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WTO Information Notes on COVID-19 Vaccine Production and Potential Bottlenecks

On October 8, 2021, the WTO released the latest in a series of Information Notes pertaining to the COVID-19 pandemic. The first one is entitled “COVID-19 Vaccine Production and Tariffs on Vaccine Inputs”. The purpose of the information note was to examine public information to see if import tariffs in any of the 27 major vaccine manufacturing countries could pose challenges or create “choke” points in vaccine production. The second Information Note is entitled “Indicative List of Trade-Related Bottlenecks and Trade-Facilitating Measures on Critical Products to Combat COVID-19” and is an update on an earlier version released 20 July 2020. Both Information Notes are linked to a WTO press release from 8 October. See WTO news, WTO issues papers on vaccine inputs tariffs and bottlenecks on critical COVID-19 products, 8 October 2021, https://www.wto.org/english/news_e/news21_e/covid_08oct21_e.htm

The second Information Note is the more important of the two papers as it identifies a range of challenges to the expedited movement of vaccines and inputs. However, the first paper is interesting in terms of identifying tariffs on critical materials in major producing countries. However, as the paper acknowledges, the analysis has its limitations.

” 2. TECHNICAL DETAILS
“The MFN applied tariffs were based on the dataset used for World Tariff Profiles 2021, and 2020
imports were based on the TDM dataset3. Even if the national tariff line data (i.e. eight-digit tariff
line codes) were available, beyond the standard HS six-digit level there is no uniformity of codes
across national tariff nomenclatures. Thus, even if only a portion of the HS six-digit code pertains to
the COVID-19 vaccine input, the data used in the analysis both for tariffs and imports were the
six-digit MFN tariff average and the total six-digit imports from the world. Preferential tariffs were
not taken into consideration and thus intra-EU imports, imports from partners of free trade
agreements (FTAs) or any other preferential imports were treated as if MFN tariffs were levied.
Furthermore, there was definitely an over-estimation of the import value of the inputs, since
identification of the national breakdown pertaining to the actual product used in vaccine
manufacturing cannot be easily done. Sometimes even within the most detailed national tariff line
(or specific product) code available (eight digits or longer), the product coverage does not
necessarily refer only to the specific vaccine input and includes non-vaccine-related inputs. While
tariff estimates can be arguably good enough,4 the same cannot be said of the estimated imports
value.” (footnotes omitted)

Certainly for the EU, U.S. and some others, many of the potentially dutiable imports will have been duty free from FTAs or other preferential partners. But the Information is nonetheless useful in flagging general categories of products important to vaccine production that have bound tariffs at 5% or greater. While neither the U.S. nor Japan have any such categories, many other vaccine producing countries have one, several or many product categories where bound tariffs are 5% or higher. Table 4 of the Information Note provides a useful summary of the findings made.

Table 2 of the Information Note presents a summary of the weighted average MFN tariff rate by country.
Thus, from a bound tariff perspective, some countries, particularly developing countries are assessing ordinary customs duties on materials needed for the production of COVIDE-19 vaccines at relatively high rates that at a minimum increase costs, making it more expensive to provide vaccines to the domestic population or export populations.

A detailed review of each of the 27 countries is provided in the WTO’s Vaccine Production and Tariffs on Vaccine Inputs which is attached to the first Information Note.

The second note is the more interesting as it reflects issues and suggestions from various stakeholders on how to expand production and access to vaccines, therapeutics and medical devices needed to combat COVID-19. The introduction to the Information note provides useful background.

“1. INTRODUCTION
“This information note seeks to facilitate access to information on possible trade-related bottlenecks and trade-facilitating measures on critical products to combat COVID-19, including inputs used in vaccine manufacturing, vaccine distribution and approval, therapeutics and pharmaceuticals, diagnostics and medical devices. It is not meant to be an exhaustive list of all specific trade measures, nor does it make any judgement on the effect or significance of the reported bottlenecks, nor on the desirability of implementing any of the suggestions on trade-facilitating measures.3

“The indicative list is based on issues identified and suggestions made by stakeholders at various events and consultations convened by the WTO, as well as with vaccine manufacturers in the context of meetings organized by the Multilateral Leaders Task Force on COVID-19,4 which includes the heads of the International Monetary Fund (IMF), the World Bank Group, the World Health Organization (WHO) and the WTO.5 This revision includes information as of 4 October 2021. Entries under each subheading are presented in no particular order. One common theme that emerges is that essential goods and inputs need to flow efficiently and expeditiously to support the rapid scaling up of COVID-19 production capacity worldwide. As manufacturers scale up production and establish new sites in different countries, the production network is not only becoming larger but also increasingly complex and international. The delay of a single component may significantly slow down or even bring vaccine manufacturing to a halt, so it follows that inputs need to flow expeditiously, and each node within the supply chain network needs to operate seamlessly with the others.” (footnotes omitted)

There are a large number of potential trade-related bottlenecks including export restrictions (13 WTO Members are reported to have one or more), such restrictions as applied by manufacturers to “fill and finish” sites, effect of such restrictions on clinical trials, high applied tariffs, customs administration challenges (no green channels for expedited clearance, limited hours of customs operation, treatment of non-commercial samples sent for testing ad quality control, import barriers/delays on manufacturing equipment), challenges in completing consular transactions.

There are also many bottlenecks identified from vaccine regulatory approval including when looking at WHO Emergency Use Listing, requirements for application/registration and authorization, inspection, release, post-approval changes, donations, EUA and regular approval, scaling up production and other issues.

The paper also identifies bottlenecks in the distribution of finished vaccines and immunization supplies, bottlenecks in trade in pharmaceuticals, bottlenecks in trade in diagnostics and other medical devices.

All in all, a daunting list of challenges the vast majority of which involve the importing country and the complexity of systems for approval of medical goods and vaccines.

The last four pages of the Information Note then identify “possible trade-facilitating measures” that could be taken to improve movement of goods. Because the information note is providing a summary of proposals put forward by stakeholders and is not an agreed set of steps by WTO Members, the note states that “no judgement is made on the desirability of implementing any of these suggestions.” Page 7. That said, many of the suggestions relate to streamlining import operations, e.g., through implementation of the Trade Facilitation Agreement, seeing that customs operates 24 hours/7 days a week, exemptions from export restrictions, harmonization of regulatory approaches and many more.

Conclusion

The Information Notes developed by the WTO provide useful information either from public sources, such as the bound tariff rates of COVID-19 vaccine input materials or summaries of information gathered from stakeholders at events looking at how to ramp up production and distribution of vaccines. It is clear that the challenges for all WTO Members in addressing the global pandemic are many and not easily addressed. The Information Notes provide a data base that can be used by WTO Members to see that the current pandemic is fully addressed in fact in the coming months, and that Members consider ways to prepare for a better outcome to future pandemics.

The Indo-Pacific region — increased interest in the CPTPP by major trading nations; implications for international trade; U.S. policy towards China

The Trans-Pacific Partnership was originally pursued by the United States to improve trade relations with many countries in the Pacific region and as a counter to rising Chinese influence. See, e.g., New York Times, U.S. Allies See Trans-Pacific Partnership as a Check on China, October 5, 2015, https://www.nytimes.com/2015/10/07/world/asia/trans-pacific-partnership-china-australia.html.

After President Trump withdrew the United States from the Agreement at the beginning of his term in 2017, Japan pushed to conclude the agreement among the remaining eleven countries. The revised agreement, the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership, was signed in Santiago, Chile on 8 March 2018 and took effect 30 December 2018, with 8 of the eleven countries who signed now having ratified — Mexico, Japan, Singapore, New Zealand, Canada, Australia, Vietnam and Peru. That leaves Brunei, Chile and Malaysia as signatories who have yet to ratify the agreement.

With Brexit completed, the United Kingdom was the first non-CPTPP country to apply for membership. Its application filed on 1 February 2021 was accepted on 2 June 2021 with the first negotiations held on 28 September 2021. See Government of Canada, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – Joint Ministerial Statement on the occasion of the Fourth Commission Meeting, 2 June 2021, https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/cptpp_meeting_four-ptpgp_declaration_quatre.aspx?lang=eng; Government of the United Kingdom, UK kickstarts talks to join £9 trillion global trade bloc, 28 September 2021, https://www.gov.uk/government/news/uk-kickstarts-talks-to-join-9-trillion-global-trade-bloc. The U.K.’s application is also an extension of the range of countries potentially eligible for membership since the U.K. is not a Pacific bordering country.

In September, both China and Taiwan applied for membership. See, e.g., Ministry of Commerce, People’s Republic of China, China officially applies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), September 18, 2021, http://english.mofcom.gov.cn/article/newsrelease/significantnews/202109/20210903201113.shtml; Nikkei Asia, Taiwan submits bid to join CPTPP trade pact, September 23, 2021, https://asia.nikkei.com/Economy/Trade/Taiwan-submits-bid-to-join-CPTPP-trade-pact; Wall Street Journal, China Seeks to Join Pacific Trade Pact After U.S. Forms New Security Alliance, September 16, 2021, https://www.wsj.com/articles/china-seeks-to-join-pacific-trade-pact-after-u-s-forms-new-security-alliance-11631813201 .

China’s application, while facing hurdles because of challenges to complying with provisions on state owned enterprises, data flows and other issues, is also a major challenge to efforts of the U.S. to have a more important role in the Indo-Pacific region. Because China would more than double the size of the CPTPP if admitted and because of heightened tensions in the Indo-Pacific area in recent years, there has been a great deal written on China’s application.

Some articles have argued for CPTPP countries rejecting China’s application or the likely failure of China to join for substantive reasons. See CNBC, China will likely fail in its CPTPP bid — but it’s a ‘smart’ move against the U.S., say analysts, September 27, 2021, https://www.cnbc.com/2021/09/27/analysts-on-chinas-bid-to-join-cptpp-strategic-competition-with-us.html (“Beijing needs the approval from all 11 CPTPP signatories to join CPTPP, and it may not succeed given its strained relationships with some member countries, said analysts.”); Bloomberg, Editorial Board, CPTPP Trade Block Shouldn’t Welcome China, September 22, 2021, https://www.bloomberg.com/opinion/articles/2021-09-22/cptpp-trade-bloc-shouldn-t-welcome-china.

Others have noted the multiyear effort by China to study the TPP and resulting CPTPP and ongoing efforts to gain support from individual CPTPP members for their application. See Nikkei Asia, Analysis: China’s TPP bid follows carefully scripted 300-day plan, Beijing’s move aims to thwart possible U.S. return to pact, pressure Taiwan, September 23, 2021, https://asia.nikkei.com/Editor-s-Picks/China-up-close/Analysis-China-s-TPP-bid-follows-carefully-scripted-300-day-plan; Brookings, China moves to join the CPTPP, but don’t expect a fast pass, September 23, 2021, https://www.brookings.edu/blog/order-from-chaos/2021/09/23/china-moves-to-join-the-cptpp-but-dont-expect-a-fast-pass/; Foreign Policy, Wendy Cutler, China Wants to Join the Trade Pact Once Designed to Counter It, September 21, 2021, https://foreignpolicy.com/2021/09/21/china-cptpp-trade-agreement/.

Others have focused on the importance of the U.S. reengaging economically in the region or risking losing to China. For example, Wendy Cutler, a former USTR lead negotiator for the Trans-Pacific Partnership, is the Executive Vice President of the Asia Society Policy Institute and has urged the last and current Administrations to stay economically engaged in Asia. See ASPI, Report, Reengaging the Asia-Pacific on Trade: A TPP Roadmap for the Next U.S. Administration, September 2020, https://asiasociety.org/sites/default/files/2020-09/A%20TPP%20Roadmap%20for%20the%20Next%20U.S.%20Administration.pdf. See also Nikkei Asia, Comment, Why U.S. membership in CPTPP makes more sense than ever, Washington risks being locked out and ceding Indo-Pacific influence to China, September 24, 2021, https://asia.nikkei.com/Spotlight/Comment/Why-U.S.-membership-in-CPTPP-makes-more-sense-than-ever; PIIE, Jeffrey Schott, China’s CPTPP bid puts Biden on the spot, September 23, 2021, https://www.piie.com/blogs/trade-and-investment-policy-watch/chinas-cptpp-bid-puts-biden-spot; Inside U.S. Trade’s World Trade Online, Citing China’s CPTPP bid, Carper and Cornyn urge U.S.
trade leadership, September 20, 2021, https://insidetrade.com/daily-news/citing-china%E2%80%99s-cptpp-bid-carper-and-cornyn-urge-us-trade-leadership; Wall Street Journal, Opinion/Comment by Tim Groser, The U.S. Has a Way Back on Pacific Trade, And if Washington doesn’t take it, the Indo-Pacific would likely become China’s for the taking, September 29, 2021, https://www.wsj.com/articles/america-tpp-china-japan-indo-pacific-trade-influence-11632931688. New Zealand’s Former Trade and Environment Minister Tim Groser’s piece is particularly interesting and is copied below.

“It was February 2017 and President Trump’s first address to a joint session of Congress. I was on the floor of the U.S. House as a guest of a pro-trade Republican congressman. As the president announced the U.S. withdrawal from the Trans-Pacific Partnership, I was thinking about a conversation I’d had with a particularly astute Asian ambassador. He’d suggested to me that if a book on the decline of American influence in Asia and the Indo-Pacific were ever written—and he hoped it never would be—its first chapter would be an account of the withdrawal of the U.S. from TPP.

“Largely because of Japan’s courageous decision to proceed without the U.S., TPP survived. With some changes to a few of its provisions and a new moniker—Comprehensive and Progressive TPP, or CPTPP—it went ahead. Nothing would have been possible if Japan, by far the dominant remaining economy in the agreement, had decided differently.

“China’s decision this month to apply for CPTPP membership should be a sharp reminder to Republicans and Democrats alike that if the U.S. is serious about competing with China in the Indo-Pacific it must confront a central reality: Having withdrawn from the TPP, the U.S. doesn’t yet have a trade strategy to back up its military posture in the region. China is the principal trading partner of many countries in the Indo-Pacific. The size of China’s economy, as well as its military and geostrategic ambition, means that Beijing will be at the center of the debate over every regional and global issue in the 21st century, from climate change to trade. Its ability to influence the outcomes of those issues will be determined by the degree—and effectiveness—of U.S.

“We don’t yet know where the new policy script that the Chinese Communist Party is now writing will lead the world’s second-largest economy. When Deng Xiaoping 40 years ago shifted China toward growth and an open economy with his slogan ‘to be rich is glorious,’ it was the beginning of the largest poverty-reduction program in human history. Hundreds of millions of Chinese were lifted out of destitution, and huge opportunities opened up for China’s trading partners. Things have been moving backward lately, in the direction of greater centralization and state control. One could even mount an elegant argument that China itself needs balance from the full engagement of the U.S. in the region.

