health, social and economic impacts from the pandemic.

The G20 finance ministers and central bank governors met virtually earlier this week in an effort to push forward the overall objectives of G20 leaders. The communique that was released at the end of the virtual meeting included an Annex containing a “G20 Action Plan – Supporting the Global Economy through the COVID-19 Pandemic”. Below is a lengthy excerpt from the opening remarks of Saudi Arabia’s Minister of Finance, H.E. Mr. Mohammed bin Abdullah Al-Jadaan. Saudi Arabia holds the presidency of the G20 in 2020.

“We have just concluded our second G20 Finance Ministers and Central Bank Governors meeting on the margin of the 2020 spring meetings.

“This pandemic has already taken a great toll on our people and on their economic wellbeing, and we are still faced with extraordinary uncertainty about the depth and duration of this global pandemic.

“G20 Leaders, during the G20 Extraordinary Leaders’ Summit on 26 March 2020, recognized the gravity of the intertwined public health and economic crises. They have therefore committed to a globally coordinated response encompassing all necessary measures to combat the COVID-19 pandemic.

“More recently, G20 Finance Ministers and Central Bank Governors convened two extraordinary meetings to reach a consensus on a roadmap that will implement our G20 Leaders’ commitments in responding to COVID-19.

“Ministers and Governors’ urgent collective priority is to overcome the COVID-19 pandemic and its intertwined health, social and economic impacts. We are determined to spare no effort, both individually and collectively, to protect lives, overcome the pandemic, safeguard people’s jobs and incomes, support the global economy during and after this phase and ensure the resilience of the financial system.

“These are unprecedented times that demand swift, strong and significant global action. G20 members have injected over $7 trillion into the global economy to protect jobs, businesses and economies, billions have been allocated to the hunt for vaccines, research and development, protection of front line health workers and addressing trade issues on vital goods. Our
efforts must continue and be amplified.

“Ministers and Governors are committed to use all available policy tools to support the global economy, boost confidence, maintain financial stability and prevent deep and prolonged economic effects. As mandated by the extraordinary G20 Leaders’ Summit, today Ministers and Governors endorsed a G20 Action Plan in response to the COVID-19 pandemic.

“The Plan sets out our commitments to specific actions to drive forward international economic cooperation as we navigate this crisis and look ahead to a robust and sustained global economic recovery.

“Our aim, with the action plan, is to support the necessary health response and measures to increase our collective health resilience for the future, preventing a liquidity crisis turning into a solvency crisis, and a global recession becoming a global depression.

“Ministers and Governors have worked as well to deliver international financial assistance to the developing countries.

“Our actions today include a G20 initiative to suspend debt service payments for the poorest countries. All bilateral official creditors will participate in this initiative, which is an important milestone for the G20. The multilateral development banks are also expected to further explore the options for their participation in this initiative. And through this platform, I also call on private creditors, working through the Institute of International Finance, to participate in this initiative on comparable terms.
In addition, our collective actions today resulted in a comprehensive IMF financial support package and implementing urgently the support proposed by the WBG and the Multilateral Development Banks, amounting to USD 200 billion. Ministers and Governors have also taken exceptional measures to develop bilateral swap lines and repo facilities by central banks.”

The Communique and its Annexes can be found here, http://www.g20.utoronto.ca/2020/2020-g20-finance-0415.html, and the document is embedded below.

Communiqué_-G20-Finance-Ministers-and-Central-Bank-Governors-April-15-2020

The action plan provides a number of useful agreed actions to address the three broad needs for governmental action to respond to the pandemic – the health response (saving lives), pages 3-4; the economic and financial response (supporting the vulnerable and maintaining conditions for a strong recovery), pages 4-6; and returning to strong, sustainable balanced and inclusive growth once containment measures are lifted, pages 6-7. The action plan also reviews what is being done to provide international support to countries in need, pages 7-8, and actions needed to learn from the current pandemic, pages 8-9. Actions through multilateral organizations like the World Bank and IMF and additional actions through regional development banks provide hope for many least developed countries and many developing countries that assistance is forthcoming for each area of primary need. How successful the assistance will be will depend in part on private sector participation in debt payment deferrals and whether G20 governments increase the level of funding made available to the World Bank and IMF.

