Posts By Terence P. Stewart

U.S. proposed Draft Ministerial Decision — making weak or unenforced environmental standards potentially countervailable

As reviewed in prior posts, there is ongoing interest in reducing domestic subsidies for agricultural producers and an interest in revising rules for industrial subsidies to address the problem that has arisen in the last several decades of massive subsidization creating global excess capacity in products or sectors. Moreover, there are no rules on subsidies in the services area despite the issue having been of ongoing interest to many Members at the start of the WTO with ongoing talks provided for within the GATS. See, e.g., November 24, 2020, Responding to a comment received on yesterday’s post, WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/24/responding-to-a-comment-received-on-yesterdays-post-wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/; November 23, 2020, WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/23/wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/; February 22, 2020: WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/.

The WTO Members have struggled for 19 years on trying to limit fisheries subsidies to achieve one of the UN Sustainable Development Goals (SDG 14.6) by stopping overfishing and illegal fishing practices that are harming wild fish stocks. While an agreement was due to be completed in 2020, the negotiations will continue into 2021. See, e.g., December 16, 2020, The fisheries subsidies negotiations – U.S. comments from December 2 meeting add clarity to the inability to achieve an agreement and the lack of “like-mindedness” among Members, https://currentthoughtsontrade.com/2020/12/16/the-fisheries-subsidies-negotiations-u-s-comments-from-december-2-meeting-add-clarity-to-the-inability-to-achieve-an-agreement-and-the-lack-of-like-mindedness-among-members/; December 15, 2020, The fisheries subsidies negotiations – failure by WTO Members to deliver an agreement by the end of 2020, https://currentthoughtsontrade.com/2020/12/15/the-fisheries-subsidies-negotiations-failure-by-wto-members-to-deliver-an-agreement-by-the-end-of-2020/.

At the latest General Council meeting held on December 16-18, the United States, in its second intervention on the topic of the importance of market-oriented conditions to the world trading system (agenda item 10, WT/GC/W/813), alerted Members that it would be filing a new paper on the topic of sustainability dealing with treating weak or unenforced environmental laws and regulations as being potentially countervailable under the Agreement on Subsidies and Countervailing Measures.

“The United States would like to thank all the Members who took the floor to provide their
comments. We look forward to continuing this important conversation in future meetings.

“On another subject, let me now take this opportunity to inform colleagues that the United States
will be circulating a draft Ministerial Conference Decision shortly entitled, ‘Advancing
Sustainability Goals through Trade Rules to Level the Playing Field.’

“We look forward to submitting this proposal for consideration during the upcoming Structured
Discussions on Trade and Sustainability.

“The draft Ministerial Conference Decision aims to reinforce our view that failure to adopt,
maintain, implement and effectively enforce laws and regulations that ensure environmental
protections at or above a threshold of fundamental standards constitutes an actionable subsidy
under the Agreement on Subsidies and Countervailing Measures.”

Meeting of the WTO General Council, December 16-17, 2020, U.S. Statements delivered by Ambassador Dennis Shea, page 7, https://geneva.usmission.gov/wp-content/uploads/sites/290/AmbassadorShea-WTOGeneralCouncil-Dec2020.pdf.

The United States draft Ministerial Decision was submitted and circulated to WTO Members on December 17 and is embedded below.

W814

While the current definition of subsidy contained in Art. 2 of the ASCM (Agreement on Subsidies and Countervailing Measures) does not appear to cover distortions that flow from the level of environmental protection an/or the lack of enforcement of such requirements, there is little doubt that in the coming years, a number of countries will likely be imposing taxes or taking other action to support sustainable development and prevent competition being determined by production of products in countries that are not moving rapidly to sustainable development. The EU is pushing its producers to become dramatically more environmentally responsible. and is committed to introducing a tax on products not meeting the desired environmental standards. Under the Biden Administration, it is likely the U.S. will be looking for ways to push a similar sustainable trade policy by neutralizing “false” advantages for products produced less environmentally responsibly.

In that context, the U.S. paper of December 17 provides an additional path to pursuing sustainable development and ensuring that responsible production methods are not penalized by competition from producers using less environmentally responsible approaches. WTO Members have not indicated an interest in doing a broad review of subsidy disciplines to ensure the rules reflect current economic realities and address all significant types of distortions found in the trade of goods and services. Such a review is long overdue in my view and would permit an evaluation of a host of issues not presently covered by the ASCM including the issue raised in the Draft Ministerial Decision.

While historically many developing nations would oppose proposed actions like the U.S. draft Ministerial Decision on the theory of limited existing capacities in developing countries or a perceived “entitlement” to develop in manners not significantly different than current developed countries, the climate crisis, UN Sustainable Development Goals and the reality of the potential destruction facing many countries from climate warming and rising oceans essentially make a decades-long approach to achieving sustainable development self-defeating. Whether the U.S. proposal will garner support and/or becomes an additional tool to help Members move to sustainable development is obviously unknown at the present time.

The WTO has proven itself unable in its first 25 years to modernize the rules of international trade to keep pace with global developments and with the pressing needs for more sustainable approaches to international trade. 2021 provides the WTO with the opportunity to change course and reestablish its role in developing rules that address the needs of Members, businesses, workers and the global population in international trade. Hopefully, the WTO will have a new Director-General early in 2021. Hopefully, Members can come together on the pressing needs of relevancy and sustainability by agreeing on core principles of the WTO. A comprehensive reform initiative is desperately needed and could be agreed to, though agreement on reform is unlikely based on current differences among Members. Yet even if a comprehensive reform program is agreed to, without a change in how the WTO operates, the organization and its Members will be unable to be nimble enough to make a timely difference. Leadership and a joint willingness to move forward have been missing. Let’s hope that 2021 will be different.

In last two weeks, United States adds more than three million new confirmed COVID-19 cases; world approaches nine million new cases; first vaccines start to ship in United Kingdom, Canada, Bahrain, United States and shortly in the European Union; hope for a better 2021

The European Centre for Disease Prevention and Control (ECDC) shifted from a daily report on global cases to a weekly total last week. In today’s report, the United States becomes the only country to record more than three million new cases in a two week period. ECDC, COVID-19 situation update worldwide, as of week 51 2020. It is also the only country to have recorded 2,000,000 in a two week period. The 3,087,841 new cases in weeks 50 and 51 constitute 34.73% of the global total of 8,888,940 new cases in the last two weeks and was 4.68 times the number reported in Brazil (660,079), 8.16 times the number reported in India — the two countries after the United States with the most cases. For the full 2020, the United States has accounted for 23.47% (17,844,839) of global cases (76,046,387) despite being only 4.3% of the global population.

The weekly total for the United States has been an almost uninterrupted surge in new cases for the last three months or so. Below are the data as compiled by the ECDC for weeks 37-51 for the United States. Deaths have also been climbing rapidly but at a slower rate than new cases. The U.S. accounts for 18.75% (317,670) of global deaths (1,693,858) in 2020 from COVID-19 and a higher percentage in recent weeks. Deaths for the same weeks for the U.S. are shown below. The U.S. is seeing deaths approaching 3,000/day with some days as high as 4,000+. With hospitalizations at all time highs, and surging cases and rising deaths, the U.S. is likely to surpass 400,000 deaths by January 20, 2021 when President-elect Joe Biden will be sworn in.

Number of new COVID-19 cases reported by the U.S.Week in 2020No. of deaths reported in the U.S.
             243,5582020-37  5,138               
             284,8352020-38 5,430
             310,2322020-39 5,247
             302,7992020-40 5,038
             344,6992020-41 4,977
             392,0512020-42 4,903
             481,5702020-43 5,556
             571,1972020-44 5,766
             764,2892020-45 6,576
         1,065,4102020-46 8,642
         1,209,8482020-47 10,568
         1,136,4122020-48 10,091
         1,373,6772020-49 15,437
         1,499,7562020-50 16,867
         1,588,0852020-51 18,493

The good news is the approval of the first vaccines in the U.S., approvals in a number of other countries of at least one vaccine (United Kingdom, Canada, Bahrain, European Union) and more vaccines getting close to completing their trials. See, e.g., New York Times, E.U. Approves Pfizer Vaccine, Setting Stage for High-Stakes Rollout, December 21, 2020, https://www.nytimes.com/2020/12/21/world/europe/eu-coronavirus-vaccine.html. These western vaccines are in addition to the ones produced in China and the Russia Federation that were released before all trials were completed.

However, even for countries who have lined up large volumes of vaccines through up-front contracts for delivery in December or the front half of 2021, countries who have approved one or more of the western company vaccines are still months away from having enough people vaccinated to make a significant dent in the levels of new cases or deaths without strong efforts to maintain social distancing, wear masks, minimize size of gatherings, washing hands, etc.

With mutations of the virus having appeared in the U.K. and elsewhere, it is also unclear how efficacious the early vaccines will be on the mutations. Early information on the news today, suggests at least some reduction in effectiveness is likely, which could have implications for the percentage of the population needed to be vaccinated to achieve herd immunity. Many countries are banning travel from the U.K. in an effort to prevent the spread of the mutant variation of COVID-19 identified in the U.K. which is believed to spread much more easily. See Politico, Mutant coronavirus strain: What we know so far, December 21, 2020, https://www.politico.eu/article/mutant-coronavirus-strain-what-we-know-so-far/.

While the short-term future has many challenges, many are hopeful that 2021 will see the COVID-19 pandemic being handled as vaccines are approved and produced and distributed to all peoples around the world to permit a return to greater normalcy. See Time, What Bill Gates Thinks About the State of the Fight Against COVID-19, December 22, 2020, https://time.com/5923916/bill-gates-covid-19-letter/; Bill Gates, YEAR IN REVIEW, These breakthroughs will make 2021 better than 2020, The latest on the innovations that will let us go back to normal, December 20, 2020, https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2020.

The WTO has both been monitoring trade restrictive and liberalizing actions taken by Members relating to the pandemic and has also recently put out a paper reviewing trade policy issues that can arise as the world shifts to the production and distribution of vaccines around the world. See WTO, TRIPS, WTO paper explores role of trade policy in the rapid roll-out of COVID-19 vaccines, December 22, 2020, https://www.wto.org/english/news_e/news20_e/trip_22dec20_e.htm. The press release describes the content of the new paper as follows:

“The WTO Secretariat has published a new information note on trade-related issues for COVID-19 vaccine production, manufacturing and deployment. The note, entitled ‘Developing and delivering COVID-19
vaccines around the world,’ explores how trade policy can play its part in ensuring the rapid roll-out of vaccines against COVID-19.

“The paper goes into further detail on key topics included in two documents previously published on the WTO website: ‘Infographic: Developing & delivering COVID-19 vaccines around the world’ (https://www.wto.org/english/tratop_e/covid19_e/vaccine_infographic_e.pdf) and ‘Developing & delivering COVID-19 vaccines around the world: A checklist of issues with trade impact’
(https://www.wto.org/english/tratop_e/covid19_e/vaccine_checklist_e.pdf) .

“The new information note comprises three sections. Section A provides background information on immunization and the urgent search for vaccines against COVID-19. This section points to immunization as a key component of primary health care and highlights the ambitious national and global targets that have been set for COVID-19 vaccines. According to the World Health Organization (https://www.who.int/publications/m/item/fair-allocation-mechanism-for-covid-19-vaccines-through-the-covax-facility) and Gavi, the Vaccine Alliance (https://www.gavi.org/vaccineswork/covax-explained), two billion COVID-19 vaccine doses are to be distributed by the end of 2021, with an allocation for every country equal to 20 per cent of the population so as to cover prioritized target groups.

“Section B provides an overview of the development and delivery of vaccines in the form of an infographic listing seven steps in this process: vaccine development, domestic approval (manufacture), vaccine manufacture, domestic approval (importer), international distribution, border clearance, and domestic distribution and surveillance.

“Finally, Section C identifies where key decisions with trade impact may need to be made along the vaccine value chain and provides a non-exhaustive list of useful resources to help inform decision-making. This section includes a checklist of trade issues to consider along with the COVID-19 vaccine value chain, as well as a world map of clinical trials and partnerships on COVID-19 treatments.

“The report can be found here (https://www.wto.org/english/tratop_e/covid19_e/vaccine_report_e.pdf).”

The report is embedded below.

vaccine_report_e

Conclusion

The COVID-19 pandemic has rocked the world in 2020. Some continents have come through with relatively few cases (Africa) or have often been successful in minimizing outbreaks (significant parts of Asia, Oceania). Europe was hit hard early (March-April) and suffered a much bigger second surge in the September -November period though renewed restrictions have brought case numbers down significantly in December. The Americas has had the highest number of cases and deaths of any region. The United States has gone through a number of surges and is currently exceeding or close to exceeding medical facility capabilities in many parts of the country. So 2020 is ending in a spiraling crisis in the United States. The arrival of vaccines is welcome news for all peoples but will take considerable time to be produced and distributed both within countries with high infection rates and to the rest of the world.

The role of trade in a pandemic is largely focused on keeping markets open for the movement of medical goods and food products. While a large number of countries have introduced some export restrictions on medical goods (and some on food products), many countries have also introduced actions to speed movement of medical goods and to lower costs. While there have not been new multilateral agreements to keep markets open or liberalize trade in medical goods, there have been some efforts at cooperation and coordination by at least some countries.

While the actions taken by governments to try to control the virus led to significant contractions in trade in the second quarter of 2020, much of prior trade flows were restored in the third quarter but will likely see some reductions in the fourth with the second wave of restrictions on activities in many countries in the last month or two. Certain service sectors (travel and tourism generally; air transport, restaurants, hotels specifically) have been very hard hit by the restrictions imposed with many businesses closing, more than 100 million people unemployed or underemployed in the sector and a post-pandemic world likely to be much changed particularly in sectors like restaurants that are dominated by small business operators. Most projections don’t see a restoration of global GDP levels to those achieved in 2019 until at least 2022.

Trillions of dollars have been poured into a number of countries as stimulus to prevent the further collapse of the economies involved. Those actions have reduced the size of the downturn which still is the worst since World War II for much of the world. The size of the stimulus infusions have also greatly increased the level of debts for the countries engaged in the stimulus activities. For countries without the ability to borrow huge sums for stimulus, the contraction in GDP has often been severe with gains from the last decade being wiped out in some cases.

So the world needs 2021 to be better than 2020. How the efforts at vaccine development proceed and the level of commitment and funding for production expansion and global distribution will be major factors in whether 2021 fulfills the promise of equitable and affordable access to vaccines and therapeutics needed to get the world back to a more normal place.

China’s trade war with Australia — unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO

China has imposed antidumping and countervailing duties on Australian barley and wine and has imposed import restrictions on a host of products from Australia including coal, lobsters, timber, red meat and cotton. While the first two products are allegedly pursuant to investigations conducted in a manner consistent with WTO Agreements, the other import restrictions are being done through verbal direction or under claims of labeling, pest or other bases. CNBC reported on December 17th the products restricted and the alleged justifications for import restrictions imposed by China on Australian goods. See CNBC, Here’s a list of the Australian exports hit by restrictions in China, December 17, 2020, https://www.cnbc.com/2020/12/18/australia-china-trade-disputes-in-2020.html. As CNBC reported,

“The relationship between the two countries has deteriorated since Australia supported a call for an international inquiry into China’s handling of the coronavirus, which was first reported in the Chinese city of Wuhan. Last month, Australian news outlets reported that the Chinese embassy there had threatened the
Australian government and handed over a list of alleged grievances toward Canberra.

“China has taken several measures this year that impede Australian imports, ranging from levying tariffs to imposing bans and restrictions.”

A press account in the Sydney Morning Herald on November 18, 2020, reviewed developments from an Australian perspective and included the “list of grievances” reportedly sent from China to Australia. See Sydney Morning Herald, ‘If you make China the enemy, China will be the enemy’: Beijing’s fresh threat to Australia, November 18, 2020, https://www.smh.com.au/world/asia/if-you-make-china-the-enemy-china-will-be-the-enemy-beijing-s-fresh-threat-to-australia-20201118-p56fqs.html. The “list of grievances” China claimed it had with Australia, copied in the article, is reproduced below:

The list of grievances from the Chinese embassy.

In a South China Morning Post article from December 20, experts in Australia and China indicate that China’s actions are intended to both punish Australia and dissuade other countries from taking similar actions that displease China that Australia has taken. See South China Morning Post, China-Australia relations: Beijing’s trade restrictions are meant as a warning to Canberra, but will they work?, December 20, 2020, https://www.scmp.com/news/china/diplomacy/article/3114635/china-australia-relations-beijings-trade-restrictions-are.

It is clear that the import restrictions, if taken for the reasons identified in the list of grievances above, are unjustified and violations of China’s WTO obligations.

WTO challenge filed by Australia on China’s antidumping and countervailing duties imposed on Australian barley

While Australia has been attempting to deal with China’s unilateral actions diplomatically, on December 16th, it filed a request for consultations with China at the WTO on the antidumping and countervailing duties being imposed on Australian barley. The request for consultations was circulated to WTO Members on December 21. See CHINA – ANTI-DUMPING AND COUNTERVAILING DUTY MEASURES ON BARLEY FROM AUSTRALIA, REQUEST FOR CONSULTATIONS BY AUSTRALIA, WT/DS598/1, G/L/1382, G/ADP/D135/1, G/SCM/D130/1, 21 December 2020; WTO press release, Dispute Settlement, Australia initiates WTO dispute complaint against Chinese barley duties, 21 December 2020, https://www.wto.org/english/news_e/news_e.htm. While some press accounts have characterized the WTO challenge as increasing the tensions between the two countries, the reality is that the request for consultations is a proper response by Australia to an action by China that it perceives violates China’s WTO obligations. See The Guardian, Australia escalates China trade dispute with WTO action, December 15, 2020, https://www.theguardian.com/australia-news/2020/dec/16/australia-escalates-china-trade-dispute-with-wto-action.

The U.S. and other WTO Members have been concerned for years that China uses trade remedy cases as a means not of pursuing bona fide industry concerns but rather as a means of retaliating against trading partners who take actions, even if WTO authorized, that are against Chinese products. Looking at the breadth of the request for consultations filed by Australia, it would appear that Australia views the investigations as similarly suspect. The request for consultations is embedded below and contains 26 alleged violations of WTO obligations by China in the barley investigations.

598-1

If there is a failure by China to conform to WTO obligations and end the unilateral and unauthorized actions against Australia, one should expect to see additional cases filed at the WTO by Australia to defend its rights.

Comments

China has been a major beneficiary of the multilateral trading system since joining the WTO at the end of 2001. While China has implemented many of the obligations it took on to join the WTO, there has long been concern that China’s implementation is subject to unilateral action against other Members where China is unhappy with positions taken by other Members. At the WTO, in arguing against taking up issues like the need for Members to converge to market-based conditions, China has argued that others (in particular the U.S.) are ignoring core principles of the WTO, such as most favored nation treatment. When one considers the range of actions China has taken against Australia in 2020, it is clear that they view most favored nation treatment obligations to WTO Members as subject to China’s political whims. China’s actions are unwarranted. For a nation wanting to be a leader in developing the trading system, its actions send the wrong signals to its trading partners.

Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report

In the United States, there has long been a concern that trading partners not generate an artificial advantage in international trade by taking steps to undervalue their currencies. The United States Department of the Treasury issues a semiannual report which now examines major trading partners against two U.S. laws to see if consultations are appropriate with particular trading partners. The latest report was issued earlier this month on December 16th. See U.S. Department of the Treasury, Office of International Affairs, R E P O R T T O C O N G R E S S, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, December 2020, https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf. The press release that accompanied the release of the report is copied below.

“Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States

“December 16, 2020

“WASHINGTON – The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters ending June 2020.

The Report concluded that both Vietnam and Switzerland met all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review. Treasury consequently conducted enhanced analysis of Vietnam and Switzerland in the Report and will also commence enhanced bilateral engagement with each country in accordance with the 2015 Act. This engagement will include urging the development of a plan with specific policy actions to address the underlying causes of currency undervaluation and external imbalances.

Treasury also determined that, under the Omnibus Trade and Competitiveness Act of 1988 (the1988 Act), both Vietnam and Switzerland are currency manipulators. For each country, Treasury assessed, based on a range of evidence and circumstances, that at least part of its exchange rate management over the four quarters through June 2020, and particularly foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments and, in the case of Vietnam, for gaining unfair competitive advantage in international trade as well. Consistent with the 1988 Act, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments and eliminate the unfair advantages in trade that result from their actions.”

The Socialist Republic of Vietnam

Vietnam in particular is under pressure from the United States to clean up its currency practices.

First, the U.S. Department of Commerce has preliminarily found that its currency practices are countervailable subsidies in the passenger vehicle and light truck tire investigation. See U.S. Department of Commerce, International Trade Administration, C-552-829, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 Fed. Reg. 71607-71610 (November 10, 2020); U.S. Department of Commerce Issues Affirmative Preliminary Countervailing Duty Determination for Passenger Vehicles and Light Truck Tires from Vietnam, November 4, 2020,ihttps://www.commerce.gov/news/press-releases/2020/11/us-department-commerce-issues-affirmative-preliminary-countervailing (“Among the subsidies preliminarily countervailed is Vietnam’s undervalued currency – making this the first time that Commerce has ever made an affirmative CVD determination regarding a foreign currency with a unitary exchange rate.”).

Second, the U.S. Trade Representative earlier this year commenced two Section 301 investigations on practices of Vietnam, one of which involves its undervalued currency. See Office of the United States Trade Representative, Docket No USTR-2020-0037, Initiation of Section 301 Investigation: Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, 85 Fed. Reg. 63637-63638 (October 8, 2020); Office of the United States Trade Representative, Notice of Public Hearing in Section301 Investigation of Vietnam’s Acts, Policies and Practices Related to Currency Valuation, 85 Fed. Reg. 75397-98 (November 25, 2020). The notice of initiation contained the following description of the currency practices of concern to the U.S.:

“The Government of Vietnam, through the State Bank of Vietnam (SBV), tightly manages the value of its currency—the dong. The SBV’s management of Vietnam’s currency is closely tied to the U.S. dollar. Available analysis indicates that Vietnam’s currency has been undervalued over the past three years. Specifically, analysis indicates that the dong was undervalued on a real effective basis by approximately 7 percent in 2017 and by approximately 8.4 percent in 2018. Furthermore, analysis indicates that the dong’s real effective exchange rate was undervalued in 2019 as well.