“The Chinese people have benefited enormously, not from ‘wolf warrior’ diplomacy, but from Beijing’s positive engagement with the U.S.-designed liberal economic architecture. China’s future choices and trade strategies will be fundamentally different if they aren’t constrained by a muscular and successful U.S. economic strategy in the Indo-Pacific.

“Intriguingly, the U.S. is putting in place the elements of regional re-engagement. No foreign policy (or trade policy) is politically sustainable without a solid domestic constituency behind it. Trade has long been a tortured issue in American politics, particularly for Democrats, because economic change creates anxiety for the middle class. When people are under severe economic pressure, trade is always a potential scapegoat.

“In September 2020, the Carnegie Foundation for International Peace published a white paper titled ‘Making U.S. Foreign Policy Work Better for the Middle Class.’ Among the authors was Jake Sullivan, now President Biden’s national security adviser. The White House approach to assuaging traditional Democratic fears of trade-induced economic change seems clear: Shore up domestic policy before moving forward aggressively on any trade deals.

“The recent establishment of the Aukus security arrangement among the U.S., the U.K. and Australia can leave no doubt that the Biden administration views the Indo-Pacific as the most important theater of strategic competition with China. Kurt Campbell, the National Security Council’s coordinator for the Indo-Pacific, has made clear that U.S. strategy in the region must extend beyond a military plan to protect American allies from China’s expansionist ambitions. It needs an economic component.

“In my view, the U.S. is unlikely to rectify the mistake of leaving TPP by asking to join CPTPP. Mr. Biden has said he would oppose joining the original deal without a renegotiation. That alone would make it difficult for the U.S. to waltz back in. But it’s also true that the strategic environment has evolved. Large parts of TPP, such as its provisions on trade and the environment, remain relevant, but the past five years have sharpened the policy world’s understanding of such key issues as digital trade and state-owned enterprises. Plus, there is a new kid on the TPP block: the U.K. The world’s sixth-largest economy, a major intelligence and defense partner of the U.S., wants to join the club. The U.K.’s post-Brexit desire to expand its horizons beyond geographical Europe was the political subtext of the trade deal announced this summer between London and Canberra.

“Whatever next year’s congressional elections bring, active foreign-policy engagement always requires the involvement of both American political parties. The U.S.-Mexico-Canada agreement, updating the North American Free Trade Agreement, passed easily with bipartisan support during the Trump administration. If the U.S. recommits to TPP, it should be rechristened the Indo-Pacific Economic Partnership Agreement. A new name might make it an easier sell politically.

“The regional stakes were high even before China’s aggressive move on Hong Kong, its saber-rattling in Taiwan, and its ramped-up trade war with Australia. We now need to hear American leaders on both sides of the aisle talking about re-engaging in the region, not only on the political and military levels, but on the trade and economic architecture that will shape economic relations over the next decade and beyond. Only then will my friend the astute Asian ambassador be able to rest easy, secure in the knowledge that the decline of American influence in the Indo-Pacific is a book that will never be written.

Mr. Groser served as New Zealand’s trade minister (2008–15) and ambassador to the U.S. (2016–18).

The interest in the CPTPP will be heightened for other countries who are not members or who are already considering joining CPTPP and will be the subject of programs to explore the politics and business implications. See, e.g., Inside U.S. Trade’s World Trade Online, Eyes on Asia: Thailand re-evaluates CPTPP, Peru brings pact into force, September 22, 2021, https://insidetrade.com/trade/eyes-asia-thailand-re-evaluates-cptpp-peru-brings-pact-force; Business Korea, South Korea Planning to Join CPTPP, January 12, 2021, http://www.businesskorea.co.kr/news/articleView.html?idxno=58283; Nikkei Asia, Philippines explores joining TPP to expand free trade network, April 2, 2021, https://asia.nikkei.com/Economy/Trade/Philippines-explores-joining-TPP-to-expand-free-trade-network; The Global Business Dialogue, Inc., CPTPP: PEFORMANCE, PROMISE AND OUTLOOK, October 5 and 7, 2021, https://www.gbdinc.org/.

Likely U.S. Trade Approach Short Term

Despite the groups calling for the U.S. to reengage with the CPTPP countries and the obvious growing importance of the CPTPP for Indo-Pacific trade relations, most analysts believe the United States will not seek to either renegotiate the CPTPP or to join the CPTPP as it is in the near future. While the U.S. has free trade agreements with many of the CPTPP countries (Canada, Mexico, Australia, Singapore, Peru and Chile), with the exception of Canada and Mexico who are party to the USMCA, other FTAs are older and not as comprehensive or addressing all the issues as the CPTPP.

The United States under the Trump Administration and now under the Biden Administration has sought selective trade improvements with some Indo-Pacific countries, including Japan (Phase I deal under the Trump Administration), resolution of 301 disputes on currency and lumber with Vietnam (resolution by the Biden Administration) and bilateral activity with other Asian countries including India, Japan and Australia as members of the Quad. See, e.g., White House Briefing Room, U.S.-India Joint Leaders’ Statement: A Partnership for Global Good, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/u-s-india-joint-leaders-statement-a-partnership-for-global-good/; White House Briefing Room, Joint Statement from Quad Leaders, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/joint-statement-from-quad-leaders/; White House Briefing Room, Quad Principles on Technology Design, Development, Governance, and Use, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/quad-principles-on-technology-design-development-governance-and-use/. These types of initiatives include trade related elements such as supply chain resiliency in areas like semiconductors and pharmaceuticals and other medical products needed to address the COVID-19 pandemic as well as on technical barriers to trade issues flowing from technology developments. And, of course, the U.S. engages with other countries in the region even if there are no specific trade negotiations. See, e.g., USTR, Readout Of Ambassador Katherine Tai’s Meeting with ASEAN Economic Ministers, September 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/september/readout-ambassador-katherine-tais-meeting-asean-economic-ministers.

But these efforts to date don’t ensure U.S. access to many of these markets on the best possible terms for some products and services or ensure the highest standards of the agreements going forward.

China may or may not be accepted into the CPTPP now that it has applied or may decide that the requirements won’t work for its vision of its economy. While the U.S. is seeking cooperation from trading partners at the WTO and in various alliances to deal with some of the major challenges posed by China’s failure to convert its economy to a market economy and to address some of the coercion and failures to comply with bilateral, plurilateral and multilateral commitments, a strong trade agenda and participating in the rule development within important regional groupings would obviously improve the likelihood of improved balance in international trade relations.

That said, the Biden Administration has been reviewing its trade relationship with China, looking to develop a whole of government approach to China.

USTR’s October 4, 2021 articulation of U.S. approach to trade with China

USTR had signaled last week that Amb. Tai would be making a major speech today. The speech at the Center for Strategic and International Studies was at 10 a.m. (ET) this morning. See Office of the United States Trade Representative, Remarks As Prepared for Delivery of Ambassador Katherine Tai Outlining the Biden-Harris Administration’s “New Approach to the U.S.-China Trade Relationship,” October 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/remarks-prepared-delivery-ambassador-katherine-tai-outlining-biden-harris-administrations-new. The Administration also released a fact sheet on the Administration’s policy. See Office of the United States Trade Representative, Fact Sheet: The Biden-Harris Administration’s New Approach to the U.S. – China Trade Relationship, October 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/fact-sheet-biden-harris-administrations-new-approach-us-china-trade-relationship. The fact sheet lists four “initial steps” the U.S. is taking. Those steps as described in the fact sheet are reproduced below.

“Today, we are announcing the initial steps we will take to re-align our trade policies towards the PRC around OUR priorities: 

“•    First, we will discuss with China its performance under the Phase One Agreement. China made commitments that do benefit certain American industries, including agriculture that we must enforce.  President Biden will continue to promote our economic interests – and build confidence for American industry.

•    Second, while pursuing Phase One enforcement, we will restart our domestic tariff exclusions process to mitigate the effects of certain Section 301 tariffs that have not generated any strategic benefits and raised costs on Americans. We will ensure current Section 301 tariffs align appropriately with our economic priorities like boosting American workers’ wages and job opportunities, securing the resilience of critical supply chains, sustaining our technological edge, and protecting our national security interests. 

“•    Third, we continue to have serious concerns with the PRC that were not addressed in the Phase One deal, specifically related to its state-centered and non-market trade practices including Beijing’s non-market policies and practices that distort competition by propping up state-owned enterprises, limiting market access, and other coercive and predatory practices in trade and technology. 

“Even as we work to enforce the terms of Phase One, we will raise our broader concerns with Beijing’s non-market policies and practices like abuse of state-owned enterprises, anti-competitive behavior and subsidies, the theft of American intellectual property directly and in coordination with our allies and partners. We will defend American economic interests using the full range of tools we have and by developing new tools as needed. 

“•    And lastly, we know that we cannot do it alone. We will continue consulting and coordinating with allies and partners who share our strong interest in ensuring that the terms of competition are fair, work collectively to set the rules of the road for trade and technology in the 21st century, and strengthen the global market for our workers and businesses. 

“This work with our allies and partners is already bearing fruit, as evidenced by efforts at the G7, the US-EU Summit, the Quad, the OECD, and the TTC. The Boeing-Airbus deal struck in June of this year is just one example of how this commitment to work with our allies creates more opportunity to sell American products. We will accelerate this progress and look forward to continuing the conversations with our likeminded allies and partners about the impact the PRC’s non-market practices have on them, and how we can work together to find solutions.”

China’s Phase 1 commitments have been met is some areas but widely missed in terms of expanded purchases, particularly on manufactured goods and energy. China’s performance on agricultural goods has been significantly better and close to commitments. There are also large volumes of U.S. exports that are not covered by the Phase I Agreement where China has sharply reduced purchases in 202-2021 despite China’s economic performance. See PIIE, US-China phase one tracker: China’s purchases of US goods, As of August 2021, September 27, 2021, https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods. Thus, it will be interesting to see if outreach to China on the need for ramped up improvements will have any effect in fact.

American businesses have long complained about the tariffs on hundreds of billions of dollars of imports from China that resulted from the 301 investigation on China’s IP and other practices. Businesses viewed USTR’s exclusion process as an ineffective system for seeking exclusions and felt the process ended up penalizing U.S. companies. Congress has applied pressure on the Biden Administration (as it did on the Trump Administration) to restart and improve the exclusion process. Former USTR Lighthizer criticized some of the legislative efforts to weaken Section 301, require a revised exclusion process and renew certain tariff waiver programs that he viewed as significantly advantaging China. See New York Times, Opinion/Guest Essay (Robert Lighthizer), America Shouldn’t Compete Against China With One Arm Tied Behind Its Back, July 27, 2021, https://www.nytimes.com/2021/07/27/opinion/us-china-trade-tariffs.html. While the Biden team identifies actions which could reduce the loss of effectiveness of the 301 tariffs on China, time will tell how well step two of the new approach works in fact.

Press reports indicate that the U.S. will be raising the host of trade problems not addressed in the Phase I Agreement with China but will not be engaged in a Phase II Agreement negotiation. See Inside U.S. Trade’s World Trade Online, U.S. to renew China talks, restart tariff product exclusions, October 4, 2021, https://insidetrade.com/daily-news/us-renew-china-talks-restart-tariff-product-exclusions (“But the administration is not looking to negotiate a phase-two deal, senior administration officials told reporters on Sunday. ‘We’ll focus on phase-one engagement, we will raise concerns on industrial policies, but we are not seeking a phase-two negotiation,’ one said.”).

That said, the U.S. has been pursuing reforms at the WTO on industrial subsidies and other matters along with some major trading partners (e.g., Japan and the EU on industrial subsidies). While reforms are not likely at the WTO any time soon on industrial subsidies, the U.S. is attempting to apply pressure in a number of fora on China’s policies. Thus, the U.S. is actively pursuing alliances to achieve reforms in China’s policies and distortive practices.

In short, today’s announced trade policy to address China appears to be less confrontational than the actions of the Trump Administration while maintaining for the time being the tariffs that were added following the 301 investigation in 2017-2018. While working to get better compliance with the Phase I Agreement is a positive, many provisions were adopted by China based on prior Administration statements. It will be important to know if these granular provisions once adopted have actually been implemented and whether U.S. trade has benefitted as a result. While the purchase commitments other than agriculture have been widely missed (including some commitments by sectors with heavy state ownership, such as energy), there are specific commitments for 17 goods categories only for 2020 and 2021 and some language about continued growth in the future, it is not clear how aggressive the U.S. will be in pursuing compliance in the last three months of 2021 and moving forward. The same is true in services where the pandemic has undoubtedly contributed to declines in U.S. services exports and the dismal performance compared to commitments. It is also not clear if the U.S. will address the sharp contraction of U.S. exports of products not covered by the Phase I purchase commitments. Such contractions in a period of economic growth by China seem likely driven by Chinese action whether formal or informal to reduce U.S. exports regardless of China’s overall growth.

The serious problems China’s economic model and policies are causing the U.S. and other market economies will be difficult to correct simply through discussions. The Biden’s Administration’s focus on domestic policies and reinvesting in infrastructure, R&D and workers is certainly long overdue (if Congress passes funding), The Biden Administration clearly needs China engaged to address the climate crisis and a number of other global issues. This reality may have contributed to the level of action envisioned on trade relations with China. But today’s announced trade policy towards China seems uninspired and unlikely to make a significant difference in rebalancing trade relations.

Coupled with U.S. reluctance to identify a trade policy agenda that can be used with trading partners to generate new agreements and revise existing agreements, the U.S. approach to China raises the specter of a lost opportunity. Let’s hope that concern proves incorrect.

U.S. Department of Commerce commences a national security investigation under Section 232 of the Trade Expansion Act of 1962, as amended, on NdFeB permanent magnet imports

On September 24, 2021, the Biden Administration initiated its first Section 232 national security investigation. See U.S. Department of Commerce, U.S. Department of Commerce Announces Section 232 Investigation into the Effect of Imports of Neodymium Magnets on U.S. National Security, September 24, 2021, https://www.commerce.gov/news/press-releases/2021/09/us-department-commerce-announces-section-232-investigation-effect. As stated in the press release:

“Interested parties are invited to submit written comments, data, analyses, or other information to BIS by November 12, 2021. This is the first Section 232 investigation initiated under Secretary Raimondo’s leadership, and is consistent with a recommendation by the White House in the Biden-Harris Administration’s 100-day supply chain reviews to evaluate whether to initiate this investigation.

“Critical national security systems rely on NdFeB permanent magnets, including fighter aircraft and missile guidance systems. In addition, NdFeB permanent magnets are essential components of critical infrastructure, including electric vehicles and wind turbines. The magnets are also used in computer hard drives, audio equipment, and MRI devices.

“If the Secretary finds that NdFeB permanent magnets are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall advise the President in her report on the findings of the investigation. By law, the Secretary of Commerce has 270 days from initiation, until June 18, 2022, to present the Department’s findings and recommendations to the President.