Not surprisingly, few of the actions outlined in the G20 action plan are trade specific. Most deal with the types of actions needed to help countries and territories get through the pandemic without the collapse of their economies. The focus is on financial needs. However, there is one trade specific action listed in each of the three areas reviewed.

For health – “We agree that emergency trade measures designed to tackle COVID-19, if deemed necessary, must be targeted, proportionate, transparent and temporary, and that they do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules. We are actively working to ensure the continued flow of vital medical supplies and equipment.” Page 4.

For economic and financial response – “As agreed by Trade and Investment Ministers, we will continue to work together to deliver a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.” Page 5.

For returning to strong, sustainable, balanced and inclusive growth — “We look forward to work by the G20 Trade and Investment Working Group to identify, among other things, longer term actions that should be taken to support the multilateral trading system and expedite economic recovery.” Page 6.

As reviewed in prior posts, the lack of greater specificity on trade actions the G20 can agree on reflects in part the existing flexibilities within the WTO permitting governments to take trade restricting actions for certain purposes, including protecting human health. It is also the case that a number of the G20 countries (e.g., China, EU countries, India and the US) have used export restraints already as part of their response to COVID-19. In such a situation, language other than that calling for trade restrictive measures taken to be “targeted, proportionate, transparent and temporary” was unlikely to win agreement from the G20 countries as a whole.

The G20 action plan released by the finance ministers and central bank governors constitutes important ongoing steps by the G20 to provide some coordinated leadership to addressing at least certain global needs flowing from the pandemic.

IMF, OECD and FSB policy tracking tools for government actions to address COVID-19

Attachment I to the G20 Action Plan are links to policy tracking sites on the IMF and the OECD websites. The Attactment also reviews information that is available from the Financial Stability Board. Pages 11-12 describes the policy tracking sites as follows:

“The International Monetary Fund: This policy tracker summarizes the key economic responses governments are taking to limit the human and economic impact of the COVID-19 pandemic as of end-March 2020. The tracker includes 193 economies. Available here: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19.

“The Organization for Economic Co-operation and Development: This series brings together policy responses spanning a large range of topics, from health to education and taxes. It is updated daily. Available here:
http://oecd.org/coronavirus/en/#country-policy-tracker.

“The Financial Stability Board: Compilation of regulatory, supervisory and other financial policy measures in response to COVID-19. Circulated to FSB members.” See, e.g., FSB, COVID-19 pandemic: Financial stability implications and policy measures taken, https://www.fsb.org/wp-content/uploads/P150420.pdf

Below is an excerpt from the IMF tracker for China:

“China, People’s Republic of

“China has been hit hard by the outbreak with over 81,865 confirmed COVID-19 cases and 3,335 deaths as of April 9, 2020 (mainland). The government imposed strict containment measures, including the extension of the national Lunar New Year holiday (ending on Feb 2 extended from Jan 30), the lockdown of Hubei province, large-scale mobility restrictions at the national level, social distancing, and a 14-day quarantine period for returning migrant workers. The domestic transmission of the virus has slowed significantly, and mobility restrictions have been largely removed. while policy has tightened to contain the virus transmission of asymptomatic cases.

“Key Policy Responses as of April 9, 2020

“FISCAL

“An estimated RMB 2.6 trillion (or 2.5 percent of GDP) of fiscal measures or
financing plans have been announced, of which 1.2 percent of GDP are
already being implemented. Key measures include: (i) Increased spending on epidemic prevention and control. (ii) Production of medical equipment. (iii) Accelerated disbursement of unemployment insurance. (iv) Tax relief and waived social security contributions. The overall fiscal expansion is expected to be significantly higher, reflecting the effect of already announced additional measures such as an increase in the ceiling for special local government bonds of 1.3 percent of GDP, improvements of the national public health emergency management system, and automatic stabilizers.