“Available evidence also indicates that the Government of Vietnam, through the SBV, actively intervened in the exchange market, which contributed to the dong’s undervaluation in 2019. Specifically, the evidence indicates that in 2019, the SBV undertook net purchases of foreign exchange totaling approximately $22 billion, which had the effect of undervaluing the dong’s exchange rate with the U.S. dollar during that year. Analysis suggests that Vietnam’s action on the exchange rate in 2019 caused the average nominal bilateral exchange rate against the dollar over the year, 23,224 dong per dollar, to be undervalued by approximately 1,090 dong per dollar relative to the level consistent the equilibrium real effective exchange rate.” (85 FR 63637-38).

Third, are the Treasury Department findings under both statutes in its semi-annual report, findings which support USTR concerns being explored in the ongoing Section 301 investigation.

Thus, the pressure for Vietnam to address U.S. concerns on its currency practices is mounting.

Switzerland

For Switzerland, the pressure to date is arising only under the Treasury Department semiannual report. Treasury’s concerns as laid out in the Executive Summary of the semiannual report are copied below.

Treasury Conclusions Related to Switzerland

“Switzerland met all three criteria under the 2015 Act over the four quarters through June 2020. Treasury has conducted enhanced analysis of Switzerland in this Report and will also commence enhanced bilateral engagement with Switzerland in accordance with the Act. The bilateral engagement will include urging the development of a plan with specific policy actions to address the underlying causes of Switzerland’s external imbalances.

“The Swiss franc has long been considered a safe haven currency that investors acquire during periods when global risk appetite recedes or financial volatility accelerates. These large safe haven flows pose challenges for Swiss macroeconomic policymakers, particularly in a period of negative interest rates and deflation. The Swiss National Bank (SNB) over the years has employed a range of tools to try to offset appreciation pressure on the franc and limit any associated negative impacts on inflation and domestic growth. Over the second
half of 2019 and particularly in the first six months of 2020, Switzerland conducted largescale one-sided intervention, significantly larger than in previous periods, to resist appreciation of the franc and reduce risks of deflation, as the SNB’s policy interest rates were significantly negative. While we recognize the extraordinary financial volatility in the first half of 2020 resulting from the COVID-19 crisis, the intervention was taken in the context of an extremely large current account surplus along with a growing bilateral trade
surplus with the United States and contributed to stemming the appreciation of the franc on a real, trade-weighted basis. Further franc appreciation would help facilitate gradual adjustment of Switzerland’s excessive current account surplus. Treasury therefore assesses, based on a range of evidence and circumstances, that at least part of Switzerland’s exchange rate management over the four quarters through June 2020, and particularly its foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments. Hence, Treasury has determined under the 1988 Act that Switzerland is a currency manipulator. In the context of forthcoming negotiations with the Swiss authorities, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments.

“• Switzerland was one of the countries in Europe hit early and hard by COVID-19, leading the government to declare a national state of emergency in mid-March. The number of active and new cases declined sharply from mid-to-late April but started rising again from mid-June as the authorities eased public health and mobility restrictions. Since mid-October, the number of new COVID-19 cases has surged, with new infections significantly above spring 2020 highs, leading the Swiss Federal Council to re-introduce several containment measures.

“Switzerland has for many years run extremely large current account surpluses, with the surplus reaching 10.9% of GDP in 2019. The current account surplus declined marginally, but remained elevated, at 8.8% of GDP over the four quarters through June 2020. The United States’ goods trade deficit with Switzerland widened notably over the last year, reaching $49 billion over the four quarters through June 2020, due partially to an increase in Swiss gold exports in the first half of 2020. The SNB disclosed that it spent $93 billion (90 billion francs) on currency interventions in the first half of 2020. Between July 2019 and June 2020, Treasury estimates that SNB net foreign purchases have totaled $103 billion (or 14% of GDP).

“Switzerland should employ a more balanced macroeconomic policy mix. Monetary policy continues to be relied on heavily despite the reduced effectiveness of unconventional tools, especially against a backdrop of persistent deflationary risks. We urge the SNB to deploy a broader and more balanced mix of monetary policy instruments, including domestic quantitative easing. Central to this recommended recalibration of monetary policy, we continue to urge the SNB to limit foreign exchange intervention to lean against large appreciation surges and allow real appreciation in line with the long-term trend. Treasury welcomes the SNB’s recent step to disclose foreign exchange intervention on a quarterly basis. Increased frequency of these disclosures – such as on a monthly basis – will help further improve transparency of the SNB’s actions. Fiscal policy should be deployed to reduce the economy’s reliance on the SNB’s policy measures, rebalance its external sector, and boost potential growth. The authorities should also take steps to raise potential growth by raising labor force participation rates and productivity growth, actions that would reduce Switzerland’s external imbalances and reliance on unconventional monetary policy.” (pages 5-6)

Conclusion

As exchange rates can move by large amounts in short periods of time, whether currencies are properly aligned can be critical to achieving the benefits of liberalized trade and not seeing trade distorted because of over- or undervaluation of one or more currencies. In its recent semiannual report, Treasury notes that the IMF views the U.S. dollar as significantly overvalued which by itself reduces U.S. exports and expands U.S. imports. If the overvaluation is created in part by trading partners deliberately undervaluing their currencies, there is a significant cost to Americans in terms of jobs and performance of companies. Indeed, many industries and workers have been concerned for decades that misaligned currencies were costing the U.S. jobs and manufacturing production and capacity. Congress was pressured for the last several decades to require Treasury to better analyze whether currencies were artificially valued by government action and to call out those countries who were engaged in such activities and to consult to achieve a correction. Last week’s semiannual report reflects the Congressional demand for a more fact-based analysis.

Beside Treasury, under the Trump Administration, there is greater ability of other U.S. agencies or entities to address problems posed by currency misalignment that is caused, at least in part, by government actions. Thus, Vietnam is having to deal with the U.S. Commerce Department, the U.S. Trade Representative and the U.S. Treasury Department.

It is to be hoped that the U.S. focus on important trading partners who have undervalued currencies caused in part by government interventions will be continued by the incoming Biden Administration. Currency misalignment can cause significant distortions in trade flows. A multipronged approach to addressing such problems has been and continues to be needed.

The WTO ends the year with General Council and Dispute Settlement Body meetings

The last meetings at the WTO for 2020 are the General Council meeting (originally set for Dec. 16-17) and Dispute Settlement Body meeting on December 18. The meetings take place against a background of limited progress at the WTO across a broad array of issues of interest to Members. Certainly, there have been challenges to the functioning of the WTO flowing from the COVID-19 pandemic, particularly as the pandemic has affected the ability to hold in person meetings and stretched capabilities of many Members (particularly developing and least developed countries) to participate or coordinate with capitals. But the problems for the WTO run much deeper and have been building over time.

Specifically, 2020 has not been a particularly successful year for the WTO and its effort to remain relevant. The Director-General Roberto Azevedo stepped down a year early reportedly to permit a new Director-General to be selected and help guide the process for the COVID-19 delayed Ministerial Conference to be held in 2021. The selection process for a new Director-General (“DG”) has been blocked from recommending a new DG by the United States refusal to join a consensus and the failure of Korea to withdraw its candidate after the conclusion of the third round of consultations. The delay in appointing a new DG has resulted in calls for a further delay in the next Ministerial Conference from summer to December 2021.

The Appellate Body, which lost its quorum after December 10, had its last member’s term expire earlier this year. No progress has been made on reforming the Appellate Body process. While a number of Members created an interim arbitration process (“MPIA”), it doesn’t apply to all Members and a number of panel decisions have been appealed (with no Appellate Body, such “appeals” put the case in limbo where WTO authorized retaliation for failure to comply is not possible). Such appeals have been taken by a number of Members, including at least one who is a member of the MPIA against a non-MPIA member.

On the negotiations front, there has been some forward movement on plurilateral talks (negotiations among the willing) but limited progress on multilateral talks or on agreeing on a reform agenda. Thus, there appears to be progress in a number of Joint Statement Initiatives that were launched at the end of 2017 at the WTO Ministerial in Buenos Aires. However, as reviewed in prior posts, there has been a failure to conclude the multilateral negotiations on fisheries subsidies despite a UN Sustainable Development Goals timeline objective of the end of 2020 and despite 19 years of negotiations. Similarly, while many Members have teed up proposals for topics to be addressed by the membership either to address the pandemic or recovery from the pandemic or on WTO reform and while there are remaining items from prior Ministerials, Members have largely been talking past each other or unable to agree on taking items up.

The December General Council meeting covers many topics not all of which are controversial. The Agenda is embedded below. While the meeting was originally scheduled for December 16-17, it was apparently extended to today.

W813

WTO Members can provide comments on most agenda items if they choose. I review two of the agenda items and provide the U.S., EU and China interventions, to the extent they provided interventions (based on statements released on the webpages of the US, EU and China Permanent Missions to the WTO). The two agenda items are typical of many topics presented where major Members take very different views of proposed initiatives that others have teed up and characterize the general lack of progress at the WTO in addressing new or longstanding issues.

Item 8. COVID-19 and Beyond: Trade and Health — Statement by Cosponsors of WT/GC?223

The Ottawa Group of Members had submitted a proposal for a trade and health initiative. The proposal is embedded below.

223

I have previously reviewed the proposal/communication from the Ottawa Group. See November 27, 2020,  The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/. Considering the severity of the COVID-19 pandemic and the relatively limited objectives of the proposed initiative, one wouldn’t have expected opposition from any major player. The European Union, being part of the Ottawa Group, was among the Members who addressed this agenda item.

“Item 8 – COVID-19 AND BEYOND: TRADE AND HEALTH – STATEMENT BY COSPONSORS OF WT/GC/223

“The COVID-19 pandemic has had a devastating impact on people’s health, well-being and economic prosperity. It has created unprecedented challenges for governments across the world. Most of us – and this includes the EU – have taken a range of trade-related actions with a view to ensuring that essential goods are available to our populations. It goes without saying that safeguarding the lives and health of their people is at the core of every government’s section.

“But the crisis has also exposed the fragility or even a potential negative fallout of unilateral, uncoordinated trade-related actions. If every current exporter were to ban shipments of essential goods, a large portion of the world population would be denied access to the necessary life-saving supplies.

“A global crisis requires global cooperation. With that in mind, the EU fully supports innovative cooperation developed under the Access to Covid Tools Accelerator, and the Covax Facility.  

“Although the response to the pandemic is primarily in the sphere of health policy, trade policy can also contribute to this fight. With the long-awaited discovery of vaccines, we are beginning to see the light at the end of the tunnel, but the operational and logistical challenges ahead of us will still be enormous.

“To succeed in this fight, global cooperation is fundamental. The WTO has a valuable role to play, in particular to ensure that supply chains of essential products remain open, that goods can cross borders quickly, and that the trade environment is stable and transparent.

“The time for WTO Members to take action is now. Through the Communication Covid19 and beyond, 13 Members, including the EU, invite all WTO Members to engage in a Trade and Health Initiative. At the heart of this Initiative lies the belief that each Member should be free at domestic level to take the trade policy actions needed to fight the pandemic in accordance with the WTO framework. But we are also convinced that in the interest of the common public good such actions should be coordinated and transparent. Ultimately, the objective is to create conditions for a more stable and predictable trade environment, which in turn would help to mitigate the impact of the pandemic.

“Therefore we invite Members to proceed in two steps.

“In the first step, we call on WTO Members to take immediate actions to address the current COVID-19 crisis.

“These actions are detailed in the Annex to the Communication and would consist in particular in:

“1) exercising restraint when applying export restrictions on essential goods, ensuring that measures are targeted, transparent, proportionate, temporary and consistent with WTO obligations;

“2) sharing experience and best practices in trade facilitating measures, including on services facilitating the frictionless movement of essential goods as well as in the area of technical regulations;

“3) considering removing or reducing -tariffs on essential goods;

“4) promoting transparency, including by engaging fully in the trade monitoring exercises;

“5) encouraging the WTO Secretariat to cooperate with other international organisations in order to respond more effectively to the current and future pandemics.

“We call on WTO Members to capture these actions in a declaration that should be issued as early as possible and, ideally, by the time of the next General Council Meeting. The agreement on the declaration would be without prejudice to the commitments, if any, that Members might take in the second step.

“The second step is aimed at increasing our global preparedness for any future health emergencies. We propose to explore possible future commitments on the basis of the actions taken as a first step. Ideally, we should seek to achieve progress on this strand of work by the 12th Ministerial Conference.

“We invite all WTO Members to join us in this endeavour and look forward to our successful cooperation.”

EU Statements at the WTO General Council, on 16 and 17 December 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/90831/eu-statements-wto-general-council-16-and-17-december-2020_en.

The United States has taken the position at the WTO that it does not view pursuing negotiations on trade liberalization of medical goods during the pandemic as appropriate. Thus, the U.S. did not support the call for a trade and health initiative and instead highlighted its own proposal for Members to step up trade facilitation efforts. Meeting of the WTO General Council, December 16-17, 2020, U.S. Statements delivered by Ambassador Dennis Shea, https://geneva.usmission.gov/wp-content/uploads/sites/290/GeneralCouncilStatementsDecember2020.pdf.

“COVID-19 AND BEYOND: TRADE AND HEALTH – STATEMENT BY COSPONSORS OF WT/GC/223

“The United States takes note of the communication in WT/GC/223 and thanks the co-sponsors for their statement. We have some initial observations to share today.

“Some context might be helpful. The most recent Trade Monitoring Report by the Secretariat, which was discussed in the TPRB last week, included these assessments:

“o ‘Members have generally expressed and followed a commitment to ensure that trade could flow freely during the pandemic.’

“o ‘Most of the COVID-19 related measures taken on goods since the outbreak of the pandemic were trade-facilitating.’

“o ‘In the services sectors heavily impacted by the pandemic, most of the 124 COVID-19 related measures adopted by WTO Members appeared to be trade facilitating.’

“Against this backdrop, it’s not clear what problem the cosponsors aim to solve, nor how the proposed measures would solve that problem.

“We would encourage deeper reflection. For example, supply chain resiliency doesn’t seem to be about lowering tariffs, or increasing Secretariat monitoring, or encouraging vague cooperation between the WTO and other IOs. It’s about how to prevent disruption when production somewhere beyond your shores is shut down due to an unexpected shock, or when a supplier beyond your shores is suddenly unreliable.

“A second observation also requires some context. The world has been grappling with a pandemic for nearly a year. The public health situation remains very difficult and has been worsening. As of today, more than 1.6 million people have died around the world, including more than 300,000 in the United States.

“Against this backdrop, we question the prudence of asking Members to put new constraints on their rights under the WTO Agreement—not to mention on their duty—to undertake measures to protect human health and life. For example, the idea that such measures might be granted a period of validity of three months seems to misunderstand the moment.

“We take a different view. WTO rules may not have been drafted with a pandemic at front of mind, but our initial observation is that the WTO Agreement seems fit for purpose. Its balance of rights and obligations, if adhered to by Members, will continue to provide stability and predictability as we navigate this very difficult period and, finally, recover.

“We would also like to take this opportunity to highlight an initiative launched in the Trade Facilitation Committee, sponsored by the United States and eight other WTO Members, found it G/TFA/W/25/Rev.1 entitled ‘Supporting the Timely and Efficient Release of Global Goods through Accelerated Implementation of the WTO Trade Facilitation Agreement.’

“This initiative puts a focus on tangible actions WTO Members can take to contribute to timely and efficient movement of health and medical products.

“We encourage all WTO Members to join us in this initiative.”

China did not provide an intervention on agenda item 8.

Item 10, Importance of Market-Oriented Conditions to the World Trading System — Joint Statement by Brazil, Japan and the United States

Over the last several years, the United States has highlighted the inability of the current WTO rules to address the distortions caused by the economic systems of countries like China (“state capitalism” or “non-market economies”). The U.S. has cited decisions by the WTO dispute settlement system that don’t permit Members to address distortions caused by China’s system as proof of the problem. U.S. actions under various U.S. statutes including Section 232 of the Trade Expansion Act of 1962, as amended, and section 301 of the Trade Act of 1974, as amended, are intended to address problems caused by Chinese actions which are not clearly covered by existing WTO rules.

The United States and others view the WTO as premised on competition between enterprises operating in economies that are market economies or operating under “market-oriented conditions”. In the view of the U.S., the WTO system requires Members’ economic systems to converge around market principles. To the U.S., coexistence of different types of economic systems within the WTO is not a long-term viable approach for the WTO. The U.S. view is similarly supported by Deputy Director-General Alan Wolff who in several speeches this year has outlined core principles of the WTO and has opined that the system is premised on convergence not coexistence.

At the same time, the prior Director General, Roberto Azevedo, took the position that it was not for the WTO to take up differences in economic systems in Members.

The EU has taken the view that market-oriented conditions are critical, and the WTO rules need to be updated to ensure that distortions created by different systems are addressable within the WTO. Thus, the EU, U.S. and Japan agreed at the Buenos Aires Ministerial to look at issues like industrial subsidies and other topics to see what modifications were needed to address some of the distortions caused by the Chinese-type system.

Not surprisingly, China has led the opposition to any efforts at either mandatory convergence or efforts to address distortions caused by the state-capitalist system.

The Brazil, Japan and U.S. paper lays out the thinking behind the need for convergence. It is embedded below.

W803R1

U.S. Amb. Shea provided the U.S. and other Members logic in continuing to push this item at the General Council yesterday.

“IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINT STATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES (WT/GC/W/803/REV.1)

“The United States, Brazil, and Japan have requested this agenda item to continue highlighting the importance of market-oriented conditions to the global trading system.

“As a result of our work together, Brazil, Japan, and the United States have released a joint statement (WT/GC/W/803/Rev.1). The joint statement reflects our shared belief in one of the core principles of the WTO: that market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system.

“To that end, the Brazil-Japan-U.S. joint statement affirms that Members’ enterprises should operate under market-oriented conditions and notes the elements that indicate and ensure those conditions for market participants. These criteria reflect the market-oriented conditions and disciplines to which our own enterprises are subject.

“At the last General Council meeting in October, we encouraged Members to review these elements in detail to facilitate more robust engagement on this important issue.

“”It is notable that both in the General Council and informal meetings, we have considerable agreement from Members that these criteria do promote fair trade and have not heard any Member assert that trade is fair if market-oriented conditions are denied by a Member.

“We have heard statements from one Member dismissing market-oriented conditions as academic, questioning whether these concepts can ever be defined, and asking why we should bother to engage on this topic at the WTO.

“We would like to address these criticisms directly: these concepts are not new; they are not academic; and they have been recognized by others as critical to our efforts to ensure the proper functioning of international trade.

“To give one, prominent example: steel is an area where Members have focused significant attention on the problems caused by non-market policies and practices. Let us consider what the G20 and interested OECD members said in the Global Forum on Steel Excess Capacity, in particular in their 2017 report approved under the German presidency of the G20.

“In examining the conditions leading to excess capacity and recommending an effective response, these countries considered that steel excess capacity ‘is a global issue which requires . . . effective policy solutions to enhance the market function.’1 They considered that ‘the enhancement of market function is essential to ensure that exchanges at the national and international level are based on genuine competitive advantages.’2

“They considered that ‘[o]pen and competitive markets and a market-driven approach to resource allocation based on the competitive positions of steel enterprises should be the driving forces of the steel sector. New investment, production and trade flows should reflect market-based supply and demand conditions.’3

“Among their ‘Key recommendations,’ these countries concluded that ‘Members should consider the extent to which their framework conditions and institutional settings ensure proper market functioning.’4

“They emphasized that ‘[p]articular attention should be given to ensure that,’ inter alia, ‘competition law, trade and investment policies . . . foster a level playing field for competition among companies irrespective of ownership, both domestically and internationally;’ that ‘bankruptcy legislation is effective and procedures are expedited efficiently;’ and that ‘the internal financial market is able to price risk and deal with non-performing loans.’5

“These countries concluded, among their key recommendations, that ‘[a] level playing field should be ensured among steel enterprises of all types of ownership’ and that ‘[a]ll enterprises acting in a country’s steel market should follow the same rules and regulations with economic implications, including bankruptcy procedures.’6

They emphasized that ‘[i]n order to ensure fair competition and a level playing field in the steel industry, it is important that all steel enterprises follow the same rules and reporting requirements.’7

“These conclusions and others agreed by numerous Members under the German G20 presidency confirm a wide recognition that market-oriented conditions are essential to solving the problems we face.

“As we see it, the WTO is an appropriate place for Members to work to address these problems of non-market conditions that undermine fair trade. To say that the WTO is not the place to discuss these concerns is really to assert that the WTO is and should be irrelevant – and we respectfully disagree.

“The elements and criteria identified in our joint statement with Brazil and Japan are essential to ensuring that market-oriented conditions exist across sectors – not just in steel – so that all market participants compete on a level playing field.

“We disagree with those who would say that the importance of these conditions is only academic. The example of the conclusions reached by G20 and interested OECD members on the need for market-oriented conditions in the steel sector demonstrate vividly that this discussion is not academic but is rather at the heart of some of the most significant stresses in the international trading system.

“When a Member takes the position that market-oriented conditions are not worth the time or concern of WTO Members, it sounds as if they do not want to provide a level playing field for other Members. If that is the case, then this discussion is even more important to have. A Member who would dismiss these concerns should explain how we can have a level playing field if some Members offer market-oriented conditions but others do not.

