WTO Secretariat Information Note on COVID-19 and Agriculture

On Wednesday, August 26, the WTO Secretariat put out an Information Note entitled “COVID-19 and Agriculture: A Story of Resilience”. It is one in an impressive line of information notes providing useful information on how COVID-19 is affecting global trade in goods and services. The full array of information notes published to date can be found on the WTO webpage, https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. Wednesday’s Information Note is embedded below.

agric_report_e

The note focuses on the fact that trade in agricultural goods have fared better than total trade in goods during the pandemic. The Secretariat, at the time of preparing the Information Note, had access to trade data through April 2020 and for May 2020 for some countries. A key summary paragraph from the note states:

“Trade in agricultural products has been more resilient than overall trade. This reflects the essential nature of food and the resulting relative income-inelasticity of demand for it, as well as the fact that most agricultural trade (notably cereals and oilseeds) takes place in bulk marine shipments that have not been subject to major disruptions. While overall merchandise trade fell sharply in the first half of 2020, agricultural and food exports increased by 2.5 per cent during the first quarter of the year compared to the same period in 2019, with an increase of 3.3 per cent in March, followed by a 0.6 per cent increase in April, although the preliminary data for May indicate a small decrease (-1.3 per cent) compared to 2019.2

“2 Data for May 2020 were available for a limited set of 64 countries at the time of writing.”

Importantly, while some governments imposed export restrictions on some agricultural products early in response to COVID-19, some of those restrictions have been lifted and there have been other initiatives to liberalize trade in agriculture.

However, the note reviews the challenges for many people to get adequate food despite food stocks and good harvests. A prior August 15 post of mine reviewed the challenges facing many nations in accessing adequate food supplies in 2020. See August 15, 2020,  Food security and COVID-19 – how World Trade Organization Members could fill a pressing need, https://currentthoughtsontrade.com/2020/08/15/food-security-and-covid-19-how-world-trade-organization-members-could-fill-a-pressing-need/

The Information Note’s conclusion provides a note of caution on agricultural trade despite the greater resilience of such trade over other trade in goods:

“The COVID-19 crisis has had a major impact on the global economy and trade. Countries are still fighting the pandemic, and its repercussions for food supply chains are still unfolding. While agricultural trade has proven more resilient than trade in other goods owing to the essential nature of food products, additional disruptions to supply chains could start to undermine this resilience, with damaging consequences.

“There is currently no supply-related reason why the ongoing health crisis should turn into a food crisis. However, disruptions to food supply chains constitute a risk for global food security. Governments’ trade policy choices will play a major role in shaping how the situation evolves.

“Transparency remains crucial for food security. Incomplete or insufficient information creates uncertainty that, in turn, leads to sub-optimal policy decisions. Sharing timely information on trade-related measures, as well as making information available on production, consumption, stocks and food prices, would help markets function efficiently and contribute to ensuring global food security.”

U.S. example on agricultural exports suggests greater contraction in 2nd quarter of 2020

U.S. trade data are available through June 2020. At least for the United States, U.S. domestic exports of agricultural products (HS Chapters 01-24) through June 2020 were off from 2019 levels (which were themselves below 2018 levels). On a monthly basis, the contraction worsens month by month after February as the below data on U.S. domestic exports of agricultural goods show (exports are FAS values in billions of US $):

1st half 2018$69.3
1st half 2019$65.6
1st half 2020$64.0
% change 2019-2020-2.50%
% change Jan. 2019-2020+0.13%
% change Feb. 2019-2020+5.04%
% change March 2019-2020-1.46%
% change April 2019-2020-3.95%
% change May 2019-2020-7.17%
% change June 2019-2020-7.67%

U.S. domestic exports of agricultural goods show dramatic differences in trends in 2020 based on the 2-digit HS chapter involved. Chapter 02, meat and edible meat offal, increased in the first half of 2020 by 8.4%; Chapter 04, dairy produce and other products, increased 17.27%Chapter 10, cereals, increased by 1.13%; Chapter 15, animal fats and oils and their cleavage products, increased 23.19%; Chapter 23, residue and waste from the food industry, prepared animal feed, increased 2.43%; the other nineteen Chapters showed declines up to 15.17%.

For the United States, the U.S.-China Phase 1 Agreement appears likely to improve U.S. agricultural exports in the last months of 2020 and hence may change the U.S. trade trend for agricultural goods in the third and fourth quarters. See August 8, 2020,  U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/.

But the above data for the U.S. suggests that global agricultural trade may be harder hit in the second quarter than the Secretariat Information Note tracks through April (and for partial data for May). All of which simply says the Information Note’s conclusion that transparency and accuracy and timeliness of data are critical at the present time to prevent the COVID-19 health crisis from becoming a food security crisis of even greater proportions than is already projected by the World Food Programme.

Recent Congressional Research Service report, Global Economic Effects of COVID-19

Governments around the world have been struggling with the health and economic costs of the COVID-19 pandemic. Multilateral institutions generate a great deal of information on the pandemic and its effects and many countries do as well.

On August 21, 2020, the Congressional Research Service released an updated report on Global Economic Effects of COVID-19, Report No. R46270, https://crsreports.congress.gov/product/pdf/R/R46270.

While the United States went through a huge resurgence of COVID-19 cases, hospitalizations and deaths in the June-August 2020 time period, there have been smaller resurgences in a number of other developed countries in the July – August time frame including Australia, Japan, Korea, France, Germany, Spain and others. At the same time, the pandemic is raging in much of the Americas (other than Canada), in India, in some parts of Asia and increasingly in a number of African countries. While it is likely that the world total on new cases peaked in the two weeks ending August 16, the two weeks that end on August 30 will be very close to those numbers (3.6 million cases),

Most global economic outlook projections have been premised on the pandemic’s worst economic effects being in the 2nd quarter of 2020 with a strong recovery in the third quarter and a continued rebound through 2021. Those projections are increasingly at risk as major economies struggle to return to normal without the need for further economic restrictions to address new surges of the pandemic. In the United States, despite efforts by the House of Representatives to pass legislation several months ago to continue the stimulus to the economy to help those unemployed and avoid massive evictions, help schools prepare for the fall season and state and local governments deal with the massive shortfall in revenue among other matters, the Senate didn’t take up legislation until late July and had trouble agreeing on any additional funding. The impasse between the Democrats and the Republicans and White House has led to limited if any support in August and heading into the fall with the potential for millions of additional job losses and reopenings that are not adequately prepared. The opening of schools in recent weeks has had a number of challenges and many schools are proceeding virtually in an effort to remain safe but putting downward pressure on the economy. Thus, the global challenges are likely to worsen in the remaining months of 2020 making the global economic recovery slower and later than has been hoped.

The first pages of the CRS report (pages 5-8, Overview (excluding Table 1)) do an excellent job of reviewing the challenges for the United States and the world and re copied below.

“Overview

“The World Health Organization (WHO) first declared COVID-19 a world health emergency in January 2020. Since then, the emergency has evolved into a global public health and economic crisis that has affected the $90 trillion global economy beyond anything experienced in nearly a century. Governments are attempting to balance often-competing policy objectives between addressing the public health crisis and economic considerations that include, but are not limited to these:

“ Confronting ballooning budget deficits weighed against increasing spending to support unemployed workers and social safety nets.

“ Providing financial support for national health systems that are under pressure to develop vaccines while also funding efforts to care for and safeguard citizens.

“ Implementing monetary and fiscal policies that support credit markets and sustain economic activity, while also assisting businesses under financial distress.

“ Implementing fiscal policies to stimulate economic activity, while consumers in developed economies sharply increase their savings as households face limited spending opportunities, or a form of involuntary saving, and concerns over their jobs, incomes, and the course of their economies, or precautionary saving.

“ Intervention by central banks and monetary authorities generally in sovereign debt and corporate bond markets to stabilize markets and insure liquidity are raising concerns among some analysts that this activity is compromising the ability of the markets to perform their traditional functions of pricing risk and allocating capital.

“ Fiscal and monetary policies that have been adopted to date to address the immediate impact of the health crisis compared with the mix of such policies between assisting households, firms, or state and local governments that may be needed going forward should the health and economic crises persist.

“Policymakers and financial and commodity market participants generally have been hopeful of a global economic recovery starting in the third quarter of 2020, assuming there is not a second wave of infections. Some forecasts, however, raise the prospects that the pandemic could negatively affect global economic growth more extensively and for a longer period of time with a slow, drawn-out recovery. Without a quick resolution of the health crisis, the economic crisis may persist longer than most forecasters have assumed and require policymakers to weigh the most effective mix of additional fiscal and monetary policies that may be required without the benefit of a relevant precedent to follow. Additional measures may have to balance the competing requirements of households, firms, and state and local governments. Various U.S. States reversed course in late June to impose or reimpose social distancing guidelines and close down businesses that had begun opening as a result of a rise in new confirmed cases of COVID-19, raising the prospect of a delayed recovery.

“In its July 29 policy statement and subsequent press conference, the U.S. Federal Open Market Committee (FOMC) indicated that the rise in COVID-19 cases in the United States since mid-June was weighing down economic growth and that, ‘The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.’

“Differences in policy approaches between countries are threatening to inflict longer-term damage to the global economy by impairing international political, trade, and economic relations, particularly between countries that promote nationalism and those that argue for a coordinated international response to the pandemic. Policy differences are also straining relations between developed and developing economies and between northern and southern members of the Eurozone, challenging alliances and conventional concepts of national security, and raising questions about the future of global leadership.

“In some countries, the pandemic has elevated the importance of public health as a national security issue and as a national economic priority on a par with traditional national security concerns such as terrorism, cyberattacks, and proliferation of weapons of mass destruction.1 The pandemic-related economic and human costs could have long-term repercussions for economies through the tragic loss of life and job losses that derail careers and permanently shutter businesses. Fiscal and monetary measures implemented to prevent a financial crisis and sustain economic activity may also inadvertently be adding to income and wealth disparities. Within some countries, the economic fallout may be adding to widening racial and socio-economic cleavages and increasing social unrest. In speaking about these costs for Americans, Federal Reserve Chairman Powell said on May 19, 2020,

“‘Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs, reversing nearly 10 years of job gains. This precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.2’

“The virus was first diagnosed in Wuhan, China, but has been detected in over 200 countries and all U.S. states.3 In early March 2020, the focal point of infections shifted from China to Europe, especially Italy, but by April, the focus had shifted to the United States, where the number of infections was accelerating. The infection has sickened more than 20.2 million people, about one-fourth in the United States, with over 800,000 fatalities. At one point, more than 80 countries had closed their borders to arrivals from countries with infections, ordered businesses to close, instructed their populations to self-quarantine, and closed schools to an estimated 1.5 billion children.4

“Over the 22-week period from mid-March to mid-August 2020, 56.3 million Americans filed for unemployment insurance.5 On a seasonally adjusted basis, the number of insured unemployed workers was 14.8 million in mid-August, down from a peak of 25 million in mid-May, as indicated in Table 1. The total number of people claiming benefits in all programs in the week


1 Harris, Shane and Missy Ryan, To Prepare for the Next Pandemic, the U.S. Needs to Change its National Security Priorities, Experts Say, The Washington Post, June 16, 2020. https://www.washingtonpost.com/national-security/to-prepare-for-the-next-pandemic-the-us-needs-to-change-its-national-security-priorities-experts-say/2020/06/16/b99807c0-aa9a-11ea-9063-e69bd6520940_story.html.
2 Powell, Jerome H. Coronavirus and CARES Act, Testimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, May 19, 2020.
3 “Mapping the Spread of the COVID-19 in the U.S. and Worldwide,” Washington Post Staff, Washington Post, March 4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-COVID-19/?arc404=true.
4 “The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,” The Economist, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-get-ahead-of-the-COVID-19.
5 Unemployment Insurance Weekly Claims, Department of Labor, August 20, 2020. https://www.dol.gov/; Romm, Tony and Jeff Stein, 2.4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week Total to 38.6 Million, The Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-coronavirus/

ending August 1, totaled 28 million, up from 1.7 million in the comparable week in 2019. The insured unemployment rate was 10.2%, also down from the peak reached in early May. On May 8, 2020, the Bureau of Labor Statistics (BLS) reported that 20 million Americans lost their jobs in April 2020, pushing the total number of unemployed Americans to 23 million,6 out of a total civilian labor force of 158 million. The increase pushed the national unemployment rate to 14.7% (with some caveats), the highest since the Great Depression of the 1930s.7 On June 6, BLS reported that nonfarm employment increased by 2.5 million in May, reducing the total number of unemployed Americans to 21 million8 and pushing the unemployment rate down to 13.5%, again with some caveats.9 On July 2, the BLS also released data on the employment situation in June, indicating that nonfarm payroll rose by 4.8 million, lowering the unemployment rate to 11.5%; on August 7, the BLS reported that nonfarm payrolls rose by 1.8 Million in July, lowering the number of unemployed individuals to 16.4 million and the unemployment rate to 10.2%.10