“MONETARY AND MACRO-FINANCIAL

“The PBC provided monetary policy support and acted to safeguard financial market stability. Key measures include: (i) liquidity injection into the banking system via open market operations, including RMB 3 trillion in the first half of February and 170 billion in late-March, (ii) expansion of re-lending and rediscounting facilities by RMB 1.8 trillion to support manufacturers of medical supplies and daily necessities micro-, small- and medium-sized firms and the agricultural sector at low interest rates, (iii) reduction of the 7-day and 14-day reverse repo rates by 30 and 10 bps, respectively, as well as the 1-year medium-term lending facility rate by 10 bps, (iv) targeted RRR cuts by 50-100 bps for large- and medium-sized banks that meet inclusive financing criteria which benefit smaller firms, an additional 100 bps for eligible joint-stock banks, and 100 bps for small- and medium-sized banks in April and May to support SMEs, (v) reduction of the interest on excess reserves from 72 to 35 bps, and (vi) policy banks’ credit extension to micro- and small enterprises (RMB 350 billion).

“The government has also taken multiple steps to limit tightening in financial conditions, including measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties. Key measures include (i) delay of loan payments and other credit support measures for eligible SMEs and households, (ii) tolerance for higher NPLs for loans by epidemic-hit sectors and SMEs, (iii) support bond issuance by financial institutions to finance SME lending, (iv) additional financing support for corporates via increased bond issuance by corporates, (v) increased fiscal support for credit guarantees, (vi) flexibility in the implementation of the asset management reform, and (vii) easing of housing policies by local governments.

“EXCHANGE RATE AND BALANCE OF PAYMENTS

“The exchange rate has been allowed to adjust flexibly. A ceiling on crossborder financing under the macroprudential assessment framework was raised by 25 percent for banks, non-banks and enterprises.”

As noted, the IMF tracks the same type of information for 193 economies. The IMF data do not include trade-related actions by governments.

More surprising is that the OECD policy tracker doesn’t review trade-related actions since the OECD does review trade policy issues within its overall activities. In an earlier post, I had noted that the OECD indicates that it shares trade information with the WTO, but neither the WTO nor the OECD present information is as detailed and comprehensive a way as the tracking done by the IMF or done by the OECD on matters they do cover. Below is the OECD tracking information for Italy as an example of the depth of information provided for each country monitored:

“Italy Beta Updated on 17-Apr-2020

Containment measures/Quarantine/Confinement


“On April 10, the government extended the lockdown to 3 May. People can only leave the home for prescribed, essential purposes. Movement out of the municipality of residence remains prohibited.

“On March 23, movements restrictions reinforced, with fewer exceptions and a limited range of industrial and commercial activities permitted to continue operating.

“Industrial and commercial activity prohibited apart from those assessed as ‘essential’, with a list that includes about 30% of private employment and activity.

Travel bans/restrictions

“Strict travel restrictions nation-wide, reinforced from March 23 and, on April 10, were extended to May 2. These prohibit movements out of the municipality where individuals reside. Non-nationals or residents cannot enter Italy except for limited, prescribed reasons.

Closure of schools/universities

“Closure of schools and universities from March 4 until April 3, extended to at least April 14.

Cancellation of public events / Closure of public places

“- Bars and restaurants along with many other retail trade activities (e.g. shopping centres; indoor and outdoor markets) closed from March 10 until at least 14 April, and all sporting competitions suspended over the same period along with other public gatherings.

“- All but prescribed essential production activities suspended from March 23, with the list of permitted activities further limited from March 26.

“- On March 30, closures extended from April 3 to 30 April for sports, bars and similar activities.

Support measures – Health

“EUR 3.2 billion for the national health service and to support civil protection. Within this package:

“- EUR 1.4 bn to raise funding for the health care system for 2020, including EUR 845 m to recruit 20 000 more health workers.