“U.S. Secretary of Commerce Gina M. Raimondo released the following statement: ‘The Department of Commerce is committed to securing our supply chains to protect our national security, economic security, and technological leadership. Consistent with President Biden’s directive to strengthen our supply chains and encourage investments to shore up our domestic production, the Department initiated a Section 232 investigation on imports of NdFeB permanent magnets to determine whether U.S. reliance on imports for this critical product is a threat to our national security.’”

Commerce’s Bureau of Industry and Security published in the Federal Register on September 27, 2021 the formal request for public comments. See U.S. Department of Commerce Bureau of Industry and Security, Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of
Neodymium-Iron-Boron (NdFeB) Permanent Magnets, 86 Fed. Reg. 53,277-278 (September 27, 2021). The notice contained eight questions that the Department was particularly interested in getting comments on from the public:

“The Department is particularly interested in comments and information directed to the criteria listed in § 705.4 of the NSIBR as they affect national security, including the following:

“(i) Quantity of or other circumstances related to the importation of NdFeB permanent magnets;

“(ii) Domestic production and productive capacity needed for NdFeB permanent magnets to meet projected national defense requirements;

“(iii) Existing and anticipated availability of human resources, products, raw materials, production
equipment, and facilities to produce NdFeB permanent magnets;

“(iv) Growth requirements of the NdFeB permanent magnets industry to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth including investment, exploration, and development;

“(v) The impact of foreign competition on the economic welfare of the domestic NdFeB permanent magnets industry;

“(vi) The displacement of any domestic NdFeB permanent magnets production causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;

“(vii) Relevant factors that are causing or will cause a weakening of our national economy; and

“(viii) Any other relevant factors, including the use and importance of NdFeB permanent magnets in critical infrastructure sectors identified in Presidential Policy Directive 21 (Feb. 12, 2013) (for a listing of those 16 sectors see https://www.dhs.gov/cisa/critical-infrastructure-sectors).”

86 Fed. Reg. at 53,278.

The 100 day supply chain review referenced in the Commerce press release was released in June 2021. See White House, BUILDING RESILIENT SUPPLY CHAINS, REVITALIZING AMERICAN MANUFACTURING, AND FOSTERING BROAD-BASED GROWTH, 100-Day Reviews under Executive Order 14017 (June 2021), https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf. Discussion of the challenges relating to NdFeB permanent magnets is taken up in the Review of Critical Minerals and Materials by the Department of Defense (pages 151-204 (see pages 156-57, 160, 165-66, 170-171, 174, 177, 183, 189-92)).

But the White House Report (and the various sources cited therein) follows many years of articles and reports looking at the potential national security and economic security risks from dependence on certain minerals, materials and downstream products incorporating the same from limited foreign suppliers.

The challenge for the U.S. with NdFeB permanent magnets is that supply of both the rare earth mineral and the processed product and down stream product are dominated by China with projected demand growth far outstripping likely existing supplies. See, e.g., Physics Today, US government acts to reduce dependence on China for rare-earth magnets, February 1, 2021, https://physicstoday.scitation.org/doi/10.1063/PT.3.4675 (“Driven by an expected surge in demand for electric vehicles (EVs), wind turbines, and other applications requiring permanent magnets, consumption of many rare-earth (RE) elements is expected to outstrip the global supply within a decade. Coupled with an almost total US dependence on China for separated REs and the magnets made from them, the impending shortage has prompted the US government to subsidize and stimulate domestic RE mining, metal-making, and magnet manufacturing.”)(contains a detailed review of U.S. efforts to expand options for procuring neodymium and magnets made with neodymium).

WTO issues

Many of our larger trading partners have challenged the U.S. 232 investigations on steel and aluminum and resulting import relief imposed by former President Trump. While the U.S. position has been that GATT Art. XXI does not permit WTO panel review of actions taken for national security reasons, prior panels looking at the issue have felt authorized to reach the merits. Decisions by panels in the various challenges to steel and aluminum 232 actions are expected possibly by the end of 2021. See United States — Certain Measures on Steel and Aluminium Products, WT/DS544/11 (9 February 2021)(“the Panel now expects to issue its final report to the parties no earlier than the second half of 2021.”)(identical extensions noticed in cases by India (WT/DS547), EU (WT/DS548), Norway (WT/DS552), Russian Federation (WT/DS554), Switzerland (WT/DS556), Turkey (WT/DS564).

As the report to the President from Commerce is likely to be presented in June 2022 (statutory time limit is 270 days after initiation), the Administration will have time to consider how, if at all, it will respond to any WTO panel decisions in the steel and aluminum cases and whether it will appeal any such panel decisions (likely if adverse). If the panels do not limit their reports to indicating national security actions are not reviewable, it is unlikely that Commerce will address issues of concern to the panel if potentially relevant in the U.S. investigation of NdFeB permanent magnets. But that could occur.

However, the U.S. interest in resolving the Appellate Body situation will likely be affected by whether national security policy decisions are accepted as nonreviewable by trading partners and the WTO’s dispute settlement system.


WTO Director-General Ngozi Okonjo-Iweala announces selection of four Deputy Directors-General

A little over two months after assuming the position of Director-General (“DG”) of the World Trade Organization, DG Okonjo-Iweala announced her four Deputy Directors-General (“DDGs”). Two of the four DDGs are women, marking the first time that there is gender balance among the DDGs. The press release from the WTO is embedded below.

WTO-_-2021-News-items-DG-Okonjo-Iweala-announces-her-four-Deputy-Directors-General

DG Okonjo-Iweala’s selections follow past practice of picking DDGs from the four regions other than the region of the DG (Africa). The U.S. and the EU (France this time) continue to hold a DDG slot (Angela Ellard and Amb. Jean-Marie Paugam respectively). The Asian slot goes to China (Amb. Xiangchen Zhang) for the second time in a row (potentially indicating that three of the five slots will be going to the US, EU and China going forward). The Latin slot goes to Anabel Gonzalez of Costa Rica. Three of the four have extensive experience in Geneva with Amb. Xiangchen Zhang having recently concluded his role as China’s Permanent Representative to the WTO, with Amb. Jean-Marie Paugam having been France’s Permanent Representative to the WTO and with Ms. Anabel Gonzalez having had many roles both within the WTO Secretariat and with the Government of Costa Rica including Minister of Foreign Trade. All four have extensive experience with trade issues as the short bios included in the press release review. Ms. Angela Ellard from the U.S. has decades of experience in the interaction between the legislative and executive branches in the U.S. in the trade arena having served in a senior staff capacity for the House Ways and Means Republicans.

Today’s press release did not identify areas of responsibility for each of the four DDGs. That information will presumably be released in the coming days.

In prior posts I have urged the selection of strong individuals for the four DDG slots, people able to help DG Okonjo-Iweala with the myriad challenges facing the organization. See February 13, 2021, Leadership change at the WTO — with Dr. Ngozi Okonjo-Iweala’s arrival next week, what support team and early changes in the role of the Secretariat could help WTO Members move forward?, https://currentthoughtsontrade.com/2021/02/13/leadership-change-at-the-wto-with-dr-ngozi-okonjo-iwealas-arrival-next-week-what-support-team-and-early-changes-in-the-role-of-the-secretariat-could-help-wto-members-move-forward/; March 31, 2021, When will WTO DG Okonjo-Iweala reveal choices for Deputy Directors-General?, https://currentthoughtsontrade.com/2021/03/31/when-will-wto-dg-okonjo-iweala-reveal-choices-for-deputy-directors-general/.  The four individuals who have been selected all appear to be strong individuals with the ability to help the DG in outreach to major Members. They bring a lot of talent and depth of understanding of current challenges to their jobs. Chemistry among the group and with the DG is something that will develop over time and hopefully will have them being a cohesive and highly supportive team for the DG.

With much to accomplish to restore credibility for the WTO and its ability to help move global trade forward in a more sustainable and equitable manner, I join all those wishing the new DDGs success in their new positions.

Global vaccinations against COVID-19; developments and challenges in the roll-out for many countries

Globally there have been extraordinary developments of vaccines to help against the COVID-19 vaccine. UNICEF has set up a COVID-19 Vaccine Market Dashboard which notes that at present 14 vaccines have been approved by one or more countries, that the companies in production or testing vaccines report existing or intended capacity in 2021 of 21 billion doses (depends on other vaccines being approved and companies overcoming any bottlenecks in supply), indicates that there are 10.4 billion “secured vaccine doses”, that there are 3.56 billion doses “secured and optioned for the COVAX facility” and that prices in the market range from $2.06/dose to $44.00/dose. See UNICEF, COVID-19 Vaccine Market Dashboard, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard (visited April 2, 2021). The dashboard contains a great deal of information looking at information on products, capacity, agreements, price and delivery.

The COVAX facility, administered by Gavi, put out in early March the first round of allocation of vaccine doses procured for low- and middle-income countries and others choosing to participate in acquiring through COVAX to improve equitable and affordable access for all. 142 of the countries participating in the COVAX facility were identified as allocated delivery of specific quantities of vaccine from a total of 237 million doses that were expected to be available to COVAX during the February – May timeline. See The COVAX Facility, First Round of Allocation: Astra Zeneca/Oxford Vaccine (manufactured by Astra Zeneca & licensed and manufactured by Serum Institute of India), https://www.gavi.org/sites/default/files/covid/covax/COVAX-First-round-allocation-of-AZ-and-SII.pdf . 87 of the 92 countries who will receive doses at no cost or reduced cost are included in the first round allocation (“AMC” countries). The March 2, 2021 document is embedded below.

COVAX-First-round-allocation-of-AZ-and-SII

In an April 1, 2021 update, Gavi notes that to date COVAX has shipped more than 33 million doses to 74 country. See GAVI, COVAX vaccine roll-out, https://www.gavi.org/covax-facility (visited April 2, 2021). While the ramp-up of deliveries to COVAX is scheduled to occur over time, COVAX received notice in late March of delays for shipments from India (Serum Institute of India) in both March and April, which COVAX has estimated could be a delay for as much as 90 million doses and indicated the delays were due to internal needs in India for more doses to support their own vaccination program. See UNICEF, COVAX updates participants on delivery delays for vaccines from Serum Institute of India (SII) and AstraZeneca, 25 March 2021,https://www.unicef.org/press-releases/covax-updates-participants-delivery-delays-vaccines-serum-institute-india-sii-and. The bulk of the press release is copied below.

GENEVA/NEW YORK/OSLO, 25 March 2021 – Deliveries of COVID-19 vaccines produced by the Serum Institute of India (SII) to lower-income economies participating in the COVAX Facility will face delays during March and April as the Government of India battles a new wave of COVID-19 infections. COVAX and the Government of India remain in discussions to ensure some supplies are completed during March and April.

“According to the agreement between Gavi and the Serum Institute of India (SII), which included funding to support an increase in manufacturing capacity, SII is contracted to provide COVAX with the SII-licensed and manufactured AstraZeneca (AZ)-Oxford vaccine (known as COVISHIELD) to 64 lower-income economies participating in the Gavi COVAX AMC (including India), alongside its commitments to the Government of India.

“To date, COVAX has been supplied with 28 million COVISHIELD doses and was expecting an additional 40 million doses to be available in March, and up to 50 million doses in April.

“COVAX has notified all affected economies of potential delays. SII has pledged that, alongside supplying India, it will prioritize the COVAX multilateral solution for equitable distribution.

“Participating economies have also received WHO guidance on optimizing the national deployment doses of the AstraZeneca-Oxford vaccine in a constrained supply environment.

“Separately, the COVAX Facility has informed participants allocated AstraZeneca-manufactured doses of the AstraZeneca-Oxford vaccine that some of the first deliveries due in March are now set to take place in April.

“In this early phase of COVID-19 vaccine roll-out, vaccine manufacturers require time to scale and optimize their production processes. AstraZeneca, which uses a novel supply chain network with sites across multiple continents, is working to enable initial supply to 82 countries through COVAX in the coming weeks.

“COVAX retains its objective of supplying initial doses of vaccines to all participating economies in the first half of the year before ramping up significantly in the second half of 2021. To date, COVAX has shipped vaccines to over 50 countries and economies.”

While there have been various manufacturing challenges in the early months of vaccine roll-outs, the decision by India to slow distribution of vaccine doses purchased by COVAX will clearly slow distribution to many least developed and developing countries dependent on COVAX for their vaccine doses. Since as much as a third of vaccine doses that COVAX has distributed have gone to India, the Indian government has what is at least a public relations challenge at the present time. See India Today, India received one-third of vaccines made for poor countries by India under COVAX programme: Report, 30 March 2021, https://www.indiatoday.in/coronavirus-outbreak/vaccine-updates/story/india-received-one-third-of-vaccines-made-for-poor-countries-by-india-under-covax-programme-report-1785242-2021-03-30. However, with a number of variants of the virus circulating widely and with infections increasing in many countries around the world, the delays are of concern to many governments with anxious populations looking for a path past the pandemic.

In a paper from Airfinity and the St. Gallen Endowment for Prosperity through Trade on March 31, 2021, an effort is made to look at the likely damage to low income countries from the announced delays in shipments to COVAX. See Simon J. Evenett and Matt Linley, Halting India’s Vaccine Exports: The Fallout, 31 March 2021. The paper estimates that the delays in shipments will push back achieving even minimum vaccinations by 60-90 days for many of the COVAX recipient countries. The paper is embedded below.

AF-SGEPT-TL1-31-March-2021-finalised

While there is a lot of positive news being reported (e.g., expansion of capacities and expected shipments in 2021, effectiveness of some of the existing vaccines against some of the new variants, agreement between the United States, Japan, India and Australia to generate one billion doses of a vaccine in India for distribution in the Indo-Pacific area in 2021 and 2022, and the United States hosting a funding effort for COVAX later in April to help close the funding needs for 2021 (after the U.S.’s $4 billion contribution)), delays for up to 90 million doses ( 37.97% of the total doses expected in the February – May 2021 time period by COVAX) to those dependent on COVAX is a significant challenge. See, e.g., Gavi, United States to host launch event for Gavi COVAX AMC 2021 investment opportunity, 29 March 2021, https://www.gavi.org/news/media-room/united-states-host-launch-event-gavi-covax-amc-2021-investment-opportunity; March 25, 2021, Global vaccinations for COVID-19 — continued supply chain and production issues and a new wave of infections in many countries delay greater ramp up for some until late in the second quarter of 2021, https://currentthoughtsontrade.com/2021/03/25/global-vaccinations-for-covid-19-continued-supply-chain-and-production-issues-and-a-new-wave-of-infections-in-many-countries-delay-greater-ramp-up-for-some-until-late-in-the-second-quarter-of-2021/; March 12, 2021, COVID-19 vaccines – U.S., Japan, India and Australia agree to one billion doses for Indo-Pacific countries, https://currentthoughtsontrade.com/2021/03/12/covid-19-vaccines-u-s-japan-india-and-australia-agree-to-one-billion-doses-for-indo-pacific-countries/; March 12, 2021, The 8-9 March  “Global C19 Vaccine Supply Chain and Manufacturing Summit” – efforts to ramp-up production, https://currentthoughtsontrade.com/2021/03/12/the-8-9-march-global-c19-vaccine-supply-chain-and-manufacturing-summit-efforts-to-ramp-up-production/.