“If one examines the market-oriented conditions criteria, it is clear how each contributes to conditions of fair competition and trade. A review of these criteria also helps to illustrate how a failure to meet these criteria is unfair.

“Take, for example, a business that may try selling into a market, only to find that its competitor is directed to sell at non-market or unprofitable prices.

“Or, for example, consider a business that would like to expand and seeks financing at a market rate, only to find that its state-backed competitor can obtain financing from another State Enterprise at a non-market rate.

“Or, for example, consider a firm that seeks financing from the market at a rate to make its business case, only to be denied because competitors have access to non-market financing that results in over-investing and excess capacity.

“Likewise, it is well known that forced technology transfer remains a large and growing concern. These policies and practices also reflect a failure to respect market-oriented conditions because a forced transfer – or an outright theft – is not voluntary. Forced technology transfer unfairly deprives one actor of its intellectual property, trade secrets, ‘know-how,’ or other valuable knowledge, and gives them to another on non-market terms. We do not think any Member would try to defend cyber hacking or cyber theft to transfer technology to a domestic commercial actor as fair.

“In each of these examples, the failure to ensure market-oriented conditions generates a result that
is fundamentally unfair.

“And we have not heard any Member argue for a different position. Do any Members really believe that fair trade can result when special advantages are given to domestic entities under these conditions?

“Ensuring that market-oriented conditions exist for market participants is critical to realizing the benefits of the international trading system that come from our mutual commitment to these rules. This common foundation is necessary to ensure a level playing field for all Members.

“As we see it, the continued relevance of the WTO will depend on whether it can deliver on the promises of a world trading system based on open, market-oriented policies. The success of our reform efforts will depend on our ability to ensure the fundamental premise of free, fair, and mutually advantageous trade remains intact.

“As we keep in mind the imperative to reform the WTO, we will continue to welcome engagement with Members who seek to strengthen our collective commitment to open, market-oriented policies, to move closer toward these market-oriented conditions, and to ensure a level playing field that benefits us all.

“1 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 8.

“2 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 8.

“3 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 9.

“4 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 11.

“5 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 11.

“6 Global Forum on Steel Excess Capacity Report, 30 November 2017, pp. 13-14.

“7 Global Forum on Steel Excess Capacity Report, 30 November 2017, pp. 13-14.”

The European Union comments reflect their longstanding position that market-conditions are important and that is why the WTO rule book needs to be updated to ensure that distortions are addressed. Below the EU’s comments yesterday. The EU position essentially accepts coexistence but tries to address the myriad distortions of non market-oriented economies by adding rules that will hopefully address the distortions and hence permit a form of rational trade on reasonably comparable terms. As noted, the U.S. and Japan are working with the EU on this approach as well and will be supported by many other Members when formal proposals are presented to the WTO.

“Item 10 – IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINT STATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES (WT/GC/W/803/REV.1)

“As the EU stated at the previous meeting of General Council, market-oriented conditions are central to allowing a level-playing field. The EU has repeatedly expressed its concerns with non-market-oriented policies and practices that have resulted in distortions to the world trading system.

“The role of the WTO – and therefore the role of all of us, as its Membership – is to ensure that there are effective rules in place to eliminate these distortions and to ensure a level-playing field. There are clearly gaps in the WTO rulebook that do not enable us to do so. These gaps must be addressed through the negotiation of new or updated rules to address the issues raised in the statement of the US and its co-sponsors. We look forward to discussing, in the coming months, how the rule-book can be supplemented and to work towards a negotiation of new rules to fill the gaps.”

China does not view it as the WTO’s role to seek convergence among different economic systems. China has always been sensitive about what it perceives are actions by other WTO Members to impose China-specific rules or otherwise discriminate against China’s system or interests. In prior General Council meetings, China has presented more detailed arguments on why they don’t view the topic raised by the United States to be an appropriate one for the WTO to take up. In a consensus-based organization, China obviously believes that it can prevent this issue being taken up for formal discussions. China’s Ambassador Zhang Xiangchen delivered the Chinese intervention on December 17 on the agenda item. Like U.S. Amb. Dennis Shea, Amb. Zhang Xiangchen’s time in Geneva is ending. His comments reflect his long history with the Chinese government and its accession process. See Statements by H.E. Ambassador Zhang Xiangchen of China at the WTO General Council Meeting, December 16-17, 2020, Agenda Item 10: Market-Oriented Conditions, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202012/20201203024189.shtml.

Agenda Item 10: Market-Oriented Conditions

“Mr. Chair, as a Chinese saying goes: ‘Not even mountains can stop the river from flowing into the sea’. In the relationship between market and government, market obviously has the decisive power. This is a common sense. What we need to discuss here is- in today’s world, who is actually going against this common sense? Who is undermining the common rules of the international market, such as the ‘Most-Favoured-Nation’ principle? Who is artificially altering and impeding the international flow of production factors? And who is bringing WTO back to the ages of ‘might is right’? Dennis mentioned recommendations contained in the Report of Global Forum on Steel Excess Capacity this morning, the question immediately comes to my mind is who is taking measures in the name of national security to distort normal trade in steel sector? If we cannot have a clear answer to these questions, and if we, as WTO members, cannot take effective measures to undo the damages and prevent future disruptions to the system, empty talks about market orientation is nothing but a quixotic quest that leads us to nowhere.

“Ambassador Shea said in the July General Council meeting: ‘what we’re concerned with is ensuring fair competition and a level playing field; not interfering with the ability to govern’. I have to say that I have serious doubts about this statement.

“The ‘market-oriented conditions’ in the US proposal is nothing new. From my perspective, it is an extension of the ‘non-market economy’ standard in countervailing investigations under the US domestic law. In fact, through these domestic standards, the US has high-handedly judged the economies of other countries, and the extensive application of this standard led to arbitrary decision on using the ‘surrogate countries’ data. These unilateral actions have made a lot of companies both from China and other developing members suffer from unjust duties, affecting millions of jobs. From our experiences, these standards are utterly incompatible with the non-discrimination principle of the multilateral trade system.

“The same is in the countervailing investigations. Let me give you an example. A small company in a remote village of Shanxi province produces cast iron sewage pipes. They had completely no idea why in July 2018, their company was placed on the list of countervailing investigation by the US. The determined countervailing rate amounted to 34.87%.

“We had a look at how the investigation arrived to such an erroneous conclusion. First, it was determined that since there’re state-owned enterprises in China, there must be a market distortion in production factors in China. Second, based on the first assumption, the countervailing rate was calculated using the prices in the third country market, while completely ignoring the real market prices in China. According to this reasoning, the company received various kinds of subsidies, including on purchases of iron ore, scrap iron, coke, electricity and even on interest rates of loans. In fact, the company received none of these so-called subsidies. The support it received from the government, if any, is only 0.12%. There’re many more examples of such distortions of using the US’s own standards to inflate the subsidies of other countries, which can be found in the studies by professor Simon Evenett from St. Gallen University.

“The term ‘market-oriented conditions’ may sound completely harmless. However, not all that is wrapped in gold paper is a chocolate. My chef likes to pick mushrooms on his weekends walks and has developed quite a bit of knowledge of mushrooms. He tells me: beware of the brightly coloured ones, they’re most likely to be poisonous.

“Thank you.”

From the above, it is clear that the WTO Members are not finding multilateral solutions or agreeing on issues of great immediate importance to address. This inability to reach agreement on matters that need to be addressed has been true for years and will likely continue to be true in the coming years and will delay meaningful movement on WTO reform that is desperately needed to restore relevance to the WTO.

That has put a lot of pressure on countries to do plurilateral deals or to focus on free trade agreements. At the WTO in Buenos Aires at the Ministerial Conference in 2017 a series of Joint Statement Initiatives were started by “the willing”. Initiatives have been started on e-commerce, services domestic regulation, investment facilitation, MSMEs, among others, and a progress report was provided on December 18 which suggests good progress and the possible announcement of plurilateral agreements by the next Ministerial Conference, with MSMEs having announced some preliminary results. See WTO, Coordinators f joint initiatives cite substantial progress in discussions, 18 December 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.htm; Progress on the JSIs: Communication by the Co-coordinators of the JSIs, December 18, 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.pdf. The communication is embedded below.

jsec_18dec20_e

Since 2008 when the Doha Development Agenda negotiations didn’t achieve a breakthrough in the summer negotiations, the United States and many other countries have pursued bilateral and plurilateral FTAs and plurilateral agreements on subject matter topics in an effort to achieve forward movement on trade liberalization and updating rules to address current commercial realities. The latter, if open to others to join and if benefits are provided on an MFN basis, can be a stepping stone to multilateral agreements over time. The JSIs begun at the end of the Buenos Aires Ministerial in 2017 are examples of plurilateral negotiations that could be multilateralized over time. All of the JSIs are important. Obviously a multilateral trading system in 2020 without rules on e-commerce is not covering a critical issue of growing importance to international trade. So the JSIs hold out some hope for a trading system whose Members have lost a sense of common purpose and forgotten or disagree on core principles.

December 18 Dispute Settlement Body meeting

The last Dispute Settlement Body meeting of the year at the WTO had an agenda similar to most DSB meetings this past year. While for Members each item on the agenda may be relevant or important, for purposes of this post, I will be limiting myself to a review of agenda item 9, Appellate Body Appointments. A large portion of the WTO membership has month after month put forward a proposal to get the process for selecting new Appellate Body members started. Today’s meeting included the issue and the underlying document, WT/DSB/W/609/Rev.19 which is embedded below.

W609R19

The efforts to appoint new Appellate Body members has been being blocked by the United States. The United States blocked starting the process once more today. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, December 18, 2020, pages 14-17, https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_.Stmt_.as_.deliv_.fin_.public.pdf.

Below is the United States statement on agenda item 9, Appellate Body Appointments: Proposal by Some WTO Members (WT/DSB/W/609/Rev.19). As it is the last Trump Administration handling of the Dispute Settlement Body and the reasons for the inability to move forward on reconstituting the Appellate Body or the needed Appellate Body Reform, the entirety of the U.S. intervention is provided below. The U.S. provides both its evaluation of the divisions within the Members on whether there is a significant problem with the actions of the Appellate Body, its view of the refusal of Appellate Body members in general to recognize the problems they were creating, and its identification of the multiple possible reasons why Members have permitted the Appellate Body to stray so far from the agreed limited role of the second tier review in disputes.

“• As the United States has explained in prior meetings, we are not in a position to support the proposed decision. The systemic concerns that we have identified for more than 16 years and across multiple U.S. Administrations, remain unaddressed.

“• Over the past three years, we have engaged in many discussions with Members – on a bilateral basis, in small groups, and in large settings. After three years of effort, what have we learned?

“• First, we have learned that the Appellate Body thinks it did no wrong. We know this because, despite U.S. action on appointments under both the Obama Administration and the Trump Administration, the Appellate Body did not change its approach. In fact, it expanded and deepened its WTO-inconsistent practices and interpretations. This reflects an institution that came to view itself as more important than the rules – and the Members – that created it.

“• We have learned that the Appellate Body turned out to be less expert than panelists in adjudicating disputes under the DSU. We know this because the United States catalogued numerous substantive interpretive errors by the Appellate Body.1 In most cases, a panel reached a correct interpretation, and the Appellate Body got it wrong. And so, while some Members may think the Appellate Body did a better job than panels – we think the record shows the opposite: panels generally respected WTO rules, and the Appellate Body far too often did not.

“• We have learned that some Members think the Appellate Body did no wrong. This is regrettable because we have not heard any convincing defense of the Appellate Body’s errors in interpreting the DSU or substantive WTO rules. The ongoing denial by some of any AB errors reflects, in part, a fundamental divide among Members on the proper role of the Appellate Body in the WTO and the global trading system more generally.

“• We have learned that some other Members may think the Appellate Body did wrong, but are content to maintain the status quo. We do not understand how a Membership that proclaims its support for a rules-based trading system can nonetheless accept persistent rule-breaking by its dispute settlement system. This unwillingness on the part of some Members may unfortunately reflect a Membership incapable of holding WTO institutions, including the Appellate Body, accountable. Experience shows, however, that without accountability, there can be no reform.

“• And we have learned that some reform-minded Members think the Appellate Body did commit serious errors, and bravely see a need for real, fundamental reform – reform so that the WTO dispute settlement system supports the WTO as a venue for discussion and negotiation between Members, rather than undermining the WTO and converting it into a mere litigation forum.

“• So I think it is fair to say that we have learned a considerable amount. Members have deepened their understanding of the issues and, in some cases, sincerely wrestled with the challenge before us.

“• But of course, many questions remain.

“• There is the question that everyone here knows well – the ‘why’ question. Some Members may be tired of hearing it, and we could similarly tire of having to ask it – but the question is too important to the future of the WTO to ignore it.

“• Despite best efforts by the United States to push the conversation forward, we have heard very little from other Members on their views of how we arrived to this situation – where the Appellate Body had ignored the clear limits placed on it under the DSU and rewrote the substantive rules set out in the WTO agreements.

“• In meeting after meeting, we posed this question to the Members. We explained why the ‘why question’ was so important. But most Members did not want to undertake this critical, reflective exercise.

“• In the absence of engagement from Members, we offered several potential explanations based on conversations and on our own reflections. For example, we noted:

“o One cause could be the ongoing challenges facing the WTO negotiating function and its oversight function, leading to unchecked ‘institutional creep’ by the Appellate Body.

“o Another cause could be that some WTO Members believe that the Appellate Body is an independent ‘international court’ and its members are like ‘judges’ who have more authority to make rules than the focused review provided in the DSU.

“o Relatedly, some Appellate Body members viewed themselves as ‘appellate judges’ serving on a ‘World Trade Court’ that is the ‘centerpiece’ of the WTO dispute settlement system. Of course, such an expansive vision of the Appellate Body is not reflected in the DSU.

“o Finally, we also noted that the compensation arrangements for AB members rewarded their delays and staying on beyond the end of their terms, and we learned that there was very little transparency and accountability for the compensation claimed.

“• Besides these, we also heard from a former member of the Appellate Body, Mr. Graham, who was willing to speak out candidly on these issues.2 He put forward a number of reasons ‘why’ the Appellate Body erred and was unwilling to correct those errors – and these remarks deserve attention from all WTO Members. Among his observations on why the Appellate Body behaved as it did:

“o (1) A ‘prevailing ethos’ to act like a court, and not be accountable to WTO Members,

“o (2) the degree of control by Appellate Body staff,

“o (3) an over-emphasis on ‘collegiality’ that created ‘peer pressure to conform’,

“o (4) an ‘excessive striving for consensus’ that ‘led to excessively long and unclear compromise reports’ and ‘encouraged over-reach, gap filling, and advisory opinions’,

“o (5) ‘a sense of infallibility and of entitlement, to stretch the words of agreed texts, and to stretch decisions beyond merely resolving a particular dispute, so as to create a body of jurisprudence’, and, finally,

“o an ‘undue adherence to precedent’, ‘not only as to outcomes, but also as to reasoning, definitions, and obiter dicta’, which ‘made it more important to know the past’ than to ‘openly consider[] whether the past should be reconsidered.’

“• None of these potential reasons ‘why’ are addressed in the decision before the DSB today. Starting a selection process would therefore simply revive the interpretations and practices that the United States has, for years, explained as contrary to the WTO agreement and unacceptable to us.

“• Nor do these potential reasons ‘why’ suggest a problem that can be resolved by simply agreeing on words that repeat, with feeling, existing WTO principles. Many Members have been unwilling to confront this difficult reality.

“• Looking ahead, we must find ways to ensure that the limitations we Members imposed on all WTO adjudicators in the DSU are respected. We have to consider and grapple with the damage to the WTO, as a forum for discussion and negotiation, and as a rules-based system, for continued failure to adhere to those limitations.

“• While there are many problems in international trade that require discussion of new norms and rules, the United States considers that the rules that we were able to agree in 1995 represent some important progress in bringing greater fairness and market-orientation to international trade.

“• As we see it, the Appellate Body has effectively written a new, less-market-oriented, less reciprocal, and less mutually beneficial WTO agreement, which we never agreed to, and which I believe no U.S. Government would agree to. The United States will continue – as it always has – to engage with Members on these important issues.

“1 See United States Trade Representative Report on the Appellate Body of the World Trade Organization, February 2020, pp. 81-119, available at https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf; see also, e.g., Dispute Settlement Body, Minutes of the Meetings WT/DSB/M/294, paras. 103-127 (statement of the United States concerning the Appellate Body report in US – Anti-Dumping and Countervailing Duties (China) (AB)); WT/DSB/M/346, para. 7.7 (statement of the United States concerning the Appellate Body report in EC – Seal Products (AB)); WT/DSB/M/211, paras. 37-40 (expressing concerns with the Appellate Body’s interpretation of Article 2.4.2 of the Antidumping Agreement); WT/DSB/M/225, paras. 73-76 (expressing concerns with the Appellate Body’s interpretation of the Antidumping Agreement with regard to zeroing); WT/DSB/M/250, paras. 47-55 (expressing concerns that the Appellate Body wrongly claims that its reports are entitled to be treated as precedent and must be followed by panels absent “cogent reasons”); WT/DSB/265, paras. 75-81 (expressing concern that the Appellate Body’s findings incorrectly expanded the scope of the proceedings, concern with the Appellate Body’s interpretation of the Antidumping Agreement with regard to zeroing, and concern that the Appellate Body had failed to apply the special standard of review under the Anti-Dumping Agreement); WT/DSB/M/385, paras. 8.8-8.19; WT/DSB/M/73 (expressing concerns with the Appellate Body’s interpretation of the Safeguards Agreement).

“2 Farewell speech of Appellate Body member Thomas R. Graham, available at https://www.wto.org/english/tratop_e/dispu_e/farwellspeechtgaham_e.htm.”

Current U.S. Trade Representative Robert Lighthizer is quoted as saying to the BBC in an interview this week, “What you had really was an organisation that migrated from a negotiating organisation into a litigation organisation. And that was not healthy. Now we have a situation where we’re trying to create a new organisation, we have to massively reform the appellate body * * *.” BBC News, December 17, 2020, We’re proud of what we’ve done, says Trump’s trade chief, https://www.bbc.com/news/business-55345826. The U.S. has viewed the Appellate Body as simply one part of dispute settlement, and the core WTO function to be to permit Members to negotiate updated and new agreements. The WTO Members also meet to understand actions Members are taking (requiring an understanding of actions taken to implement obligations and transparency in national actions). While a dispute settlement system is important, it was never intended to be the dominant piece of the organization. The EU and Canada in conferences in Geneva this year have each agreed through their panel participants that WTO panels and the Appellate Body are not courts and panelists and Appellate Body members are not judges. But the membership is a long way from getting back to the original purpose and limited role of the dispute settlement system. As long as that is the case, it is likely that there will be limited progress on restoring the Appellate Body and making the reforms critical to ensuring it limits its role to that envisioned by the DSU. I don’t believe that the problems of the WTO’s dispute settlement system will disappear when the Trump Administration’s term ends next month. U.S. concerns go back to the late 1990s and have grown over time for both political parties. Thus, while the Biden Administration may over time put forward what it believes is necessary to achieve necessary DSU reform, there is unlikely to be a resolution and a restoration of the Appellate Body until there is a greater agreement on the underlying problems and purpose of the dispute settlement system. If the U.S. appraisal of the current positions of Members is correct, the road to resolution will be long indeed.



The fisheries subsidies negotiations — U.S. comments from December 2 meeting add clarity to the inability to achieve an agreement and the lack of “like-mindedness” among Members

Yesterday’s post reviewed the fact that the Chair of the Rules Negotiations had at the December 14 Trade Negotiating Committee and Heads of Delegations meeting indicated that WTO Members would not meet the deadline for finalizing a fisheries subsidies negotiation — the end of 2020. See December 15, 2020, The fisheries subsidies negotiations – failure by WTO Members to deliver an agreement by the end of 2020, https://currentthoughtsontrade.com/2020/12/15/the-fisheries-subsidies-negotiations-failure-by-wto-members-to-deliver-an-agreement-by-the-end-of-2020/.

The TNC and HOD meeting occurred twelve days after the conclusion of the latest round of negotiations on fisheries subsidies on December 2. The WTO press release on those talks described the issues being discussed by Members and the Chair’s intended path forward. See WTO, NEGOTIATIONS ON FISHERIES SUBSIDIES 2 DECEMBER 2020, WTO members conclude cluster of fisheries subsidies meetings, https://www.wto.org/english/news_e/news20_e/fish_02dec20_e.htm.

“On 2 December, at the conclusion of two days of meetings at the level of heads of delegation, the chair of the Negotiating Group on Rules, Ambassador Santiago Wills of Colombia, said he will continue his consultations with WTO members on the next steps in the negotiations.

“During the meetings, delegations responded to questions posed by the chair about determinations of illegal, unreported or unregulated (IUU) fishing; sustainability considerations in the prohibition of subsidies contributing to overcapacity and overfishing; and special and differential treatment for developing and least-developed countries.

“Prior to this meeting, members have been involved in almost continuous “intersessional” discussions after the last cluster of meetings on 2-6 November to discuss many of the key parts of the revised text that the chair introduced on 2 November, including dispute settlement; subsidy disciplines in the areas of IUU fishing, overfished stocks, and overfishing and overcapacity; and special and differential treatment. The ‘Friend of the Chair’, Ambassador Didier Chambovey of Switzerland, also continued his consultations on special and differential treatment and reported back to members.

“The chair noted that much progress has been made this year in spite of the challenges brought on by the COVID-19 crisis, with members conducting intensive negotiations on the basis of a single consolidated draft document, issued in June and now in its second version. The chair said he will continue consultations in the coming days, ahead of the meeting of the General Council on 16-17 December, on how members would like to move negotiations forward.”