“- Ease burden of hospitals: dedicate entire facilities to patients infected with Covid-19, while redirected non-infected patients for other facilities.

“- Increased cleaning of public transportation facilities, such as metro transit, buses, boats.

“- Measures to increase purchases and production of medical materials (masks, ventilation machines).

“- Repurposing of medical equipment and buildings (e.g. hotels) for the medical emergency.

“- The production of face masks is incentivised

“- Retired medical personnel are encouraged to come back to work

“- Smart working has been extensively favoured, both in the private and in the public sector.

Fiscal measures – overall

“EUR 25 billion of measures, including EUR 20 billion of net debt measures. 1) EUR 3.2 bn for health care and civil protection; 2) EUR 10.3 bn for employment and incomes; 3) EUR 5.1 bn support to raise liquidity for businesses and households; 4) EUR 1.6 bn tax payment support. EUR 540 m for 60% tax credit on commercial rents.

Fiscal measures – people specific

“Over EUR 10 bn allocated:

“- EUR 5.0 bn to strengthen the wage supplementation scheme for furloughed employees, and increase to a last-resort fund for workers not qualifying for these measures. This includes about EUR 1.3 bn for ordinary wage supplementation schemes, EUR 300 m for wage supplementation schemes to firms that already participate in the ‘cassa integrazione guadagni straordinaria’ supplementation scheme, and EUR 3.3 bn for firms already that already participate in of the ‘cassa integrazione in deroga’. A Last Resort scheme is established for workers not qualifying (EUR 300 m).

“- EUR 2.3 bn for one-off EUR 600 payment to various categories of self-employed and seasonal workers. A Last Resort scheme has been established for those not qualifying.

“- EUR 400 m for one-year suspension in the repayment of real estate mortgages by workers having lost their job.

“- Allowance of EUR 500 per month for up to 3 months for self-employed workers in the municipalities most affected.

“- EUR 1.3 bn to strengthen childcare support for children up to 12 years old (15 extra days at a 50% wage replacement rate, compared with 0% or 30% of the ordinary leave) or, alternatively, a EUR 600 transfer to pay childcare services.

“- EUR 30 m for EUR 1000 childcare payment to employees in the healthcare and law enforcement sectors.

“- EUR 0.5 bn to raise by 12 days the paid leave for disabled workers and workers caring for a disabled relative.

“- EUR 130 m to extend sick leave to cover days spent in quarantine.

“- EUR 900 m for a EUR 100 one-off bonus to workers who continued to work at their workplace.

“- Moratorium on debt payments, including mortgages.

“- EUR 400 m for one-year suspension in the repayment of real estate mortgages by workers having lost their job.

“- Moratorium on debt payments, including mortgages.

Fiscal measures – company specific

“- EUR 540 m for 60% tax credit on commercial rents.

“- EUR 50 m for incentives to firms to sanitise workplaces.

“- Suspension for 2 months of tax and social security payments in the municipalities most affected.

“- For firms with an annual turnover below EUR 2 m, suspension of all the tax and social security payments coming due in March (valued at EUR 10 bn in deferred payments).

“- Non-application of withholding tax for professionals without employees, with revenues below EUR 400 000 until 31 May 2020.

“- Suspension of collection of tax collection files (valued at EUR 0.6 bn).

“- EUR 50 m allocation for one-year suspension in repayment of loans to Invitalia to support SMEs in the most affected municipalities.

“- Suspension of 2 months (until end of April) in the payment of the electricity, gas, water and waste bills in the most affected municipalities.

“- Increase to EUR 1.7 bn for the Fund to provide fee-free guarantee for SMEs loans. Eligibility has been enlarged, admission fees and costs reduced. Private individuals can contribute to the SMEs Fund’s financing. Maximum guarantees raised from EUR 2.5 m to EUR 5 m.

“- Further guarantees for firms most affected by the virus. Facilitate guarantees for self-employed workers, freelancers and individual entrepreneurs.