The WTO Director-General Ngozi Okonjo-Iweala is planning a meeting on vaccines later in April that was described in a WTO press release as follows.

“DG Okonjo-Iweala also said that she plans to convene an event in mid-April to discuss ramping up COVID-19 vaccine production and how the WTO can contribute to a more rapid and equitable distribution of vaccines. 

“The event, to be held under Chatham House rules, will include all regional member groups, representatives from vaccine manufacturers from developing and developed countries, civil society groups working on access to medicine, and other relevant stakeholders.

“’The idea is to move us along on our quest to solve this unacceptable inequitable access of poor countries to vaccines,’ she said. ‘At the bottom of this is a very serious scarcity in supply. And how to solve it is to look at how we expand manufacturing in all its ways.’ 

“She stressed that the event would help advance global discussions on access to vaccines. She expressed hope both for increased vaccine manufacturing in the short- to medium-term, and a longer-term framework agreement that would provide for automatic access to vaccines and other medical products for developing countries in future health crises, including a way forward on the TRIPS waiver proposal many of them support.

“’We also need to look to the future and agree a framework where countries do not need to stand in the queue in order to get access to life-saving vaccines, therapeutics, and diagnostics,’ she said, emphasizing that this can be done while still incentivizing research and development.”

WTO, Director-General urges WTO members to deliver concrete results this year, 30 March 2021, https://www.wto.org/english/news_e/news21_e/dgno_30mar21_e.htm.

Conclusion

Governments are understandably focused on trying to end the pandemic at home as a first priority. The efforts of the WHO, Gavi, CEPI and UNICEF through the COVAX facility in recent years has provided a welcome source of hope for many nations for greater equity in distribution and in affordability of vaccines, including in the last year addressing the enormous challenge presented by the COVID-19 pandemic. Many countries and private groups have stepped up with major funding contributions to make vaccine available. Individual governments are also working to increase supplies globally. Many bottlenecks have arisen with the large number of inputs and the enormous increase in demand that has arisen over the last year. There is a need for continued efforts by governments and businesses to address the challenges and to see that the needs of the low- and middle-income countries can be met in a timely manner as well. While there will be a lot more production in the second half of 2021, there are and will continue to be challenges in the second quarter. Focus on identifying challenges and global cooperation to solve bottlenecks will do a lot to ensure greater global success in the remainder of 2021.

When will WTO DG Okonjo-Iweala reveal choices for Deputy Directors-General?

Today, March 31, 2021, marks the end of the tenure of the four existing Deputy Directors-General of the WTO. Normally, an incoming Director-General would have identified his/her choices for the four Deputy Director-General slots ahead of assuming office himself/herself. See, e.g., March 6, 2021, WTO’s four Deputy Directors-General tenure reportedly concludes at the end of March 2021 — thanks for an outstanding job, https://currentthoughtsontrade.com/2021/03/06/wtos-four-deputy-directors-general-tenure-reportedly-concludes-at-the-end-of-march-2021-thanks-for-an-outstanding-job/ ( “It is normal for existing Deputy Directors-Generals (DDGs) to depart shortly after the arrival of a new Director-General and to be selected before the new Director-General takes office. Indeed, typically DDGs have four year terms that start one month after the Director-General’s term. Pursuant to procedures adopted in late 2002, DDGs employment starts later and ends later than the DG’s. See PROCEDURES FOR THE APPOINTMENT OF DIRECTORS-GENERAL, Adopted by the General Council on 10 December 2002, WT/L/509 (20 January 2003) at para. 22 (‘In order to ensure continuity at the senior management level, the terms of office of the Director-General and of the Deputy Directors-General shall be staggered, such that the terms of the Deputies expire subsequent to the expiry of the Director-General’s term.’). Because of the short time from appointment (February 15, 2021) to start (March 1, 2021) as Director-General for Dr. Ngozi Okonjo-Iweala, presumably the DDG selection process was delayed until after she took up her position on March 1.”).

With less than eight months til the 12th Ministerial Conference at the end of November in Geneva, there is a great deal of work to be done if the Ministerial Conference is going to be successful. As reviewed in a WTO press release of March 30, DG Ngozi Okonjo-Iweala spoke at an informal General Council meeting on March 30. See WTO, Director-General urges WTO members to deliver concrete results this year, 30 March 2021, https://www.wto.org/english/news_e/news21_e/dgno_30mar21_e.htm. The press release reviews her comments and those of General Council Chair Ambassador Dacio Castillo (Honduras) and is copied below.

“The meeting was called by General Council Chair Ambassador Dacio Castillo (Honduras) to initiate a process of consultations on the nature of the prospective outcome document for the Twelfth Ministerial Conference (MC12), which will take place in Geneva the week of 29 November.

“He described the options in front of members, based on the documents that emerged from earlier Ministerial Conferences: a consensus Ministerial Declaration, a summary issued under the conference chair’s own responsibility, and a ‘hybrid’ document containing elements of the two.

“Members ‘may wish to start thinking about what type of outcome document we might realistically envisage for MC12, including its structure and elements,’ the General Council Chair added, announcing he would begin consultations on these issues with interested delegations. He cautioned that this process should not divert attention from ongoing substantive negotiations.

“With only seven working months until MC12, DG Okonjo-Iweala called on members to “create a recipe for success upfront,” starting with “two or three or four concrete deliverables” in areas such as fisheries and agreeing on work programmes for other items where differences remain.

“She noted that MC12 would come at the end of a series of international policy discussions aimed at ‘examining the lessons from this pandemic and trying to put the framework for tackling the next.’ If trade ministers emerge at the end of the year ‘with no agreement, no contributions to the meaningful issues that are being faced by the world today, nothing to add in terms of a framework for tackling the next pandemic, it will not look good.’

”’My wish is for all the Ambassadors, Ministers and Leaders on trade to come out of MC12 looking good. Looking good means being seen by the world as having delivered for today’s problems,’ she said.

“DG Okonjo-Iweala also said that she plans to convene an event in mid-April to discuss ramping up COVID-19 vaccine production and how the WTO can contribute to a more rapid and equitable distribution of vaccines.

“The event, to be held under Chatham House rules, will include all regional member groups, representatives from vaccine manufacturers from developing and developed countries, civil society groups working on access to medicine, and other relevant stakeholders.

“‘The idea is to move us along on our quest to solve this unacceptable inequitable access of poor countries to vaccines,’ she said. ‘At the bottom of this is a very serious scarcity in supply. And how to solve it is to look at how we expand manufacturing in all its ways.’

“She stressed that the event would help advance global discussions on access to vaccines. She expressed hope both for increased vaccine manufacturing in the short- to medium-term, and a longer-term framework agreement that would provide for automatic access to vaccines and other medical products for developing countries in future health crises, including a way forward on the TRIPS waiver proposal many of them support.

“‘We also need to look to the future and agree a framework where countries do not need to stand in the queue in order to get access to life-saving vaccines, therapeutics, and diagnostics,’ she said, emphasizing that this can be done while still incentivizing research and development.”

Obviously, having a full team, including the four Deputy Directors-General, on board to help facilitate work by Members on items of interest to the Members will be critical to permitting the Secretariat to support the WTO Members in their work in these coming months.

In a prior post, I had suggested the need for DG Okonjo-Iweala to pick a team that respects the historical geographical distribution of positions but also to pick individuals with sufficient trade and political gravitas to help the DG achieve the range of initiatives facing the WTO. See February 13, 2021, Leadership change at the WTO — with Dr. Ngozi Okonjo-Iweala’s arrival next week, what support team and early changes in the role of the Secretariat could help WTO Members move forward?, https://currentthoughtsontrade.com/2021/02/13/leadership-change-at-the-wto-with-dr-ngozi-okonjo-iwealas-arrival-next-week-what-support-team-and-early-changes-in-the-role-of-the-secretariat-could-help-wto-members-move-forward/.

Press reports have indicated that there is, as there always is, a lot of lobbying by Members, on the composition of the Deputy Directors-General. Hopefully DG Ngozi Okonjo-Iweala will announce the new DDGs soon. The Director-General faces many issues with a deeply divided membership. A strong team including at the DDG level will improve the chances that the Secretariat can help the messy process of Member negotiations and moving to reform.

Seafood obtained from illegal, unreported, and unregulated fishing — U.S. International Trade Commission report on estimated imports into the U.S.

For twenty years, Members of the World Trade Organization have been negotiating disciplines on fisheries subsidies to help curb illegal, unreported and unregulated fishing (IUU fishing). Achieving an agreement is critical to meeting the United Nations Sustainable Development Goal 14.6. See, e.g., WTO, WTO members hold February cluster of meetings for fisheries subsidies negotiations, 24 February 2021, https://www.wto.org/english/news_e/news21_e/fish_24feb21_e.htm. The WTO Members had hoped to conclude negotiations in 2020 and are working to conclude the negotiations by the 12th Ministerial Conference, now scheduled for the week of November 29, 2021 in Geneva. See WTO, Twelfth Ministerial Conference to take place in Geneva in late 2021, 1 March 2021, https://www.wto.org/english/news_e/news21_e/minis_01mar21_e.htm.

On December 19, 2019, the Chairman of the U.S. House of Representatives Committee on Ways and Means and the Chairman of the Trade Subcommittee of Ways and Means submitted a letter to the U.S. International Trade Commission requesting an investigation into IUU fishing and its effects on the U.S. industry. The text of the request is copied below.

“We are writing today to request that the U.S. International Trade Commission (USITC) conduct an investigation of the potential economic effects on U.S. fishermen of competition with illegal, unreported, and unregulated (IUU) seafood imports. IUU seafood includes products obtained in contravention of fisheries management regulations or in violation of labor laws. Trade in IUU seafood products includes not only IUU catch that is sent directly to end markets, but also IUU raw material inputs that are further processed into aquaculture feed or seafood products for human consumption.

“Up to 31 percent of the global catch of fish reportedly comes from IUU fishing, at an estimated value of more than $23 billion per year. IUU fishing contributes to the overexploitation of fish stocks, threatens the livelihoods of coastal communities, jeopardizes food security, and harms marine ecosystems. IUU fishing also creates unfair competition for U.S. fishermen as imports account for 90 percent of U.S. seafood consumption. China plays an enormous role in the global production and trade of seafood and is the largest seafood trade partner of the United States. China also has been ranked as worst among 152 coastal countries based on the prevalence of IUU fishing and the country’s response to it.

“To better understand the size, scope, supply chains, pricing pressures, and potential economic effects of this problem, we request that the US ITC conduct an investigation, and prepare a report, pursuant to section 332(g) of the Tariff Act of 1930. Based on available information, we request that the Commission’s report provide, to the extent practicable:

“• A review of the existing data and literature on the prevalence of IUU products in the U.S. import market, and an overview of international mechanisms for monitoring and enforcement to address IUU fishing;

“• A description of the size and structure of the U.S. commercial fishing industry;

“A description of major global producers of IUU products, including but not limited to China, and country practices related to IUU production and exports.

“• An analysis of the extent to which IUU product is imported into the United States, as well as major U.S. import sources and global supply chains of such products; and

“• A quantitative analysis of the economic impact of IUU imports on U.S. commercial fishermen and U.S. commercial fishing production, trade, and prices.

“We request that the Commission deliver the report by 12 months from the date of this letter. As we intend to make the report available to the public, we request that confidential business information not be included in the report. Your assistance in this matter is greatly appreciated.

“Sincerely,

“Richard E. Neal, Chairman
“Earl Blumenauer, Chairman, Trade Subcommittee”

The U.S. International Trade Commission released its report,which is dated February 2021, last week. See USITC, Seafood Obtained via Illegal, Unreported, and Unregulated Fishing: U.S. Imports and Economic Impact on U.S. Commercial Fisheries, Inv. 332-575, Publ. 5168 (February 2021). The request letter is included in the report at Annex A.

On March 18, 2021 Chairmen Neal and Blumenauer released a statement including statements from Oceana and from the World Wide Fund for Nature (WWF). See U.S. House of Representatives Committee on Ways and Means, NEAL, BLUMENAUER STATEMENT ON THE U.S. INTERNATIONAL TRADE COMMISSION’S REPORT “SEAFOOD OBTAINED VIA ILLEGAL, UNREPORTED, AND UNREGULATED FISHING: U.S. IMPORTS AND ECONOMIC IMPACT ON U.S. COMMERCIAL FISHERIES”, March 18, 2021, https://waysandmeans.house.gov/media-center/press-releases/neal-blumenauer-statement-us-international-trade-commission-s-report. The press release is copied below.

WASHINGTON, DC—Today, the U.S. International Trade Commission released their findings pursuant to a Tariff Act of 1930 section 332 investigation requested by Chairman Richard E. Neal (D-MA) and Trade Subcommittee Chairman Earl Blumenauer (D-OR) on the economic impact of illegal, unreported, and unregulated (IUU) seafood, including the use of forced labor, on the U.S. fishing industry.  The report found that the U.S. imported $2.4 billion worth of illegal seafood in 2019 and that addressing the illegal imports would create U.S. jobs, protect U.S. consumers and benefit U.S. fishers by an estimated $60.8 million.

“’Far too much illegal seafood is making its way onto our dinner plates and more must be done,’ said Chairman Neal. ‘By building on what we fought to include in USMCA, enhancing the tracing of our seafood supply chains, and cracking down on IUU fishing practices, we can better protect our oceans and ultimately give Americans the peace of mind that they are eating safe, legal seafood.’

“’When people go to the grocery store, they want to know that the seafood is safe and legally caught, responsibly sourced, and honestly labeled. Unfortunately, too much illegal seafood is currently making its way into the country, undermining our hardworking U.S. fishing industry and putting consumers at risk,’ Blumenauer said. ‘It’s clear that we need stronger enforcement standards to protect individuals, workers, and fishing habitats.’

“Chairman Neal and Trade Subcommittee Chairman Blumenauer are joined by Oceana and WWF in recognizing the study.

“’Illegal, unreported and unregulated fishing not only wreaks havoc on fisheries and ocean wildlife, but also undermines domestic fishers and seafood consumers. The United States has advanced programs to combat IUU fishing and seafood fraud, but it’s clear that more needs to be done. The U.S. must expand Seafood Import Monitoring Program to all seafood, trace fish from boat to plate and expand transparency of fishing to help stop IUU products from entering the U.S. and competing with legally sourced seafood,’ said Beth Lowell, Deputy Vice President of U.S. Campaigns at Oceana.

Michele Kuruc, Vice President of Ocean Policy at WWF noted that, ‘this report reminds us that the ramifications of illegal fishing go far beyond the health of our oceans. It depletes our oceans, fuels labor and human rights abuses, and leaves our domestic producers at an economic disadvantage. People are harmed, economies are hurt, and our oceans and planet are in peril.   Eradicating illegal fishing requires a whole of government approach, as our current definitions, processes and efforts have far-reaching limitations. The good news is we have the tools, but they need to be strengthened to get the job done.  The U.S. needs to expand the species covered by our current monitoring program. We need to track all imported species, not just a small group, to truly tackle this issue and protect our oceans, foster economic growth and empower people who rely on oceans for food and income.’”