U.S. Ambassador Dennis Shea provided comments during the December 2nd session. His comments reflect the substantial distance that remains in reaching agreement. See WTO Fisheries Subsidies Negotiations – HoDs-Level meeting on Article on Overcapacity and Overfishing and Special & Differential Treatment, Statement of U.S. Ambassador Dennis Shea (excerpts), December 2, 2020, https://geneva.usmission.gov/2020/12/03/us-statement-by-ambassador-dennis-shea-wto-fisheries-subsidies-negotiations/. His comments provide insight into just how far away from an agreement Members are, reflecting the lack of “like-mindedness” and the challenge of whether special and differential treatment should be limited to actual need and temporary or is a “right” for any Member declaring themselves a developing country. After nineteen years of negotiations, it is numbing to see how fundamental issues are not agreed to. Below are the excerpts of Ambassador Shea’s comments available from the U.S. Mission in Geneva’s website.

“We have listened carefully to the interventions today, some of which are not encouraging. We continue to see wide divergences in position – including with some Members categorically rejecting objective sustainability criteria in our discipline despite our clear sustainability mandate. This speaks volumes to the need for a capping approach as the solution. In other words, with some unwilling to eliminate obviously harmful subsidies, let’s look at reducing the numbers.


“Capping would provide the flexibility that Members continue to call for, as needed to allow Members to sustainably develop their fisheries sectors, while limiting and reducing the provision of harmful fisheries subsidies. We urge you, Chair, to give appropriate time to discussion of the capping approach, including filling in the placeholder currently in the revised consolidated text.

“Turning to your questions for this session, we do believe that you have asked the right question, which was whether there are any Members here who categorically assert the right to subsidize unsustainable fishing. Based on what we heard this morning, it remains unclear. It might be a question of language, or burden of proof. If we have misunderstood, and at least some Members are not opposed to considering sustainability, what is the sustainability test to which those Members are willing to submit?

“At the same time, it seems other Members wish to give themselves wide berth to avoid any sustainability accountability. If this is the case, then your text should clearly show two options for future high-level decision-making on the approach that will garner consensus.

“With respect to the drafting of the general prohibition on subsidies to fishing that contribute to overcapacity and overfishing, we agree with what was expressed by others, in terms of bringing the sustainability test back as an objective threshold for what is meant when we refer to ‘contributing to overcapacity and overfishing.’ We believe this prior approach, which included reference to the rate of fishing and fishing capacity, is an important standard to clearly include as a threshold issue in the text of the general prohibition. We also agree with others that the inclusion of sustainability language presents a good faith effort to strike a balance and give Members policy space.

“As to the list of subsidies in this article, this must be an open, illustrative list, as others have noted. A closed list lends itself to calls for exceptions and exclusions, which will take us even further away from making progress on this discipline.

“Regarding any special and differential treatment when it comes to this overcapacity and overfishing area, Chair, you have again asked the right questions. Members have indicated a need for appropriate and effective SDT. Members have indicated their desire to grow their fisheries in a sustainable manner. We ask those Members what measures do they have, or would they put in place, to ensure that current or future subsidization would be done in a sustainable manner? A close consideration of this issue might help to unlock roadblocks throughout this text.

“Unfortunately what this conversation today has also illustrated, is that we are nowhere near knowing even some basic parameters of what ‘appropriate and effective SDT’ would look like in a negotiation that is predicated on sustainability.

“The number of hours this group has now spent on discussing SDT carve-outs, exceptions and flexibilities has been unparalleled. We doubt that doing this before we even know the disciplines, is a good use of time.
And in the context of focusing only on the most harmful of subsidies for our discipline, we question the need for any SDT. But as we have noted in the past, we are willing to consider it on a needs-based, transition-period approach, for the overfishing and overcapacity area only.

“And one other point I would like to make while I have the floor: I hear Members refer to SDT as a right, an entitlement. Or that we need to account for past subsidies in a future discipline and therefore focus solely on the ‘polluter pays’ concept. How do these assertions hold water when we are talking about the sustainability of a finite, shared natural resource? How can we all secure the livelihoods of our fishing communities, or the resources so greatly needed for food security, if harmful fisheries subsidies are provided which in turn leads to resource collapse and in essence, food insecurity? This is not only counter-intuitive, but runs against the experience of the last fifty years– and certainly nothing we should be supporting through WTO rules.

“Again, we would ask the question of how wholesale carve-outs are in-line with our mandate? Furthermore, to those who are seeking SDT to grow their capacity, we ask those Members to also explain how that is in line with the mandate, particularly if these same Members are resisting any kind of sustainability threshold for such growth? Instead of destroying any possibility of a coherent agreement, why can’t we consider a more tailored approach to addressing policy space of small producers, such as that set out in our cap proposal?”

Comment

The fisheries subsidies negotiations have from the beginning been limited to wild caught fish, thus excluding aquaculture. Also excluded are fish caught in inland lakes and rivers. There has been huge growth in developing countries of aquaculture over the last 20 years much developed for international trade. Countries with lots of small fishing operations have had concerns about protecting such small scale operators who largely fish relatively close to shore. The needs of these fishing populations has been a topic during the negotiations. But the fundamental challenge is stopping the creation of excess capacity and resulting overfishing happening in the oceans and seas of the world.

The challenge for sustainability of wild caught fish was laid out in the WTO Factsheet on the fisheries subsidies negotiations. WTO, Factsheet: Negotiations on fisheries subsidies, https://www.wto.org/english/tratop_e/rulesneg_e/fish_e/fish_intro_e.htm.

Fish stocks and subsidies

“According to the latest data from the UN Food and Agriculture Organization, fish stocks are at risk of collapsing in many parts of the world due to overexploitation. It is estimated that 34% of global stocks
are overfished compared with 10% in 1974, meaning they are being exploited at a pace where the fish population cannot replenish itself. Declining fish stocks threaten to worsen poverty and endanger coastal
communities that rely on fishing. Roughly 39 million people depend on capture fisheries for their livelihood. Healthy seas are also important for food security, with fish providing 20% of animal protein needs on
average for 3.3 billion people.

“In theory, fishing should be held in check by its very environment: low fish stocks should mean fishing takes more time and costs more money. The problem, however, is that very often state funding keeps unprofitable fishing fleets at sea. Global fisheries subsidies are estimated to range from USD 14 billion to USD 54 billion per year.”

The problem of overfishing is a global problem, and it has been getting worse over time. Addressing the serious problem of overfishing has been one of the goals articulated by nations as part of the UN’s Sustainable Development Goals. The UN Food and Agriculture Organization monitors the challenges faces the world from overfishing. A report in June from the FAO noted that the problem of overfishing is particularly acute in developing countries which don’t have good management systems in place to prevent/reduce overfishing. See, e.g., Reuters, June 8, 2020, Overfishing on the rise as global consumption climbs: U.N. agency, https://www.reuters.com/article/us-food-fao-fish/overfishing-on-the-rise-as-global-consumption-climbs-u-n-agency-idUSKBN23F1CD (“The FAO said in a biennial report that tackling the issue would require several
measures including stronger political will and improved monitoring as fish stocks in areas with less-developed management were in poor shape. ‘While developed countries are improving the way they manage their fisheries, developing countries face a worsening situation,’ the FAO said.); Food and Agriculture Organization of the United Nations, 2020, The State of World Fisheries ad Aquaculture, Sustainability in Action, http://www.fao.org/3/ca9229en/CA9229EN.pdf (“The 2020 edition of The State of World Fisheries
and Aquaculture continues to demonstrate the significant and growing role of fisheries and aquaculture in providing food, nutrition and employment. It also shows the major challenges ahead despite the progress made on a number of fronts. For example, there is growing evidence that when fisheries are properly managed, stocks are consistently above target levels or rebuilding, giving credibility to the fishery managers and governments around the world that are willing to take strong action. However, the report also
demonstrates that the successes achieved in some countries and regions have not been sufficient to reverse the global trend of overfished stocks, indicating that in places where fisheries management is not in place, or is ineffective, the status of fish stocks is poor and deteriorating. This unequal progress highlights the urgent need to replicate and re-adapt successful policies and measures in the light of the realities and needs of
specific fisheries. It calls for new mechanisms to support the effective implementation of policy and management regulations for sustainable fisheries and ecosystems, as the only solution to ensure fisheries around the world are sustainable.” (page vi))

Subsidies to fishing fleets and other parts of the fisheries system are major contributors to overcapacity in the fishing fleets of the world and to overfishing around the world. The WTO’s role in the SDG 14.6 is to get multilateral rules that will reduce the excess capacity and permit sustainable fishing practices. Sustainable development in the handling of the oceans will mean greater long-term opportunities for people engaged in fishing for generations to come and ensure a stable supply of protein from the seas.

The inability of WTO Members to reach a meaningful agreement on fisheries subsidies after nineteen years of effort is a sharp reminder that the WTO’s relevance has substantially eroded because of an inability of the Membership to achieve agreement on even self-evident areas of critical importance to global commerce. While many Members are pursuing advancement on other issues (e.g., digital trade/e-commerce) through plurilateral negotiations, some topics — including fisheries subsidies — require multilateral agreements to effectively address the underlying problem. Will 2021 be the charm for finalizing a fisheries subsidies agreement? Hopefully. But the continued wide divergence in views on the needs of Members in the negotiations reflect not a lack of trust but rather, as Amb. Shea stated on December 14, a lack of like-mindedness amongst Members on the purpose and objectives.

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The fisheries subsidies negotiations – failure by WTO Members to deliver an agreement by the end of 2020

Under the UN’s Sustainable Development Goals (“SDGs”), achieving an agreement to address fisheries subsidies which contribute to overfishing and other harmful effects was to be completed by the end of 2020 by the World Trade Organization (“WTO”). In fact tackling fisheries subsidies had been part of the Doha Development Agenda negotiations started at the end of 2001 at the WTO. Thus, negotiations have been underway for nineteen years.

In prior posts, I have reviewed the SDG that encompasses fisheries subsidies and the ongoing efforts at the WTO to achieve a meaningful agreement. See January 13, 2020, Fisheries Subsidies – Will the WTO Members Reach Agreement Before June 2020?, https://currentthoughtsontrade.com/2020/01/13/fisheries-subsidies-will-the-wto-members-reach-agreement-before-june-2020/; June 27, 2020, Chair of Rules Negotiating Group releases draft consolidated fisheries subsidies text at informal meeting on June 25, https://currentthoughtsontrade.com/2020/06/27/chair-of-rules-negotiating-group-releases-draft-consolidated-fisheries-subsidies-text-at-informal-meeting-on-june-25/; June 29, 2020, Update on fisheries subsidies draft consolidated text from June 25, https://currentthoughtsontrade.com/2020/06/29/update-on-fisheries-subsidies-draft-consolidated-text-from-june-25/; November 5, 2020, Revision to draft fisheries subsidies text presented by Chair of the Negotiating Group on Rules at November 2 informal open-ended meeting, https://currentthoughtsontrade.com/2020/11/05/revision-to-draft-fisheries-subsidies-text-presented-by-chair-of-the-negotiating-group-on-rules-at-november-2-informal-open-ended-meeting/.

On December 14th, there was a WTO Trade Negotiations Committee meeting held at Heads of Delegation level. At that meeting, the Chair of the Rules Negotiating Group, Amb. Santiago Wills of Colombia, provided an overview of developments in the fisheries subsidies negotiations and indicated that no agreement would be reached by the end of 2020, although progress was being made. See WTO, Negotiations on Fisheries Subsidies, WTO members committed to keeping up momentum in fisheries subsidies negotiations, 14 December 2020, https://www.wto.org/english/news_e/news20_e/fish_14dec20_e.htm. Amb. Wills is reportedly planning on releasing to parties a second revision to the draft text he originally circulated on June 25. See, e.g., Inside U.S. Trade’s World Trade Online, December 14, 2020, WTO fisheries talks chair makes it official: No agreement in 2020, https://insidetrade.com/daily-news/wto-fisheries-talks-chair-makes-it-official-no-agreement-2020. Neither the June 25 text nor the first revision from November 2 were released to the public. It is unclear if the second revision to be released later this week will be made available to the public or not. Such public release is the norm for WTO texts that are being used for negotiations by the Members. The WTO press release is embedded below and is followed by a factsheet on the negotiations put out by the WTO.

WTO-_-2020-News-items-WTO-members-committed-to-keeping-up-momentum-in-fisheries-subsidies-negotiations

WTO-_-Factsheet_-Negotiations-on-fisheries-subsidies

Deputy Director-General Karl Brauner chaired the TNC meeting on behalf of all DDGs. He noted that all Chairs of negotiating groups had noted the lack of progress in 2020 and urged members to complete the fisheries subsidies in early 2021 among other challenges. WTO, Trade Negotiations Committee and Heads of Delegations Meeting, DDG Brauner urges members to step up efforts in early 2021 to agree on fish, other issues, December 14, 2020, https://www.wto.org/english/news_e/news20_e/tnc_14dec20_e.htm. Specifically, the press release quotes DDG Brauner as saying the following on fisheries subsidies negotiations.

“We note in particular the intensive work on fisheries subsidies.

“As we have just heard from Ambassador Wills, the WTO – that is, you the Members – will not deliver an agreement on fisheries this year.

“I can only agree with the ambassador’s assessment and I am disappointed but not discouraged.

“While we are still short of the finishing line, the negotiations have made considerable concrete progress towards finding a solution that all Members can accept. Renewed engagement, with greater political will and pressure from civil society, can get us there.

“As Ambassador Wills said, meeting our mandate to reach an outcome will require compromise by everyone, on all issues.

“Activity must pick up quickly in the New Year and continue until we deliver. As the Chair said, we will be making a late delivery, and every additional delay will increase the debt that must be paid. I plead to you, nothing that can be done now has to wait for MC12 or any other deadline.”

Of course, while NGOs are anxious for a result and will continue to apply pressure on WTO Members to complete the negotiations, without public access to the text being considered the level of pressure will differ and may reduce the likelihood of an ambitious result.

Neither the statement of Amb. Wills nor of most Members who provided interventions are presently available to the public. However, the EU and the U.S. typically post the statements of their Ambassadors at TNC meetings after the meeting on their websites in Geneva. Below are excerpts from EU Ambassador Joao Aguiar Machado and from U.S. Ambassador Dennis Shea on the fisheries subsidies negotiations.

EU Statement by Ambassador João Aguiar Machado at the WTO Trade Negotiations Committee (TNC), 14December 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/90563/eu-statement-ambassador-jo%C3%A3o-aguiar-machado-wto-trade-negotiations-committee-tnc-14-december_en (emphasis in original).

“Starting with fisheries subsidies, I would like to thank the Chair, Ambassador Wills for his report and his efforts to guide us in the negotiating process. Under his stewardship, we have made significant progress: his text provides a basis for a deal and we have clarified a number of technical issues.

“It is nonetheless deeply regrettable that we will not meet our mandated deadline. There are reasons for this. The pandemic is a very real, physical constraint on the process, particularly for developing country delegations. In addition, the WTO lacks a Director General, who normally would have played an instrumental role in brokering compromise. But we should not hide the fact that Members have also not moved enough from their positions and the level of engagement is not yet sufficient.

“The pressure to deliver does remains. In fact, we now need to work even harder to reach agreement to prohibit harmful subsidies as soon as possible, in line with the UN Sustainable Development Goals.

“That means putting sustainability at the center of the new instrument. The prohibitions should reflect the fact that WTO members have committed to the full range of goals under SDG 14, including improving their fisheries management. Sustainability is not a luxury; it is not a nice-to have. It is a must-have for every country who wants to fish not just tomorrow but also the day after tomorrow.

“Turning to special and differential treatment (SDT), I would like to thank Ambassador Chambovey for his efforts as Friend of the Chair.

“Nobody disputes that special and differential treatment is a part of our mandate. But appropriate and effective SDT cannot be carve-outs and exclusions from the disciplines we’re negotiating. Any SDT needs to be seen in the context of our common objective and commitment of safeguarding a shared global resource.

“That is why the EU proposes a needs-based approach with transition periods to give policy space where it’s needed but acknowledge developing countries also have to contribute and have responsibility for combating overfishing and overcapacity and fighting IUU fishing, and even more so when several developing countries are also major fishing nations.

On next steps: the EU remains optimistic that we can reach an agreement soon, but we also need to have a frank look at the way we proceed. In order to identify possible landing zones we need more in-depth discussions. In some cases, these difficult discussions are better to have in smaller, but representative groups. There is a deal to be made. We collectively should aim to conclude this agreement as soon as possible and in any case do so before the next Ministerial Conference.”

WTO Heads of Delegation Meeting, Statement by U.S. Ambassador Dennis C. Shea, Monday, December 14, 2020, https://geneva.usmission.gov/2020/12/14/us-statement-by-ambassador-dennis-shea-at-the-wto-heads-of-delegation-meeting.

“On fish, it is true we have made some progress thanks to the efforts of Santiago Wills with help from Didier Chambovey and despite this year’s unique challenges. But let’s be serious: this negotiation has been ongoing for nearly twenty years, and by that measure, progress is very modest. This is certainly not the timeline of an organization aspiring to be effective and relevant.”

Conclusion

The fisheries subsidies negotiations are the only multilateral negotiations presently underway at the WTO. After sixteen years of limited progress and following the UN adoption of Sustainable Development Goals, the WTO agreed to fulfill the SDG 14.6 by completing negotiations on fisheries subsidies by the end of 2020. As the comments of the Chair and the EU Ambassador make clear 2020 has been an exceptionally challenging year with the limitations on delegations flowing from the COVID-19 pandemic and from the departure of the Director-General Roberto Azevedo at the end of August and no new Director-General yet confirmed. Yet the failure to complete the negotiations this year reflect the widely divergent views of existing WTO Members on their obligations to contribute meaningfully to the solution of a global problem.

Yesterday, I had a post looking at Amb. Shea’s broader comments to the TNC and Heads of Delegations Meeting. See December 14, 2020,   WTO December 14th Heads of Delegation meeting – parting comments of U.S. Ambassador Dennis Shea, https://currentthoughtsontrade.com/2020/12/14/wto-december-14th-heads-of-delegation-meeting-parting-comments-of-u-s-ambassador-dennis-shea/. The second of his three areas where lack of likemindedness was most evident had to do with whether special and differential treatment is a “right” or a temporary departure from full obligations until Members can contribute fully. As reviewed in Amb. Machado’s statement yesterday, this same issue appears to be one of the major barriers to completing the fisheries subsidies agreement.

Finally, as a member of the public with an interest in developments in Geneva, the direction of many negotiations and many delegations to submit documents and draft texts as room documents, job documents or under other nomenclature that prevents the documents from being viewed by the public is unfortunate and contrary to past efforts at greater transparency in fact by the WTO and its Members. By Friday there will be a second revision to the draft text on fisheries subsidies. There has been no other multilateral negotiation at the WTO where such texts have not been treated as public documents. While there has been press leakage of the earlier drafts, transparency should be a core part of the WTO’s interface with the public, not dependent on leakage of restricted documents. Unfortunately, at the WTO, transparency is subject to an ever growing number of exceptions with no apparent internal controls to ensure maximum transparency in fact. For example, for years, statements of Chairs of negotiating groups were released to the public on the day of the TNC meeting as was the statement of the Chair of the TNC. Those statements are now JOB documents and are not released until the release of the minutes are available months later (statements are included as attachments), hence delaying a full understanding of positions of the various chairs for months.

Let’s hope that 2021 will see a conclusion to the fisheries subsidies negotiations that are meaningful in fact. And let’s also hope that there is a return to greater transparency.

WTO December 14th Heads of Delegation Meeting — Parting comments of U.S. Ambassador Dennis Shea

At today’s Heads of Delegation meeting, the U.S. Ambassador, Dennis Shea, indicated it was his last Heads of Delegation meeting. After expressing his thanks to his fellow Ambassadors, WTO Secretariat and U.S. Mission personnel, Ambassador Shea provided a concise summary of the reasons that the United States has viewed the WTO as unable to make progress in its first 25 years of existence. He flagged that the problem at the WTO in his view is not lack of trust but rather lack of like-mindedness. His statement then reviews three areas where this lack of like-mindedness is most acute — whether the WTO is premised on “free and fair trade based on market competition,” the proper role of special and differential treatment as a bridge versus a permanent “right”, and the role of dispute settlement. While all three areas/issues have caused significant opposition by some WTO Members, the Trump Administration through the efforts of USTR has done an excellent job of laying out the U.S. concerns. Whether WTO reform will be meaningful going forward will be based in large part on whether there is a greater agreement on the basic purpose of the WTO.

While the incoming Biden Administration may very well take a different approach to addressing these areas at the WTO, there is little doubt that addressing these three areas either directly or indirectly will be critical to forward movement of the WTO and a renewed sense of relevance.

Ambassador Shea’s comments can be found here. U.S. Statement by Ambassador Dennis Shea at the WTO Heads of Delegation Meeting, December 14, 2020, https://geneva.usmission.gov/2020/12/14/us-statement-by-ambassador-dennis-shea-at-the-wto-heads-of-delegation-meeting/. Because of the importance of Amb. Shea’s message, the bulk of his statement is copied below.

“As I reflect on my nearly three years at the WTO, one of the roles I think I have played is to expose problems that pre-existed my arrival in Geneva, but were largely ignored despite requiring more forthright attention.

“So, in that spirit, please allow me now to offer some final thoughts and observations.

“I have been hearing recently that what ails the WTO is a ‘lack of trust’ among its members. I respectfully disagree with this diagnosis.

“Colleagues, when each of you takes the floor here at the WTO, I trust that you are faithfully representing the views of your governments. And I believe you trust that I, too, have been conveying the views of the United States government, hopefully with some clarity and persuasiveness.

“As I see it, the core problem at the WTO is not a lack of trust but a lack of like-mindedness. We simply disagree on some fundamental issues. These divides make progress here at the WTO exceedingly difficult and threaten the institution itself.

“Let me point out three areas where I believe the lack of like-mindedness is most pronounced and problematic.