“Preliminary data also indicate that U.S. GDP fell by 9.5% in the second quarter of 2020 from the previous quarter, but at an annualized rate of 33%, the largest quarterly decline in U.S. GDP recorded over the past 70 years.11 In its May 27 Beige Book analysis, the Federal Reserve (Fed) reported that economic activity had fallen sharply in each of the 12 Federal Reserve districts.12

“In Europe, governments have attempted a phased reopening of businesses.13 After several months of data indicating an economic rebound had begun in the Eurozone, surveys of business activity in August reportedly indicated that the recovery was slowing amid a rise in new COVID-19 cases and countries reimposing new quarantines and lockdowns in various parts of the Euro area.14 Industrial production across the Eurozone as a whole fell by 17% in April, raising the annual decline to 28%, surpassing the contraction experienced during the global financial crisis.15 The European Commission’s July 8, 2020, forecast projected that EU economic growth in 2020 could contract by 8.3% and only partially recover in 2021.16 In addition, a July forecast by the European Commission forecasts a larger drop in gross domestic product (GDP) in 2020 among European economies than it had forecasted in its spring report, with a less vibrant recovery in 2021. Second quarter data indicate that economic growth in the EU contracted by 11.7% from the first quarter and by 14.1% compared with the same quarter in 2019.17 Second quarter data indicate the UK economy contracted by 20.4%, the largest quarterly decline on record.

“After protracted talks, European leaders agreed on July 21 to a new €750 billion (about $859 billion) pandemic economic assistance package to support European economies. Second quarter data also indicated that employment among the EU countries fell by 2.6%, or 5.5 million jobs. The jobs data, however, does not include roughly 45 million people, or a third of the workforce in Germany, France, Britain, Italy, and Spain, currently covered by employment protection programs.18 Similarly, Japan reported on August 17 that its economy contracted by 7.8% in the second quarter of 2020, compared with the previous quarter, or at an annual rate of 27.8%.19

“On May 27, 2020, European Central Bank (ECB) President Christine Lagarde warned that the Eurozone economy could contact by 8% to 12% in 2020, a level of damage to the Eurozone economy that Lagarde characterized as being unsurpassed in peacetime.20 Foreign investors have pulled an estimated $26 billion out of developing Asian economies not including more than $16 billion out of India, increasing concerns about a major economic recession in Asia. Some estimates indicate that 29 million people in Latin America could fall into poverty, reversing a decade of efforts to narrow income inequality. Some analysts are also concerned that Africa, after escaping the initial spread of infections, is now facing a sharp increase in rates of infection outside South Africa, Egypt, Nigeria, Algeria, and Ghana, where most of the infections have occurred to date.21

“1 Harris, Shane and Missy Ryan, To Prepare for the Next Pandemic, the U.S. Needs to Change its National Security Priorities, Experts Say, The Washington Post, June 16, 2020. https://www.washingtonpost.com/national-security/to-prepare-for-the-next-pandemic-the-us-needs-to-change-its-national-security-priorities-experts-say/2020/06/16/b99807c0-aa9a-11ea-9063-e69bd6520940_story.html.

“2 Powell, Jerome H. Coronavirus and CARES Act, Testimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, May 19, 2020.

“3 ‘Mapping the Spread of the COVID-19 in the U.S. and Worldwide,’ Washington Post Staff, Washington Post, March 4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-COVID-19/?arc404=true.

“4 ‘The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,’ The Economist, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-get-ahead-of-the-COVID-19.

“5 Unemployment Insurance Weekly Claims, Department of Labor, August 20, 2020. https://www.dol.gov/; Romm, Tony and Jeff Stein, 2.4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week Total to 38.6 Million, The Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-coronavirus/.

“6 This total does not include 10.9 million workers who were working part time not by choice and 9.9 million individuals who were seeking employment.

“7 The Employment Situation-April 2020, Bureau of Labor Statistics, May 8, 2020. https://www.bls.gov/.

“8 This total does not include 10.6 million workers who were working part time not by choice and 9.4 million individuals who were seeking employment.

“9 The Employment Situation-May 2020, Bureau of Labor Statistics, June 5, 2020, https://www.bls.gov/. BLS indicated that some individuals were misclassified in April and May. Instead of being classified as unemployed, they were misclassified as employed, but absent from work due to coronavirus-related business closures. If such individuals had been classified as unemployed, the unemployment rate would have been 5 percentage points higher in April.

“10 The Employment Situation-July 2020, Bureau of Labor Statistics, August 7, 2020. https://www.bls.gov/. The unemployment number does not include 8.4 million workers who were working part time not by choice and 7.7 million individuals seeking employment. In addition, BLS indicated that some workers had been misclassified as employed, but should have been classified as unemployed, which would have raised the rate of unemployment by one percentage point.

“11 Gross Domestic Product, 2nd Quarter 2020 (Advance Estimate) and Annual Update, Bureau of Economic Analysis, July 30, 2020. https://www.bea.gov/news/2020/gross-domestic-product-2nd-quarter-2020-advance-estimate-and-annual-update.

“12 The Beige Book, Federal Reserve System, May 27, 2020. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.

“13 Stott, Michael, Coronavirus Set to Push 29m Latin Americans Into Poverty, Financial Times, April 24, 2020. https://www.ft.com/content/3bf48b80-8fba-410c-9bb8-31e33fffc3b8; Hall, Benjamin, Coronavirus Pandemic Threatens Livelihoods of 59m European Workers, Financial Times, April 19, 2020, https://www.ft.com/content/36239c82-84ae-4cc9-89bc-8e71e53d6649, Romei, Valentina and Martin Arnold, Eurozone Economy Shrinks by Fastest Rate on Record, Financial Times, April 30, 2020, https://www.ft.com/content/dd6cfafa-a56d-48f3-a9fd-aa71d17d49a8.

“14 Arnold, Martin, Eurozone Economic Rebound is Losing Steam, Surveys Suggest, Financial Times, August 21, 2020. https://www.ft.com/content/cc4fa3df-40e7-4e19-be9f-9d01efb74f69. Chazan, Guy and Anna Gross, Europe Battles to Contain Surge in Coronavirus Cases. Financial Times, July 29, 2020. https://www.ft.com/content/bcddc297-b7f2-444d-908f-54e8ce6f4f98.

“15 Arnold, Martin, Eurozone Industrial Production Falls by Record 17.1% in April, Financial Times, June 12, 2020. https://www.ft.com/content/e3301cd6-27ce-35f0-829a-c6613849b378.

“16 European Economic Forecast Summer 2020, European Commission, July 8, 2020.

“17 Newsrelease, Eurostat, August 14, 2020.

“18 Ben Hall, Ben, Delphine Strauss, and Daniel Dombey, Millions of European Jobs at Risk When Furlough Support Ends, Financial Times, August 14, 2020. https://www.ft.com/content/0f01a9ed-5b15-4e2d-921c-6eed7a80d0bd.

“19 Quarterly Estimates of GDP for April – June 2020 (First Preliminary Estimates), Cabinet Office, August 17, 2020.

“20 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27, 2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57.

“21 Pilling, David, The Pandemic is Getting Worse: Africa Prepares for Surge in Infections, Financial Times, July 20, 2020.” https://www.ft.com/content/1b3274ce-de3b-411d-8544-a024e64c3542.

The complete CRS report is embedded below.

CRS-8-21-2020-Global-Economic-Effects-of-COVID-19

Conclusion

The world is going through the worst economic contraction since World War II. The pandemic has affected the health of people around the world, with close to 24 million confirmed cases and likely a multiple of that considering the extent of infections in people without symptoms. More than 800,000 people have died, a number which is also likely to be low based on the number of people who die but never are hospitalized and thus not likely reported as COVID-19 related in many countries.

Most developed countries have followed the tried and true methodology of aggressive testing, tracing, and quarantining to slow the spread of the pandemic and then drastically reduce the number of new cases. For most developed countries this included some form of stay at home orders, social distancing, mask wearing with severe negative effects on many economic sectors. The United States has largely been alone among developed countries in having a generally poor, unorganized and mixed message response to the spread of the coronavirus. Yet other developed countries, as they have reopened, have experienced some of the rebound in cases that the United States experienced on steroids these last three months. The result has been deep economic contraction in the second quarter of 2020 and slower economic recovery likely in the third and fourth quarters of 2020.

At the same time, developing countries have become the center of the pandemic in recent months and may face greater health care challenges because of their infrastructure. These countries are facing severe economic contractions as well both from internal demand declines and from international market contractions.

While the billions being poured into development of vaccines and therapeutics will hopefully result in tools to reduce and then stop the spread of the pandemic, 2021 is the early side of likely massive amounts of vaccines and therapeutics being available.

With the ongoing economic challenges, worsening debt structure of nearly all countries and the collapse of many businesses and employment (e.g., travel and tourism employment is projected to drop by 100-120 million jobs in 2020), the world needs greater coordination of recovery strategies, increased attention on keeping global markets open (and limiting export restraints) and renewed attention to see that vaccines and therapeutics are equitably available to all at affordable prices as new products become available.

USTR Lighthizer’s Op Ed in the Wall Street Journal — How to Set World Trade Straight

Most countries and customs territories that are Members of the World Trade Organization (WTO) agree that the WTO is need of reform to make it more relevant and to address the challenges with the current system that the first 25 1/2 years of operation of the WTO have laid bare.

The United States has raised concerns for more than twenty years with the Dispute Settlement System and under the Trump Administration laid out detailed critiques of the Appellate Body and various deviations from the agreed text of the Dispute Settlement Understanding (DSU). The U.S. refusal to permit new Appellate Body members to be selected until its concerns were addressed led to the effective (temporary) shutdown of the Appellate Body from December 11, 2019 for new appeals. While trading partners put forward various proposals to address U.S. concerns, the U.S. has viewed it as critical to have Members discuss why the Appellate Body has been willing to depart from clear requirements in the DSU.

Similarly, the United States has been raising concerns about self-selection of developing country status with the resulting use of special and differential treatment provisions by some three quarters of the WTO Members. The basic U.S. position has been that there has been enormous economic development by many countries over the last twenty-five years such that a static system of designation is unwarranted. The U.S. has proposed various factual criteria to determine whether a given country should be eligible for developing country status. A few countries have indicated that they will not seek special and differential treatment in ongoing and future negotiations.

Similarly, the United States has argued that the WTO should reaffirm that the WTO rules envision Members who operate under market economy principles and that non-market economic systems (including so-called state capitalism economies) are not appropriate for WTO rules. The U.S. has also been working with the EU and Japan to develop a proposal on industrial subsidies, state-owned enterprises and forced technology transfer — all issues viewed as outgrowths of non-market economies.

While the U.S. has not presented a formal statement at the WTO on the subject, the U.S. has also raised concerns about the level of tariff bindings and the lack of progress in obtaining further liberalization over the last twenty-five years, suggesting a need for a rebalancing of tariff bindings.

USTR Lighthizer’s Op Ed in the Wall Street Journal, How to Set World Trade Straight

While the WTO is in the process of selecting a new Director-General with the current Director-General stepping down on August 31, much attention has understandably been on the eight candidates seeking to become the new Director-General.

Many government officials around the world are on holiday. In the U.S., the 2020 Presidential election process and campaigns are heating up with elections for the President and for the House of Representatives and a third of the Senate set for November 3. One would expect that various actions by the current U.S. Administration would be aimed at election political needs. The recently announced agreement between the U.S. and the EU to reduce tariffs on U.S. lobsters exported to the EU and a reduction of various tariffs that the US has on products of interest to the EU is likely one such example, with lobster fishermen in Maine in trouble with the loss of the EU market.