Thus, the U.S., despite having some provisions to address IUU fishing, still accounts via imports for an estimated 10% of global IUU fishing ($2.4 billion of an estimated $23 billion global total).

The USITC Report

The U.S. International Trade Commission report is 468 pages including Annexes. The report is embedded below.

ITC-report-on-illegal-fishing

While many countries have some part of their marine capture or imports from other countries that are IUU, the USITC report focuses on certain countries and identifies the types of practices that are considered to result in marine capture being considered IUU.

“There are many fishing practices that can constitute an IUU violation. Often, a vessel may fish in an area where it is not authorized. Vessels may also fish during seasons in which particular fishing grounds are closed. IUU fishing also includes harvesting in excess of quotas set by fishery management authorities or misreporting the volume of landings to those authorities. Fishing with disallowed gear types or methods, or in violation of environmental restrictions such as those concerning bycatch, also constitute IUU fishing. Labor violations that have been widely documented in segments of the fishing industry include forced labor, human trafficking, child labor, and physical abuse of workers on board fishing vessels.” USITC Publ. 5168 at 11-12.

Below are some tables from the report which show the estimated volume of IUU imports from major sources of seafood imports into the United States and then some detail on the basis of IUU fishing from a subset of those countries. The tables are taken from pages 114, 115, 463, 14 and 15 of the USITC report respectively.

The USITC report covers a lot of ground and reviews existing literature and studies and provides its methodology for both estimating the share of imports that are IUU as well as the modeling used to estimate economic effects on domestic industry. It is clear that many countries contribute to the IUU problem. Some countries including the U.S. and the EU have tools available to deal with IUU imports and that such tools are viewed as helpful but not totally fit for purpose based on limited scope, at least in the United States.

Interest in the issue from the U.S. Congress and a focus of the Biden Administration on addressing both environmental- and labor- related issues implies that the U.S. will likely be looking for ways to beef up enforcement of the import monitoring program on seafood.

While the report doesn’t address fisheries subsidies, the report should nonetheless be helpful to WTO Members engaged in the fisheries subsidies negotiations. The report adds dimension to the importance of WTO Members reaching an ambitious agreement on fisheries subsidies as the challenges of IUU fishing are not only environmental in nature but also go to fairness in competition.

U.S. files appeal at the WTO from panel report in case brought by the Republic of Korea — United States — Anti-Dumping and Countervailing Duties on Certain Products and the Use of Facts Available (DS539)

In a post from January 29, 2021, I had argued that the United States should appeal from the panel report issued on January 21 in a trade remedies dispute brought by the Republic of Korea against the use of facts available in antidumping and countervailing duty cases. See January 29, 2021, WTO Panel report on UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS AND THE USE OF FACTS AVAILABLE should be appealed by the United States, https://currentthoughtsontrade.com/2021/01/29/wto-panel-report-on-united-states-anti-dumping-and-countervailing-duties-on-certain-products-and-the-use-of-facts-available-should-be-appealed-by-the-united-states/. As I wrote in that post:

“Antidumping and countervailing duty proceedings in the United States are very transparent with full access to information on the record available to parties under administrative protective order and with many opportunities to submit comments, raise questions, seek clarification or respond to additional inquiries flowing from earlier responses. It is quite common for Commerce to receive requests for more time to respond to the initial questionnaire and to any supplemental requests flowing from developments. Responding parties can determine whether or not to submit all information, partial information or no information. Questionnaire responses are often incomplete or adopt interpretations of what has been requested to provide less than complete information. In antidumping investigations, it is not uncommon for respondent data bases to change during the course of the investigation, sometimes markedly. Briefing after the preliminary determination permits challenges to the preliminary determination by all parties, including challenges to use of facts available. While there are always legal issues that are briefed, facts available issues are fact-based issues flowing from whether parties cooperated, withheld information, failed to supply requested information, etc., and if so, what alternative information is available that can be used.

“The ADA provides special provisions on dispute settlement in Article 17.6. The approach on review of facts is laid out in Article 17.6(i) of the ADA (there is no counterpart in the ASCM for the reason that Art. 17.6 of the ADA was added at the end of the Uruguay Round without chance to consider adopting a parallel provision in the ASCM). Art. 17.6(i) states:

“‘17.6  In examining the matter referred to in paragraph 5:

“‘(i)   in its assessment of the facts of the matter, the panel shall determine whether the authorities’ establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;’

“Article 17.6 was added to the ADA at the end of the Uruguay Round at the insistence of the United States which was interested in seeing that very complicated and detailed administrative proceedings were not second guessed by panels or the Appellate Body which would not have been involved in the proceeding or have access to all materials. Art. 17.6(i) deals with providing deference to administering authorities on facts. Art. 17.6(ii) does the same for legal interpretations for provisions subject to more than one meaning.

“The panel report, following other panel and Appellate Body reports that have been problematic from the U.S. perspective, doesn’t view Art. 17.6(i) as being deferential to an investigating authority as long as the authority hasn’t conducted the investigation in a biased or non-objective manner or somehow established facts improperly. See WT/DS539/R at para. 7.23 – 7.36 (after a review of the meaning of ADA Art. 6.8 and Annex II, the panel sums its view of the panel’s task to be the following: ‘In sum, we consider that the terms of Article 6.8, interpreted in light of their context and object and purpose, require investigating authorities to select – in an unbiased and objective manner – those facts available that constitute reasonable replacements for the missing ‘necessary’ information in the specific facts and circumstances of a given case. In doing so, investigating authorities must take into account all facts that are properly available to them. In selecting the replacement facts, Article 6.8 does not require investigating authorities to select those facts that are most ‘favourable’ to the non-cooperating party. Investigating authorities may take into account the procedural circumstances in which information is missing, but Article 6.8 does not condone the selection of replacement facts for the purpose of punishing interested parties.’).

“In reading the panel report, the Commerce Department is not given deference for its decisions of what facts available should be used. Thus, that violations were found for how Commerce determined facts available in each of the six proceedings reflect the panel reaching a different conclusion than Commerce. But while the panel may have reached a different result than Commerce, that by itself does not constitute a basis under Art. 17.6(i) to find a violation.

Conclusion

“The constant limiting by panel and Appellate Body reports of the ability to utilize trade remedy agreements is, of course, the main substantive concern that the United States has with the operation of the WTO’s Dispute Settlement system, although there are examples of the same problem in other areas covered by panel or AB reports as well. Last week’s panel report on Korea’s challenge to U.S. antidumping and countervailing duty proceedings on the use of facts available continues to undermine the legitimacy of WTO dispute settlement.

“Accordingly, the Biden Administration should file an appeal from last week’s panel decision and ensure that any eventual resolution of the Appellate Body impasse includes a restoration of rights that have narrowed or eliminated under the trade remedy or trade defense agreements (ADA, ASCM and safeguard).”

Today’s appeal

A Dispute Settlement Body meeting was scheduled for today with only one item on its agenda, consideration of the panel report in DS539. The WTO has reported on its website that the United States filed an appeal of the panel report today, March 19, 2021. WT/DS539/9. While the notice of appeal is not yet up on the WTO website, the U.S. has presumably indicated it is challenging the erroneous interpretation of ADA 17.6(i) among other issues.

The U.S. appeal is the ninth such appeal to the Appellate Body after December 10, 2019 when the Appellate Body ceased to have at least three members (and hence is unable to hear new appeals) and the eighteenth appeal that awaits the restoration of an Appellate Body for an appeal to be heard/completed.

Italy blocks exports of COVID-19 vaccines to Australia, first blockage of export authorization by the EU or its member states

In a post just released, I reviewed the EU position on its vaccine export authorization program presented at the recent WTO General Council meeting where the EU stated no export request had been blocked. That is no longer true as reviewed in a Financial Times piece released earlier today. See Financial Times, Italy blocks shipment of Oxford/AstraZeneca vaccine to Australia, |March 4, 2021, https://www.ft.com/content/bed655ac-9285-486a-b5ad-b015284798c8?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a. The vaccine supplier is Oxford/AstraZeneca which is a company who has shipped only a part of the quantity promised to the EU thus far and been subject to a public argument with the European Commission. Italy apparently notified the EU at the end of last week (and hence ahead of the EU statement to the General Council this week). As the EU didn’t object, Italy was allowed to block the export. According to the Financial Times, “Italy’s foreign ministry said that it had requested that the commission block the export of 250,700 doses of the Oxford/AstraZeneca vaccine to Australia because the latter was considered a ‘non-vulnerable’ country. It also cited ‘the high number of vaccine doses covered by the request . . . compared to the quantity of doses supplied so far to Italy and, more generally, to EU countries.'”

Expect significant backlash against the EU at the WTO.

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 2021. 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.

Regional Comprehensive Economic Partnership signed on November 15, 2020

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

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

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

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

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

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

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

The agreement has twenty chapters some of which have annexes:

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

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

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

Summary-of-the-RCEP-Agreement

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

RCEP Chapter 7, Trade Remedies

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

rcep-chapter-7

Safeguard actions

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

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

Antidumping and Countervailing Duties

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

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

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

Conclusion

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

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

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

In last eight days, the number of global new COVID-19 cases over past fourteen days has grown from five to six million

On October 22, the European Centre for Disease Prevention and Control (ECDC) recorded the first day where the number of new COVID-19 cases globally surpassed five million (5,042,415). In just eight days, on October 30, the ECDC reports the fourteen day total shooting past six million new cases (6,093,987), an increase of 1,051,572 or 20.85% in eight days! As reviewed in a post on October 22, the U.S. and Europe were major factors in hitting five million and continue to be the major causes of the continued rapid escalation in global cases. See October 22, 2020, COVID-19 new cases over last 14 days pass 5,000,000 for first time on October 22, https://currentthoughtsontrade.com/2020/10/22/covid-19-new-cases-over-last-14-days-pass-5000000-for-first-time-on-october-22/.

The table below shows the fourteen day totals for selected countries as of October 22 and October 30 and the change in new cases. These twenty-one countries show an increase in eight days of 1,052,784 new cases or more than the global total. The 21 countries accounted for 2,756,890 new cases for the fourteen days ending October 22 or 54.67% of the global total at that time. For the fourteen days ending October 30, the 21 countries accounted for 3,809,674 new cases or 62.52% of the global total.

Country10-22-202010-30-2020Change
United States786,488966,269179,781
France303,912473,085169,173
Brazil298,078324,99026,912
United Kingdom244,954291,71846,764
Spain169,394238,70969,315
Italy115,708234,993119,285
Russia198,716227,53028,814
Belgium100,119171,52271,403
Poland95,260169,30274,042
Czechia113,555161,05847,503
Germany81,905151,13769,232
Netherlands103,024126,54323,519
Ukraine76,48989,17812,689
Switzerland35,26173,41838,157
Romania48,53260,55012,018
Hungary18,16628,38810,222
Austria19,38735,43616,049
Bulgaria10,59220,64310,051
Slovakia18,91327,5038,590
Slovenia8,85920,02111,162
Sweden9,56817,6718,103

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

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

In the United States, the number of new cases is spiking again, with a new record recorded in the last day, with over 91,000 new cases and with predictions of new cases topping 100,000 each day in the next week or so.

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

Conclusion

The top priority for many countries around the world is getting the COVID-19 pandemic under control. The costs in terms of human life and serious health problems are enormous. So too the costs to the global economy from taking the steps necessary to address the pandemic are enormous. How to address the pandemic and how to work internationally to secure a return to normalcy and a return to sustainable economic growth are the challenges for all governments and international organizations, including the WTO, WHO, IMF, World Bank and many others. The fact that the number of new cases is continuing to surge globally ten months after the start of global surveillance is obviously troubling and delays the return to normalcy. While some individual countries have gained control of the pandemic and others are making significant strides to reduce the number of new cases, “no one is safe until all are safe”. We have a long road to travel, and the western developed world is currently the major hot spot, struggling with the current extraordinary surge. We still are not in sight of a global peak and the rest of 2020 is likely to continue to stress global capabilities.

Press article indicates EU Members will likely support Nigeria’s Ngozi Okonjo-Iweala and Korea’s Yoo Myung-hee on Monday in second round of consultations [Updated 10-5]

The second round of consultations with WTO Members on winnowing down the list of candidates for the WTO Director-General position from five to two started on September 24 and ends on October 6. While Amb. David Walker of New Zealand, the Chair of the General Council, with his two facilitators, meet with each delegation to learn their two preferences for the second round of the five remaining candidates, there is no public information as to when WTO Members meet with Amb. Walker and the others during the second round.

In a prior post, I had flagged that Minister Yoo Myung-hee of the Republic of Korea was traveling to Europe to press her candidacy. See September 27, 2020,  Korean trade minister travels to Europe to push her WTO candidacy; Moldova candidate endorses Kenyan candidate, https://currentthoughtsontrade.com/2020/09/27/korean-trade-minister-travels-to-europe-to-push-her-wto-candidacy-moldovan-candidate-endorses-kenyan-candidate/.

Last week there were articles in the Korean press that President Moon Jae-in of Korea had contacted German Chancellor Angela Merkel seeking her support of Minister Yoo for the WTO Director-General position. See The Korea Times, October 1, 2020, Moon seeks Germany’s support for selection of WTO Chief, https://www.koreatimes.co.kr/www/nation/2020/10/120_296932.html.

On Friday, October 2, Bloomberg published an article (“EU Set to Push WTO Chief Bids of Nigerian, Korean Candidates”) that was republished by The National on October 4, entitled “EU to put forward bids of Nigerian and Korean candidates for WTO top job.” See, Bloomberg, October 2, 2020, EU Set to Push WTO-Chief Bids of Nigerian, Korean Candidates, https://www.bloomberg.com/news/articles/2020-10-02/eu-set-to-push-wto-chief-bids-of-nigerian-korean-candidates; The National, October 4, 2020, EU to put forward bids of Nigerian and Korean candidates for WTO top job, https://www.thenational.ae/business/eu-to-put-forward-bids-of-nigerian-and-korean-candidates-for-wto-top-job-1.1087741.

“European Union governments are nearing an agreement to
support the Nigerian and South Korean candidates to lead the
World Trade Organisation as the arbiter of international commerce
prepares to whittle down a list of contenders.

“EU member-country envoys plan on Monday to endorse Ngozi
Okonjo-Iweala, Nigeria’s former finance minister, and Yoo Myunghee,
South Korea’s trade chief, in their bids to become WTO
director-general, according to officials familiar with the matter.
They spoke on the condition of anonymity because the
deliberations are confidential.