“First, the WTO is designed to support free and fair trade based on market competition. As one of the main architects of the multilateral trading system, the United States has always believed that adherence to market-based policies among trading parties was essential if this system is to work effectively and fairly. We held this belief when we joined the GATT, agreeing to rules dedicated to openness, transparency, and fair, market-oriented competition grounded in the rule of law. We held this belief when we signed the Marrakesh Declaration with its commitment to ‘open, market-based policies.’ And we held this belief when we have insisted in literally dozens of WTO accessions that the acceding party undertake domestic reforms to reduce the role of the state in the economy and increase market orientation.

“Unfortunately, some WTO members apparently do not believe that market orientation is part of the WTO’s DNA. In their view, the WTO is agnostic between market and non-market economies – both belong here on an equal footing. This is not just a philosophical difference; it also has a practical impact.

“In 2001, when China acceded to the WTO, there was much hope that its economy would further open up, liberalize, and embrace market principles. Regrettably, this future has not fully materialized. In fact, we have witnessed significant retrenchment, a process that has been ongoing for well over a decade.

“Today, we see an economic system in China in which state-owned and -influenced ‘national champions’ are lavishly funded by state-owned banks, charged with meeting state-determined industrial policy goals, assisted in this effort by state-sanctioned intellectual property theft and cyber espionage, and supported by a panoply of policies that discriminate against foreign competition. Add to this mix the absence of an independent judiciary where business disputes can be decided fairly, highly restrictive information controls, increasing Party involvement in state-owned and private enterprises alike, and an overall lack of transparency, and the playing field becomes even more unlevel.

‘Such a state-led, non-market economic system is incompatible with the WTO and its norms. To believe the WTO can manage this system’s trade-disruptive impact under current rules and through the dispute settle- ment process is fantasy.

“Second, the United States has long believed that greater integration into the international trading system through compliance with WTO rules is good – a net positive – for a nation’s economic development. While the U.S. has always supported special and differential treatment for LDCs and less developed nations, we believe the ultimate goal of everyone should be full compliance with the rules as laid out in the various WTO agreements.

“Unfortunately, it seems today that the overriding preoccupation of far too many WTO members is to be exempt from the rules. This situation is made worse when some of the world’s largest trading nations and advanced economies claim entitlement to SD&T as of right. So the question becomes: If you don’t want to abide by the rules of this organization, why be a member?


“I’ll answer that question: Clearly, participation in the global trading system results in benefits. That’s why WTO membership is valuable. But the system cannot be sustained if members continue to extract benefits without making commensurate contributions.

“The third area where the lack of like-mindedness is pronounced is, of course, dispute settlement. As expressed in the Dispute Settlement Understanding, the WTO membership never charged the Appellate Body with creating a corpus of international trade jurisprudence – its role was to promptly make recommendations that would assist the DSB in resolving individual disputes. The role of issuing authoritative interpretations of the WTO agreements that are binding on all Members has always been reserved to the Members themselves, acting in the Ministerial Conference or the General Council.

“The intended mandate of the Appellate Body was therefore always a limited one – to correct legal errors by panels and to do so expeditiously.

“The debate over the past three years demonstrates that some WTO Members have a fundamentally different vision for appellate review than the limited role set out in the DSU. They see the appellate reviewer as an independent international court charged with establishing binding precedent, enforcing ‘coherence,’ filling gaps in the agreements, and creating a global common law of trade.

“”This clash of visions simply can’t be papered over with a few word tweaks here or there. It requires a much deeper conversation, one that the U.S. has repeatedly sought.

“And let me add that concerns about Appellate Body overreach and rule-breaking are longstanding and shared across the political spectrum in the United States.

“With these wide divergences among the membership, it’s no wonder that the WTO has underperformed over the past 25 years – just one multilateral agreement, the Trade Facilitation Agreement, and no multilateral outcome that reduces tariffs and improves market access.

“On fish, it is true we have made some progress thanks to the efforts of Santiago Wills with help from Didier Chambovey and despite this year’s unique challenges. But let’s be serious: this negotiation has been ongoing for nearly twenty years, and by that measure, progress is very modest. This is certainly not the timeline of an organization aspiring to be effective and relevant.

“Where the WTO goes from here, I do not know. But, in my view, building greater like-mindedness and a sense of shared purpose around a common set of values will be essential if the system is to survive and live up to its significant potential. To those who wish to engage in this enterprise, I will be rooting for you.”

As noted in other posts earlier this year, the issue of whether the WTO requires convergence of economic systems over time or can survive in a mode of coexistence is a critical one. Convergence has been flagged as a core principle of the WTO by Deputy Director-General in several speeches to groups in 2020. While it may be “easier” to get movement of WTO Members in reform talks by simply focusing on changes desired to agreements (or to new agreements), whether such alternative approaches are sufficient will depend in large part on how extensive they are in addressing the myriad types of distortions that other economic systems can generate.

Similarly, there are huge gaps between the views of developed countries and large and advanced countries who have self-selected “developing” as their category in terms of the adequacy of contributions of Members based on changing economic strengths of individual Members. While some countries have agreed to not seek special and differential treatment in future agreements, many major countries have to date refused to view the issue as appropriate for discussion.

Finally, on the dispute settlement system, I have written often on the problems that have been identified by the U.S. over the years. There is no question that the U.S. has laid out in great detail the problems with the system and the lack of agreement on the limited purpose of the system. While it may be possible for the U.S. to put forward a set of proposals that will correct the problems identified and limit the ability of panels or the Appellate Body to deviate, Amb. Shea’s comment that there are major differences among majors on the purpose of dispute settlement is clearly correct. As such it is not clear that meaningful corrections will be acceptable to others who seek the reinstatement of the Appellate Body. While I believe that the U.S. under the Biden Administration should put forward its proposals to correct the challenges, including how to rebalance rights and obligations when overreach is addressed, it remains to be seen if other WTO Members will actually be willing to correct the system if they are not willing to embrace what the U.S. has viewed as the clear and limited purpose of the dispute settlement system.

Conclusion

Amb. Shea has a General Council meeting on December 16-17 and the year’s final Dispute Settlement Body on December 18. Presumably those will be his last meetings at the WTO. The United States during the last four years has attempted to map out the major problems with the existing WTO. The actions taken to gain focus or attention have sometimes been controversial, and the underlying message has often been unwelcome by some or many WTO Members. That doesn’t mean that the concerns raised aren’t the fundamental challenges for the WTO generally and for the U.S. and many others in particular with the existing system’s operation. It is often difficult to be the messenger of unwanted news. Amb. Shea and his USTR colleagues deserve a lot of credit for their willingness to be the bearer of unwanted news and to provide the factual and legal background to support the U.S. concerns.

A new chapter will begin in 2021. On trade issues at the WTO, the Biden Administration has a complex set of issues to address in the coming years. They will benefit from the efforts of USTR Lighthizer and Deputy USTR Shea and the entire USTR team to lay out in detail over the last four years the challenges to the fairness of the system at the present time. Whether their efforts will make a difference for the incoming Administration will depend on the ability to generate coalitions and like-mindedness of purpose in fact with our trading partners.

As first COVID-19 vaccine starts to be shipped to the United Kingdom, Canada, Bahrain and the United States, the number of new cases reaches another record over the last fourteen days

While both Russia and China have had vaccines that they have been using within country and shipping to some other countries, the first vaccine to have gone through all testing phases and be approved by certain western countries is the BioNTech/Pfizer vaccine (Pfizer vaccine). The first shots of the Pfizer vaccine were administered in the United Kingdom last week and are being distributed to the other countries which have approved the vaccine for emergency use. In the United States, shipments are going from Pfizer’s Michigan factory today to locations around the country with first vaccinations possible for selected groups as early as tomorrow. A second vaccine from Moderna is likely to be approved in the coming week or so. Others are expected to be submitted for emergency authorization in a few weeks time. So the good news is that vaccines that are safe and efficacious have been developed in record time. The challenges now will be the ramp up of global production, distribution from plant to distribution points and further distribution to hospitals, pharmacies, doctors offices capable of handling the vaccines (particularly for the Pfizer vaccine which has to be maintained at extraordinarily low temperatures requiring special cold storage facilities to handle), adequate medical personnel and equipment to vaccinate populations, organizing populations to receive the vaccine in an order decided by government and a willingness on the part of the population to be vaccinated. In the United States, vaccines will be distributed to the states and local areas but further distribution and state efforts at fulfilling the remaining steps are handicapped by limited funds and the failure to date of the U.S. Congress and Trump Administration to agree on a supplement stimulus package that will, inter alia, ensure adequate funding for the states to ensure proper distribution and means for vaccinating their populations. There is also a need for a major communication campaign as presently only 47% of people in the U.S. indicate they will get vaccinated; 26% indicate they will not get vaccinated and 27% are unsure. The EU is hoping to get the Pfizer vaccine approved by the end of the year although is under pressure to move that time line up. Politico, December 13, 2020, Pressure mounts on EU regulator to approve coronavirus vaccine — and fast, European regulators hope that taking more time will convince the skeptics to get vaccinated, https://www.politico.eu/article/pressure-mounts-on-eu-regulator-to-approve-coronavirus-vaccine-quickly/.

Juxtaposed to the good news of vaccine approval is the continued rise in the number of new cases of COVID-19 around the world, high death rates in the U.S. and much of Europe with very challenging times facing governments until vaccine distribution and vaccinations are widespread.

This post will focus on the United States. The United States has 4.3% of the world’s population but has had one of the worst performances of any country on earth in terms of bringing the virus under control. With 16,067,031 total COVID-19 cases reported in the United States as of December 13, the United States accounts for 22.64% of the total cases in the world (70,957,979). However, during the last fourteen days, the United States 2,820,380 new cases accounted for an astounding 32.74% of global cases (8,613,822). European Centre for Disease Prevention and Control, COVID-19 situation update worldwide, as of 13 December 2020. During the last two weeks, the U.S. averaged more than 200,000 new cases each day — another first. Indeed, no other country has reported 100,000 new cases in a single day throughout the 2020 period. By contrast, the United States has reported 100,000 or more new cases on forty days, including the last 39 days in a row. The United States has now reported 200,000 or more new cases for 10 days including 9 of the last 11 days. Global cases have started to increase again, up 5.79% over the prior two week period (November 16-29). The United States saw an increase of 20.44% or an increase 478,620 over the prior two week. Indeed, the rest of the world declined slightly as the U.S. accounted for more than 100% of the global increase in the last two week. And projections are that the number of new cases will continue to rise in the United States in the coming weeks. For example, the Center for Disease Control and Prevention in the United States monitors forecasts made by various entities and reports periodically the projected number of new cases and deaths. The latest update from December 9 shows a composite projection of an increase of some 14-15% in the coming weeks. See, CDC, COVID-19 Forecasts: Cases, updated Dec. 9, 2020, https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/forecasts-cases.html. Thus, the United States will likely have the dubious distinction of recording more than 3,000,000 new cases in the next two week period.

On deaths from COVID-19, the United States has recorded 297,837 from COVID-19 or 18.35% of the world total (1,605,595). Over the last fourteen days, the United States has recorded 31,774 deaths (2,269.57/day) or 20.90% of the world total (152,064). Deaths in Europe have been very high in recent weeks following the extraordinary surge in the last two months in new cases although cases in Europe have been dropping over the last several weeks which should mean declining death totals in Europe in the coming weeks. Deaths in the United States are projected to continue rising and are already around one death every thirty seconds (indeed as deaths exceed 3,000/day some days, it is one death every 25-29 second. CDC’s recent update of various forecasts show likely increases in deaths in the U.S. in the coming weeks, some projections showing more than 3,000/day. See CDC, COVID-19 Forecasts: Deaths, updated December 9, 2020, https://www.cdc.gov/coronavirus/2019-ncov/covid-data/forecasting-us.html.

U.S. hospitalizations due to COVID-19 have now topped 100,000 and many states are near or exceeding capacity for ICU beds. On December 12, 2020, The COVID Tracking Project tallied 108,487 U.S. hospitalizations due to COVID. The image below is copied from the COVID Tracking Project webpage and shows current hospitalizations more than 60% higher than prior peaks from April and June/July. https://public.tableau.com/profile/covid.tracking.project#!/vizhome/CTPWebsiteGallery/7_USCHospitalized.

With the continued surge in new cases and increasing hospitalizations, many states are facing severe challenges. California has reimposed lock down requirements on most parts of the state. Reno, Nevada has had a huge spike in cases, requiring the city to convert a parking lot to a COVID-19 facility. Press articles show the problem is occurring in many places. See, e.g., Houston Chronicle, December 10, 2020, TMC hospitals, hit by COVID surge, exceed base ICU capacity for first time since summer, https://www.houstonchronicle.com/news/houston-texas/health/article/COVID-ICU-capacity-patients-Texas-Med-Center-news-15791754.php; Raleigh News & Observer, December 8, 2020, NC hospitals will run out of beds if current COVID trends continue, researchers say, https://www.newsobserver.com/news/local/article247691885.html.

With vaccines now starting to ship, the U.S. is predicting that some 60% of Americans will be vaccinated by the summer (described as any American who wishes to be vaccinated). Dr. Fauci has indicated that vaccinations of 70% or more will be required for herd immunity, but life may start to return to a more normal state by late summer if the government, businesses and the population work together to maximize vaccinations and continue to follow other precautions until then (mask wearing, social distancing, handwashing, small group gatherings, etc.). It will also require the Congress and the Trump Administration to get the supplement stimulus package passed and enacted into law to ensure adequate funding for the states to ensure full and timely implementation of the vaccination effort.

But despite the good news on vaccines, the challenges facing the U.S. certainly for the first two quarters of 2021 and perhaps longer, will continue to be extraordinary considering current conditions and projections through January. For the United States, it is certain to be a very dark and challenging winter and at least early Spring. The incoming Biden Administration understands the importance of a full court press to get the pandemic under control. Let’s hope that the problems prove manageable and that the carnage the American people have suffered can be drastically reduced and quickly stopped.

The Incoming Biden Administration and International Trade — Katherine Tai, nominee for U.S. Trade Representative

With the Trump Administration’s term down to less than 40 days, many trading partners are understandably wondering how the incoming Biden Administration will handle the many international trade issues that are pending at the moment. President-elect Biden has indicated his Administration will reengage with allies to address many issues, rejoin the Paris climate agreement and the WHO. On trade, President-elect Biden has indicated the need to work to get past the COVID-19 pandemic and the need to ensure fair trade, noting challenges with China in particular.

On December 10, President-elect Biden announced that he was nominating Katherine Tai to be U.S. Trade Representative. Ms. Tai has a distinguished career, including time at USTR as Chief Counsel for China Trade Enforcement and more recently as Chief Trade Counsel to the U.S. House Ways and Means Committee. President-elect Biden indicated that Ms. Tai was a “trusted trade expert” and had spent her career “leveling the playing field” for business and labor. Ms. Tai has received strong support from both business and labor. President-elect Biden indicated that a key priority in his Administration would be China enforcement and noted Ms. Tai’s deep experience in pursuing enforcement actions against China. President-elect Biden stated that trade is a critical pillar in building the economy back better. And he noted that Ms. Tai would be able to help ensure that trade helped address the challenges from climate change. The information on Ms. Tai from the President-elect’s website is embedded below.

Katherine-Tai-United-States-Trade-Representative-_-President-Elect-Joe-Biden

Ms. Tai’s comments after being introduced by President-elect Biden included a review of her heritage and the following statement about the role of trade in an economy:

“Trade is like any other tool in our domestic or foreign policies. It is not an end in itself. It is a means to create new hope and opportunity for people. And it only succeeds when the humanity and dignity of every American, and of all people, lie at the heart of our approach.”

As noted by the Chairman of the U.S. House and Ways Committee Richard E. Neal (D-MA) in his press release on Ms. Tai’s nomination,

“The U.S.-Mexico-Canada Agreement (USMCA) was a tremendous bipartisan accomplishment that has set a new standard for all future trade deals our nation pursues. That landmark agreement includes strengthened worker and environmental protections, rules to promote Americans’ access to life-saving medicines, and new and enhanced enforcement mechanisms.

“As House Democrats undertook negotiations with the Trump Administration regarding the deal’s implementing legislation last year ,unbeknownst to us, the future USTR nominee was serving at the heart of the process. With smarts, skill, and perseverance, Katherine Tai demonstrated how trade can be used as a force for good that uplifts people and creates opportunity.”

HWMC Press Release, Dec. 11, 2020, FOLLOWING PRESIDENT-ELECT BIDEN’S INTRODUCTION OF KATHERINE TAI AS USTR NOMINEE, NEAL EMPHASIZES OPPORTUNITY TO BUILD ONSUCCESS OF THE USMCA, https://waysandmeans.house.gov/media-center/press-releases/following-president-elect-biden-s-introduction-katherine-tai-ustr.

There have been many press releases from groups supporting Katherine Tai’s nomination from business, labor, environmental groups and others. See, e.g., American Farm Bureau Federation news, December 10, 2020, AFBF Welcomes Nomination of Katherine Tai for U.S. Trade Representative, https://www.fb.org/newsroom/afbf-welcomes-nomination-of-katherine-tai-for-u.s.-trade-representative; Aluminum Association, December 11, 2020, Aluminum Association Congratulates USTR Nominee Katherine Tai, https://www.aluminum.org/news/aluminum-association-congratulates-ustr-nominee-katherine-tai; American Apparel & Footwear Association, December 10, 2020, AAFA Welcomes Nomination of Katherine Tai for USTR, https://www.aafaglobal.org/AAFA/AAFA_News/2020_Press_Releases/AAFA_Welcomes_Nomination_Katherine_Tai_USTR.aspx; Sierra Club, December 10, 2020, Sierra Club Applauds Katherine Tai’s Nomination as U.S. Trade Representative, https://www.sierraclub.org/press-releases/2020/12/sierra-club-applauds-katherine-tai-s-nomination-us-trade-representative; AFL-CIO, December 10, 2020, Biden’s USTR Pick Shows Commitment to America’s Working Families, https://aflcio.org/press/releases/bidens-ustr-pick-shows-commitment-americas-working-families.

Some of the trade issues that will confront the next USTR

The U.S. always has a full trade agenda facing it. That includes ongoing negotiations such as the U.S.-U.K. FTA, U.S.=Kenya FTA, whether negotiations will proceed on other FTAs or talks where there has been a Phase 1 (U.S.-Japan Phase 1) or limited initial agreements (U.S.-Ecuador Agreement, U.S.-Brazil Agreement) and remaining issues with China following the 301 investigation, imposition of tariffs and U.S.-China Phase 1 Agreement. With Trade Promotion Authority (TPA) terminating at the end of June, the Biden Administration will need to decide whether to seek renewed Trade Promotion Authority. If not, focus at USTR will likely be on concluding the U.S.-U.K. agreement by the end of April, the only FTA likely to be concluded within the current TPA’s timeline.

Other negotiating issues include the pending multilateral and plurilateral issues at the WTO (fisheries subsidies and Joint Statement Initiatives like digital trade, MSMEs, etc., and the broader WTO reform needs (Appellate Body, industrial subsidies, improved transparency, trade and environment, and more). The Biden Administration may also want a broader outreach to Pacific Ocean countries (CPTPP countries and others) and could have an interest in achieving the vision of George W.H. Bush’s FTA of the Americas (although Democratic focus on human rights would make such an effort unlikely based on HWMC Democratic response to the initial U.S.-Brazil agreement earlier this year).

On enforcement, the Administration will have work on enforcement issues with major trading partners in the new USMCA (particularly on labor with Mexico but also dairy with Canada).

The China relationship is obviously an important one for the U.S., and there remain a host of concerns and unfinished business in negotiating resolution of the intellectual property issues with China flowing from the 301 investigation, as well as whether to maintain, reduce or eliminate tariffs on Chinese imports imposed after the 301 investigation. One can expect a new Administration will engage on many levels with China. While it is unlikely that the 301 tariffs will be lifted quickly, there could be more robust exclusion procedures at USTR and renewed interest by the U.S. in doing a phase 2 negotiation to resolve the other IP issues. One can expect the reestablishment of more formal high level periodic engagement, and possible pursuit of new disputes at the WTO on issues of concern. As President-elect Biden has said, China enforcement actions are a key priority for his Administration.

With the EU, there are existing major irritants, including the Boeing-Airbus dispute and WTO authorized retaliations, the widespread move in Europe to taxing digital services, and the Section 232 tariffs on steel and aluminum to name just three. While the Trump Administration has started negotiations with the EU on resolving the aircraft dispute, it will remain as an item for hopefully early resolution in the Biden presidency. Similarly, the digital services tax issue has been subject to one 301 investigation (France) with many others ongoing and with OECD talks continuing to find agreement on such taxes. One can expect likely fireworks in 2021 as taxes on digital services start to be imposed at least in one country. Similarly, it is unlikely that the U.S. will dismantle the 232 tariffs on steel and aluminum prior to panel reports on both cases challenging the 232 actions and the U.S. cases challenging the response by a number of trading partners. While there are irritants that need to be addressed, there are also areas of potential opportunity whether bilaterally or multilaterally. Presumably, the U.S. will be looking at steps it can take to advance the objectives of the Paris climate agreement and may find common cause with the EU on various issues. Similarly, the U.S. and EU have many of the same concerns about the ineffectiveness of existing WTO rules to address the distortions flowing from the Chinese system. Greater cooperation there is also needed and likely. While the EU and the Trump Administration had agreed early on to a trade agreement on industrial goods (excluding agriculture and other issues), such an agreement was never going to be acceptable to the U.S. Congress. It is unclear if the Biden Administration will pursue a trade agreement with the EU in the coming years or limit engagement to finding areas of cooperation on new rules and resolving existing friction issues.