Last week, Ambassador Lighthizer, the U.S. Trade Representative, published an op ed in the Wall Street Journal entitled “How to Set World Trade Straight”. https://www.wsj.com/articles/how-to-set-world-trade-straight-11597966341. Whether the op ed is meant for domestic consumption during the election cycle or is an amplification of U.S. positions already taken in Geneva is not clear but is an interesting review of the current Administration’s concerns with the global trading system.

The piece by Amb. Lighthizer reviews the need for WTO reform, and notes various problems that he sees with the current WTO: (1) uneven tariffs; (2) the nonappicability of rules to some Members; (3) the huge number of free trade agreements which may lock in protectionism and by definition aren’t applied on a most favored nation (MFN) principle; (4) the shift in the system from negotiations to litigation because of the current dispute settlement system; (5) the inability to address distortions created by non-market economies.

Amb. Lighthizer then calls for WTO Members to recommit “to the principles of market reform and most-favored-nation status.” He then identifies five reforms that are needed:

  1. find baseline tariffs that all Members will apply with limited exceptions;
  2. limit Free Trade Agreements to those fostering regional integration;
  3. see that large and advanced economies are not eligible for special and differential treatment;
  4. adopt new rules to address economic distortions caused by China’s state capitalism system;
  5. overhaul the dispute settlement system to be more like commercial arbitration.

Amb. Lighthizer views that the two options for global trade are (1) “a WTO that is truly committed to most-favored-nation norms and focused on multilateral trade negotiations and (2) a system of bilateral trade agreements. While U.S. could go either way, it is willing to work with WTO Members to achieve the first outcome.

Analysis of the Five Proposals

Free Trade Agreements (FTAs)

Of the five proposals included in Amb. Lighthizer’s op ed, only the second deals with an issue (the increasing number of Free Trade Agreements) where the U.S. has not identified problems with the status quo at the WTO. Amb. Lighthizer’s concern about the hundreds of free trade agreements that have been created has a focus on the European Union where the EU has some 72 FTAs and works to include provisions that are not part of the WTO and that the U.S. views as simply protectionist, such as geographical indications on food, and which harm U.S. and other exporters.

While there is no question that FTAs have resulted in a fair amount of trade diversion and that countries negotiating FTAs often add topics not part of the WTO of interest to them, it is hard to imagine WTO Members agreeing to shut down the vast majority of FTAs that have been established. Looking just at the U.S., many of its existing FTAs would not qualify under Amb. Lighthizer’s test — those with Israel, Korea, Singapore, Australia, Oman, Morocco, Jordan, Bahrain, CAFTA, Colombia, Costa Rica and Peru (though the Central and South American countries could fit under regional integration if expanded beyond North America). Similarly, current negotiations with Japan, with the EU, with the United Kingdom and with Kenya wouldn’t qualify.

So it is hard to see how WTO Members agree to modify the right to establish Free Trade Agreements. And changing GATT Articles would be a very time consuming process even if there were interest among Members.

No one has brought a dispute at the WTO (or at the GATT before 1995) on whether a particular FTA meets the actual requirements of the WTO. Nor has any Member challenged aspects of an FTA that imposes conditions that adversely affect trade of other Members where the conditions are not part of a WTO Agreement and otherwise are inconsistent with WTO principles. Thus, there could be ways to address some of the concerns that Amb. Lighthizer has with FTAs. But disputes won’t return MFN to the primacy role Amb. Lighthizer is espousing.

Special and differential treatment

Amb. Lighthizer’s third proposal to limit which countries have access to special and differential treatment is consistent with the papers that the U.S. has presented at the WTO. In prior posts, I have reviewed both the U.S. proposal and the views of the eight candidates to become the next Director-General on the issue. See December 28, 2019, WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved? https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/; August 13, 2020, The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/.

New rules to address economic distortions caused by China’s state capitalism system

Amb. Lighthizer’s fourth proposal reflects the ongoing U.S. concern about whether current WTO rules adequately discipline distortions flowing from the economic system of China (and other countries with similar systems). As reviewed above, the U.S. has sought reconfirmation of core WTO principles that rules apply to market economies and has worked with the EU and Japan to develop proposals (not yet presented at the WTO) on enhanced subsidy rules on industrial goods and new rules on state-owned enterprises and forced technology transfer. The fourth proposal is focused on new and modified rules.

In prior posts, I have reviewed both the U.S. proposal and the views of the eight candidates to become the next Director-General on the issue. See February 22, 2020, WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/; August 19, 2020, The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates, https://currentthoughtsontrade.com/2020/08/19/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-addre/; August 17, 2020,  The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/.

Baseline tariffs that all Members will apply with limited exceptions

The first proposal from Amb. Lighthizer provides for the first time some content to his earlier comments that tariff bindings needed to be rebalanced. The proposal would seem to flow from Pres. Trump’s concern about trade deficits the U.S. runs with many countries, the lack of trade liberalization negotiations in the last twenty-five years, and the large variation in bound rates with developed countries typically having very low rates compared to large and advanced developing countries.

There has never been since the GATT’s start in the late 1940s an effort to rebalance tariffs like that envisioned by Amb. Lighthizer. His proposal would flatten tariff bindings for nearly all countries and would result in upward movement of tariff bindings for some products from developed countries. There has never been the view within the GATT or now the WTO that one tariff rate on a product fits all countries (with limited exceptions).

It will undoubtedly be helpful to have WTO Members focus on the imbalances that have arisen as multilateral trade liberalization has ground to a halt and advanced developing countries have typically not taken the lead in purusing tariff reductions among those with continued high tariff bindings. That said, it is hard to see how the proposal has actual legs in terms of any future WTO reform.

Reform of the dispute settlement system

The fifth proposal by Amb. Lighthizer deals with an issue, reform of the dispute settlement system, which has occupied a lot of time and attention at the WTO. However, the proposal put forward by Amb. Lighthizer is different from the problems that the U.S. has been chronicling in various statements and papers over the last several years.

The DSU has a two-tiered dispute settlement system – panel review with possible appeal of legal issues to the Appellate Body. Nearly all WTO Members actively support a two-tiered system and many have set up an interim multiparty appeal arbitration agreement to provide them with a substitute until the impasse created by the United States is resolved.

Amb. Lighthizer’s proposal reflects U.S. concerns with the apparent inability to limit the Appellate Body to the role it was given by the DSU and the general unwillingness of other Members, particularly the EU, to agree to the proper role of the Appellate Body. While the proposal from Amb. Lighthizer isn’t two tiered, it does have binding effect on the parties to the particular dispute between them without creating precedent.

As Amb. Lighthizer’s proposal would require a reworking of the DSU, if accepted by other Members as a road forward, resolution would likely be years away.

I have written extensively on the impasse on the dispute settlement system as well as reviewing the views of the eight candidates to be the next Director-General. See, e.g., August 10, 2020, The race to become the next WTO Director-General – where candidates are on important issues:  reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/10/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-reform-of-the-appellate-body/; August 9, 2020,  USTR Lighthizer on WTO dispute settlement – answers to Congressional questions from June 17 hearings, https://currentthoughtsontrade.com/2020/08/09/ustr-lighthizer-on-wto-dispute-settlement-answers-to-congressional-questions-from-june-17-hearings/; July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

Conclusion

Considering the timing of the op ed, it is hard to know if the intended audience is largely U.S. workers or is intended for an international audience considering WTO reform.

Some of the five proposals, regardless of intellectual merit, seem certain to be viewed as nonstarters, although potentially leading to discussion of key principles of the WTO in Geneva. If the intent is to have items that can be set aside if others are achieved, then Amb. Lighthizer’s five proposals may be a successful approach. To the extent that all five are must have issues for the U.S., one doesn’t need to worry about WTO reform during the next four and a half years as it is hard to imagine the circumstances when all are accepted by the WTO membership.

The race to become the next WTO Director-General — where the candidates stand on important issues: fisheries subsidies and e-commerce/digital trade

[Updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova at a WITA webinar held on August 26.]

The eight candidates for the position of Director-General of the World Trade Organization, in looking at what topics should be moved forward or completed in negotiations were uniformly in support of an early conclusion to the negotiations on fisheries subsidies and on updating the rule book by moving the plurilateral negotiations on e-commerce/digital trade forward to at least a draft document by the twelfth WTO Ministerial Conference in 2021.

Background on fisheries subsidies

Fisheries subsidies have been subject to negotiation within the WTO since the launch of the Doha Development Agenda in December 2001 with limited forward movement in recent years. With the world’s wild caught supply of fish under severe pressure from overfishing, curbing illegal fishing and overfishing through subsidy disciplines became part of the UN’s Sustainable Development Goals in 2015 (Goal 14.6)(SDG). This led WTO Members at the eleventh Ministerial Conference in Buenos Aires to commit to completing the negotiations on fisheries subsidies by the twelfth Ministerial Conference which was scheduled for early June 2020 to permit completion within the time frame laid out in the UN SDG. With the COVID-19 pandemic and the lockdown in Geneva and in many countries, the time frame for completing the fisheries subsidies has slipped, although in late June, the Chair of the Rules Negotiating Group released a draft consolidated text to permit Members to see if a final push to complete negotiations could be made possibly yet in 2020. I have reviewed the fisheries subsidies in a number of prior posts. See, e.g., June 29, 2020, Update on fisheries subsidies draft consolidated text from June 25, https://currentthoughtsontrade.com/2020/06/29/update-on-fisheries-subsidies-draft-consolidated-text-from-june-25/; June 27, 2020, Chair of Rules Negotiating Group releases draft consolidated fisheries subsidies text at informal meeting on June 25, https://currentthoughtsontrade.com/2020/06/27/chair-of-rules-negotiating-group-releases-draft-consolidated-fisheries-subsidies-text-at-informal-meeting-on-june-25/; January 13, 2020, Fisheries Subsidies – Will the WTO Members Reach Agreement Before June 2020? https://currentthoughtsontrade.com/2020/01/13/fisheries-subsidies-will-the-wto-members-reach-agreement-before-june-2020/.

Background on electronic commerce/digit trade

The agenda for the Uruguay Round was established in 1986 with negotiations completed in 1993 and the agreements that created the WTO signed in 1994. At that time, there was little electronic commerce. The driver of world economic growth over the last twenty-five years has increasingly been the rapidly developing technology that permits large amounts of communication and business activity to occur electronically. Music, movies, television, books, magazines have largely gone digital. Consumer purchases of goods and services have increasingly been done digitally. During the COVID-19 pandemic much of the world has depended on electronic communications to buy groceries, handle some medical needs, eliminate in person meetings replaced by virtual meetings and much more.

While the WTO as early as the second Ministerial Conference in 1998 agreed to study issues surrounding electronic commerce to develop rules that might be necessary, the WTO’s efforts have struggled for more than twenty years with periodic agreement to continue the review and extend a moratorium on customs duties on electronic commerce. See, e.g., Work Programme on Electronic Commerce, adopted by the General Council on 25 September 1998, WT/L/274 (30 Sept. 1998); Work Programme on Electronic Commerce, Ministerial Decision of 13 December 2017, WT/Min(17)/65, WT/L/1032 (18 December 2017). These two documents are embedded below.

274

65

At the eleventh Ministerial Conference in Buenos Aires, WTO Members with an interest in particular issues issued Joint Statement Initiatives basically indicating that the group of listed Members were going to move forward developing potential rules on the subject matter of interest, keeping the process open to any Member wishing to participate. One of the Joint Statements was on Electronic Commerce. See JOINT STATEMENT ON ELECTRONIC COMMERCE, WT/MIN(17)/60 (13 December 2017). The statement is embedded below.

60

The JSI on e-commerce has been making good progress under the leadership of Australia, Japan and Singapore. A review of progress from the March 5 General Council meeting minutes is copied below (WT/GC/M/182 at 117):

“47. Australia (Joint Statement Initiative on Electronic Commerce)

“I will first provide a report on negotiations under the Joint Statement Initiative on Electronic Commerce on behalf of the co-convenors: Australia, Japan and Singapore.

“I will start with a short summary of the informal meeting of Ministers on the Ecommerce JSI held in Davos on 24 January.

“At this meeting, Ministers underscored the importance of this initiative both commercially and systemically for the WTO and affirmed their commitment to a high standard outcome, with the participation of as many WTO members as possible.