“Of the 27 EU countries, only Hungary withheld support at a
Brussels meeting on Friday of national trade experts for a plan to
put Ms Okonjo-Iweala and Ms Yoo on the bloc’s new shortlist,
according to one official. That resistance may be overcome at
Monday’s higher-level gathering, the official said.”

Obviously if the news articles are correct, this is a major development helping Korea’s candidate Minister Yoo and will be a disappointment to Kenya’s candidate Minister Mohamed who had been on the EU list of four in the first round.

The development, if it happens, will also complicate Minister Mohamed’s efforts to get into the final round of two candidates. It is anticipated that African WTO Members will support one or both of the two African candidates remaining – Dr. Okonjo-Iweala and Minister Mohamed. If there is a split in solidatity for both candidates within the African Members, it could make the final two candidates Minister Yoo and Dr. Okonjo-Iweala instead of Minister Mohamed and Dr. Okonjo-Iweala.

As reviewed in a prior post, it is unlikely that either of the two male candidates, Minister Mohammad Moziad Al-Tuwaijri of Saudia Arabia or the Rt Hon Dr. Liam Fox of the United Kingdom, will make it into the final two. See September 24, 2020,  WTO Director-General selection – block voting likely to ensure next Director-General is a female, https://currentthoughtsontrade.com/2020/09/24/wto-director-general-selection-block-voting-likely-to-ensure-next-director-general-is-a-female/; September 25, 2020, Video discussion on WTO Director-General selection process, https://currentthoughtsontrade.com/2020/09/25/video-discussion-on-wto-director-general-selection-process/.

With the consultations ending on Tuesday, October 6, it is expected that there will be a heads of delegation meeting scheduled for October 8 with Chairman Walker and his facilitators reaching out to the five candidates with results on the 7th of October. After the first round, leaks occurred with the names of those not advancing hitting the press on the day before the heads of delegation meeting.

Stay tuned.

Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union

In 2019, the United States initiated a section 301 investigation on France’s digital services tax (“DST”), made a finding that France’s DST “is unreasonable or discriminatory and burdens or restricts U.S. Commerce.”  84 Fed. Reg. 66956 (Dec. 6, 2019).  Additional duties of up to 100% were proposed on French goods valued at $2.4 billion.  France agreed to hold up application of its tax until the end of 2020 and the U.S. agreed to hold up tariffs to give the Organization for Economic Cooperation and Development time to conclude discussions on a possible agreed international tax structure for digital services.

On June 2, 2020, the U.S. Trade Representative announced the initiation of 301 investigations on nine countries and the European Union who have either implemented DSTs or who have such DSTs under development.  https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/june/ustr-initiates-section-301-investigations-digital-services-taxes.  The countries who are subject to the investigations include Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.  The notice of initiation of the investigations will appear in the Federal Register on June 5, 2020 but was posted on the USTR website on June 2.  https://ustr.gov/sites/default/files/assets/frn/FRN.pdf.

Because of the COVID-19 situation, written comments are being accepted but it is unclear if there will be a public hearing.  Written comments are due by July 15, 2020.  The Federal Register notice pre-publication is embedded below.

USTR FR notice 301 investigation on digital services

The focus of the investigation will be on the following aspects of DSTs:

“The investigation initially will focus on the following concerns with DSTs: discrimination against U.S. companies; retroactivity; and possibly unreasonable tax policy. With respect to tax policy, the DSTs may diverge from norms reflected in the U.S. tax system and the international tax system in several respects. These departures may include: extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.”  Page 5.

Based on the prior investigation into the French DST, there is little doubt that all of the programs will be found to violate Section 301 of the Trade Act of 1974, as amended, in some respect.

For example, in the French case, the USTR made five findings relevant to some or all of the current investigations:

‘First, the evidence collected in this investigation indicates that the French DST is
intended to, and by its structure and operation does, discriminate against U.S. digital companies.”

“Second, the evidence collected in this investigation indicates that the French DST’s
retroactive application is unusual and inconsistent with prevailing tax principles and renders the tax particularly burdensome for covered U.S. companies, which will also affect their customers, including U.S. small businesses and consumers.”

“Third, the evidence collected in this investigation indicates that the French DST’s
application to gross revenue rather than income contravenes prevailing tax principles and imposes significant additional burdens on covered U.S. companies.”

“Fourth, the evidence collected in this investigation indicates that the French DST’s
application to revenues unconnected to a presence in France contravenes prevailing international tax principles and is particularly burdensome for covered U.S. companies.”

“Fifth, the evidence collected in this investigation indicates that the French DST’s
application to a small group of digital companies contravenes international tax principles counseling against targeting the digital economy for special, unfavorable tax treatment.”

USTR, Section 301 Investigation, Report on France’s Digital Services Tax, Dec. 2, 2019, pages 1, 3, 4, 5.  https://ustr.gov/sites/default/files/Report_On_France%27s_Digital_Services_Tax.pdf.

The EU and the EU-member states covered have DSTs similar to France’s (without retroactivity) with some DSTs already in effect.  Other countries’ systems appear to be similar as well with many countries already applying their DST.  https://ustr.gov/sites/default/files/assets/frn/FRN.pdf.

The full USTR report on France’s DST is embedded below.

Report_On_France’s_Digital_Services_Tax

Where taxes are already in place, action by USTR will be likely even ahead of the end of the year absent agreement with the trading partner to postpone collection.  The start of investigations at this time will enable the U.S. to complete the investigation this summer or early fall, take public comments on possible tariffs to be added if no resolution with individual countries or the EU is possible.  More specifically, the U.S. will have handled domestic legal requirements to act if other DSTs go into effect without an OECD agreement or where the tax imposed is not consistent with the OECD terms.  As stated in the USTR press release yesterday, “’President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,’ said USTR Robert Lighthizer. ‘We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.’”  https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/june/ustr-initiates-section-301-investigations-digital-services-taxes.

Conclusion

The OECD efforts to develop an agreed model for taxing digital services are supposed to conclude this year.  The U.S. and its leading digital services companies have been very concerned about the efforts of trading partners to impose taxes that will effectively apply only or disproportionately to them.

At the same time, the COVID-19 pandemic has added pressure on governments to find new sources of revenue, and digital services are an inviting target.

Expect this to be a very important issue in the second half of 2020.  Failure to find an acceptable solution to the United States will result in a significant escalation of trade tensions both with the EU and with many other countries going forward.

 

 

 

 

 

The future of the WTO — restoring relevance

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

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

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

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

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

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

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

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

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

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

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

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

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

In talking about reform, DDG Wolff states that —

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

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

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

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

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

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

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

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

“A recent addition to the list is sustainability.

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

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

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

“Convergence

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

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

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

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

Transparency on trade actions surrounding the COVID-19 pandemic

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

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

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

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

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

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

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

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

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

Importance of transparency in times of crisis

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

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

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

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

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

Conclusion

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

COVID-19 – OECD first policy brief on trade issues related to the pandemic

As the world moves towards two million confirmed COVID-19 cases later this week (week of April 13) and global deaths near 125,000, the EU and the United States continue to hold center stage with the largest number of cases and deaths. As of April 11th, the EU represented 39.29% of confirmed cases and 57.9% of deaths. The UK (now not part of the EU) was 4.25% of confirmed cases and 8.77% of deaths. The United States had 30.34% of confirmed cases and 18.39% of deaths. Collectively, the EU, UK and US have had 73.88% of confirmed cases, 85.07% of deaths despite having just 10.86% of the world’s population. See attached table.

Situation-update-worldwide-as-of-11-April-2020

The rate of infection is picking up in a wide range of countries, including in areas with larger populations and often lower per capita incomes. Prior posts have looked at a range of issues surrounding COVID-19 and trade policy responses, including proposals from business groups, intergovernmental organizations and the actual response of countries and territories attempting to deal with the global health pandemic.

On Friday, April 10, the OECD released the first in a series of policy briefs on trade issues related to COVID-19, The title of the policy brief is simply, COVID19 and International Trade: Issues and Actions. https://read.oecd-ilibrary.org/view/?ref=128_128542-3ijg8kfswh&title=COVID-19-and-international-trade-issues-and-actions.

The policy brief starts with the statement that “In a challenging and uncertain situation, trade is essential to save lives – and livelihoods”. Going beyond the March 2020 OECD Interim Economic Outlook estimate of the impact of global growth (halved to 1.5%), the policy brief estimates that each month extension of containment measures will further reduce global growth by 2 percentage points. The brief then reviews the wide range of challenges to nations and the world in both coping with the health dimensions of the pandemic and the extraordinary challenges to economies, national and private sector debt, employment and other issues. The estimated “initial impact on activity of partial or complete shutdowns on activity in a range of economies” shows GDP declines of 15-35% (page 2, figure 1).

The policy brief then identifies four actions that can be taken by governments to improve trade flows and reduce the negative effects on economies:

“First boost confidence in trade and global market by improving transparency”

“Second, keep global supply chains going, especially for essentials”

“Third, avoid making things worse”

“Fourth, look beyond the immediate: Policy actions now could have a long life”

Improved transparency

The policy brief supports the need for governments to notify trade-related measures that are taken in response to the pandemic to the WTO. The WTO website contains a page on COVID-19 which lists notices provided to the WTO from governments (both trade restricting and trade liberalizing) in response to COVID-19. As of April 9th, 41 notifications had been received. https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm.

The OECD also shares information it receives with the WTO. In addition, the OECD provides information on agriculture production and trade to the Agricultural Market Information System “to ensure accurate, up-to-date information on market developments and country policies in critical commodities for the global food system.” Page 3.

With more than 60 trade restrictive measures flagged by observers, the efforts at improved transparency are a work in progress obviously dependent upon the actions of WTO Members.

Keeping supply chains going

The OECD policy brief reviews a range of developments since the start of the pandemic which have raised costs and complicated the flow of trade:

  1. Loss of air cargo as part of reduction in passenger flights;

2. Drop in ship traffic and increased procedures and documentation requirements; vs. establishment of some “green lanes” at ports and border crossing points;

3. Location of shipping containers in China at time of pandemic, creating shortages and raising costs;

4. Labor availability at ports reduced in many cases or increased costs from additional protective measures;

5. Limits on mobility of people affecting various trade processes (inspections, etc.);

6. Higher costs throughout supply chains from increased protective measures for workers.

For essential medical supplies, the OECD policy brief calls for removing tariffs, expediting certification procedures and enhancing trade facilitation..

While the policy brief recognizes the need for expanded production in a later section, it doesn’t address the need for increased transparency on or coordination of such efforts to expand production despite the obvious fact that a pandemic which moves around the globe creates temporary acute shortages of medical supplies where trade could minimize harm to populations going through surges in infections.

As reviewed in my post of April 10 on scarcity, a significant part of the health challenge in medical goods in the current COVID-19 pandemic flows from the rapid demand expansion exceeding global supply availability. This contrasts with food security issues in 2020 where there are adequate supplies of key agriculture products but there are concerns because of border closures, mobility issues and the like.

Avoid making things worse

The OECD policy brief has avoiding export restrictions on essential goods as the chief action countries can take to avoid making things worse. The brief reviews the 2007-2008 food price spikes that flowed from large scale export restraints on agriculture products and the harm done to many countries as a result.

In discussing food security, the brief states, “While there is not an immediate threat to global supplies of basic foodstuffs, there is the potential for specific food supply chains to be severely disrupted, including from lack of seasonal workers for planting or harvesting key crops, logistics constraints, and additional SPS and technical measures. Vigilance will be required to ensure that crisis- or policy-induced risk factors do not cause disruptions in supply, in particular if the containment measures related to COVID-19 are long-lived. ” Pages 5-6

For essential medical goods, there is a critical need for expanded production which some governments are pursuing often in connection with their private sectors. Trade challenges on essential medical goods include the use of export restraints, guaranteed purchases and requisitioning of goods. More than 60 countries have imposed export restraints, and, with the US and EU the current centers of COVID-19 infections, many other countries are having great difficulties obtaining adequate or any supplies.

OECD recommendations, such as limiting future export restraints, reducing tariffs and not imposing new tariffs or trade restrictive measures, are similar to those recommended by other groups. However, nothing in the recommendations deals with the very real need for better information on supply availability and expansions vs. current and projected demand, or for the possible role of international organizations or others in coordinating shifting of supplies from countries that have gotten past the worst of the pandemic to others with limited capacities and resources.

Look beyond the immediate: Policy actions now could have a long life

The OECD policy brief examines three sets of issues in terms of future implications — the massive financial assistance being provided, the examination of the shape of global supply chains, and preparing for future pandemics. These are taken up in turn below.

A. Governmental financial assistance

Because of the massive support governments are pumping into their economies to avoid collapse (some $8 trillion based on some recent estimates), there are obvious questions about how such support is structured, how governments will modify their conduct once the pandemic is past or economies have reopened. As the policy brief states,

“The scale of public investments needed during and after the crisis – from health systems and social protection, to access to education and digital networks – underscores the need for support to firms and sectors to be as efficient as possible to maximise available public resources. Well-designed support will also be less market-distorting and give rise to fewer concerns about the impact on international competition. Fairness – in both the national-level distribution of benefits ad in global competition – is essential for maintaining public support for trade and the open markets need to get through and emerge from the crisis.” Page 8.

Key principles for support granted include the following, according to the policy brief:

  1. Support should be transparent (including terms of support);
  2. non-discriminatory and not used to rescue companies that would have failed absent the pandemic;
  3. time limited and reviewed for continued relevance/need;
  4. targeted at consumers vs. tied to consumption of specific goods and services.

B. Global supply chains

An issue important to a number of governments has been the structure of existing supply chains and whether supply chains should be reshored or at least shortened. The OECD policy brief focus on rethinking the “resilience” in global supply chains but cautions against quick answers or simply reshoring.

C. Being ready for the next pandemic

The OECD policy brief also reviews actions the global community should take to be ready for the next pandemic. Five elements of a possible agreement among countries are suggested for consideration:

  1. “Ensuring transparency”;
  2. “Cutting tariffs on essential medical products”;
  3. “Disciplines on export restrictions” (essentially G20 language);
  4. “Upfront investments in co-operative solutions” (including creation of stockpiles at national or regional level);
  5. “addressing the needs of the most vulnerable countries”.

Conclusion

The first OECD policy brief is a useful contribution to the discussion of trade issues that can and should be addressed to reduce the negative effects of the COVID-19 pandemic both in the short-term and in the recovery phase. The proposals are not surprising and reflect underlying views of the member countries. As is true of other papers and proposals for action, collective action depends on leadership and willingness of like-minded countries to act for the common good. With a serious pandemic with dimensions not experienced in 100 years, large and advanced economies have talked the talk of cooperation and keeping markets open but haven’t always walked the walk of greater global cooperation or avoiding trade restrictive measures.

The actions of major governments are not surprising considering the pressing needs for supplies within countries that have been at the epicenter of the pandemic in the early months of its existence or the reaction of others worried about supplies or about food security. Political leaders obviously respond to the needs of their citizens first, particularly where needs are about life and death.