“- Suspension of 6 months (until end of September) of loan repayment by SMEs.

“- State guarantee for up to EUR 10 bn in new loans for medium-large firms.

“- EUR 500 m to support exporting firms.

“- Incentive to sell impaired loans (NPLs) by converting deferred tax assets (DTA) into tax credits for financial and industrial companies.

“- Establishment of a Fund to support the cultural sector. Increase in advances from the 2014-2020 Development and Cohesion Fund.

“- Increase to EUR 1.7 bn for the Fund to provide fee-free guarantee for SMEs loans. Eligibility has been enlarged, admission fees and costs reduced. Private individuals can contribute to the SMEs Fund’s financing. Maximum guarantees raised from EUR 2.5 m to EUR 5 m.

“- Further guarantees for firms most affected by the virus. Facilitate guarantees for self-employed workers, freelancers and individual entrepreneurs.

– Suspension of 6 months (until end of September) of loan repayment by SMEs.

“- State guarantee for up to EUR 10 bn in new loans for medium-large firms.
Information not available.

“- Increase to EUR 1.7 bn for the Fund to provide fee-free guarantee for SMEs loans. Eligibility has been enlarged, admission fees and costs reduced. Private individuals can contribute to the SMEs Fund’s financing. Maximum guarantees raised from EUR 2.5 m to EUR 5 m.

“- Further guarantees for firms most affected by the virus. Facilitate guarantees for self-employed workers, freelancers and individual entrepreneurs.

“- Suspension of 6 months (until end of September) of loan repayment by SMEs.

“- State guarantee for up to EUR 10 bn in new loans for medium-large firms.
Information not available.

Monetary policy / Macro-prudential regulation

“Information not available

“Less significant banks and non-bank intermediaries are allowed to operate temporarily below the level of the Pillar 2 Guidance, the capital conservation buffer and the liquidity coverage ratio. Their deadline to submit their revised NPL reduction plans is postponed to 30 June. Other reporting and inspection deadlines are delayed.”

World Customs Organization Tracks Certain Trade-Related Actions Related to COVID-19

In an earlier post, I had reviewed transparency concerns in tracking trade actions related to COVID-19. As the above information shows, other international organizations (IMF and OECD) provide pretty detailed information on certain aspects of government actions related to COVID-19. While the WTO has a page dedicated to COVID-19 and has compiled a list of notifications from Members of trade actions taken (both trade restricting and trade liberalizing), the data on the WTO website are limited. The limitation flows in large part from the failure of Members to provide full notifications. As mentioned, the OECD should be able to supplement what it puts out to include information on trade actions it has access to from OECD member governments.

Similarly, the World Customs Organization compiles customs related actions taken by governments on its website. The information on India is linked to below and then embedded. http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/facilitation/activities-and-programmes/natural-disaster/covid_19/best-practices_india_en.pdf?la=en.

best-practices_india_en

The International Trade Centre in Geneva has a “dashboard” that is updated daily showing COVID-19 temporary trade actions taken by governments. https://www.macmap.org/en/covid19.

It would useful if there was a compilation of trade-related actions from either the WTO or a consortium of international organizations so that there is much greater transparency on efforts (both trade restricting and trade liberalizing).

Conclusion

The COVID-19 data on confirmed cases show that the vast majority of the cases to date have been in Europe, the U.S., China and a few other countries although nearly all countries have some cases. With an unprecedented (at least in the last 100 years) pandemic, the breadth and complexity of the needs of G20 countries and the rest of the world are breathtaking. While some have criticized the G20 for the lack of specific commitments in the trade area of COVID-19 responses, the G20 Action Plan released earlier this week is an important step by the world’s major economies to address not only the health needs of the global community but also the interrelated economic survival of economies both within the G20 and around the world. While more undoubtedly needs to be done, the Action Plan is a start and will hopefully be updated and expanded in the coming weeks and months.