“Ministers welcomed the good progress achieved over the first year of negotiations, including the range of proposals received, the diversity and growing number of participants, and the strong levels of engagement in negotiating rounds.

“Ministers emphasized the need to keep working hard to ensure substantial progress by MC12 and agreed to develop a consolidated negotiating text by MC12 and a pathway for the future conclusion of the negotiations.

“The Philippines also announced it would join the JSI, bringing the number of signatories to 83, representing over 90% of global trade.

“Since our last report at the December HODS/TNC, we have held an organisational meeting, on 16 December, that set a work plan leading up to MC12.

“We also convened a negotiating round from 11-14 February, which covered electronic transactions, non-discrimination and liability, consumer protection, transparency, domestic regulation, cooperation and telecommunications. These negotiations were structured around revised streamlined texts drawn from proposals made by Members, and made further progress on streamlining text.

“Two more rounds are scheduled before MC12: 17-20 March and 28 April-1 May.

“We look forward to a continuation of the constructive engagement and momentum demonstrated in February with the aim of developing a consolidated negotiating text by MC12.

“The co-convenors continue to ensure this JSI is transparent and inclusive: meetings are open to all WTO Members; and all proposals and reports are available on the WTO’s web portal.”

The JSI group had hoped to have a consolidated draft text by the 12th Ministerial Conference in June this year before the Ministerial Conference was cancelled because of the pandemic. While the COVID-19 pandemic has slowed down progress for a few months, the joint convenors (Australia, Japan and Singapore) remain confident that a draft agreement can be achieved with a roadmap for completion by the 2021 Ministerial. Most documents generated by the JSI group are not publicly available. However, the titles of documents are available publicly. As of August 21, 70 documents are listed as having been submitted by Members on the JSI on electronic commerce. The most recent document is dated August 19 and is titled a “Stocktake text” (INF/ECOM/57). A July 23 document is titled “Facilitator’s note – Services Market Access — List of Proponents’ sectors of interest”).

Statements by the eight candidates seeking to become the next WTO Director-General

What follows are excerpts from candidates’ prepared statements to the General Council, my notes of their responses to questions at their press conferences following meeting with the General Council, and my notes on their comments at webinars hosted by the Washington International Trade Association (WITA) and the Asia Society Policy Institute.

Dr. Jesus Seade Kuri (Mexico)

In his prepared statement to the General Council on July 15, Dr. Seade listed completion of the fisheries subsidies negotiations as an issue to be resolved in the first 100 days of his becoming Director-General. The Joint Statement Initiative (JSI) on E-commerce was one of a number of JSIs announced at the 11th Ministerial Confernce in Buenos Aires in 2017. Dr. Seade included all JSIs as areas where he would be expecting concrete results by June 2021.

“1. Within the first hundred days: I will work closely with
members in seeking to i. reach agreement on fisheries subsidies.” (Google translation from French).

“2. Second horizon, towards our MC12 conference, and aware of the fact that its date is not yet fixed, it is important that we look for concrete results
by June 2.021, both in joint initiatives and in issues that aim to give us a more transparent and effective WTO.” (Google translation from French).

At his press conference on July 15 after his meeting with the General Council, Dr. Seade was not asked any questions about the fisheries subsidies negotiations or about the e-commerce JSI.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade was not asked specifically about either the fisheries subsidies negotiations or about the Joint Statement Initiative on E-commerce. However, he was asked a question on whether, if he was selected as the next Director-General, he would encourage plurilateral negotiations. All of the JSIs are plurilateral negotiations open to any Member who wishes to join. Below are my notes on the question asked and Dr. Seade’s response on plurilaterals.

Q: On the role of plurilaterals in the WTO, would you encourage their use if you are selected as the next Director-eneral?

A:  On plurilaterals, Dr. Seade tries to take a pragmatic and historic approach.  Looking at the history of the multilateral trading system, the Tokyo Round created a host of plurilaterals which were powerful to create rules that were accepted by many of the most important countries on a range of subjects (AD, Subsidies) — the so-called Tokyo Round Codes.  It was a great way to move the process of liberalization forward.  In Dr. Seade’s view, the great achievement in the Uruguay Round was to move to substantively universal rules (agriculture and textiles which had previously been outside of GATT rules were brought inside; the Tokyo Round Codes moved to Agreements applicable to all).  The Uruguay Round was possible because there were huge inducements for developing countries to accept services, TRIPs in exchange for textiles and agriculture liberalization.  However, the negotiating environment has changed. It is no longer possible to get liberalization through negotiations just betweenthe U.S. and the EU where the results are then accepted by others (e.g., agriculture). Now negotiations need to include China, India and others who need to be part and where large differences in objectives may make multilateral negotiations more difficult.  Therefore the WTO needs plurilaterals to permit forward movement.  However, the WTO and its Members need to work largely on the basis that any benefits from plurilaterals will be provided to all Members and that the agreement is open to any Member to join later if desired.  In Dr. Seade’s view, if the WTO doesn’t allow use of plurilaterals, progress at the WTO will stop.

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Okonjo-Iweala mentions both concluding the fisheries subsidies negotiations and updating the WTO rules to include rules on e-commerce. She adds the need to bridge the digital divide so that any such rules will have broader application and broader input.

“The WTO appears paralysed at a time when its rule book would greatly benefit from an update to 21st century issues such as e-commerce and the digital economy, the green and circular economies. Issues of women and trade and Micro Small and Medium Enterprises (MSMEs) are important to ensure greater inclusion. Bridging the digital divide to enable Least Developed Countries and other developing countries to participate will be key.”

“My vision is also of a rejuvenated and strengthened WTO that will be confident to tackle effectively ongoing issues such as the fisheries negotiations. With political will, outstanding issues of subsidies that lead to overfishing and unsustainable fishing can be concluded.”

“A rejuvenated WTO must also take on fresh challenges, such as ensuring optimal complementarity between trade and the environment and ensuring that WTO rules best respond to the realities of e-commerce and the opportunities and challenges of the digital economy.”

“Should I be elected, I would work with Members to prioritize delivering a successful MC12 with good outcomes on fisheries, agriculture and other areas. I would also prioritize updating the rulebook * * *.”

During the press conference on July 15 after her meeting with the General Council, Dr. Okonjo-Iweala was asked a question on what progress in negotiations was achievable by the next Ministerial Conference and was also asked a question on how she would work towards ensuring a successful outcome on e-commerce negotiations. My notes on her responses to those questions follow.

On the question of what is achievable by the next Ministerial in 2021 and whether it is best to go after issues one at a time or in a larger grouping, Dr. Okonjo-Iweala indicated that she hoped the WTO Membership would make a decision soon on who should be Director-General so whoever is selected has more time before the next Ministerial. But even if a decision is not made until November 2020, there are some areas that could be ready by the next Ministerial. For example, a fisheries subsidies agreement should be achievable. There was a lot of discussion in the General Council on trust and building trust to move negotiations along. Trust is obviously an important issue. So the WTO may need to sequence issues to build trust by achieving a win or two. Once there are some successes, it should be possible to handle more issues in parallel.

The question on what Dr. Okonjo-Iweala would do as Director-General to see that an agreement on e-commerce was pursued was answered by noting that there was extensive work being done plurilaterally by many Members as one of a number of joint statement initiatives. Dr. Okonjo-Iweala agrees that an agreement on e-commerce is very important, but she notes that there is a digital divide where many poorer countries don’t have the infrastructure to take advantage of e-commerce. The WTO, working with other multilateral organizations, needs to see that resources are put together to help countries address the digital divide. Once the digital divide is addressed, all Members should want to and be able to participate in the e-commerce negotiations, so that the agreement becomes a multilateral one.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. During the webinar, Dr. Okonjo-Iweala made an opening statement in which she reviewed the need to generate some early wins for the WTO at the 12th Ministerial Conference including both fisheries subsidies and e-commerce. Dr. Okonjo-Iweala was also asked speciically about e-commerce and digital trade and how to move those talks forward. Below are my notes on those portions of the webinar.

Dr. Okonjo-Iweala stated that the WTO is really at a critical moment, an existential crisis.  She believes that something needs to be done to give a lift to the organization.  Dr. Okonjo-Iweala would focus as Director-General on the next Ministerial Conference and what wins could be obtained at the Conference.  She believes that concluding the fisheries subsidies negotiations with its issues of overcapacity and overfishing should be pursued and could be concluded even before the Ministerial Conference.

Dr. Okonjo-Iweala also believes that the WTO must update the rule book to cover 21st century issues.  As she has noted, the digital economy is driving the world during the COVID-19 pandemic and is of great importance to many Members.  Dr. Okonjo-Iweala believes that the WTO needs to develop rules for e-commerce as e-commerce is the future of much of trade. At the same time, the WTO must address the digital divide so participation and benefits are available to all.

Q: On e-commerce and digital trade, how do you see rules being developed? Should the rules be based on the historic principles of the WTO?

A:  Dr. Okonjo-Iweala believes that ecommerce and digital trade are very important topics. The WTO must ensure two things. First, traditional WTO principles should apply (non-discrimination, etc.).  She believes that it would be important to get many more countries to join the talks. Stated differently, Dr. Okonjo-Iweala believes the WTO should always prefer a multilateral negotiation and agreement. However, sometimes plurilaterals are needed to make progress.  Second, the WTO working with other organizations needs to address the digital divide. In Dr. Okonjo-Iweala’s view, the fact that many developing countries are not participating flows from the fact that they don’t have the infrastructure to engage in e-commerce to a significant extent and hence neither participate in the talks nor gain benefits.  This is the digital divide.  WTO is not a financial institution, so the WTO needs to team with other organizations to help developing countries overcome the digital divide which will permit these Members to then participate in the negotiations.  Dr. Okonjo-Iweala also believes that the level of commitments under an e-commerce agreement will need to vary based on the ability of Members to accept obligations and to contribute.

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh’s prepared statement to the General Council on July 15 identified both fisheries subsidies and the various Joint Statement Initiatives, including e-commerce, as priorities for movement by the 12th Ministerial Conference (MC12).

“For the immediate future, we need to set clear priorities. MC12 is around the corner and it needs to be a turning point in the direction of the WTO and take it on a different path towards ‘positive territory’. I believe we need to do two things: 1) agree on a reform agenda and 2) achieve concrete progress on issues currently under negotiation.

“On current negotiating subjects, fisheries subsidies come first as the one item expected to be concluded by the end of 2020. It is crucial for our future to have a successful conclusion of the fisheries subsidies negotiations.

“There are also the Joint Statement Initiatives on e-commerce, domestic regulation in services, MSMEs and investment facilitation. These initiatives address pressing issues of importance to many Members and pause new challenges.”

During Mr. Mamdouh’s press conference after his meeting with the General Council, he was asked one question about the agenda for the twelfth Ministerial Conference which resulted in an answer that included pursuing completion of the fisheries subsidies agreement and work on the Joint Statement Initiatives. My notes on Mr. Mamdouh’s response is provided below.

Mr. Mamdouh was asked if there will be enough time to prepare for the next Ministerial to have a positive agenda/outcome. He answered that if the selection process concludes before November, there should be sufficient time. In his view, the next Ministerial needs to be a turning point for the WTO. At MC12, the WTO must have a clear agenda for reform. There is not currently a mainstream focus on reform; issues are being raised ad hoc. Second, the WTO needs to score successes – fisheries subsidies and progress on joint statement initiatives are the likely areas for success.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. During the webinar, Mr. Mamdouh was asked a question about e-commerce and was also asked his views on plurilaterals and whether he would support their use if he becomes the next Director-General. As all of the Joint Statement Initiatives involve plurilateral negotiations, the question applies to e-commerce along with the other JSIs. Below are my notes on the questions and Mr. Mamdouh’s responses.

Q: U.S. has raised various issues of importance to them. How do you see elements of a reform agenda getting U.S. support if U.S. concerns are not addressed or included in the agenda?