Unfortunately, such local focus doesn’t help smaller and/or economically weaker countries, many of whom may find themselves part of the epicenter of the pandemic in coming months.

Moreover, governments around the world generally have shown a poor ability to spend the money to prepare for future events which are uncertain as to timing or severity. It seems unlikely that the pandemic of 2020 will result in greater collective action and preparation for the future.

Indeed, the extraordinary sums that are being needed to avoid total collapse of economies in 2020 will create additional challenges for the global trading system going forward and will likely limit actual efforts to avoid a repeat in the future.

End note

The OECD has indicated that they have four additional policy briefs in the series under preparation. The future briefs deal with trade facilitation, government support, global value chains for essential goods and services trade (page 11), in addition to a paper looking at COVID-19 and Food and Agriculture: Issues and Actions.

WTO and the challenge of scarcity — are there lessons from COVID-19?

The global trading system has built in flexibilities for nations and customs territories to address scarcity or threatened scarcity at home in the trade rules. Specifically, while GATT 1994 Article XI:2 provides for the general elimination of quantitative restrictions on imports or exports, there are exceptions provided in XI:2. The first permits “Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.” GATT 1994 Art. XI:2(a). There are also general exceptions to WTO obligations contained in GATT 1994 Article XX including measures “necessary to protect human, animal or plant life or health” (Art. XX(b)) although such general exceptions have certain conditions to prevent discrimination in application.

These WTO rules go back to original GATT provisions from 1947/48 and reflect the understandable desire of governments to maintain the ability to look out for their own people in times of crisis particularly to avoid threats from food scarcity or to human health.

Over the last seventy plus years, global trade flows have dramatically expanded in both agricultural and non-agricultural products. Indeed, many countries and customs territories are import dependent on food products. Moreover, with the development of global supply chains for medicines, medical equipment, medical supplies and personal protective gear, few, if any, countries are self-sufficient for medical goods.

The question arises whether in a much more interdependent world, global trade rules need review and modification to deal with actual or perceived shortages of agricultural, medical or other goods.

The 2007-2008 food shortages on critical agricultural products led to dozens of countries imposing export restraints on core products like rice and wheat resulting in expanded shortages, price volatility and social unrest in many countries.

The COVID-19 pandemic has resulted in nearly 70 countries imposing export restraints on certain medical goods and in a number of countries imposing export restraints on agricultural goods in anticipation of potential shortages. The breadth and depth of the pandemic has resulted in a global severe shortage of a wide range of medical products, equipment and protective gear with countries (and within some countries, provinces, states, regions and even individual hospitals and medical facilities) competing against each other for limited supplies, bidding up prices, resulting in price gouging and hording of goods. It has also resulted in efforts by individual countries and companies (whether local or multinational) to ramp up production to meet the surge in demand. Press reports indicate that many smaller countries find themselves shut out of the market for supplies as large countries or groupings (US and EU) lock up available supplies for months going forward.

The two types of shortages are different in type. Food shortages, if real, flow (1) from some form of crop failure and inadequate inventories, (2) from the failure to keep markets open so goods go to markets where there are needs, or (3) from conflicts. That is, the shortage flows from a temporary supply problem. The shortage is not from a sudden upward change in global demand.

Medical pandemics create severe shortages because of the extraordinary growth in demand for medicines, supplies, equipment and personal protective equipment in a very limited time frame. While arguably countries could build up inventories of potentially needed supplies to address any magnitude of surge in demand, few countries effectively do so and long term demand for the products/supplies of interest don’t support massive capacity outside of a pandemic. Supply can be disrupted as it has been in the COVID-19 pandemic through border measures aimed primarily at limiting movement of people potentially infected but affecting the movement of goods as well, through export restraints imposed to ensure some supplies in country, through disruptions of supply chains, and through aggressive purchasing by large and/or rich countries reducing supplies available for other countries. Supply can also be increased through expanded investment (whether permanent or temporary), through diversion of existing manufacturing from other goods to needed goods, or through reducing inventories. Countries, to offset some of the upward pricing pressures, can reduce the cost of supplies by reducing customs duties, by reducing value added taxes or sales taxes on domestic and imported product, by streamlining and greenlaning import entry, by having the central government coordinate purchasing and distribution during the pandemic, by encouraging expanded production and by keeping markets open.

The COVID-19 pandemic has the added dimension that efforts to address the health crisis have resulted in massive unemployment, collapsing GDPs around the world, sharp contraction in global trade and the need to pump huge sums into economies to prevent greater collapse. Such actions by governments to permit economies to rebound in the future both involve much greater state involvement in economies at least temporarily and issues of how WTO rules on subsidies can or should be applied. The WTO, as the US and others have pointed out frequently, is designed for market economies and wasn’t designed to address the consequences of a pandemic of the magnitude of COVID-19. The extraordinary consequences of the current pandemic will challenge WTO members to determine if current rules remain applicable or need modifications.

Possible solutions for food security and for the availability of medical goods

Food security should, in my view, have different solutions in the trade arena than what may be needed for medical pandemics.

For food security, banning export restraints should be theoretically possible if coupled with (1) national, regional or global inventory reserves of key products to address the periodic droughts and other challenges to supply, (2) market access liberalization of the key agricultural products, and (3) rapid resolution if WTO Members violate their commitments. Even though theoretically possible, the global history of famines and the critical role of food security to governments around the world suggests that meaningful change to trade rules to reduce the flexibilities that presently exist to address food shortages is highly unlikely as part of WTO reform.

On medical pandemics, there are theoretically possible steps that countries could take to reduce the personal and economic toll of future pandemics and the damage to global trade flows. Countries historically have done a poor job of investing in research to address future diseases or viruses until a crisis has occurred. Countries could expand R&D efforts before pandemics. Similarly, national, regional, state/province, local inventories of many critical medical goods could be maintained to address pandemic-level needs. But the reality has been that governments, hospitals and medical businesses have generally not invested in the inventory needed for the historically infrequent pandemic level demand. Supply chains can be modified to provide more sources for all inputs versus reliance on suppliers from one or just a few countries. Governments could develop with companies a game plan for where additional capacity could be generated and how quickly if a pandemic arose and update those game plans periodically. Tariffs could be eliminated on all medical goods, supplies, equipment, and personal protective goods. Governments could ensure priority access of imports of such goods that meet international standards. Governments could provide information to the WHO and WTO on capacities of key medical goods on an annual basis to improve the transparency for countries on supplies. Governments could agree to ban export restraints during a pandemic. Governments could authorize international institutions to build regional inventories for access by countries without the financial resources to build inventories on their own.

While only some of the above actions would come within the WTO’s area of competence, it is hard to imagine WTO Members agreeing to the elimination of discretion they currently enjoy for medical emergencies. It is similarly difficult to imagine countries taking actions longer term to address a problem that could be dismissed as a once-in-a-century crisis.

The broader issues flowing from the need for massive government infusions of funds to prevent the global economy from collapsing are certainly important. If not addressed in a way that allows Members to do what they individually believe they need to do in this crisis, the broader issues will further impede forward movement on broad WTO reform.

Challenging times reveal important structural issues for consideration by WTO Members. Let’s hope there is sufficient recognition of the need for addressing the issues to lead to meaningful progress in reforming the WTO. But don’t hold your breath.

COVID-19 – WTO report on medical goods; FAO report on food security

The World Trade Organization has a page on its website that is dedicated to COVID-19 including references to statements from various governments, international organizations, business groups, information from the WTO itself including a compilation of notifications by Members of actions (whether trade limiting or trade expanding) taken in response to COVID-19, and links to a range of websites providing important information on the pandemic. Joint statements are also included. See today’s joint statement between the WTO and the World Customs Organization, https://www.wto.org/english/news_e/news20_e/igo_06apr20_e.htm.

Last Friday, April 3rd, the WTO released a sixteen page note entitled “Trade in Medical Goods in the Context of Tackling COVID-19”. https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf. The note is very useful in terms of providing some definition to a range of products relevant to handling the COVID-19 crisis, identifying major importers and exporters of various product types and providing information on tariffs on the product categories for all WTO Members. The note identifies the following “key points”:

“• Germany, the United States (US), and Switzerland supply 35% of medical products;

“• China, Germany and the US export 40% of personal protective products;

“• Imports and exports of medical products totalled about $2 trillion, including intra-EU trade, which represented approximately 5% of total world merchandise trade in 2019;

“• Trade of products described as critical and in severe shortage in COVID-19 crisis totalled about $597 billion, or 1.7% of total world trade in 2019;

“• Tariffs on some products remain very high. For example, the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%;

“• Protective supplies used in the fight against COVID-19 attract an average tariff of 11.5% and goes as high as 27% in some countries;

“• The WTO has contributed to the liberalization of trade medical products in three main ways:

“➢ The results of tariff negotiations scheduled at the inception of the WTO in 1995;

“➢ Conclusion of the plurilateral sectoral Agreement on Pharmaceutical Products (“Pharma Agreement”) in the Uruguay Round and its four subsequent reviews;

“➢ The Expansion of the Information Technology Agreement in 2015.”

As is true with any analysis of data, the reader needs to understand what is covered and what is not and how good a fit the data provided have with the topic being discussed.

For example, the note reviews four categories of products relevant to the world addressing the COVID-19 pandemic (page 1):

  • “medicines (pharmaceuticals) – including both dosified and bulk medicines;
  • “medical supplies – refers to consumables for hospital and laboratory use (e.g., alcohol, syringes, gauze, reagents, etc.);
  • “medical equipment and technology; and
  • “personal protective products -hand soap and sanitizer, face masks, protective spectacles.”

While the four categories are, of course, relevant to addressing the COVID-19 pandemic, the products covered by the tariff schedule categories are both over- and underinclusive if one is trying to understand the size of global trade in medical products directly relevant to the global efforts to address COVID-19.

The report’s data are overinclusive because the Harmonized System of Tariffs used by most nations is only harmonized to the six-digit level of specificity. The categories included in the WTO note cover both COVID-19 related products and many others. Stated differently, nearly all of the product categories identified in Annex 1 to the note include at least some items that are not germane to the current pandemic. This is a limitation on the usefulness of the data flowing from the lack of more specific classifications that all countries adhere to. As the six-digit data are all that are available with a consistent definition around the world, it is not surprising that the WTO relied on the data. Arguably better, but not uniform data could have been derived by reviewing the 8-, 9- or 10-digit statistical data for imports and exports of at least major Members, but that was not done.

Similarly, the product coverage is underinclusive as recognized in the WTO note (page 2). “It should be noted that this note focuses solely on the final form of these products and does not extent to the different intermediate products that are used by global value chains in their production. The protective garments for surgical/medical use are not included in the analysis, because it is impossible to distinguish them from general clothing product in the HS classification.”

As governments and companies have articulated over the last several months, many of the key final products (e.g., ventilators) require a large number of inputs which are often sourced from a variety of suppliers around the globe. For example, one ventilator company which assembles the ventilators in the United States is reliant on circuit boards from its facility in China to maintain or increase production. Other companies bring various inputs in from Canada or Mexico or other countries as well as shipping U.S. components to other countries for final assembly. The same reality is obviously true for producers of medical goods in other countries as well. Thus, an inability to cover inputs significantly understates global trade volumes of products relevant to addressing the COVID-19 pandemic.

Similarly, there are shortages in many countries of the protective garments for which no data are included. These are important products traded that are directly relevant to the world’s ability to respond to COVID-19. The lack of coverage of those products understates the importance of personal protective products to the total and understates global trade.

The above is simply to say, the sections of the WTO note that look at trade patterns (imports, exports, leading players) are helpful in identifying possible breaks between products and possible major players but the data may be significantly off from the actual split among products or role of major players if complete data limited to products relevant for addressing COVID-19 were available. It may also understate the importance of keeping markets open even if there are relatively few imports of finished products.

To explore how overstated data may be, if one looks at the HS categories shown in Annex 1 for personal protective products and looks at the United States U.S. imports for consumption for 2019 at the 10-digit HTS level of detail, the top seven 10-digit categories by customs value accounted for more than 72% of the $17 billion in imports. Yet each of the categories would contain many products not actually relevant to efforts to address COVID-19. In fact five of the seven categories are basket categories.

3926.90.9990OTHER ARTICLES OF PLASTIC, NESOI
6307.90.9889OTHER MADE-UP ARTICLES NESOI
3824.99.9297CHEMICAL PRODUCTS AND PREPARATIONS AND RESIDUAL PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES, NESOI
9004.90.0000SPECTACLES, GOGGLES AND THE LIKE, CORRECTIVE, PROTECTIVE, NESOI
3926.90.7500PNEUMATIC MATTRESSES & OTHR INFLATABLE ARTICLES,NESOI
3824.99.3900MIXTURES OF TWO OR MORE INORGANIC COMPOUNDS
3926.90.4590OTHER GASKETS AND WASHERS & OTHER SEALS

Similarly, the analysis of applied tariff rates is useful in showing rates for product groupings and the rates for individual countries for those product groupings but may be less useful in identifying the assistance tariff reductions would have in the present time of the pandemic. Obviously, tariff reductions by any Member that imposes them on imported products relevant to the pandemic would reduce the cost for the importing country of the needed materials. But the extent of assistance varies significantly depending on the Member as the data in Annex 2 show.

As the EU/EEA/United Kingdom and the United States account for 73.9% of the confirmed cases in the world as of April 6, 2020, a review of the applied rates for those countries would identify likely benefit from tariff reductions by the countries with the major outbreaks at the moment. The EU has an average applied rate of 1.5%, the U.S. an average applied rate of 0.9%, Norway 0.6% and Switzerland 0.7%. These rates don’t include any special duties, such as US duties on China flowing from the Section 301 investigation (with some products being subject to potential waiver of additional duties). Thus, for the vast majority of current cases, the importing countries’ applied rates are very low and hence not a significant barrier to trade.

https://www.ecdc.europa.eu/en/geographical-distribution-2kistan019-ncov-cases; https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea

Other countries where the reach of the pandemic may intensify typically have much higher applied tariffs. As case loads intensify in other countries or in anticipation of such potential eventualities, countries with higher tariffs should be exploring autonomous duty reductions to make imported products more affordable. India has an average applied tariff of 11.6%; Pakistan an average rate of 10.0% and Malaysia a rate of 11.7% to flag just three Members with rates at or above 10%.

The WTO note is embedded below.

rese_03apr20_e

Food security and the FAO analysis of current agricultural product availability

In a prior post, I reviewed the compounding problems during the COVID-19 pandemic of some countries starting to impost export restraints on selected products (e.g., rice, wheat) to protect food supplies. Countries reported to be imposing export restraints on food had been Russia, Ukraine, Kazakhstan and Vietnam. A series of articles in Asian and European press have noted that Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia have also introduced various restraints as well. Major agricultural groups in Asia are warning that disrupting movement of food (including movement of workers to help harvest, etc.) could lead to food shortages in Asia and have reviewed that Asian countries import some 220 million tons of agricultural products which underlines the need to keep markets open. See, e.g., https://www.scmp.com/week-asia/politics/article/3078376/coronavirus-food-security-asias-next-battle-post-covid-world; https://www.dairyreporter.com/Article/2020/03/30/Major-food-shortages-possible-in-Asia-says-FIA#.