Other enforcement issues will center of issues from existing FTAs, from WTO agreements and the ongoing 301 investigations on taxes on digital services other than EU countries (EU addressed above). How much activity will be placed on WTO disputes will depend on whether the U.S. pursues restoration of the Appellate Body (albeit limiting the AB’s role and correcting the problems identified by the U.S. over the last twenty-years and documented by the Trump Administration). There are, of course, a number of pending disputes that the U.S. is a party to at the WTO, including the cases filed by trading partners against the U.S.’s use of Section 232 of the Trade Expansion Act of 1962, as amended to impose tariffs on steel and aluminum imports for national security reasons and the cases brought by the United States against many of those countries who imposed tariffs on U.S. exports usually on the theory that 232 tariffs were safeguard tariffs. Panel resolution of all of these cases is expected in the first quarter of 2021.

While Congress is considering extending and/or modifying the Generalized System of Preference program which expires this month, the Biden Administration is likely to use the GSP eligibility for major participants to ensure statutory criteria for eligibility are met. Thus, the Trump Administration approach will likely be continued but refocused on Democratic concerns particularly if the GSP law is modified as proposed by House Democrats. The U.S. has been pursuing improved bilateral trade relations with India, as an example, and has used GSP eligibility as a lever for engagement. India is unlikely to do a broad trade agreement with the U.S., and it is not expected that the Biden Administration will pursue piecemeal agreements as was done with Japan.

On the World Trade Organization, the Biden Administration will have a potentially full docket but some important issues for early consideration. The first issue where an early action is important is who should be the next Director-General. The Trump Administration has indicated it did not agree to join a consensus on the candidate for the Director-General position who is the candidate with broadest and deepest support, Dr. Ngozi Okonjo-Iweala of Nigeria. Procedures adopted by the General Council in 2002 for selecting Directors-General was followed this year. The Chair of the General Council indicated he was prepared to recommend Dr. Okonjo to the General Council back in early November but has not done so in light of the U.S. position. Both Dr. Okonjo and Minister Yoo of Korea are well qualified candidates. While the Trump Administration may prefer Minister Yoo, in this writer’s view, either candidate will do an excellent job. U.S. refusal to join a consensus is contrary to procedures the U.S. and others agreed to. Because of the U.S. position and the failure of the Korean candidate to withdraw from the process, the WTO continues to operate without a new Director-General. The incoming Biden Administration should communicate with Korea that it intends to indicate the U.S. will join the consensus and then notify the Chair of the General Council. This can and should be done as quickly as possible by the Biden Administration to permit the WTO to get a new Director-General in place early in 2021.

The U.S. has also blocked the start of the process for selecting new Appellate Body members over the last several years because of serious concerns about the operation of the Appellate Body. The Appellate Body currently has no members and ceased being able to hear new appeals after December 10, 2019. During the Trump Administration, the U.S. laid out in great detail the problems of concern and earlier this year released a report on the Appellate Body that summarizes the concerns. While trading partners have been told about U.S. concerns over the last twenty years, there was no serious effort to address U.S. concerns until the operation of the Appellate Body was at risk. The process that was undertaken last year to look at U.S. concerns addressed some but not all issues raised by the U.S. The draft General Council decision prepared by the facilitator, Amb. David Walker of New Zealand,. was found inadequate by the U.S. Restoration of a two stage dispute settlement system remains of key importance to most Members, though not of great concern to the Trump Administration based on recent comments by USTR Robert Lighthizer (reported to have said that nobody cares about the demise of the Appellate Body). See Inside U.S. Trade’s World Trade Online, December 10, 2020, Lighthizer: ‘No one’s really missed’ the Appellate Body, https://insidetrade.com/trade/lighthizer-%E2%80%98no-one%E2%80%99s-really-missed%E2%80%99-appellate-body. The U.S. has been correct in my view in insisting that the problems flagged with the WTO Appellate Body’s operation need to be fixed before the U.S. releases its blockage of appointment of new members. What has been lacking to date has been a specific set of proposals from the U.S. that would address their concerns and rebalance rights and obligations. While it will likely take the Biden Administration time to determine how to proceed on the Appellate Body issue, the U.S. can and should indicate that it will be providing its proposals for reform of the Appellate Body hopefully during the first half of 2020. Key among the needed changes are clarifications of Articles 3.2 and 19.2 of the DSU to make clear that (1) filling gaps, (2) construing silence and (3) selecting one meaning from ambiguous provisions constitutes the creation of rights or obligations contrary to the limits imposed by Art. 3.2 and 19.2 There will also be a need to address past “overreach” situations either by declaring the challenged decisions not valid or by having the issues reexamined by a reconstituted Appellate Body under the clarified provisions of Article 3.2 and 19.2 or through changes to a range of Agreements. In a WITA webinar on Dec. 11, five Geneva-based Ambassadors for Ottawa Group WTO Members addressed a range of issues. WITA, Dec. 11, 2020, Ottawa Group Ambassadors on the WTO, https://www.wita.org/event-videos/ottawa-group-ambassadors-wto/. Canada’s Ambassador to the WTO, H.E. Stephen de Boer, indicated that it would be helpful if the incoming Biden Administration would signal its intent to engage on the Appellate Body issue, realizing that it would take time before the Administration had its team in place, etc.

Other early issues include the modification to the U.S. Annex 1 commitments to the Government Procurement Agreement to address essential medicines and other medical goods and the need for compensation or likely retaliation if the modifications as proposed last month by the Trump Administration go forward.

There are a host of disputes that will be coming out of the panel stage in the first quarter of 2021 in all likelihood that will also require attention. And, of course, the U.S. could work to bring new disputes or be subject to new requests for consultations.

An additional issue needing early attention is the proposed waiver of TRIPS obligations to address the COVID-19 pandemic put forward by India, South Africa and others that the U.S. has opposed on the basis of existing flexibilities within the TRIPS Agreement. But activities will be going on within the TRIPS Council in the first quarter.

The negotiating agenda at the WTO was summarized above. Besides fisheries subsidies (multilateral) and the Joint Statement Initiatives (plurilateral), there are a number of issues from earlier Ministerials that are still looking for resolution. The 12th Ministerial is likely to be held in the summer of 2021 in Kazakhstan and there are hopes for deliverables by then. This will require continued U.S. active engagement in the various fora.

Reform of the WTO (besides the Appellate Body) is an important objective with no clearly defined areas at this point but with many ideas floated by the U.S. and other delegations. The Trump Administration did an effective job of identifying what it considered to be fundamental problems or failures of the existing system including the U.S. view that WTO rules which are premised on market economies don’t adequately address the distortions created by nonmarket economies like China. The Trump Administration believes convergence of economic systems to market oriented ones is the key to a viable WTO. By contrast, China’s desire and belief is that the WTO has no role in addressing different economic systems, such that coexistence of systems is all that is required under a common set of rules. The Trump Administration also has flagged the failure of many Members to provide complete and timely notifications, particularly in areas like subsidies. The U.S. has similarly challenged the notion that special and differential treatment should be available to any Member based on self-selection as a developing country. The U.S. has pointed to the dramatic economic changes for many countries over the 25 years of the WTO’s existence and believes Members should be disqualified from special and differential treatment if they fit certain factual criteria. The U.S. has also raised the problem of tariff bindings not reflecting current economic conditions for many countries and with no tariff reductions occurring by countries with higher tariff rates.

For the Biden Administration, the challenge will be whether it works with other Members to develop additional rules that can address identifiable distortions (e.g., the effort underway with Japan and the EU on reviewing possible changes to the disciplines on industrial subsidies) and find practical solutions to other identified problems or chooses to pursue the larger-picture issues on which movement will be more challenging or impossible.

Not included in the above but obviously of importance to the Biden Administration will be how to advance trade and environment issues of importance to the U.S. and others. The environmental goods agreement discussions which broke down in 2016 is but one example. Fisheries subsidies is a negotiation that has gone on for nineteen years and should have been completed this year. Other environmental issues are being explored. Over the last 25 years, there is a great deal more interest among WTO Members of different economic levels to address the intersection of trade and environment to achieve sustainable development and for some island nations to survive at all. As reviewed in a prior post, the Biden Administration will likely be looking at ways to work with others to advance environmental objectives at the WTO. See November 17, 2020, WTO initiatives on trade and the environment — likely to receive a warm welcome under a Biden Administration, https://currentthoughtsontrade.com/2020/11/17/wto-initiatives-on-trade-and-the-environment-likely-to-receive-a-warm-welcome-under-a-biden-administration/. Short term, just the fishery subsidies negotiations are key to conclude.

While there is certainly more on the USTR plate than what is reviewed above, it should be clear that the incoming Biden Administration and the likely new USTR, Katherine Tai, will have some early important issues confronting them as they look to get past the pandemic and build back better. Here is wishing them well.

Council for Trade-Related Aspects of Intellectual Property Rights meeting of December 10, 2020 – no resolution on proposed waiver of TRIPS obligations to address the pandemic

On December 10th, the WTO Council for Trade-Related Aspects of Intellectual Property Rights held a meeting to consider a proposed waiver for all countries of various TRIPS Agreement obligations during the COVID-19 pandemic. I have previously looked at the proposed waiver and reactions thereto in two prior posts. See December 6, 2020, Upcoming December 11th Council for Trade-Related Aspects of Intellectual Property Rights meeting – reaction to proposed waiver from TRIPS obligations to address COVID-19, https://currentthoughtsontrade.com/2020/12/06/upcoming-december-11th-wto-council-for-trade-related-aspects-of-intellectual-property-rights-meeting-reaction-to-proposed-waiver-from-trips-obligations-to-address-covid-19/ (date of meeting incorrectly listed as December 11); November 2, 2020:  India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

The WTO press release on the meeting indicates that Members will continue to discuss the proposal in future meetings as there was no consensus yet on the proposed waiver. See WTO press release, December 10, 2020, Members to continue discussion on proposal for temporary IP waiver in response to COVID-19, https://www.wto.org/english/news_e/news20_e/trip_10dec20_e.htm. The meeting was held to permit the Council to prepare a report to the General Council ahead of its December 16 meeting. As noted in the press release,

“As a result of the consultations, the chair proposed that the TRIPS Council provide a neutral and factual communication to the General Council reflecting the state of play of discussions and the absence of consensus on the waiver proposal in the TRIPS Council at this time. The communication would indicate that the TRIPS Council has not yet completed its consideration of the waiver request and may not be able to do so within the 90 days stipulated. Therefore, it would propose that the TRIPS Council continues its consideration of the waiver request and reports back to the General Council as stipulated in Article IX:3 of the Marrakesh Agreement.”

The next scheduled TRIPS Council meeting is scheduled for March, but the Chair indicated informal meetings may be held in January and February to work on a path forward.

The press release in its entirety is embedded below.

WTO-_-2020-News-items-Members-to-continue-discussion-on-proposal-for-temporary-IP-waiver-in-response-to-COVID-19

There remains a sharp divide between the proponents and their supporters on the one hand who argue that TRIPS obligations will hinder speedy and equitable distribution of vaccines and other materials needed for handling the pandemic and the range of Members who opposed a waiver on the basis that there hasn’t been a factual showing that TRIPS flexibilities don’t address concerns and that TRIPS provisions are not the only issue that goes to production capacity and production.

As noted in my last post, four WTO Members (Australia, Canada, Chile and Mexico) have proposed a series of questions for Members to consider and respond to in an effort to develop a factual record for what actual problems Members are having so any waiver or other action would respond to actual versus feared potential problems. There was no public indication of whether WTO Members will respond to the questions and/or otherwise cooperate in the establishment of a data base of challenges being experienced in fact by Members in addressing the pandemic.

Trade press have reported on the meeting and the continued disagreement between the two groups of Members. See, e.g., Inside U.S. Trade’s World Trade Online, December 10, 2020, WTO members to continue talks on TRIPS waiver, but no consensus in sight, https://insidetrade.com/daily-news/wto-members-continue-talks-trips-waiver-no-consensus-sight (“The U.S., the European Union and Japan, among others, oppose the waiver, insisting that intellectual property protections are necessary to spur innovation and collaboration. The U.S. on Thursday called instead for members to identify specific problems related to accessing a product and then find targeted solutions. * * * Canada on Thursday argued that the built-in flexibility of the agreement is proven to work, citing the example of Canada’s issuance, in 2017, of a compulsory license granting a Canadian company permission to use nine patents in producing an HIV drug for Rwanda.”); Washington Trade Daily, December 11, 2020, TRIPS Waiver Talks to Continue, https://files.constantcontact.com/ef5f8ffe501/25ec633d-96b4-44cd-8c0d-2eb9108795b9.pdf (pages 2-4).

Look for the proposed waiver to be a topic of continued disagreement within the TRIPS Council in 2021 until such time as there is a much clearer picture of the actual problems to which a much narrower waiver would actually be needed and effective if nonwaiver options are not available. With vaccine approvals starting and with production and distribution being ramped up in 2021, there will be materials delivered to many countries next year either through COVAX or through voluntary licensing arrangements. As noted in an earlier post, there are several billion vaccine doses capacity available through these current options.

U.S.-China Phase 1 Trade Agreement — Data through October 2020; while China has increased purchases of agricultural and some other products, China remains far behind on the agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis

U.S. October export data were released earlier this month. While there are some improvements in some categories of merchandise exports in October (particularly in agricultural categories), China remains far behind its overall commitments in the U.S.-China Phase I Trade Agreement for first year purchases of U.S. goods. As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, although recent comments from the Trump Administration indicate there are challenges in confirming changes in Chinese policy have been implemented in fact.

Besides questions on whether changes announced by China have actually been implemented, China is far behind in its year one purchase commitments from the Untied States. Prior posts on the U.S.-China Phase 1 Agreement can be found here: November 13, 2020, U.S.-China Phase 1 trade agreement – Data through September 2020; USDA and USTR report on agriculture portion, https://currentthoughtsontrade.com/2020/11/13/u-s-china-phase-1-trade-agreement-data-through-september-2020-usda-and-ustr-report-on-agriculture-portion/; October 10, 2020,  U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of U.S. Domestic Exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

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

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

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

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

Looking at U.S. domestic exports for the March – October period and projecting for full year 2020 shows China meeting 91.57% of first year agriculture commitments if the first year is measured from March 2020-February 2021 (an increase from 82.73% when March-September data were examined last month). Total Phase 1 products are projected at only 59.83% (up from 56.94% through September) of first year commitments for the March-February year with manufactured goods at 52.85 (up from 50.46% through September) and energy at 43.68% (down from 46.63% through September). If calendar year 2020 is examined, then total Phase 1 goods are projected to meet 53.19% (up from 51.40% through September) with manufactured goods at 52.10% (up from 50.85% through September), agricultural products at 69.97% (up from 65.49% through September) and energy goods at 35.51% (up from 35.33% through September). To meet first year commitments, China would have to import monthly 3.55 times the product from the United States as was done in the first eight months in the next four months (November – February)(up from 3.47 times for data through September) or 6.964.69 times the monthly imports from the United States in the two month period of November – December if a calendar year basis is examined (up from 4.9 times for data through September). Under the March-February analysis using data through October, the U.S. domestic exports of goods covered by Phase I to China would potentially exceed the actual 2017 U.S. exports ($90.168 billion projected vs. $86.795 billion 2017 actual). The calendar year projection is still $6.5 billion below the 2017 actual. Moreover, since non-covered U.S. exports have declined in 2020 versus 2017, under neither scenario do total U.S. domestic exports reach the 2017 level of $120 billion.

Moreover, there have been articles suggesting that Chinese purchases of major product categories (such as soybeans) will decline in coming months as various contracts get cancelled because of margins in China. See, e.g., Reuters, November 25, 2020, Chinese buyers look to cancel U.S. soybean orders as processing margins shrink, https://www.reuters.com/article/us-china-soybeans-cancellations/chinese-buyers-look-to-cancel-u-s-soybean-orders-as-processing-margins-shrink-idUSKBN28510H.

U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. Total U.S. services exports to all countries are down 19.74% for the first ten months months of 2020. Services trade data with China for 2020 is available for the first nine months of 2020 and shows U.S. exports of services down 41.51% from 2019 levels in the first half and down 42.36% in the third quarter of 2020 from 2019 levels. 2019 US exports of services to China were $36.398 billion, slightly lower than 2017 US exports of services to China of $36.986 billion. See U.S. Department of Commerce, U.S. Bureau of the Census, Bureau of Economic Analysis, U.S. International Trade in Goods and Services, October 2020 (December 4, 2020). The Phase 1 Agreement with China has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels – to $49.786 billion). Thus, the limited data available indicate that U.S. services exports to China will likely miss 2017 levels by more than 40% and will obviously not show any gain above 2017.

Looking at total U.S. domestic exports of goods to China for the period March-October 2020, U.S. exports were $72.298 billion ($9.037 billion/month) compared to $77.043 billion in 2017 ($9.6306 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For the January-October 2020 period total U.S. exports were $84.815 billion ($8.482 billion/month) compared to $95.404 billion in 2017 ($9.540 billion/month).

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year). For the period March – October, non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 19.97%, and total exports to China are down 6.16%. Looking at January – October figures show other U.S. domestic exports (i.e., not covered by the Phase I Agreement) were down 20.02% from comparable levels in 2017.

Thus, the first eight months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $90.168 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $26.661 billion, for total U.S. domestic exports to China of $116.829 billion. This figure would be below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $177.339 billion with noncovered products at estimated 2020 levels) . The same is true if one looks at January-October 2020 which suggest full year 2020 exports of Annex 6 goods of $80.151 billion, other exports of $26.643 billion, for total domestic exports in 2020 of $106.794 billion even further behind 2017.

To achieve the target level of U.S. exports in the November 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $96.439 billion ($24.109 billion/month) an amount that is 3.55 times the monthly rate of exports of the 18 categories to China in the March – October 2020 period ($6.782 billion/month).

If one uses January-September for comparison and for other US exports, with only two months data remaining in 2020, U.S. exports of goods covered by Annex 6.1 would have to be $87.712 billion or $43.856 billion/month which is 6.96 times the average of $6.298 billion of the January-October period.

Chinese data on total imports from all countries (in U.S. dollars) for January-October show a decline of 2.3% from the first ten months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, October 2020 (in USD). China’s imports from the U.S. were up 3.3% during the same time period, but show imports from the U.S. substantially larger than U.S. domestic exports ($103.9 billion vs. $84.8 billion, though Chinese imports would be CIF value vs. FAS value for U.S. exports and may include U.S. exports to third countries or territories that end up in China).

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

Product categoryMarch-October 2017March-October 2020% change 2017-2020 March-October$ Value needed in next four months to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery $7,254.7
$8,369.5


+15.37%
2. electrical equipment and machinery
$2,865.7

$3,176.0

+10.83%
3. pharma- ceutical products $1,487.8 $2,012.7
+35.28%
4. aircraft (orders and deliveries) $10,453.6 $2,784.1
-71.78%
5. vehicles $6,957.3 $3,970.4
-42.93%
6. optical and medical instruments $2,123.1
$2,325.7

+9.54%
7. iron and steel
$819.7
$371.0
-54.74%
8. other manufactured goods $7,067.5 $9,134.8 +29.25%
Total for mfg goods
$39,029.5

$32,144.1

-17.64%
$59,125.3
Agriculture
9. oilseeds $5,472.4 $6,875.7 +25.64%
10. meat $374.4 $2,061.1 +450.47%
11. cereals $507.5 $1,795.1 +253.72%
12. cotton $488.3 $1,162.2 +137.99%
13. other agricultural commodities $2,982.0
$2,852.4

-4.35%
14. seafood $944.1 $520.9 -44.83%
Total for agriculture$10,768.7
$15,267.4
+41.78% $18,084.3
Energy
15. liquefied natural gas
$196.0

$643.9

+228.56%
16. crude oil $2,665.8 $5,063.2 +89.93%
17. refined products $1,515.0
$1,100.0

-27.39%
18. coal $323.7 $37.6 -88.39%
Total for energy $4,700.5$6,844.8 +45.62% $19,229.1
Total for 1-18 $54,498.7 $54,256.3 -0.44% $96,438.7

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries are down in the first ten months of 2020 while up only 3.3% from the United States. Thus, while China has been increasing imports from the United States of some goods categories, it is extremely unlikely it will achieve the year one commitments of U.S. goods regardless of whether the first year is the calendar year 2020 or the twelve months March 2020 – February 2021.

Conclusion

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

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

The differences in economic systems between China and the United States have made reliance on WTO rules less relevant to the Trump Administration as those rules presume market-based economies and presently don’t address the myriad distortions that flow from the Chinese state capital system. Thus, the Phase I Agreement was an effort to move the needle in trade relations with China to achieve greater reciprocity. It has had some limited success to date. It will be interesting to see the approach on trade with China taken by the incoming Biden Administration.

Trade for Peace Week at the WTO — a positive look at how trade can and should contribute to global peace and stability

As covered in remarks by Deputy Director-General Alan Wolff during the first day of Trade for Peace Week on November 30, the push for a multilateral trading system was the belief that global cooperation and integration through expanded trade ties would contribute to global stability and peace. Because of the importance of the linkage of trade and peace, I have copied a large part of DDG Wolff’s statement from November 30 below (footnotes omitted). The entirety of his speech can be found at WTO news, November 30, 2020, DDG Wolff calls for more structured WTO cooperation with humanitarian and peace communities, https://www.wto.org/english/news_e/news20_e/ddgaw_30nov20_e.htm.

Trade for Peace: the Past

“Contemplating the relationship between trade and peace has a long history. In AD 100, Plutarch wrote that sea trade allowed one to cooperate and ‘redress defects’ in their relationships through mutual exchange.
In the 1700s, Montesquieu specified that peace is a ‘natural’ consequence of trade. The legal and theological underpinnings for this philosophy were provided by Hugo Grotius, who held that the purpose of free trade was to unite the world in peace.

“This history, as well as current relations among nations, provide fresh evidence for a proven correlation between peace and open trade. Trade does not guarantee peace, but it is an essential foundation for the economic stability that makes peace more possible. Peaceful relations in turn make the expansion of trade achievable. As China’s Premier, Li Keqiang recently said, ‘without a peaceful and stable environment, nothing would be possible.’ This is recognized as being all too true for a number of the countries, no strangers to conflict, who have recently joined the WTO as well as several who seek to do so.