A: Mr. Mamdouh indicated that U.S. concerns were being examined at the WTO. He took e-commerce as an example. Looking at the e-commerce agenda at the WTO, Mr. Mamdouh is of the view that there needs to be discussions that haven’t taken place at the WTO in a very long time.  Trade issues today are of increased complexity where issues of increased trade liberalization are juxtaposed with regulatory interests. E-commerce/digital trade has a slew of legitimate regulatory issues where Members can have very different perspectives. Examples would include privacy policies, cyber security, localization among others.  In Mr. Mamdouh’s view, these regulatory policy issues are both legitimate and of different importance to different Members.  So the question arises as to how new rules deal with these diversities of Member needs while ensuring rules that respect different needs while ensuring actions by Members are the least trade restrictive  While the Sanitary and Phytosanitary Agreement and Technical Barriers to Trade Agreement are examples of issues with similar types of competing regulatory needs, many of the new issues are as or more complex. These new complex areas are not seeing discussions to date between trade folks, regulators and lawyers to help clarify the needs, challenges and options that may be available to permit WTO progress on fashioning new rules. In Mr. Mamdouh’s view, WTO Members must do a much better job of discussing issues and clarifying them so the options can be taken back home and reviewed to permit Members to get into real negotiations.

Q: Plurilaterals can be defined as agreements by like minded countries on topics.  How do you view plurilaterals and would you support them if you were selected as the next Director-General?  Should most favored nation treatment be eliminated for plurilaterals, so the benefits of plurilateral liberalization only goes to those who are participating?

A:  In Mr. Mamdouh’s view, one needs to clarify what is meant by plurilaterals.  Are we talking about plurilateral processes or outcomes?  Mr. Mamdouh views that there are two types of plurilaterals that have been pursued over time. The first is a plurilateral process that produces plurilateral outcomes — that is where the Agreement applies only to the signatories to that agreement. These are like the agreements in Annex 4 to the WTO (civil aircraft, government procurement, dairy and bovine meat). While these can be pursued they are less likely as they require the consent of all Members.  There are also plurilateral negotiations that produce multilateral outcomes. That is, the resulting agreement provides benefits to all even though the agreement was among some of the Members.  These are quite normal and are clearly within the spirit of the WTO.  Practically, Members engaged in plurilaterals will want there to be a critical mass of Members engaged for these types of plurilateral agreements to move forward. Moreover, Mr. Mamdouh noted that there is no requirement that all Members agree to the launch of plurilateral negotiations. That is not a requirement of the WTO and should not be assumed.  On the question of whether plurilateral agreements will opt increasingly to limit benefits to members, Mr. Mamdouh believes that the concept of most favored nation treatment in plurilaterals will undergo a stress test in the coming years as there are issues re reciprocity.    

Amb. Tudor Ulianovschi (Moldova)

On July 16, Amb. Ulianovschi was the first candidate to meet with the General Council. In his prepared statement when Amb. Ulianovschi got to what he thought the immediate priorities for the new Director-General should be, completing the fisheries subsidies negotiations and making progress on Joint Statement Initiatives were two of the priorities listed.

“In terms of immediate priorities for the future Director General of the WTO, the following should be considered (including in the preparation process for MC12):

“2. Build upon the progress achieved already on the fisheries subsidies negotiations and strongly support Members to achieve a negotiated text by MC12;

* * *

“4. Further encouraging and supporting discussions on new and existing Joint Initiatives, particularly: on Elecronic Commerce, Investment Facilitation for Development, Domestic Services Regulation, as well as the dialogs of the informal group on MSMES and SMEs and others.

“5. Promoting negotiations of new commercial disciplines and address issues of the digital environment and new areas of intellectual property.”

During Amb. Ulianovschi’s press conference after his meeting with the General Council, the last question he was asked had Amb. Ulianovschi point to the Joint Statement Initiatives (which include electronic commerce) as a sign Members could make progress on reform issues. Amb. Ulianovschi was not asked specifically about either fisheries subsidies or electronic commerce. My notes on the question asked and Amb. Ulianovschi’s answer are provided below.

Q: The last question asked was about getting the WTO out of crisis; in particular, what is the core factor causing the crisis and how would Mr. Ulianovschi address the factor if he was selected as Director-General.

A: Mr. Ulianovschi answered that this is an existential question for the WTO. The first priority, in his view, to get out of the crisis is for there to be trust among Members. The role of the Director-General is to enhance feelings of trust through confidence building steps. Many issues which have been unresolved for a long time have undermined trust. Joint initiative statement issues are advancing and give hope that the organization is relevant and can deliver. This is a good sign that there is a common purpose among the Members.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020.  https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi was asked two questions where his response included views on the fisheries subsidies negotiations and/or on e-commerce/digital trade. My notes on the questions asked and on Amb. Ulianovschi’s responses are provided below.

Q:  If you are the next Director-General, what would be your priorities for the 2021 Ministerial Conference and how would you define success?

A:  In Amb. Ulianovschi’s view, the next Ministerial must show some results.  He believes the top priority would be completing the ongoing negotiations on fisheries subsidies, which is important to fulfill U.N. Sustainable Development Goal 14.6.  He believes that the Members are close to getting language agreed to.  Completing the fisheries subsidies agreement Is just the first step, but it is an important one.  He would also focus on ongoing Joint Statement Initiatives (JSI) such as on  digital trade/e-commerce.   JSIs are plurilateral negotiations as opposed to multilateral ones.  As seen by Members during the COVID-19 pandemic, digital trade is of growing importance.  A key question is how to help least developed countries get involved and get help building the infrastructure so such Members can participate.  Also Members will need to deal with a range of issues surround digital trade such as cybersecurity, privacy, etc.  Amb. Ulianovschi stated that a Ministerial declaration would be expected at the 2021 Ministerial on e-commerce.  He also noted that there are other JSIs as well that are being discussed.  He believes that at the next Ministerial Members should have a clear message of support for small, medium and micro enterprises.  Such enterprises are a huge issue for most Members.  Many of these businesses are being severely challenged by the COVID-19 pandemic and many will likely go bankrupt.  WTO Members need to help identify how the WTO and other organizations can work with them (financial institutions and ICC). 

Q:  You say that business as usual isn’t viable anymore.  What has changed?  If plurilateral work is where we are headed,  do we need to rethink the most favored nation principle?

A:  Amb. Ulianovschi stated that when one looks at the WTO, one sees that there is a lack of trust which in turn has meant there is lack of forward movement on negotiations.  Thus, it is clear that  business as usual isn’t working.  But that recognition doesn’t mean that the organization starts from zero.  What is clear is that things need to change.  The WTO is not responding to 21st century issues which cannot continue if the organization is to maintain relevance.  On the issue of multilateral vs. plurilateral negotiations, the only multilateral negotiation that is proceeding is on fisheries subsidies.  As noted, Amb. Ulianovschi hopes that the fisheries subsidies negotiations will be completed by the next Ministerial in 2021.  Where trust is lacking, he belives Members need to seek progress from the bottom up – finding like-minded Members who are concerned about an issue and willing to negotiate rules on the issue.  Plurilaterals are going on (JSIs are an example).  This is a good sign as plurilaterals show that a number of members are concerned with a topic.  Any plurilateral negotiation must be done in a transparent and inclusive manner.  Based on his discussions with Members, Amb. Ulianovschi knows that there is a large support for keeping MFN applicable to benefits from plurilaterals.

H.E. Yoo Myung-hee (Republic of Korea)

Minister Yoo in her prepared statement to the General Council identified both fisheries subsidies and the JSI on electronic commerce as priorities for the 12th Ministerial.

“MC12 will be a critical milestone of Members’ ability to deliver results and set the agenda for the future. The new Director-General must help make it a success in order to build trust in the WTO.

“A successful outcome on fisheries subsidies will demonstrate the credibility of the WTO and its ability to contribute to global objectives on sustainable development. It will also provide the world with the benefits for
trade and environmental sustainability. I will do everything I can to support these negotiations and bring them swiftly to a successful conclusion, for endorsement by Ministers at MC12.

“Electronic commerce is also an area in which we should work towards tangible outcomes. The COVID-19 pandemic has highlighted the importance of this issue. A comprehensive agreement by next summer may be ambitious, but I think we can take some concrete steps and lay out the path forward for post-MC12 work.”

During Minister Yoo’s press conference after her meeting with the General Council, she was asked questions on how she would restore trust if selected the next Director-General and how she would bring major Members onto issues being considered. Fisheries subsidies and e-commerce are mentioned in one or the other answers. My notes on the questions and answers provided are presented below.

Q: A question was asked as to how Minister Yoo would restore trust if selected as the next Director-General.

A: Minister Yoo noted her experience in negotiating trade deals with all level of countries around the world. She knows what it takes to negotiate and what it takes to bring negotiations to a close. She is confident that she can earn confidence from Members and achieve tangible outcomes. The key is to obtain even a small success at the MC12 (e.g., fisheries subsidies agreement by then) which would help build trust and convince the world that progress can happen at the WTO.

Q: What does it mean for the WTO to be relevant, and how would you bring on major members who may not agree with the issue being considered?

A: Minister Yoo stated that the WTO needs to revitalize its negotiating function and must be able to enforce its rules (by restoring the Appellate Body). Given 21st century realities, the WTO needs to update its rule book and to achieve agreement on issues that have real global effects such as the joint initiative efforts on e-commerce, MSMEs, investments, and other issues. That said, there are open issues from The Doha Development Agenda that are not moving because there are different views on how to move forward. In terms of how you bring members to the negotiating table, part of the answer is to obtain small successes to build trust and momentum.

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. During the webinar, Minister Yoo was asked both about the e-commerce negotiations and about the ongoing fisheries subsidies negotiations. My notes on the questions and her responses are provided below.

Q: How important is it to move forward with a WTO reform agenda? In particular digital trade and e-commerce have become much more important to global trade during the pandemic.  How important is it for the WTO to address the lack of rules on digital trade and e-commerce?

A:  Minister Yoo indicated that the negotiations on e-commerce were important before the pandemic and are even more important now. Thus, it is critical to have successful negotiations.  WTO reform is very important generally.  All three pillars of the WTO — negotiations, dispute settlement and notifications and monitoring — need to be strengthened.  The WTO rule book was largely created 25 years ago.  Minister Yoo noted that the world didn’t have the smart phone or even much e-commerce back then.  So the existing WTO rules are limited in their ability to deal with current commercial reality.  It is important that the WTO achieve an agreement on e-commerce to show that the WTO can adapt to 21st century needs.  That said, Minister Yoo cautioned that Members have different views on various aspects of e-commerce.  She believes there are some low hanging fruit — e-signature and trade facilitation issues — that Members could be able to agree on relatively quickly.   However, Minister Yoo also noted that there are difficult issues in e-commerce tied to other government policy objectives — e.g., data transfer, localization — that may take longer to reach agreement on.  In tackling the more difficult set of issues, WTO Members need to look to see if the proposed rule serves a legitimate policy objective of Members.  If yes, then Members need to see if there is a way to achieve the objective in the least trade restrictive manner while facilitating e-commerce.  Considering the full set of issues that are present in the e-commerce talks, it may be too ambitious to achieve an agreement by the 12th Ministerial Conference in 2021.  Hopefully, WTO Members engaged in the talks can achieve a consolidated text by the Ministerial.  And then hopefully Members could agree on a path forward.  Minister Yoo is optimistic that Members will be able to come up with an ambitious agreement.

Q: Fisheries subsidies negotiations were hopefully going to conclude by this summer before the COVID-19 pandemic delayed negotiations. What are your thoughts on how talks can be brought to a successful conclusion?

A:  Minister Yoo stated that the fisheries subsidies negotiations are important to conclude to show the continued relevance of the WTO. The fisheries subsidies negotiations are the only multilateral talks at the WTO that are active (most others are plurilateral).  Achieving agreement on fisheries subsidies can also contribute to the UN’s sustainable development goals.  For both reasons, concluding the negotiations is very important.  Minister Yoo believes that Members should focus their energies on completing the negotiations by the end of this year so that the agreement can be endorsed by Ministers at the next Ministerial Conference in 2021.  For the next Director-General, the most urgent agenda item is to help facilitate the conclusion of the fisheries subsidies talks by the end of this year or at the very latest by the next Ministerial Conference in 2021.

H.E. Amina C. Mohamed (Kenya)

Minister Mohamed was the last candidate to appear before the General Council on July 16. Minister Mohamed did not address specifically either fisheries subsidies or the Joint Statement Initiative on e-commerce in her prepared statement to the General Council.

Similarly, during Minister Mohamed’s press conference after her meeting with the General Council, she was not asked a question dealing specifically with fisheries subsidies or the Joint Statement Initiative on e-commerce, nor did she include mention of either in answer to any of the questions asked.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed referenced digital trade in her opening comments and was asked a question about plurilateral negotiations. As noted before all of the Joint Statement Initiatives (including e-commerce) are plurilateral negotiations . My notes on her comments on these issues are provided below.