While fear can lead to panic and various border measures, the actual situation globally as laid out by the Food and Agriculture Organization of the United Nations (“FAO”) in a recent paper is that there are more than sufficient supplies of food. The key is minimizing disruptions to production and distribution. This is not a period where major disruptions from drought or floods have caused shortages of products. Specifically, the FAO’s Chief Economist prepared a document entitled “COVID-19 and the risk to food supply chains: How to respond?” which was released on March 29. http://www.fao.org/3/ca8388en/CA8388EN.pdf. The paper starts with a section entitled “What we know”:

“Countries have shut down the economy to slow the spread of the coronavirus. Supermarket shelves remain stocked for now. But a protracted pandemic crisis could quickly put a strain on the food supply chains, a complex web of interactions involving farmers, agricultural inputs, processing plants, shipping, retailers and more. The shipping industry is already reporting slowdowns because of port closures, and logistics hurdles could disrupt the supply chains in coming weeks.

“In order to avoid food shortages, it is imperative that countries keep the food supply chains going. Unlike the 2007-2008 global food crisis, scarcity is not an issue this time. The supply of staple commodities is functioning well, and the crops need to be transported to where they are needed most. Restricting trade is not only unnecessary, it would hurt producers and consumers and even create panic in the markets. For high-value commodities that require workers (instead of machines) for production, countries must strike a balance between the need to keep production going and the need to protect the workers.

“As countries combat the coronavirus pandemic, they must also make every effort to keep the gears of their food supply chains moving.”

The paper then goes on to identify five actions needed to minimize the likelihood of food shortages arising during the pandemic. These actions are:

“Expand and improve emergency food assistance and social protection programs

“Give smallholder farmers support to both enhance their productivity and market the food they produce, also through e-commerce channels

“Keep the food value chain alive by focusing on key logistics bottlenecks

“Address trade and tax policies to keep the global trade open

“Manage the macroeconomic ramifications”.

With the number of countries already taking actions that are inconsistent with keeping global markets open for the movement of food supplies, the world is at risk of having a major complication added to the extrordinary economic shocks already being felt to address the health needs of the COVID-19 pandemic. Such a major complication would, as it did in 2007-2008, directly harm developing and least developed countries, countries least able to absorb additional shocks.

The report and a powerpoint from FAO are embedded below.

COVID-19-and-the-risk-to-food-supply-chains_-How-to-respond_

ca8308en

COVID-19, Recommendations from the ICC and from Global Services Coalition

As the toll from COVID-19 exceeds 51,000 deaths and one million confirmed cases, most of the attention globally has been on the health dimension of the pandemic, while governments struggle with inadequate global supplies for a rapidly growing crisis. With a lack of a vaccine and with the virus having reached most countries in the world, the focus of governments has understandably been on trying to “flatten the curve” to reduce the challenges to national health systems and the likely death rates.

But the need to engage in social distancing, usually reflected in stay at home recommendations or orders, is causing extreme disruption to many economies. The country with the largest number of confirmed cases, the United States, has witnessed roughly 10 million people filing for unemployment in just the last two weeks with many more likely in the coming weeks. The United States has passed three pieces of legislation to address various aspects of a national response to COVID-19 to address the economic challenges from the shutdown of large parts of the economy with a cost of more than $2 trillion (the Administration has used a figure of more than $6 trillion). Other countries are passing emergency legislation to deal with the human costs and extraordinary nature of the crisis. More than $5 trillion has been teed up globally by governments trying to help their economies and citizens survive the lockdown situations being imposed on many to stop the spread of the disease. That figure will certainly increase in the coming months as the full scope of the economic challenge becomes clear and hot spots shift from current locations to other countries.

Because of the extraordinary ramp up in infections in global “hot spots,” demand for medical equipment and supplies has outstripped prior global supply and inventories, leading a number of countries to push their industries to ramp up additional production in the hope of being able to get supplies up to demand levels and avoid the situation seen in some countries of medical staff having inadequate supplies and needing to determine who will get life saving equipment (e.g., ventilators) and who won’t because of shortages. Ability to meet local demand is complicated by export restraints, travel restrictions, lack of information (in some cases) and the level of coordination of government actions.

Prior posts have looked at various aspects of the COVID-19 crisis including communications from the G20 countries and the growing number of countries imposing restraints on export of agricultural products out of concerns for food safety.

This post looks at recommendations for government actions made by two global groups of businesses, the ICC and the Global Services Coalition. There can be little doubt that getting through the crisis requires not only action by governments but a strong relationship between business and governments to identify practical consequences on businesses and their employees and the ability of businesses to contribute to the needs of society.

The International Chamber of Commerce

On April 2nd, the World Trade Organization’s Director General Roberto Azevedo and the International Chamber of Commerce’s Secretary-General John Denton issued a joint call for greater communication with the business community to ensure government policies are effective in addressing COVID-19 while reducing damage to economies. https://www.wto.org/english/news_e/news20_e/igo_02apr20_e.htm.

“JOINT STATEMENT

“2 April 2020

“Heads of ICC1/ and WTO call for increased action on trade to ensure an effective response to COVID-19 pandemic and announce virtual business roundtable to provide concrete advice to governments.

“We are profoundly saddened by the suffering and loss of life the COVID-19 pandemic is causing around the world. This health crisis is also becoming a social and economic crisis, and we support governments’ efforts to mitigate the pandemic’s effects on jobs and growth, and lay the foundations for a strong and inclusive recovery.

“G20 leaders have clearly recognised the need for the international community to step up global cooperation in response to this crisis. The business community is—and will continue to be—an important partner in this response.

“Trade and trade rules have a crucial role to play in both the health and economic response to the crisis. We welcome the G20’s endorsement of this view, including their assertion that any pandemic-related trade measures should be ‘targeted, proportionate, transparent, and temporary.’

“We also underscore the importance of ‘actively working to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders,’ as well as the G20’s broader commitment to ‘minimise disruptions to trade and global supply chains’.

“We deeply share the G20’s concern about the impact of the pandemic on the most vulnerable, including developing and least developed countries, and on workers and businesses, including micro-, small-, and medium-sized enterprises (MSMEs).

“We are concerned about the severe disruptions to value chains in many sectors—with major implications for employment and the supply of goods, especially essential medical and food supplies. Bold and urgent leadership is required to keep trade moving and to secure jobs.

“Now is the time for concrete measures to respond to the economic dimensions of the pandemics. Business can play a key role in signalling where trade flows and production chains are being affected, helping to identify solutions that maximize health outcomes while minimising economic damage.

“It is increasingly clear that the economic downturn caused by the pandemic will necessitate a significant rebuild of domestic policies—and of international cooperation. In this time of uncertainty, leadership requires not only responding to the crisis at hand but providing a clear vision for the future. On-going efforts to improve and strengthen the global trading system, including the WTO, must therefore continue.

“With a view to providing additional concrete business recommendations to governments, ICC will work with its partners, supported by the WTO, to host an extraordinary virtual business roundtable. This virtual session will look to provide constructive recommendations to governments on trade policy measures that can be readily deployed to speed the response to the COVID-19 pandemic in the immediate and mid-term.

“1/ The International Chamber of Commerce is the institutional representative of over 45 million businesses. ICC’s recommendations on
trade policy and post-pandemic rebuilding were sent to governments and international agencies in a 28 March letter available here.”

The ICC in its 28 March 2020 letter to governments and international agencies had identified ten actions they recommended should be taken. https://iccwbo.org/content/uploads/sites/3/2020/03/g20-trade-ministers-letter-280320.pdf.

Specifically, the ICC made the following recommendations, the last three of which look to the future of the trading system versus dealing with the immediate challenges of COVID-19:

  1. “Eliminate tariffs on essential products
  2. “Expedite trade facilitation for essential products
  3. “Eliminate export curbs on essential products
  4. “Suspend all national public procurement regulations and state-required localisation measures that frustrate the cross-border sourcing of essential medical supplies
  5. “Keep cargo and transport moving
  6. “Extend timeframes for payments of duties and fees
  7. “Keep trade finance flowing
  8. “Comprehensively reform the WTO
  9. “Speed up the transition to digitally enabled trade
  10. “Enable digital trade through standardisation.”

Many businesses have suffered from reduced cash flow, reduced access to key inputs flowing from export restraints, and service challenges from travel restrictions. Government actions may address the health crisis but exacerbate the business challenges.

Some of the challenges to business may depend on technology developments/deployment, improved national and global information on medical supplies and equipment availability especially in light of ramped up production.

For example, Abbott Laboratories has developed a test that can be applied with results available within 15 minutes. Understandably, the early deployment of the tests are to hospitals anxious to have greater capacity for testing patients. But until there is greater availability of such time efficient tests and coordination with trading partners on testing crews of cargo planes, ships and other modes of transport, it is hard to see how countries with raging infection rates and general stay-at-home or lockdown requirements will be comfortable with the type of liberalization for transport personnel necessary to maximize keeping transportation avenues open.

The same types of concerns for wholesale testing, along with adequate personal protection equipment may be the key to ensuring farm labor and other labor shortages because of border restrictions can be addressed without jeopardizing health needs.

So hopefully the wealth of experience from the business community will be able to dialogue with governments not only on governmental needs and business recommendations on trade policy options to consider, but also on how business can help governments achieve important objectives where major impediments currently exist in terms of dealing with the health emergency.

Global Services Coalition

In an interconnected world, many service providers are in fact essential to addressing the COVID-19 pandemic both on the healthcare side and on supporting economic and other activity critical to the functioning of societies. Transport, food processing, distribution, grocery stores, information and technology communication services, financial services, installation and service workers for medical equipment would be some obvious examples.

On April 1, 2020, the Global Services Coalition issued a document urging governments to ensure the continued operation of essential services to address the COVID-19 challenges. https://www.thecityuk.com/assets/2020/Reports/100bfdd80d/Ensuring-resilience-of-global-supply-of-essential-services-in-combating-COVID-19.pdf.

So much of the public attention has been and continues to be on the availability of goods (medical or agricultural), but little public attention has actually focused on the broad role of service providers in helping countries address the national and global needs during the COVID-19 Pandemic. The full statement from the Global Services Coalition is provided below. Just as was true for the ICC recommendations, the important points raised by the Global Services Coalition do not address what is needed to help governments in fact support essential services while protecting the public health and control the spread of COVID-19. That said, the role of services is critical to understand for those considering actions at the national, local or global level.

“Ensuring Resilience of Global Supply of Essential Services in Combating COVID-19

“1 April 2020

“As the world continues to grapple with the global COVID-19 pandemic, the members of the Global Services Coalition wish to express solidarity with the work of governments and international institutions to combat its spread. As associations representing all segments of the services industry, we call on governments to take a range of critical measures to maintain resilience in the supply of essential services during this time of crisis.

“Financial services, ICT services, retail and distribution, and transportation and logistics services are all examples, though not exhaustive, of critical enablers of trade in goods and agri-food products, as well as services that enhance social welfare. As governments curtail commercial activity and social interaction to fight the global pandemic, it is critical for them to allow for continuation of these and other essential services, while of course ensuring the health and safety of the personnel involved.

“Cargo flights must be able to continue in order to move critical life-saving medical equipment and supplies, as well as other goods that consumers rely for daily sustenance. It is crucial that governments work together to develop standards that ensure – within reasonable safeguards – that cargo pilots are not subject to mandatory 14-day quarantine periods. Government should also consult about facilitating greater use of passenger aircraft for essential deliveries of critical supplies.

“Sophisticated medical equipment and therapies cannot be put in place without key medical services. For instance, the work of individual service suppliers, such as technicians that service (e.g. maintenance & repair services) critical medical equipment, is also crucial to fighting the pandemic. Governments should therefore ensure that travel restrictions justifiably put in place do not have unintended consequences that inhibit the cross-border movement of critical services.

“Banks, insurers, reinsurers, electronic payment service suppliers, mutual funds and pensions, and related professions supporting them, including call centre and in-person customer support functions, must be allowed to facilitate the purchase and delivery of those goods and food supplies. These are services that citizens and businesses rely on and ensure stability in global financial markets. Proposals in some markets to retroactively add coverage for pandemics and other causes of loss not included in existing insurance policies – and therefore not funded by premium payments – risk the stability of the insurance industry and should be avoided.

“Information and communications technology (ICT) services are crucial and must remain available so that essential supply chains can continue to function and “digital” options can help governments and citizens to overcome the challenges of “lock-downs” and “social distancing”, It is these business services that will allow continuous access to the goods and services that are needed to protect against COVID-19.

“Some ICT services are especially critical. They include: remote exchanges among research teams to fight against the virus and look for medicines and vaccines; e-health services to allow daily medical services be delivered to millions of patients; e-learning services to allow teachers to continue the education of millions of pupils and students; teleworking facilities to allow workers to stay at home but continue to sustain economic activity; and connectivity services that minimize the adverse affects of social distancing. Free flow of anonymous medical/health data among trusted partners should be ensured in this context.

“It is therefore vital that countries cooperate multilaterally to avoid constricting the global supply of these essential enabling services through an uncoordinated patchwork of country lockdowns. There have been public statements highlighting the need for international cooperation in facilitating delivery of essential goods. But governments need to focus equally on the critical role of essential enabling services. The evolution of the crisis has demonstrated the resilience and innovative capacity of the global services sector, which has made rapid shifts in work practices and supply-chain adaptation. Governments must broaden their approach to recognise essential services as systemically critical to the smooth functioning of the global economy at this time.

“Lastly, the necessary measures to respond to COVID-19 cannot become cover for countries to introduce unjustifiable protectionist measures further disrupting the global economy. This is the time for building bridges, not barriers. We wholly support the World Trade Organization Director-General in his appeal of 24 March for governments to be transparent about the measures that they are taking nationally to respond to COVID-19, including in services sectors. We also support the G20 Summit statement of 26 March. An open, coordinated and transparent approach can only reinforce the spirit of global collaboration that is essential to combat this pandemic.”

Conclusion

The COVID-19 pandemic requires an “all hands on deck” approach. Governments and international organizations need the input and benefit of the real world experience of businesses who can explain the challenges that particular government policies present to achieving what are governmental objectives of beating the health crisis and minimizing the harm to the economy (whether local, national, regional or global). Examples of business engagement, such as that by the ICC and the Global Services Coalition, are useful in themselves and should be embraced by governments and international organizations. The recommendations would be more useful if coupled with an articulation of how governments achieve some of the recommendations with the very real limitations that exist on supplies, tests and equipment.

An ongoing dialogue between stakeholders and governments along with the efforts to expand capacities, find innovative solutions to existing needs and pursue research and development of a vaccine are all part of the all hands on deck global needs. May the dialogue intensify and speed the ultimate resolution.