Transparency on trade actions surrounding the COVID-19 pandemic

Global confirmed cases of COVID-19 will reach two million today, April 15, with the actual number likely much higher and with deaths over 125,000. Nearly every country on earth has at least some confirmed cases.

Different countries and territories are at different stages in dealing with COVID-19 infections, with China, South Korea and Singapore seemingly well past the worst of the first wave of infections. Countries in Europe and various states within the United States are also seeing the rate of infection flatten or even decline following weeks of stay-at-home orders, social distancing and drastic changes to daily life. Hot spots are shifting both within countries (e.g., the United States) and to different countries.

The economic cost of closing down portions of economies has been unprecedented with the IMF characterizing the hit on global GDP to be the worst since the great depression of the 1930s. https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020. To avoid even worse economic fallout, countries are pouring huge sums into their economies to prevent massive bankruptcies, limit unemployment and provide expanded social safety nets. Press reports suggest at least $8 trillion has been committed with more being considered in various countries.

For countries who are witnessing likely GDP reductions of as much as 35% in one of the first two quarters of 2020, governments are mapping out scenarios for reopening closed portions of their economies if they have been recent epicenters or engaged in phased reopening if apparently largely past the first phase. Such planning is occurring at the subnational, national or trading bloc level (EU) with little apparent effort to coordinate efforts around the world. Where plans are being discussed publicly, common elements appear to be expanded and harmonized testing (both for the infection and for antibodies), ability to do tracing of individuals who have been in contact with individuals found to have the virus to secure quarantining, capacity of the healthcare system to handle cases, and adequacy of supplies. Concerns about privacy interests are also part of the discussion/needs for democracies. See, e.g., European Commission roadmap released April 15, 2020, https://ec.europa.eu/commission/presscorner/detail/en/ip_20_652; https://ec.europa.eu/info/sites/info/files/communication_-_a_european_roadmap_to_lifting_coronavirus_containment_measures_0.pdf

For most of the developing and least developed countries, the pandemic has yet to show its full force. Many of these countries have inadequate healthcare infrastructure and don’t have the internal manufacturing capabilities or financial resources to handle the pandemic without assistance if they become an epicenter.

The world has seen limited actual coordination of efforts by major players despite commitments by G20 countries although funding for multilateral institutions like the IMF have been increased to facilitate expanded efforts for the weakest countries. There also seems to be an exchange of information and some cooperation in the research efforts underway to find a vaccine.

Many countries who have been hard hit by the pandemic were slow to recognize the extent of the challenge and often slow in implementing comprehensive actions which has exacerbated the challenges, the loss of life and the harm to their economies. This has led to some lack of transparency at least in the early days and perhaps a reluctance for greater cooperation.

The pandemic’s spread has led to extraordinary gaps in supply availability versus short term demand requirements. For example, the OECD indicated that China, which manufactures half of the world supply of masks, found demand for masks at the peak of the crisis in China at ten times the beginning manufacturing capability of the country. Even after ramp up of production, demand in China was twice as large as the dramatically expanded manufacturing capabilities until the country’s infection rate declined. With both the EU and the US going through huge expansions of COVID-19 cases in March and into April, the global shortage problem has been continued and magnified despite additional capacity expansions occurring in other countries.

With no current vaccine to deal with the infections, countries faced with expanding case loads have often shifted to imposing export restraints to prevent loss of scarce supplies, encouraging expanded production, and using other tactics to address domestic demand even if reducing supply to other countries or even if local actions are counterproductive because of global supply chains and similar actions by others. Export restraints have been imposed by close to 70 countries or territories and include actions by China, the EU, the United States and many others, though restraints are arguably temporary and may have exceptions depending on the country applying the restraints. And countries who had export restraints at one point, may be significant exporters later (China) or had been exporters to hard hit countries prior to ramp up of internal demand (e.g., U.S. to China).