Opening statement:  Once the world recovers from the pandemic, the WTO will still face challenges of renewal and updating the rules to address global issues such as climate change, the digital revolution, and sustainable development.

Q: on developing new rules at the WTO, it has proven difficult to get agreement among all Members.  This has led to many Members turning to plurilaterals to achieve progress.  What are your views on plurilaterals?  Should MFN treatment of benefits be reconsidered where plurilateral agreements are the basis for liberalization or new rules?

A:  Minister Mohamed noted that plurilateral agreements are not new in the WTO; there were plurilateral agreements in the GATT.  She believes that plurilateral agreements will continue to be pursued and be part of the trading system.  Indeed, Minister Mohamed stated that the completion and/or start of plurilateral negotiations was a “good” that came out of the Nairobi and the Buenos Aires Ministerial Conferences in 2015 and 2017 respectively.  Countries that want to take on additional obligations will come together to negotiate new obligations for themselves.  In this way, plurilaterals complement the multilateral system.  Minister Mohamed stated that once there is a plurilateral agreement, it is important to share the benefits on an MFN basis if you want broad acceptance by Members.  Minister Mohamed had been the chair of the Nairobi Ministerial at which an update to the Information Technology Agreement (ITA2) was agreed to. Before the Ministerial, Minister Mohamed had had to travel to a number of capitals to get agreement to apply benefits on an MFN basis. At the end, the benefits of ITA2 are shared on an MFN basis and the agreement is open to all Members who want to join at a later date.  This led to unanimous acceptance of the ITA2 at Nairobi in 2015.  Minister Mohamed believes that it is important for ongoing plurilateral negotiations to ensure that the benefits are applied on MFN basis and that the agreement is open to all Members.

H.E. Mohammed Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri was the first candidate to meet with the General Council on July 17. In his prepared statement, Minister Al-Tuwaijri identifies fisheries subsidies and e-commerce as two early deliverables for the WTO at the 12th Ministerial Conference in 2021.

“And finally, concerning the first question on what opportunities and solutions will emerge from current challenges, the existing delay in convening Ministers for the 12th Ministerial Conference may be a blessing in disguise. If we move quickly to take advantage of the opportunity of having an additional year to prepare, we could find and deliver solutions at MC12, particularly on fishery subsidies and electronic commerce and digital trade, which would demonstrate that the WTO can address issues in the public good – that would deliver on your goal of ‘optimal use of the world’s resources in accordance with the objective of sustainable development’ – while recognizing the contribution of e-commerce to economic growth in all markets, which has been emphatically affirmed during the COVID-19 pandemic.

“Although concluding the fishery subsidies negotiations would be a welcome sign that WTO Members can agree on something, we should not exaggerate the impression that this small step will make on our constituents. We need to aim higher, and the DG must work overtime to support a more complete agenda for the future of the WTO by MC12.”

During Minister Al-Tuwaijri’s press conference after meeting with the General Council, one question asked about WTO reform resulted in an answer by the Minister which provided both fisheries subsidies and e-commerce as issues where results by the 12th Ministerial Conference were possible. My notes on the question and Minister Al-Tuwaijri’s answer are provided below.

On the issue of WTO reform, Minister AlTuwaijri recognized that the WTO is a member driven organization. Second, the Director-General has a function to facilitate and to assess, but there is also room to improve the Director-General’s role. For example, the next ministerial (MC12) has been delayed til 2021. The delay provides an opportunity to improve the discussion at MC 12 and the outcomes that are possible. Bringing management and leadership skills to the Director-General position will permit setting goals, metrics for measuring progress in achieving those goals and providing a feedback loop on gaps that need to be addressed. Certain current issues should be achievable, such as fisheries subsidies and e-commerce. In the Minister’s view, COVID-19 and post-pandemic recovery provide the WTO an opportunity to address core needs of Members by doing a performance assessment. Where are the gaps in performance? Why did those gaps develop? How should the WTO proceed to eliminate the gaps? From his business and government experience, Minister Al-Tuwaijri knows that this type of transformation of the WTO to a more goal-oriented organization is possible.

WITA held a webinar with Minister Al-Tuwaijri on August 5, https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar, Minister Al-Tuwaijri was asked his views on plurilateral agreements, which include the Joint Statement Initiatives such as the one on e-commerce. My notes on the question and Minister Al-Tuwaijri’s response follows.

Q: Do you see plurilateral negotiations as a good alternative to the lack of progress in multilateral talkes?

A:  Minister Al-Tuwaijri responded that his short answer would be Yes.  Members need to be able to move on where multilateral talks are blocked or not occurring.  So in Minister Al-Tuwaijri’s view plurilateral negotiations and agreements are part of the answer.  Because plurilateral agreements have existed for some time, Minister Al-Tuwaijri is interested in why some Members don’t join the agreement over time if the agreement is open to all and provides MFN benefits.  The answer to the “why” question is important if plurilaterals are to be more effective and lead to the agreements becoming multilateral over time.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

Dr. Fox was the last candidate to appear before the General Council. His prepared statement has a section which reviews what Dr. Fox considers one of the new Director-General’s first tasks, delivering a successful 12th Ministerial Conference in 2021. Among the issues to be addressed are completion of the fisheries subsidies negotiations and progress on the Joint Statement Initiatives, including on e-commerce.

“Now, one of the first tasks for a new DG will be to deliver a successful 12th Ministerial Conference. The contents are, of course, for the members to agree but it is essential that the DG works with members to produce ideas and an agenda that, yes, excites us here at the WTO but is also seen as relevant outside. It must focus on outcomes, not process, helping the real businesses – large, medium, small and micro – upon which real prosperity depends.

“So what are some of our specific challenges?

“Well, despite remaining gaps, members are perhaps closer than they have been in the past to agreeing new rules to discipline harmful fisheries subsidies, and we must push for an outcome as soon as possible to meet the SDG goal set by Leaders. But, this is not just about fish, but about showing that the WTO can take steps on sustainability more generally – an area where members are rightly bringing forward other ideas, and where the public attach great importance.

“I know many members are also keen to make progress on Joint Initiatives on e-commerce, services, MSMEs and investment – these will be an important part of the discussions in the coming months.”

During Dr. Fox’s press conference after his July 17th meeting with the General Council he was asked one question on the types of reform needed. In his answer Dr. Fox mentioned fisheries subsidies as one topic. My notes on the question and his answer are provided below.

The last question inquired into what reform is needed. Dr. Fox articulated that reform should be viewed in three buckets. The first is conceptual reform. By this he means, Members recommitting to the basic principles of the WTO (most favoured nation, national treatment and transparency of commitments). He believes this is what MC 12 needs to focus on. The second is organizational reform. By this Dr. Fox means what does the team look like, the Director-General being first among equals; selecting Secretariat staff that are the most talented and challenging group. The third is policy reform. By that, Dr. Fox means what issues will be addressed — legacy issues and issues to update organization such as fisheries subsidies; resolution of the Appellate Body impasse. Dr. Fox concluded by saying that the Director-General position is a job for a politician and not for a technocrat at this time.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. During the webinar, Dr. Fox referenced each of the fisheries subsidies negotiations and updating the rules to cover e-commerce briefly. My notes on his comments are provided below.

Dr. Fox opined that the fisheries subsidies negotiations and around that the broader question of sustainability are issues which are not being addressed in the best way by the WTO Members.  The WTO and its Members don’t seem interested in using NGOs and young people who have a deep interest in the oceans by including them in the communication process so that there is better understanding that what the WTO is concerned about are issues of interest to the people of the world.  In Dr. Fox’s view, there is a disconnect between what the WTO is doing and what the general public is concerned about that has undermined the sense of joint endeavor that was important in the Uruguay Round.

Dr. Fox reviewed the importance of taking forward issues on e-commerce and trade in services. For Dr. Fox, the key question is how does the WTO bring its rule book up to date particularly on the changes in technology. Once the rule book is brought up to date, then the key is ensuring that all Members comply with the rules.

Conclusion

All eight of the candidates to become the next Director-General of the WTO view the completion of the fisheries subsidies as an important early objective and deliverable to demonstrate the WTO’s continued relevance. An agreement on fisheries subsidies would also help support the UN’s sustainable development goals.

All candidates also understand that there is an urgent need to update the WTO’s rule book with the most obvious example being the lack of agreed rules on electronic commerce and digital trade. All recognize that the role of digital trade has been critical to help countries during the COVID-19 pandemic and will be a critical aspect of global trade in goods and services going forward. The Joint Statement Initiative on e-commerce announced at the 2017 Buenos Aires Ministerial Conference currently has more than 80 WTO Members participating in the negotiations. Those Members account for more than 90% of global e-commerce. Reports from the co-convenors indicate the likelihood that there will be at least a consolidated text available by the next Ministerial Conference to be held in 2021. However, because the JSI is a plurilateral negotiation and not a multilateral one, it is envisioned that benefits will be available on an MFN basis (i.e., to all Members of the WTO whether part of the negotiations or not) and that the agreement will be open to all Members to join as desired.

The race to become the next WTO Director-General – where the candidates stand on important issues: convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates

[Updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova at a WITA webinar held on August 26.]

In a post on August 17, I provided background on a group of issues that are important to various Members though opposed by some that for shorthand will simply be referred to issues surrounding WTO rules’ applicability to economies operating differently than market economies. See August 17, 2020, The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/.

What follows is a review by candidate of his/her prepared statement to the General Council (Juy 15-17, 2020), my notes from the press conference for each candidate which followed immediately after his or her meeting with the General Council and my notes on each candidate’s webinar organized by the Washington International Trade Association (WITA) and generally also by the Asia Society Policy Institute (ASPI).

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade did not in his prepared comments address directly any of the issues surrounding the question of compatibility of different economic systems with the WTO rules, or whether changes in rules to address some of the distortions perceived to be caused by economic systems which vary widely from market-economy structures are needed. Dr. Seade did include at the end of his prepared statement an indication of neutrality to all Members.

“All along my career I have worked with Ministers and legislators, often Heads of State. I present myself to you with my fullest energy, passion and experience, at a difficult time for the WTO. My commitment is to achieve with you the reform and restoration of a WTO back at the center of global governance for the benefit of world economic growth. My solemn commitment to you is to be an effective DG and interlocutor, close to all members north and south, east and west, and indeed fully equidistant from you all.”

During the press conference held after his meeting on July 15 with the General Counsel, Dr. Seade was not asked a question dealing with any of the issues surrounding different economic systems.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade was asked several questions that dealt with U.S.-China tensions. My notes on Dr. Seade’s responses (and on at least one of the questions) follow.

The animosity between the United States and China in a way is understandable.  The hardest part of negotiations during the Uruguay Round for GATT Contracting Parties to conclude was not the agriculture negotiations or the negotiations on intellectual property but rather the negotiations on antidumping.  To simplify, the antidumping negotiations pitted the U.S. and EU against the Asian tigers who were excessively competitive and creating problems in world markets.  But the Asian tigers were much smaller in size than China is today and were much more market oriented than China is today.  So the chasm in the system was much smaller than what exists today   So it is not surprising that there is a big challenge today.  But challenges are there to be met and solutions found. Dr. Seade is convinced that China will want to respond to avoid chaos in the system.  Once they view the U.S. as serious about engaging, China will want to know what they need to do to get the WTO functioning again.  The same question should apply to the U.S. and the EU.  So we should be able to save the system.

Question on the U.S.-China dynamic: USTR Lighthizer has indicated he has three criteria for next DG – he or she must support a robust reform agenda; he or she must acknowledge that the current system doesn’t adequately deal with China’s economy and state trading practices; he or she can’t have a “wiff” of anti-Americanism.  China may have a different set of priorities.  How do you get US and China to do business in the WTO? 