“The conceptual linkage between trade and peace provided the foundation for the multilateral trading system. The 1948 Havana Charter for the International Trade Organization (ITO) was drafted immediately after two devastating world wars and the Great Depression. The purpose of the founders, to use trade to promote peace is reflected in the Charter’s opening words: ‘to create conditions of stability and well-being which are necessary for peaceful and friendly relations among nations’.

“The idea of using trade as an integral part of the management of relations between nations had been championed by Woodrow Wilson a few decades earlier in his Fourteen Points at the Paris Peace Conference
after the First World War. The points were agreed to by all the nations attending the conference and implemented by none. But the thread was not lost. It was picked up by Secretary of State Cordell Hull who served Franklin Roosevelt between 1933 and 1944. Hull believed that one ‘could not separate the idea of commerce from the idea of war and peace’. ‘[I]f we could increase commercial exchanges among nations over lowered trade and tariff barriers and remove international obstacles to trade, we would go a long way toward eliminating war itself.’ He sought through bilateral trade agreements, which were concluded on a most-favored-nation basis, that is, they were nondiscriminatory, to deliver on the promise of the trade and peace linkage that he held dear.

“While the Havana Charter failed to create the ITO, the cause of peace was served by the coming into force of the General Agreement of Trade and Tariffs (GATT) which, in the absence of the ITO, served as an
ad hoc arrangement of rules for international trade until it was eventually transformed into the WTO in 1995.

“For over seven decades, the rules-based multilateral trade system has provided an enabling environment to foster unprecedent levels of economic prosperity and poverty reduction in modern human history.

“There is academic and empirical evidence that the attainment of peace and security is supported by international cooperation through trade and economic interlinkages. (Indeed, there will be a dedicated discussion on this subject at Session 4 of the Trade for Peace Week). The contribution to the advancement of peace through the creation of the European Union, the largest and most impressive of the post-WWII economic integration projects, was recognised by the award of the Nobel Peace Prize in 2012.

“The Capstone Research Project, which the WTO Secretariat conducted with the Graduate Institute last year, identified 157 peace agreements concluded over the last century as containing economic clauses. These largely pertain to the removal of impediments to free movement of goods, people and services; economic reconstruction through industries, investments, and entrepreneurial enterprises; and improvement in the standard of living through economic reconstruction activities. Only ten of 300 trade agreements examined
make explicit reference to peace. The cause of peace may be served, but homage to the express linkage that motivated the founders of the multilateral trading system largely disappeared. If we believe that trade does serve as an enabler for peace, a subject which is at the core of our discussions this week, the trade and peace communities should consider bringing this connection to the attention of trade negotiators and peace negotiators whenever conflict-affected nations are involved.

Trade for Peace: The Present

“Peace was not explicitly referenced in the Marrakesh Agreement Establishing the WTO in 1995 or the launch of the Doha Development Round in 2001. The trade and peace linkage had either been taken for granted or was no longer seen as very relevant. This is remarkable especially given the recent end of the Cold War, which had threatened global annihilation through the use of nuclear weapons. But the vision did not die. Three years ago, a group of fragile and conflict-affected LDCs in the process of accession — Comoros, Sao Tomé and Principe, Somalia, South Sudan and Timor-Leste — came together, together with recently acceded LDCs — Afghanistan, Liberia and Yemen, and made the case that trade and economic integration can be employed to promote inclusive and sustainable peace, particularly for their countries. During the WTO’s 11th Ministerial Conference in Buenos Aires in December 2017, these LDC Ministers established the g7+ WTO Accessions Group.

“I was privileged to be part of the launch of the Group. These very poor, war-torn countries — reminded us of the original raison d’être for the multilateral trading system — to contribute to global peace and stability. I said at that time that:

“‘conflict or post-conflict status is not the usual topic for WTO members, not even at Ministerial Conferences. However, the pursuit by these countries of WTO membership, despite the challenges, reminds us of the critical contribution that the multilateral trading system can make to the peace and stability of nations.’

“Today, the WTO has 164 Members and 23 countries are in the process of joining the Organization. Nearly half of the acceding countries are categorized as fragile and conflict affected according to the World Bank’s definition. In addition to the LDCs in the g7+ WTO Accessions Group, Iraq, Lebanon, Libya and Syria — are all struggling to restore stability and focus on their much-needed economic recovery, which has been severely hampered by the recent pandemics. For these countries, the promotion of a just and sustainable peace is a fundamental motivation for becoming a WTO Member.

“The Trade for Peace through WTO Accessions Initiative is essentially a partnership between the trade, humanitarian and peace communities to assist those fragile and conflict affected countries in re-building institutions and economies that can serve as a foundation for a lasting peace. At the core, the accession process is about building domestic institutions on the pillars of non-discrimination, transparency and the rule of law. These precepts are designed to promote economic stability, create a conducive business environment through secure and predictable market conditions, encourage the movement of labour and investments and support integration into global value chains.

“Since the launch of the initiative, thanks to our partners from the peace community who are participating in the Trade for Peace Week, the WTO has deepened the understanding and increased the sensitivity towards particular challenges confronted by countries which are fragile and conflict-affected. Over the last two years, the WTO Secretariat has organised several activities with the peace community as part of the Trade for Peace initiative, involving the Geneva Peacebuilding Platform, the g7+ Secretariat, the Institute for Economics and Peace, the ILO and the World Bank. It has also involved actors from the private sector such as Nespresso.

“Among the most memorable of these events was the panel session in which the former leader of Timor Leste, Xanana Gusmão, participated in during the 2018 Public Forum in Geneva. He described the enormous economic potential of fragile and conflict affected states, indicating that: ‘trade, investment and cooperation among the countries in the world bring about prosperity and development. Trade is a peaceful alternative to war. . . We, the fragile and conflict affected countries are committed to promote ‘Trade for Peace’.’

“Another memorable occasion was listening to a panel discussion during the African Dialogue on WTO Accessions in Djibouti in which the ambassadors of Sudan and South Sudan, sitting next to each other, told us ‘where there is trade there is peace’. At the same event, Ambassador Mohammed Haqjo of Afghanistan, who has served as coordinator of the g7+ WTO Accessions Group from its inception, stressed that ‘economic cooperation and peacebuilding are gradual processes that should evolve concurrently’.

“There is much more that the trade and peace communities can and must do together to improve the conditions of fragile and conflict-affected countries. The Trade for Peace Week is expanding the Trade for Peace partnership, bringing in new ‘peace friends’ to the WTO, such as the International Committee of the Red Cross (ICRC), the UN Peacebuilding Commission, the UN Office for Coordination of Humanitarian Affairs (UNOCHA) and Interpeace. The WTO also welcomes our traditional friends to join us in the Trade for Peace efforts, including from the ITC, ICC,UN Technology Bank, UN Economic Commission for Africa, African Union and UNDP.

“We are fortunate to be joined by individuals, whether from governments or the private sector, who have direct experience in using trade and economic opportunities to promote peace in fragile and conflict-affected countries — with experience in Afghanistan, Ethiopia, Iraq, Lebanon, Liberia, Libya, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sudan, Timor-Leste and Yemen. I am confident that through the ten programs this week, they will bring a wealth of expertise and their unique contributions to the table, promoting interdisciplinary approaches to achieving inclusive and sustainable peace through trade.

Trade for Peace: the future

“Trade for Peace is part of our future. Two weeks ago, on 19 November, I spoke at the WTO’s 25th anniversary event. Of the nine points I listed as being relevant to the question of ‘What will the future of the WTO be like?’, my first two are very much relevant for the Trade for Peace Week. They are:

” ‘Our Membership, already accounting for 98% of world trade, will become universal through accessions.

“The WTO of the future will promote peace by creating economic conditions that bring greater stability to fragile and conflict-affected lands.’

“I continued:

“‘While dealing with current crises, we must anticipate future ones and put into place institutional and substantive changes needed to carry out our mission … We have the joint responsibility to make sure that the world trading system which has been entrusted to us is left, when our time of service comes to an end, in better condition than that in which we found it.’ [I am fully convinced that] ‘the nations of the world will ultimately come together in a spirit of international cooperation to create a stronger multilateral trading system, more responsive to the concerns of humankind, more fit for purpose.’

“The Trade for Peace initiative can contribute to making the trading system of the future more agile, responsive, humane and fit for purpose to support the well-being of humanity. The COVID-19 pandemic has exposed the vulnerability of multilateralism to protectionism, isolationism and nationalism, demonstrated by the initial reports of disruptions in access to medical supplies. The WTO of the future will need new forms of multilateral cooperation to deal with future crises, that can effectively respond to the needs of a wide diversity of members including those participating in the g7+ WTO Accessions Group.

“What are some possible next steps for contributions from the Trade for Peace platform? The following ideas emerged in conversations with our partners leading up to this week:

“create a White Paper on Trade and Peace, which could include the best practices of the use of trade policy instruments to promote positive peace.

“establish a permanent platform (e.g., a Working Group or Commission on Trade for Peace) to bring together trade experts and peacebuilders to explore a new agenda for the Trade for Peace initiative; and

“develop training materials on trade for peace, which could be used by trade practitioners and peace builders to deepen understanding of the use of trade as an instrument for inclusive and sustainable peace.

“We are hoping that participants will elaborate on these ideas and bring new ones to the table during their discussions throughout the week. The week-long discussions should help illuminate a clear path forward to upgrade the Trade for Peace initiative to a more structured WTO cooperation with our partners in the humanitarian and peace communities and beyond.”

At the conclusion of the Trade for Peace Week on December 4, DDG Wolff provided his thoughts on the week and restated actions that the WTO and those interested in peace could pursue moving forward. His statement is embedded below.

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

A few thoughts

As 2020 comes to a close, there are many challenges to the multilateral trading system with relatively little good news. After nineteen years of negotiations, WTO Members have still not closed an agreement on fisheries subsidies. An outdated WTO rule book and widely divergent interests of WTO Members has rendered forward movement through negotiations on nearly all issues challenging if not impossible. True, there has been some progress in the first 25 years (the Trade Facilitation Agreement, the Information Technology Agreement and update), but most WTO Members are largely focused on plurilateral negotiations (e.g., e-commerce) or engaged in FTAs versus multilateral agreements. The dispute settlement system is at an impasse with fundamentally different views of what the system is supposed to achieve and limited actual ability to correct errant decisions or interpretations. Unilateral actions have been taken by an increasing number of WTO Members outside of the WTO rules. And the COVID-19 pandemic has seen some but limited cooperation and collaboration among WTO Members.

For the last three years, it has been nations suffering longstanding conflict and economic hardship that have grasped the promise of the multilateral trading system to provide a forum to promote the trade for peace message that has historically helped nations find a path to stability and peace. And it appears that it has been the WTO Secretariat, working with other organizations and groups, that has fashioned a potential game plan to reintroduce the core message of trade for peace back into the multilateral trading system.

As WTO Members look at reform in 2021, they should explore whether there isn’t a role for the Secretariat to tee up issues for consideration by the Members to help Members get past the current gridlock on even studying or debating matters of substantial importance where one or more Members would prefer no examination. WTO Members should also consider the budget of the WTO Secretariat to both permit greater monitoring of implementation of obligations by Members and also to do the analysis and outreach to other organizations to help on the range of issues that are facing the membership but not being addressed in a timely manner. Trade and environment issues, changes to rules to address needs of WTO Members in pandemics, updating of the rules to ensure they address all distortions to markets and reflect current trading situations, and the various Joint Statement Initiatives are all examples.

This should be a season of hope. All WTO Members and all those seeking to accede can contribute to restoring hope through their actions. The trade for peace initiative is an excellent example of the importance conceptually of the multilateral trading system for the larger cause of peace and stability. Let’s hope Members can restore the relevance of the WTO for the collective good and as an aid to peace and stability.



WTO Government Procurement — proposed action by the United States to modify obligations of the central government on medicines and medical goods contained in Annex 1

On November 27, 2020, the United States filed two documents with the WTO’s Committee on Government Procurement. Each proposed modifications to Annex 1 of the U.S. schedule of commitments under the GPA dealing with central government agency/entity procurements. Proposed modification to Appendix 1 of the United States under the 1994 Agreement on Government Procurement, GPA/MOD/USA/17; Proposed modification to Appendix 1 of the United States under the Revised Agreement on Government Procurement, GPA/MOD/USA/18. As the title of the submission indicates, the U.S. proposed modifications pertain to Annex 1 commitments of the U.S. which are central government commitments only. Thus, for the 1994 Agreement, Annexes 2-5 are not in play with Annex 2 dealing with sub-central government entities being the relevant other major Annex (Annex 1: central government entities; Annex 2: sub-central government entities;
Annex 3: other entities; Annex 4: services; Annex 5: construction services). On the revised Agreement there are seven Annexes, of which only Annex 1 on center government entities is covered by the U.S. proposed modification (Annex 1: central government entities; Annex 2: sub-central government entities; Annex 3: other entities; Annex 4: goods; Annex 5: services; Annex 6: construction services; Annex 7: general notes).

While both U.S. proposed modification documents are presently restricted (and hence not available to the public), the notices constitute USTR following the requirements of Executive Order 13944 of August 6, 2020 to take steps within 30 days after the Food and Drug Administration had published its list of drugs and active pharmaceutical ingredients that are essential. See Executive Order 13944 of August 6, 2020, Combating Public Health Emergencies and Strengthening National Security by Ensuring Essential Medicines, Medical Counter- measures, and Critical Inputs Are Made in the United States, 85 Fed. Reg. 49,929 – 49-934 (August 14, 2020). USTR’s obligations extend beyond the WTO and include any trade agreements with government procurement commitments. But for purposes of this post, I am focusing just on the WTO Agreement on Government Procurement (1994 and Revised). The Executive Order is embedded below but is an effort to address perceived supply chain problems and “over reliance” on imported product including active pharmaceutical ingredients (“APIs”).

FR-of-EO-13944

While the United States is a major pharmaceutical research and development country, U.S. pharmaceutical companies have moved much API production offshore as well as finished product production. China and India are the largest suppliers of APIs to the United States. With the challenges of the COVID-19 pandemic, the Trump Administration has pursued efforts to onshore manufacturing of essential medical products including through the Executive Order 13944. See, e.g., Datex, Onshoring U.S. Pharmaceutical Manufacturing:COVID-19, Congress and Puerto Rico Pharma Hub, Ideas for returning pharmaceutical manufacturing to the U.S., https://www.datexcorp.com/onshoring-u-s-pharmaceutical-manufacturing-covid-19-congress-and-puerto-rico-pharma-hub/; Fierce Pharma, June 3, 2020, U.S. seeks to onshore drug production in response to COVID-19. Is pharma even interested?, https://www.fiercepharma.com/manufacturing/pharma-pushes-back-u-s-legislation-to-bring-drug-manufacturing-stateside; Policy & Medicine, August 26, 2020, Trump Signs Executive Order Regarding Medical Supply Chain,https://www.policymed.com/2020/09/trump-signs-executive-order-regarding-medical-supply-chain.html.

While onshoring is not supported by pharmaceutical companies and has been cited as not likely cost-effective or necessary to address the current or future pandemics, to date both the Trump Administration and President-elect Biden have expressed support for at least some onshoring to ensure greater availability of medicines and materials. See, e.g., S&P Global Market Intelligence, October 15, 2020, US drug onshoring is more complex than Trump, Biden political pitches – experts, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-drug-onshoring-is-more-complex-than-trump-biden-political-pitches-8211-experts-60714320.

Deputy Director-General Alan Wolff in a statement to the World Economic Forum on November 12, 2020 reviewed some of the reasons for WTO Members not to put excessive reliance on onshoring and to use supply chains and strengthen them. See WTO, 12 November 2020, DDG Wolff calls for new initiatives to cut tariffs on medical supplies and equipment, https://www.wto.org/english/news_e/news20_e/ddgaw_12nov20_e.htm.

On the feasibility of localization

“Trade this year has proved to be essential to meet the world’s needs for medical supplies. National stockpiles proved inadequate. Investment was only part of the answer.

“Trade played a critical role in meeting the vastly increased demand for medical goods and medicines. WTO data show that trade in personal protective equipment (PPE) more than doubled from May 2019 to May 2020. It was a key factor in creating supply resilience, even though some shortages persist even in advanced economies.

“Purely domestic supply chains would have been unable to meet a surge in demand of the suddenness and magnitude experienced. Export controls may have exacerbated the problems, even though many have been subsequently rolled back.

“It appears that the shock persisted in policymakers’ minds in many countries, following initial calls for re-shoring manufacturing production for key products.

“Supporters of localization tend to portray it as risk-free. This is wrong. Concentrating industry at home might insulate it from turbulence elsewhere, but the domestic sources of supplies are more vulnerable to localized disruptions, such as from a hurricane or an outbreak of disease. In addition, the economics dictate that complete self-sufficiency is unworkable for any country, rich or poor.

“Deep and diversified international markets offer the most promising and cost-effective path to supply resilience. But its viability will hinge on whether countries and their citizens feel that international markets can be trusted in a crisis

On reliance on global supply chains

“Economics will be the key determinant of the resilience of international supply chain.

“If countries can be confident that they will be able to rely on international markets for imports when they need them, they will have less reason to restrict exports.

“The preliminary evidence suggests that moves to diversify supply chains have primarily seen production shift from one low-cost country to another.

“Increasingly sophisticated machines have already been diminishing the importance of labor cost arbitrage in the choice of manufacturing location.

“Productivity will be a key determinant of which firms are able to go compete internationally.

“A few years ago, the Brookings Institution looked at five key determinants of the manufacturing environment: 1) overall policies and regulations; 2) tax policy; 3) energy, transportation, and health costs; 4) workforce quality; and 5) infrastructure and innovation. It is instructive that when the study made recommendations for how to improve the manufacturing environment, at the top of their list was political and economic predictability, including open trade policies.

“On shoring and near-shoring have to obey these economic rules if they are going to play an increasing role in national choices.”

U.S. commitments in Annex 1 of the 1994 GPA and the Revised GPA

The U.S. commitments under the GPA include purchases by the Departments of Health and Human Services and of Defense. The two sets of Annex 1 obligations (1994 GPA; revised GPA) are embedded below.

GPA-1994-usa1

rev_usa1e

The Food and Drug Administration list of essential pharmaceutical and other medical products is embedded below and constitutes what is presumably being proposed for withdrawal from coverage of the GPA 1994 and revised GPA in the U.S. Annex coverage. It is a long list of products, if, as assumed, it is the FDA list that has been put forward.

download

Modification of Annexes under the WTO 1994 GPA and under the WTO revised GPA

While the WTO’s Agreement on Government Procurement envisions expanded coverage over time by signatories, both the original agreement and the revised agreement provide for possible modifications of the Agreement with rebalancing of benefits for other countries or retaliation where action is taken without rebalancing. The 1994 Agreement in Article XXIV:6 provides for rectifications and modifications of commitments:

Article XXIV: Final Provisions

* * *

“6.     Rectifications or Modifications

“(a)    Rectifications, transfers of an entity from one Annex to another or, in exceptional cases, other modifications relating to Appendices I through IV shall be notified to the Committee, along with information as to the likely consequences of the change for the mutually agreed coverage provided in this Agreement. If the rectifications, transfers or other modifications are of a purely formal or minor nature, they shall become effective provided there is no objection within 30 days. In other cases, the Chairman of the Committee shall promptly convene a meeting of the Committee. The Committee shall consider the proposal and any claim for compensatory adjustments, with a view to maintaining a balance of rights and obligations and a comparable level of mutually agreed coverage provided in this Agreement prior to such notification. In the event of agreement not being reached, the matter may be pursued in accordance with the provisions contained in Article XXII.
 

“(b)    Where a Party wishes, in exercise of its rights, to withdraw an entity from Appendix I on the grounds that government control or influence over it has been effectively eliminated, that Party shall notify the Committee. Such modification shall become effective the day after the end of the following meeting of the Committee, provided that the meeting is no sooner than 30 days from the date of notification and no objection has been made. In the event of an objection, the matter may be pursued in accordance with the procedures on consultations and dispute settlement contained in Article XXII. In considering the proposed modification to Appendix I and any consequential compensatory adjustment, allowance shall be made for the market-opening effects of the removal of government control or influence.”

The revised Agreement has more detailed provisions for modifications and rectifications contained in Article XIX:

Article XIX — Modifications and Rectifications to Coverage Notification of Proposed Modification

“1. A Party shall notify the Committee of any proposed rectification, transfer of an entity from one annex to another, withdrawal of an entity or other modification of its annexes to Appendix I (any of which is hereinafter referred to as ‘modification’). The Party proposing the modification (hereinafter referred to as ‘modifying Party’) shall include in the notification:

“a. for any proposed withdrawal of an entity from its annexes to Appendix I in exercise of its rights on the grounds that government control or influence over the entity’s covered procurement has been effectively eliminated, evidence of such elimination; or

“b. for any other proposed modification, information as to the likely consequences of the change for the mutually agreed coverage provided for in this Agreement.

“Objection to Notification

“2. Any Party whose rights under this Agreement may be affected by a proposed modification notified under paragraph 1 may notify the Committee of any objection to the proposed modification. Such objections shall be made within 45 days from the date of the circulation to the Parties of the notification, and shall set out reasons for the objection.

“Consultations

“3. The modifying Party and any Party making an objection (hereinafter referred to as “objecting Party”) shall make every attempt to resolve the objection through consultations. In such consultations, the modifying and objecting Parties shall consider the proposed modification:

“a. in the case of a notification under paragraph 1(a), in accordance with any indicative criteria adopted pursuant to paragraph 8(b), indicating the effective elimination of government control or influence over an entity’s covered procurement; and

“b. in the case of a notification under paragraph 1(b), in accordance with any criteria adopted pursuant to paragraph 8(c), relating to the level of compensatory adjustments to be offered for modifications, with a view to maintaining a balance of rights and obligations and a comparable level of mutually agreed coverage provided in this Agreement.