Importance of transparency in times of crisis

Each government attempts to provide some level of transparency to its citizens and businesses on actions it is taking. Members of the WTO have committed to providing information on trade measures taken to respond to COVID-19 and groups of countries (G20) have supported that effort. As of April 14th, WTO Members had provided 49 notifications of trade actions related to COVID-19 that either restricted goods or liberalized movement of goods https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. While this is a start, there are likely dozens or hundreds of other actions that have not been notified as yet (including actions that may have been withdrawn after a period of time). The lack of full transparency by WTO Members is unfortunate and prevents other Members to understand the reality around the world or to understand potential best practices by other trading partners.

Some business trade associations have put together data bases of actions addressing particular actions important to their members. For example, the Baltic and International Maritime Council (“BiMCO”) has compiled and updates port restrictions/requirements including ability of crew to depart cargo ships in ports, etc. https://www.bimco.org/ships-ports-and-voyage-planning/crew-support/health-and-medical-support/novel-coronavirus—implementation-measures. Similarly, IATA has collected and updates data on requirements for airlines (passenger and air cargo) by country. https://www.iata.org/en/programs/safety/health/diseases/government-measures-related-to-coronavirus/. The data compiled is obviously important for the ships and planes moving cargo internationally. So transparency exists because of efforts of business associations. Unfortunately, one does not see any effort by governments to harmonize requirements across countries to simplify and reduce the costs of moving essential goods.

It does not appear that there are readily accessible data on all suppliers globally of essential medical goods, capacity expansions, current bottlenecks, product availability, etc. It is not clear if such data could be compiled by industry associations or by governments. Presumably such information would be important for a global effort to maximize availability of products to all countries during the pandemic, identify ongoing shortages, prioritize where additional products are needed and so forth. The lack of such information has to be a major shortfall in the transparency needs to effectively deal with the pandemic.

Individual governments, of course, address internal needs on an ongoing basis through notices, regulations, etc. Many of these actions could be notified to international organizations (e.g., to the WTO) in addition to being available domestically. Expanding notifications would improve transparency and potentially encourage other governments to adopt best practices of other countries.

In the United States, many agencies, as well as the White House, are involved in different aspects of keeping goods moving during the pandemic or in restricting the export of such goods. For example, to look just at a few of the agencies involved in the United States, the State Department has made announcements on ensuring H-2 visas for farm workers. https://travel.state.gov/content/travel/en/News/visas-news/important-announcement-on-h2-visas.html. Homeland Security and Customs and Border Protection have taken various actions to expedite clearance of essential goods or implement Administration restrictions on the export of goods. https://www.fema.gov/news-release/2020/04/08/fema-covid-19-supply-chain-task-force-supply-chain-stabilization; https://www.cbp.gov/newsroom/coronavirus. The Department of Agriculture and the Food and Drug Administration have issued various notices addressing special needs for agricultural goods with the collapse of food service sector which supplies restaurants (e.g., temporary waiver of requirements for country of origin information or certain labeling requirements for goods originally destined for food service that are being sold at retail). https://www.usda.gov/coronavirus; https://www.ams.usda.gov/content/usda-announces-labeling-flexibilities-facilitate-distribution-food-retail-locations; https://www.fda.gov/emergency-preparedness-and-response/counterterrorism-and-emerging-threats/coronavirus-disease-2019-covid-19. FEMA, EXIM and others are all playing roles as well.

Conclusion

The COVID-19 pandemic has created extraordinary challenges for the health of the world’s peoples and has imposed unimaginable costs to the global and national economies. As countries work through their individual challenges, there are a spectrum of options to pursue that will reduce or expand the human and economic costs of the pandemic. International organizations are only as strong as their member governments permit them to be. Many observers have lamented the lack of global leadership. Such lack of leadership handicaps the ability and likelihood of countries to minimize the damage from the pandemic and to prepare better for future challenges. Transparency should be the bare minimum we receive from the world’s governments. While there is certainly some transparency on COVID-19 and trade actions being taken (better in some countries than others), we are not maximizing the benefits that broad-based transparency would make available for countries individually or acting collectively. There is still time for a better effort. There are real costs for failing to do all that can be done on this issue.