Dr. Seade response:  on the US-China conflict, how do you handle China?  One way is through dispute settlement.  To date there have been 44 cases brought by WTO Members against China.  This is a good way to address problems a Member has with another Member, and it has worked.  We have to resolve the problems with the dispute settlement system and make it work better. At the same time, there are initiatives that have been begun by the US (e.g., EU, Japan and US) on industrial subsidies.  Dr. Seade believes that it is really for US to work out with China how to incorporate more disciplines on industrial subsidies or other issues. This will likely require the U.S. and others to add items of interest to China to make negotiations more acceptable to China.  While China is a tough negotiator, China will not risk bringing down the WTO.  In Dr. Seade’s view, the most important thing China has done in last fifty years other than the start of the reform process back in 1978 was joining the WTO.  So we need to amend the dispute settlement system which would be a good starting point to helping address existing problems.  Dr. Seade agrees with the U.S. that there have not been real negotiations on most agreement areas in the last 25 years. As China was not part of WTO in the 1990s, there can be little question that rules need to be updated both to reflect changing trade realities and to incorporate China in the process and resulting rules.   

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Okonjo-Iweala in her prepared statement reflected that Members have differenting views on “new or enhanced rules” identifying state-owned enterprises (SOEs) but by implication including industrial subsidies.

“Members’ views differ on a number of fundamental issues, such as special and differential treatment or the need for the WTO to tackle new issues and develop new or enhanced rules to deal with SOEs and agricultural subsidies, for example. Trade tensions among the membership have flared up, threatening the fundamental architecture of the MTS. With all these, the WTO, unfortunately, is now perceived by some as an inefficient organization that has failed to keep abreast of developments in the global economy.”

Her prepared statement goes through a range of issues that need to be addressed by the WTO but does not include in that list any of the issues flowing from different economic systems. Dr. Okonjo-Iweala does link being able to renew the WTO to getting Members to recall core objectives and principles. The objectives and principles to many would be understood to require updating rules so that different economic systems are subject to effective rules to eliminate or minimize distortions.

“Renewing and improving the organization will require recalling the core objectives and principles on which the MTS was built – the value of open trade, competition and non-discrimination, security and predictability of market access, and transparency. These principles have contributed to economic growth and development and will continue to do so if Members renew their commitment to them.”

During the press conference on July 15th after Dr. Okonjo-Iweala had met with the General Council, she was asked one question about what she would say to the U.S. about staying in the WTO. The question doesn’t directly address different economic systems, but concerns about U.S. staying in the WTO are generally understood to reflect U.S. problems with many aspects of the WTO including rules which do not effectively address distortions created by non-market economies. My notes on Dr. Okonjo-Iweala’s answer to the question are provided below.

On the question of why the U.S. should stay in the WTO, Dr. Okonjo-Iweala indicated she would communicate to the U.S. that the WTO delivers for all Members. The GATT and WTO have provided shared prosperity which has lifted millions of people out of poverty. Where the trading system is not working, Members need to fix the problems. Peace, security and stability are needed now just as they have been over the last decades. These are what the WTO rules-based system provides. If we didn’t have the WTO, we would need to invent it.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. During the webinar, Dr. Okonjo-Iweala was asked a number of questions that resulted in answers that touched on tension between the U.S. and China, industrial subsidies and more. My notes on Dr. Okonjo-Iweala’s responses and to some of the questions follows:

Q: On the important issue of building trust between Members, there are major differences between the U.S. and China, including (for the U.S.) whether existing WTO rules adequately discipline Chinese policies and (for China) whether US is abiding by the rules.  What do you see to be the main challenges to building trust among Members to permit a reform agenda to move forward?

A:  Dr. Okonjo-Iweala noted that building trust between the Members is critical.  When developed countries bring an agenda item to the WTO, developing countries may view the issue as not in their interest (and vice versa) because of a lack of trust.  On the conflicts between the U.S. and China, we need to find areas of common interest for the two Members. We are used to looking at what are the differences between the Members, but we should be looking for common interests among Members. If we can use those common interests to accomplish incremental progress, that will help build trust..  You build trust negotiation by negotiation (using the issue of special and differential treatment as example).  If we can solve any problem, it helps build trust.  Another way to build trust between developed and developing Members is to conclude the fisheries subsidies negotiations taking into account the needs of individual Members.  If the WTO Members can wrap up those negotiations, the success will start to build trust. 

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

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

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

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

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh in his prepared statement to the General Council on July 15 made only one reference to the issues pertaining to differences in economic systems when he acknowledged that addressing industrial subsidies should be a priority.

“Reviving the built-in agenda of agriculture and services must be a priority because WTO Members agreed on this, and it has not happened. Trade distorting subsidies, both agricultural and industrial, will also be a priority.”

During Mr. Mamdouh’s press conference on July 15 after his meeting with the General Council, Mr. Mamdouh was asked one question about the U.S.-China conflicts. My notes on his response to the question are provided below.

A question was asked on what should be the role of the US and China in the new WTO. Mr. Mamdouh responded that the role of these two Members is to engage in the WTO. Start from the point that bilateral disputes should be resolved in the WTO. Since we all believe in the multilateral process, Members must keep in mind that bilateral disputes and solutions have effects on other Members. Moreover, bilateral solutions are less likely to be effective and are likely to be short lived.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. During the webinar, Mr. Mamdouh was asked various questions that dealt with the U.S.-China conflicts, need for better rules on industrial subsidies, state-owned enterprises and more. My notes on Mr. Mamdouh’s response and to some of the questions follows.

Q:  Why are you well suited to deal with the deep and potentially ruinous conflicts between US, China, EU?  How would you get these big powers to do business with each other?

A:   Mr. Mamdouh responded that this issue is the first frontier for a new Director-General.  The key is to have the right attitude toward the conversation (less political).  The types of problems that Members face deal with noncompliance and with inadequacy of rules.  Both need to be handled. The issues must be addressed in an intellectually honest and politically courageous way if there is to be progress.  In the past, reform occurred at the GATT when there was a perceived threat to the survival of the system.  Mr. Mamdouh believes that the WTO is facing such a threat now.  Do WTO Members have a common purpose?  Do Members need a WTO?  If the answer to the latter question is no, the conversation among Members has nowhere to go.  It is in everybody’s interest to have the answer to the question be “yes”.  For progress, the Director-General needs to bring the players to the table to identify problems with the current system.  The system needs more transparency.  For progress, it is important to keep the conversation at the level of looking at the contract and whether the contract adequately addresses the problems identified.  If the contract is not adequate to the current needs, then WTO Members must modify the contract.

Q:  is the near death experience the WTO is experiencing now an opportunity to move to a meaningful reform agenda?

A:  Mr. Mamdouh responded that yes the current crisis can lead to a meaningful reform agenda, if there is the political will of the Members.  But political will can only be generated if there is a common purpose. 

The WTO needs to address issues of interest to Members, including those raised by the US (e.g., e-commerce, SOEs, forced technology transfer).  Increasingly, the WTO is facing complex issues that go beyond simple trade liberalization but also deal with regulatory objectives. In these complex areas, such as e-commerce, the WTO Members need to find ways to accomplish differing regulatory objectives in a least trade restrictive manner. That can only be accomplished if there is a thorough discussion of the regulatory needs and development of factual information on possible trade options that can be taken back to capitals for review and for negotiation.  Unfortunately, the deliberative function has nearly died at the WTO. To address the increasingly complex issues of importance to Members, the WTO needs to restore the deliberative function.

Amb. Tudor Ulianovschi (Moldova)

Amb. Ulianovschi’s prepared statement that he provided to the General Council on July 16 doesn’t contain direct reference to any of the issues dealing with different economic systems. Amb. Ulianovschi does indirectly reference the need to address other important issues through negotiations.

“In terms of immediate priorities for the future Director General of the WTO, the following should be considered (including in the preparation process for MC12): * * *

“3. Facilitating dialogue with Members regarding on-going negotiations on the remaining and other important issues.”

During the July 16th press conference following Amb. Ulianovschi’s General Council meeting, Amb. Ulianovschi was asked a question about U.S.-China conflict and how he, as Director-General, would be able to reduce tensions. My notes on his response to the question are provided below.

On the question of how he would use the role of Director-General to ease tensions between U.S. and China, Mr. Ulianovschi responded that this topic had been discussed with Members during his meeting with the General Council. In his view, the role of the Director-General is to be an honest broker between WTO Members. The Director-General must be able to listen to concerns with a view to using his offices to engage Members involved in a dialogue process. At the same time, the Director-General is not there to impose a solution but to listen and raise awareness of the impact of actions on the larger organization and to mitigate harm to others. The next Director-General needs to engage in talks both in Geneva and in capitals and see that any outreach is transparent and inclusive.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020, https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi was asked several questions where answers dealt with some aspect of the U.S.-China conflict, differences in economic system, need for improved rules, etc. My notes on the questions and responses from Amb. Ulianovschi follow.

Q:  How important is it to have a reform agenda, and how can you convince the major Members to agree on a common agenda?

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system. 

Q:  US-China relations and how it affects the WTO.  Amb. Lighthizer says he is looking for a Director-General who recognizes that the current system doesn’t address Chinese trade practices and that changes need to be made.  Do you agree?  There has been some work done by the U.S., EU and Japan on industrial subsidies and other topics.  Would you support improving industrial subsidies?

A:  Amb. Ulianovschi believes that the topic has to be of priority for the next Director-General.  The Director-General can provide his/her good offices to the U.S. and China to take up any issue, but such discussions must be consensual.  Based on Amb. Ulianovschi’s conversations with the broader membership, he knows that there is interest by many on the spillover effects on other economies from the US-China conflict.  Having said that, Amb. Ulianovschi reiterated the need for the organization to have a Director-General with political experience not to politicize the organization but to reach out to the decision makers and raise awareness of the concerns of the larger membership and encourage the two Members to sit down and discuss issues they consider appropriate.  On industrial subsidies and other issues, we need to have more indepth discussions at the WTO to have a better understanding of the issues, coverage of the current rules and the existing situation.  As a member driven organization, the incoming Director-General will have to see whether the membership is willing to move to more discipline on industrial subsidies.  Amb. Ulianovschi also believes  that a review of transparency and notifications could be useful.  An open, sincere dialogue based on timely and full information would lead to a better understanding of the issues of concern and then lead to a better decision making process to address the issues.

H.E. Yoo Myung-hee (Republic of Korea)

Minister Yoo included a general reference in her July 16 prepared statement to the General Council to “sensitive” proposals for reform which presumably include the U.S. proposal on non-market economies and the efforts by the European Union, Japan and United States to tighten disciplines on industrial subsidies.

“I am well aware of the proposals that Members have put forward on WTO reform. I also know how sensitive these issues can be to individual Members. A high degree of trust among Members must be the starting point in exploring cooperative solutions.”

Minister Yoo was not asked a question during her press conference that dealt with different economic systems or distortions flowing therefrom.

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. Minister Yoo was asked some questions on how she would address the U.S.-China conflicts and the U.S. view that the current WTO rules don’t adequately address the market distortions caused by the Chinese economic model. Below I provide my notes on the questions and Minister Yoo’s responses.

Q: In prepared statement you mention you can serve as a bridge between US and China.  Please elaborate.  Second, Amb. Lighthizer is looking for a Director-General who recognizes that current rules don’t adequately discipline China. Do you agree there is a problem in terms of adequacy of WTO rules for China’s policies?

A:  On the first issue of serving as a bridge, Minister Yoo believes that the WTO can provide a good place for US-China issues to be addressed if the negotiating function is working.  In her view, part of the problem which has led to actions outside of the WTO has been the lack of progress on negotiations.  Thus, Minister Yoo believes WTO Members need to revitalize the negotiating function, so Members will use the WTO to ensure adequacy of rules in an evolving world.  Minister Yoo believes the next Director-General needs to engage in dialogue with the U.S. and China to find and understand the real issues between them.  Minister Yoo reviewed that she has done negotiations with both the United States and China.  She believes that she can use that experience to engage in dialogue with each country and find commonalities between them among the real issues.  By focusing on commonalities, Minister Yoo believes that one can find a path forward to achieve a negotiated success, even if small, and build trust.  After finding small successes, the Members then move forward to address the more challenging issues.

On the second question relating to Amb. Lighthizer’s concern that current rules are not sufficient to discipline China’s practices, Minister Yoo believes one needs to look at the rule book.  In her view, all policies adopted by governments can have spillover effects on trade.  If policies do have such spillover effects and are not covered by existing WTO rules, one needs to evaluate whether the policies are consistent with WTO principles (fair competition, nondiscrimination, etc.).  If a policy is not consistent with WTO principles and has spillover effects on trade, one must determine if current rules can be used to address the policy. If not, then the WTO needs to look at whether modifications to existing rules or the addition of new rules are needed.  Minister Yoo believes Members will need to be willing to engage in this type of process.