“Revised Modification

“4. Where the modifying Party and any objecting Party resolve the objection through consultations, and the modifying Party revises its proposed modification as a result of those consultations, the modifying Party shall notify the Committee in accordance with paragraph 1,and any such revised modification shall only be effective after fulfilling the requirements of this Article.

“Implementation of Modifications

“5. A proposed modification shall become effective only where:

“a. no Party submits to the Committee a written objection to the proposed modification within 45 days from the date of circulation of the notification of the proposed modification under paragraph 1;

“b. all objecting Parties have notified the Committee that they withdraw their objections to the proposed modification; or

“c. 150 days from the date of circulation of the notification of the proposed modification under paragraph 1 have elapsed, and the modifying Party has informed the Committee in writing of its intention to implement the modification.

“Withdrawal of Substantially Equivalent Coverage

“6. Where a modification becomes effective pursuant to paragraph 5(c), any objecting Party may withdraw substantially equivalent coverage. Notwithstanding Article IV:1(b), a withdrawal pursuant to this paragraph may be implemented solely with respect to the modifying Party. Any objecting Party shall inform the Committee in writing of any such withdrawal at least 30 days before the withdrawal becomes effective. A withdrawal pursuant to this paragraph shall be consistent with any criteria relating to the level of compensatory adjustment adopted by the Committee pursuant to paragraph 8(c).

“Arbitration Procedures to Facilitate Resolution of Objections

“7. Where the Committee has adopted arbitration procedures to facilitate the resolution of objections pursuant to paragraph 8, a modifying or any objecting Party may invoke the arbitration procedures within 120 days of circulation of the notification of the proposed modification:

“a. Where no Party has invoked the arbitration procedures within the time-period:

“i. notwithstanding paragraph 5(c), the proposed modification shall become effective where 130 days from the date of circulation of the notification of the proposed modification under paragraph 1 have elapsed, and the modifying Party has informed the Committee in writing of its intention to implement the modification; and

“ii. no objecting Party may withdraw coverage pursuant to paragraph 6.

“b. Where a modifying Party or objecting Party has invoked the arbitration procedures:

“i. notwithstanding paragraph 5(c), the proposed modification shall not become effective before the completion of the arbitration procedures;

“ii. any objecting Party that intends to enforce a right to compensation, or to withdraw substantially equivalent coverage pursuant to paragraph 6, shall participate in the arbitration proceedings;

“iii. a modifying Party should comply with the results of the arbitration procedures in making any modification effective pursuant to paragraph 5(c); and

“iv. where a modifying Party does not comply with the results of the arbitration procedures in making any modification effective pursuant to paragraph 5(c), any objecting Party may withdraw substantially equivalent coverage pursuant to paragraph 6, provided that any such withdrawal is consistent with the result of the arbitration procedures.

“Committee Responsibilities

“8. The Committee shall adopt:

“a. arbitration procedures to facilitate resolution of objections under paragraph 2;

“b. indicative criteria that demonstrate the effective elimination of government control or influence over an entity’s covered procurement; and

“c. criteria for determining the level of compensatory adjustment to be offered for modifications made pursuant to paragraph 1(b) and of substantially equivalent coverage under paragraph 6.”

Likely consultations with trading partners will extend into Biden Administration

Considering the list of other GPA signatories, it is certain that a number of signatories will seek compensation from the United States or will pursue retaliation if the U.S. proposed modifications take effect. Assuming a desire by one or more signatories to seek rebalancing and/or to pursue retaliation, the timing of implementation of the modifications appear to vary based on the relevant Agreement but will almost certain extend into the Biden Administration after January 20.

Thus, while the incoming Biden Administration intends to have its focus on domestic challenges in the early part of its first term, the modification of U.S. WTO GPA commitments is another example of an important trade issue that will require focus in the early days of the new Administration.

Conclusion

During the COVID-19 pandemic there has been concern both within the Trump Administration and in the U.S. Congress about the shortages of personal protective equipment and the high reliance on offshore production of APIs and essential medicines for the treatment of patients with COVID-19 in the United States. The concern on domestic capabilities is held by both Republicans and Democrats and has been identified as an issue of importance to the incoming Biden Administration. While there is opposition from the pharmaceutical companies and certainly concerns from economists and some policy professionals about over reliance on onshoring, the United States has been taking some actions to encourage onshoring. The Executive Order 13944 addresses U.S. government procurement of essential medicines and other medical goods.

Action last week by USTR in submitting proposed modifications to its Annex 1 commitments under the 1994 GPA and the revised GPA is a necessary step to comply with WTO obligations if a change in coverage is to occur. Because of the likely actions of trading partners in the coming weeks and months, the Biden Administration, if it chooses to move forward with the Trump Administration initiative, will face an important WTO task in the early months of the new Administration to negotiate a rebalancing of commitments or face retaliation by WTO GPA partners. Similar obligations and needs will be present in FTAs that include government procurement commitments as well. This increases the importance for the Biden Administration to fill the USTR posts early as well.

Upcoming December 11th WTO Council for Trade-Related Aspects of Intellectual Property Rights meeting — reaction to proposed waiver from TRIPS obligations to address COVID-19

In my post of November 2, 2020, I reviewed a proposed waiver from many TRIPS obligations for all countries to address the COVID-19 pandemic. See November 2, 2020, India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/. While originally filed by India and South Africa (IP/C/W/669), a few other countries have joined the proposal including Eswatini (IP/C/W/669/Add.1), Kenya (IP/C/W/669/Add.1), Mozambique (IP/C/W/669/Add.2) and Pakistan (IP/C/W/669/Add.3). South Africa made a supplemental filing providing what it described as “Examples of IP Issues and Barriers in COVID-19 pandemic”. Communication from South Africa, Examples of IP Issues and Barriers in COVID-19 Pandemic, IP/C/W/670, 23 November 2020. The South African communication is embedded below.

W670

My post of November 2 had raised a number of question presented by the proposed waiver:

” The proposal raises a series of questions that should be addressed to understand whether the waiver is appropriate. These questions include whether such a broad waiver request is appropriate or envisioned by Article IX:3 and 4 of the Marrakesh Agreement? Shouldn’t those requesting a waiver be required to demonstrate that the existing flexibilities within the TRIPS Agreement are inadequate to address concerns they may have? Can two Members request a waiver of obligations for all WTO Members? Can a waiver request be considered where the product scope is lacking clarity, and the uses/needs of the waiver are very broad and potentially open to differing views? To what extent is there a need for those seeking a waiver to present a factual record of actions being taken by governments, companies and international organizations to provide access to medical goods during the pandemic including to developing and least developed countries? Shouldn’t those seeking a waiver identify the extent of existing licenses by major pharmaceutical companies with them or other WTO Members for the production of vaccines or therapeutics to address COVID-19?”

The supplemental information provided by South Africa identifies various patent pending matters and identifies what it describes as restrictive actions by some companies and some patent litigation by certain companies. As such the communication provides some information of possible relevance in examining the proposed waiver. However, there is little if any information provided on most questions that seem important to an informed discussion of the proposed waiver.

On November 27, Australia, Canada, Chile and Mexico filed a communication entitled “Questions on Intellectual-Property Challenges Experienced by Members in Relation to COVID-19”. IP/C/W/671. While the entire communication is embedded below, paragraphs 3 and 4 are copied below and present a framework for the consideration of the proposed waiver and seek factual answers to a series of questions which would help understand if there are in fact any significant barriers being confronted by WTO Members in addressing the pandemic.

“3. The co-sponsors of this communication remain of the view that these important, challenging, and complex issues merit further reflection and significant consideration, in order to identify any specific and concrete IP-related challenges faced by Members in addressing COVID-19. In addition, we take note that IP rights are one part of a broad discussion informing the availability and accessibility of treatments for COVID-19. Indeed, as the Doha Declaration on the TRIPS Agreement and Public Health emphasizes, the TRIPS Agreement itself is part of the wider national and international effort to address public health problems. With respect to COVID-19, this broader response includes significant investments through procurement mechanisms like the Access to COVID-19 Tools Accelerator and the COVAX Facility and Advance Market Commitment, as well as work within the WTO and elsewhere to safeguard and protect global supply chains.

“4. The co-sponsors of this communication are actively committed to a comprehensive, global
approach that leverages the entire multilateral trading system in place to supporting the research,
development, manufacturing, and distribution of safe and effective COVID-19 diagnostics, equipment, therapeutics, and vaccines. The co-sponsors also reaffirm their support for the TRIPS Agreement, including the flexibilities it provides, and for the Doha Declaration on the TRIPS Agreement and Public Health. In this context, we invite consideration of how the existing legal framework under the TRIPS Agreement, including the flexibilities affirmed under the Doha Declaration on the TRIPS Agreement and Public Health, have operated thus far in the context of Members’ efforts to address the COVID-19 pandemic. We are also committed to fully understanding the nature and scope of any concrete IP barriers experienced by Members related to or arising from the TRIPS Agreement, and such that would constitute impediments to the fight against COVID-19. To that end, and with a view to facilitating a consensual, evidence-based approach, the co-sponsors of this communication therefore respectfully submit the following questions to Members for their consideration and response.”

The communication from Australia, Canada, Chile and Mexico then provides eight questions designed to develop a factual record of challenges faced on procurement of products, local production, compulsory licenses, as well as copyright-related challenges, industrial-designs-related challenges, and challenges from undisclosed information. The questions also include an inquiry as to “what specific legal amendments or actions would the proponents seek to enact for the prevention, containment, and treatment of COVID-19 that are not – or may not be – consistent with the TRIPS Agreement and its flexibilities?”

W671

There is a meeting of the Council for Trade-Related Aspects of Intellectual Property Rights scheduled for December 11 at the WTO. It is assumed that the only item on the agenda will be the consideration of the proposed TRIPS waiver submitted by India and South Africa and joined by four other countries. A recommendation should be forwarded to the General Council by December 31. While the proposed waiver may receive support from many WTO Members, it will be opposed by many as well as not justified and undermining the existing WTO TRIPS Agreement and built-in flexibilities. The communication from Australia, Canada, Chile and Mexico provides a possible path forward by seeking to gather factual information that would permit Members to identify what challenges actually exist and what existing tools are available for addressing the existing challenges so that the need for any waiver is limited to what is actually needed instead of being the very broad waiver proposal for all countries regardless of actual problems faced.

As United States continues to set new records in COVID-19 cases, deaths and hospitalizations, United States accounts for more than 30% of new cases in last 14 days

The United States has 4.3% of the world’s population but has had one of the worst performances of any country on earth in terms of bringing the virus under control. With 14,371,633 total COVID-19 cases reported in the United States as of December 5, the United States accounts for 21.85% of the total cases in the world (65,777,945). However, during the last fourteen days, the United States 2,457,689 new cases accounted for an astounding 30.47% of global cases (8,066,518). European Centre for Disease Prevention and Control, COVID-19 situation update worldwide, as of 5 December 2020. While global cases are now slowly declining, cases in the United States are continuing to increase. And projections are that the number of new cases will continue to rise in the United States in the coming weeks. See, e.g., CNN, December 5, 2020, As hospitals start to max out, medical workers beg officials for new Covid-19 mandates, https://us.cnn.com/2020/12/05/health/us-hospitals-covid-pandemic/index.html.

The latest WHO weekly report (though November 29) shows global cases starting to come down or plateauing with the major exception being the Americas where cases continue to increase. See WHO, COVID-19 Weekly Epidemiological Update (data up to November 29, 2020)

20201201_Weekly_Epi_Update_16

On deaths from COVID-19, the United States has recorded 278,994 from COVID-19 or 18.35% of the world total (1,520,082). Over the last fourteen days, the United States has recorded 24,583 deaths or 16.79% of the world total (146,387). Deaths in Europe have been very high in recent weeks following the extraordinary surge in the last two months in new cases although cases in Europe have been dropping over the last several weeks which should mean declining death totals in Europe in the coming weeks. Deaths in the United States are projected to continue rising and are already around one death every thirty seconds. See, e.g., CNN, November 28, 2020, US is ’rounding the corner into a calamity,’ expert says, with Covid-19 deaths projected to double soon, https://www.cnn.com/2020/11/28/health/us-coronavirus-saturday/index.html. The U.S. Center for Disease Prevention and Control (CDC) periodically provides forecasts of deaths from COVID-19 based on various forecasting models. The most recent projections were updated December 3. The four charts below are from the CDC posting. CDC, December 3, 2020, COVID-19 Projections: Death, https://www.cdc.gov/coronavirus/2019-ncov/covid-data/forecasting-us.html.

U.S. hospitalizations due to COVID-19 have now topped 100,000 and many states are near or exceeding capacity for ICU beds. On December 4, 2020, The COVID Tracking Project tallied 101,276 U.S. hospitalizations due to COVID. The image below is copied from the COVID Tracking Project webpage and shows current hospitalizations more than 50% higher than prior peaks from April and June/July. https://public.tableau.com/profile/covid.tracking.project#!/vizhome/CTPWebsiteGallery/7_USCHospitalized.

Medical personnel are stretched to the breaking point and recent news stories review the challenges at hospitals with medical staff required to reuse N-95 masks (typically reuse is of masks treated in some way) because of shortages of personal protective equipment. See, e.g., NBC Today, December 5, 2020, NBC News investigation: Nurses say reusing N95 masks feels ‘unsafe’, https://www.today.com/video/nbc-news-investigation-nurses-say-reusing-n95-masks-feels-unsafe-97174085710; NPR, December 3, 2020, ‘We’re All Tired Of This’: Health Care Workers In Seattle Prepare For Another Surge, https://www.npr.org/2020/12/03/940114449/were-all-tired-of-this-health-care-workers-in-seattle-prepare-for-another-surge. Some media reports are indicating that the fallout from COVID-19 on the U.S. medical profession may damage U.S. healthcare for decades with doctors, nurses and other medical professionals opting to withdraw from the field after the exhausting and never ending challenges with COVID-19.

The last week in the United States, COVID-19 became the largest cause of death surpassing heart disease, strokes, etc. See, e.g., CBS News, December 5, 2020, COVID-19 was the leading cause of death in the U.S. this week, report says, https://www.cbsnews.com/news/covid-19-leading-cause-of-death-united-states-this-week/.

There is, of course, the good news of the likely approval for emergency use of several vaccines in the coming weeks in the United States. And there is a projected active rollout of vaccines from later in December through the summer. But there is a long road to actually getting the vast majority of the American population vaccinated, assuming that a change in Administrations will be able to change the views of a skeptical public that the vaccines will be safe. For example, even after the very positive press about the Pfizer and Moderna vaccines, only 52% of Americans have indicated a willingness to be vaccinated for COVID-19 (although that is some improvement from earlier views). See Gallup, November 17, 2020, More Americans Now Willing to Get COVID-19 Vaccine,https://news.gallup.com/poll/325208/americans-willing-covid-vaccine.aspx.

Certainly for the first two quarters of 2020 and perhaps longer, the U.S. will be struggling to bring the case count down, take the burden off of the health care system, and reduce the number of deaths as we try to bring life back to some semblance of normal. For the United States, it is certain to be a very dark and challenging winter and at least early Spring. While the current Administration could have significantly changed the challenges for the public and our health care system by having a consistent and uniform message to have the public wear masks and do the other steps needed to reduce the spread of the virus, the Trump Administration has opted not to do that. The Biden Administration is 46 days from taking office. We are likely to suffer more than 100,000 additional deaths by then. A tragic outcome for a pandemic that should have been far more manageable.

Farewell remarks of WTO AB member Prof. Dr. Hong Zhao, November 30, 2020

Dr. Hong Zhao, the last of the Appellate Body members at the moment, provided farewell remarks on her last day of her first term, November 30, 2020, in a virtual presentation hosted by the CTEI Graduate Institute’s Geneva Trade Platform. See https://www.graduateinstitute.ch/communications/events/professor-dr-hong-zhao-farewell-remarks-and-presentation; https://www.youtube.com/watch?v=8aKPj_Vj6Gc. Dr. Hong Zhao’s prepared remarks have not yet been posted on the CTEI Graduate Institute’s webpage nor on the WTO webpage on the Appellate Body, where remarks of other departing Appellate Body members have been posted. Such postings will presumably occur in the coming days. Hence what follows are my impressions from listening to the farewell remarks of Dr. Zhao.

Dr. Zhao’s remarks were about forty-five minutes in length and were followed by a short question and answer period. As the last current Appellate Body member, Dr. Zhao spent a good deal of her presentation walking through potential causes for the current controversy over the Appellate Body with a focus on a conflict of ideas on dispute settlement held by WTO Members and on different styles of dispute settlement (activism vs. restraint). She also reviewed areas for future action to get the WTO dispute settlement system back and functioning. Her comments were quite interesting. While she often laid out what Dr. Zhao believed are competing views within the WTO Membership, in general she provided a justification for past Appellate Body actions while also providing some steps Members could take going forward to resolve the present impasse.

Disagreement with some of her observations about the WTO Appellate Body

Her remarks made clear that Dr. Zhao views the Appellate Body as a court, that the objectives of consistency and predictability have justified the approach pursued by the Appellate Body, and that the objective of resolving disputes has justified the creation of rights and obligations even if the agreements are silent on the question before the Appellate Body. Nonetheless, Dr. Zhao emphasized, in light of the serious challenges facing the WTO, the need for WTO Members to come together to save both the dispute settlement system and the WTO itself.

The U.S. has stated that the Appellate Body and panels are not courts and that position has been supported by the European Union and Canada, each of whom has acknowledged that WTO dispute settlement does not involve courts. So there is a stark difference in the understanding of the role of the Appellate Body and panels between Dr. Zhao and at least some major Members of the WTO. What isn’t explored in Dr. Zhao’s comments is how the nature of dispute settlement changes if courts are not involved.

Similarly, recognizing the longstanding problems of the negotiating function at the WTO, Dr. Zhao does not perceive that a resolution of a dispute could include a decision that there are no rights or obligations on a particular point and hence the dispute (in total or on that particular issue) is resolved against the party who requested a panel and/or appeal. Consistency and predictability are obviously encouraged if efforts to achieve through a dispute an outcome not specified in one of the underlying agreements are denied. So too is the need of Members to pursue issues not covered by agreements in new negotiations.

Dr. Zhao also seems to excuse the failure of the Appellate Body to review and revise construction of provisions in subsequent cases when there are reasons to do so, instead putting the responsibility for dealing with erroneous decisions in the hands of the WTO membership through binding interpretations or new negotiations, despite the failure of the WTO membership to achieve either resolution. While the WTO has serious problems because the negotiating function has been largely impotent over the last 25 years, certainly on addressing errors from the Appellate Body, it is unfortunate that Dr. Zhao didn’t acknowledge the failure of the Appellate Body to resolve matters on a case-by-case basis and to not view prior reports as precedential and/or at least subject to review and revision.

Actions Members could take going forward to resolve the impasse

Dr. Zhao’s view is that the restoration of the Appellate Body as part of a resolution of various dispute settlement system issues should be the first order of business for the WTO Members. She encourages Members to bring out issues of concern with the dispute settlement system to the table for consideration.

Dr. Zhao had many proposed “to do” actions including the following:

(1) restore/implement the process for appointing new Appellate Body members,

(2) have the Appellate Body focus on not creating rights or obligations as they consider appeals,

(3) reinforce case-by-case resolution of disputes,

(4) not engage in rulemaking during dispute settlement,

(5) have Appellate Body exercise restraint in their reports (vs. activism),

(6) avoid obiter dicta in reports,

(7) improve communications with parties when reports can’t be generated in 90 days,

(8) give Appellate Body members a one term 7-8 year term,

(9) rotate Appellate Body Secretariat personnel.

Dr. Zhao also supports improving implementation steps after dispute settlement and strengthening panel proceedings by going to a fixed group of panelists (30 in number) with terms of 5-6 years, encouraging Members to join MPIA until the Appellate Body is restored, improve transparency of panel proceedings for WTO Members, provide technical assistance to developing and least developed countries and permitting Members to present their argument in their national languages.

Conclusion

Each departing Appellate Body member has provided their thoughts on the operation of the Appellate Body in farewell remarks. Dr. Zhao’s farewell remarks reflect a lot of thought about the system as she experienced it and reflect an examination of potential causes of friction in the system and provide suggestions for what types of steps Members could take to bring a two-step dispute settlement system back into play at the WTO.

There are WTO Members who want to have a quick resolution of the current impasse either through the lifting of the blockage on appointing new AB members or (more realistically) by solving U.S. problems and removing the blockage. Some have argued for a more expansive review of dispute settlement including addressing issues during panel proceedings, etc. While any approach can be pursued by Members if they so wish, the latter approach will certainly extend the period when there is no functioning Appellate Body. Indeed, the dispute settlement review which started twenty years ago has never been concluded and would suggest significant additional delay if full blown dispute settlement system review is the focus.

As to specific proposals on addressing the Appellate Body, some suggestions by Dr. Zhao have been nonstarters for the United States (extending terms from four to seven or eight years) while many others appear to reflect the need to resolve U.S. concerns. The devil is, of course, in the detail and likely includes a necessary agreement by Members on the underlying purpose of dispute settlement and clarifying DSU Article 3.2 and 19.2 by providing guidance on what constitutes the creation of rights or obligations.

Still, Dr. Zhao should be congratulated for recognizing that the status quo ante is not a viable approach and for providing her perspective on changes or clarifications that could be part of the solution to the current impasse.

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

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

INTRODUCTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE COMMISSION’S KEY RECOMMENDATIONS


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“• Coordinate government efforts relating to those standards;

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

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

“• Set funding priorities and recommendations to Congress; and

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

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

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

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

“• Data on national and local government debt;

“• Data on nonperforming loan amounts;

“• Data on the composition of shadow banking assets;

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

“• Data on bank loan interest rates.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The United States

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

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

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

Europe

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

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

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

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

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

Other countries

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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