H.E. Amina C. Mohamed (Kenya)

Like other candidates, Minister Mohamed didn’t directly address the issue of different economic models reflecting the conflicting positions of some major Members. Rather, Minister Mohamed acknowledged that there were different reform priorities for different Members and that Members needed to get past the challenges in current negotiating approaches. The following four paragraphs from Minister Mohamed’s prepared statement to the General Council on July 16 provides some general comments on the road forward which can be viewed as applicable to differing economic models and many other contentious issues.

“12. You do not all share the same reform priorities. This makes it essential to work together for convergence around elements that all can support. We need to break the cycle of despair and enter into a new phase of hope and realism.

“13. Renewal has to start with facing up to the defects that have weakened the system in recent years: the inability to update rules to reflect the changing realities of how trade is conducted; the sterility of ideological standoffs; the retreat into defensiveness; and the sense of the benefits of trade not being equitably shared.

“14. The WTO has to engage again in good faith negotiations, and this means openness to change and to new ideas, within a culture of inclusiveness and transparency.

’15. Renewal should also build upon the WTO’s core values and achievements. Trade has been transformational. It has helped to lift close to 1 billion people out of poverty and facilitated the attainment of higher living standards in countries at all levels of development. These successes were possible because Members did not see trade as a zero-sum game. They understood that trade-offs were needed to produce outcomes. All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.”

During Minister Mohamed’s press conference on July 16 after her meeting with the General Council, she received two general questions about how she would work with major players to resolve trade tensions. Below is my summary of the questions asked and her response.

Q: If selected as the next Director-Generaly, will you be more engaged in resolving trade tensions between major players? If yes, what tactics would you use?

A: Minister Mohamed reviewed the types of powers that a Director-General has to work with Members. For example, the Director-General has engagement powers and can encourage members to consult, to use the good offices of the Director-General. So while the Director-General has only limited powers, those powers ca be used effectively by a Director-General to help Members to use the WTO system to resolve differences.

When asked what her approach would be to deal with trade tensions between US and China, Minister Mohamed stated that she would encourage all members to resolve their trade differences within the WTO rules.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed addressed briefly the rise of China as a major trading nation and was asked about whether current WTO rules adequately address distortions that flow from China’s policies. My notes from Minister Mohamed’s comments follow.

Minister Mohamed stated that since the WTO was set up in 1995, new and powerful players have emerged onto the trade scene, in particular China.  The resulting tensions with the United States have fed the dysfunction within the WTO.  Minister Mohamed believes that to address the tensions, the WTO needs to pursue reform.  However, governments don’t share the same reform priorities.  The WTO needs to identify issues all can support if reform is to move forward. 

Q: Amb. Lighthizer has raised his concern that the current WTO rules are not capable of disciplining conduct of non-market economies, particularly China.  Do you agree?  How would you go about finding common ground?

A:  Minister Mohamed’s response was that one needs to start by looking at the existing rule book.  The rule book is outdated in some cases.  Moreover, some rules are weak and are being circumvented.  If you have candid discussions with WTO Members, you will find the problems are with the adequacy of the rules.  If the rules are inadequate, WTO Members need to address them to achieve modifications or new rules.  For example, the U.S.-EU-Japan effort on industrial subsidies is potentially important.  If Minister Mohamed becomes the next Director-General she would urge the U.S., EU and Japan to table their proposal, so all WTO Members can discuss what are being raised as the real issues.  It is important to understand what conduct is driving up the tension between Members.

H.E. Mohammad Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri was the first candidate the General Council met with on July 17. In his prepared statement, Minister Al-Tuwaijri did not directly address the issue of different economic systems and the potential distortions created by non-market economies. Rather he indicated that any negotiating agenda would work only where all Members view the agenda as including items of interest to them. Applied to different economic systems, this would suggest that for negotiations to occur on the topic it would have to be part of a larger package of issues of interest to those Members (like China) who would potentially perceive themselves the target of the industrial subsidies issue or the differing economic systems issue.

“Concerning working together through negotiations, I believe that Members will participate in negotiations when they are convinced that the agenda includes an incentive for them to participate. Therefore, in order to have a successful multilateral negotiation, the agenda needs to be balanced – it needs to include something for everyone.”

At the press conference after his meeting with the General Council, Minister Al-Tuwaijri was not asked any questions dealing with the issue of differing economic systems or on industrial subsidies.

WITA had a webinar with H.E. Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar, Minister Al-Tuwaijri was asked several questions dealing with the relationship between some of the major trading Members (U.S., China, EU) and specifically whether he supported negotiations on industrial subsidies to address U.S. concerns that existing rules don’t discipline the policies of China. Below are my notes on the questions asked and answers provided.

Q: Can you have a successful launch of a reform agenda if the leaders in key Members (China, US, EU) aren’t committed to help you make it work?  In the first six months as the new Director-General if selected, how would you get these Members to buy into a reform ageanda?

A:  Minister Al-Tuwaijri started his response by noting his involvement in working with G20 countries where the major WTO Members are involved. He noted that one of the issues G20 countries have supported is engaging in reform at the WTO.  Individual countries may have different views on reform — how, when, and what — but all agree reform is needed.  Minister Al-Tuwaijri believes that six-months is too long a period to determine if there is support among the major Members for a reform initiative.  He believes that within the first two – three months of becoming the next Director-General he should know if the intent of the major Members is to support reform or not.  He would reach out with a specific set of questions (e.g., here are top five issues for reform discussions) and seek input on where Members are on a willingness to address the issues.  Minister Al-Tuwaijri has the ability to reach out to the major Members and be viewed as an honest broker.  Saudi Arabia has always been a neutral country and has been serving as President this year in the G20. 

Q:  On China, Amb. Lighthizer is looking for a candidate to be the next Director-General who understands that the current WTO rules don’t discipline China.  Do you agree that the current rules don’t adequately discipline China?  Would you support efforts to improve disciplines on industrial subsidies?

A:  Minister Al-Tuwaijri supports all efforts of WTO Members to engage in negotiations.  China is a major country and major trading nation.  He believes that the more that is done to promote negotiations and promote timely resolution of issues, the better it is for restoring the negotiation function.  He believes that the U.S. and China should bring all of their issues with each other to the table.  He knows that there are many.  But WTO Members need to move the negotiating process forward to ensure rules are adequate.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

Dr. Fox was the last of the candidates to meet with the General Council and the second candidate who met on July 17. His prepared statement talks about the array of issues likely to be addressed heading into the twelfth Ministerial Conference in 2021 and the agreed need for broader reform. However, he does not mention in his prepared statement the issues surrounding different economic systems or the need for revised rules on industrial subsidies.

During Dr. Fox’s press conference on July 17, he was asked one question that was broad but fairly did include the U.S. effort to address non-market economies (how would you deal with the broad U.S. concerns with the WTO). Dr. Fox viewed the main U.S. concerns as being with the Appellate Body and limited his remarks to that issue.

He was asked a different question on why the multilateral trading system is important to large parties. My notes on his response are provided below.

Q: Why is the multilateral trading system important to the large parties?

A: Dr. Fox indicated that he viewed the Director-General position to not be one of taking sides in bilateral disputes but to maintain the international trading system. If Members don’t enforce what currently exists, what is the credibility of new rules signed onto later? He stated that all Members have benefited from the multilateral trading system. The alternative to a rules- based system is not acceptable. That is true for most countries, not just smaller countries. He used the examples of the 4th and 5th largest economies, Germany and UK, for whom global trade is a major component of their economies.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. During the webinar, Dr. Fox was asked several questions about China, including whether existing rules adequately discipline China’s policies and whether new negotiations on industrial subsidies are needed. My notes on the questions asked and Dr. Fox’s responses are provided below.

Q:  USTR Lighthizer has indicated there are three factors he is looking for in considering candidates for the Director-General post: (1) no anti-Americanism; (2) a belief that there is a need for broad reform at the WTO; and (3) someone who understands that the current WTO rules don’t adequately discipline China’s policies.  Do you agree with Amb. Lighthizer’s last point on the need for new rules to address Chinese policies?

A:  Dr. Fox’s answer dealt with all three factors including that he is not anti-America. He also believes there is a need broad-based reform.  In Dr. Fox’s view, the reform needed is both internal at the Secretariat as well as in changing the rule book.  For example, Dr. Fox had had dozens of meetings by the time of the webinar with WTO Members. Many countries felt that if you weren’t a large Member or a squeeky wheel, your voices were not heard.  In Dr. Fox’s view, the next Director-General needs to review the operation of WTO Secretariat to be sure all Members can be heard and improve the outreach to all Members and listening to their views and concerns.   Dr. Fox believes that there is also a need to reform how the WTO operates during negotiations.  He used the example of the fisheries subsidies negotiations. He opined that better outreach to NGOs and other groups about the negotiations and encouraging their engagement with Members would help constituencies better understand that the WTO is engaged in issues that are importance to them. The failure to have such engagement can undermine the concept of shared endeavor which is important to forward movement at the WTO.  So different forms of reform are needed at the WTO.

On the question about whether rules adequately discipline the policies of China, Dr. Fox stated that reform is not about focusing on any one country.  He stated that, of course, all Members must comply with the existing rules.  In his view, Members need an effective dispute resolution system to ensure such compliance.  Beyond that, the question is how do WTO Members take forward and address common challenges (e.g., e-commerce).  The key for the WTO is to bring the rule book up to date with the changing commercial realities.  Up-to-date rules and getting all Members to comply are the main objectives of reform.

Q:  what about industrial subsidies.  Is this an area that needs to be updated.

A:  Dr. Fox indicated that WTO Members have a lack of trust in each other.  One way to improve trust is to improve transparency.  Dr. Fox used as an example, efforts by the OECD to quantify subsidies to aluminum producers around the world. He had visited the OECD recently and heard from them about the extraordinary efforts they went to to make up for a lack of available data on items like production capacity and production. The efforts undertaken were both expensive and time consuming.  The example of aluminum indicates that it is important to improve objective data that are provided by Members to the WTO.  If WTO Members want improved transparency and improved accuracy of information provided, the WTO also will need to find better ways to verify data submitted.

Conclusion

The question of whether non-market economies or state-directed economies or state-capitalist economies properly fit within the WTO Agreements was not addressed by any candidate, though Dr. Okonjo-Iweala took the position that the nature of the economic system of any Member was not an issue for the WTO to consider.

On whether the current rules of the WTO adequately discipline the policies of China (and more broadly other non-market economies), candidates generally were of the view that the reform process should permit an evaluation of the changing global landscape and developments and where issues were not addressed or inadequately addressed by current rules, Members should consider what changes would be appropriate. Dr. Seade noted that since China was not part of the GATT in the 1990s during the Uruguay Round negotiations, with all the change that has occurred in the first 25 years of the WTO and limited update of rules, there is little doubt that rules need to be updated both to address practices of new Members and to incorporate their views on needed updates. Minister Yoo suggested a somewhat similar approach.

On the question of the need for an update to the rules on industrial subsidies, Minister Mohamed and Dr. Okonjo-Iweala were of the view that the proposal being worked on by the U.S., EU and Japan should be tabled in Geneva so all Members could start the process of understanding the concerns and appropriateness of the approaches recommended to address. Mr. Mamdouh included updating industrial subsidies rules as one of the priority issues to be addressed by the WTO.

The race to become the next WTO Director-General — where the candidates stand on important issues: convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, Background on issues

Background

When China acceded to the World Trade Organization in 2001, it had had a long working party process as WTO Members focused on the wide array of changes to laws, regulations and practices that China would need to undertake to have an economic system and policies that were consistent with WTO norms. China made many changes to its policies ahead of accession. However, the extent of modifications needed to the Chinese system that were still not accomplished by 2001 meant that the Protocol of Accession and the Working Party Report that China and WTO Members agreed to were unprecedented in terms of the number of additional changes that needed to be made for China’s system to be compatible with WTO norms. Indeed, periodic reviews over a decade were included of China’s actions to permit other WTO Members to understand the extent of compliance with the wide ranging modifications still needed. As China was moving from a state-controlled economy towards a market economy, WTO Members insisted on special rules to address some of the likely distortions a large economy like China with significant state controls was anticipated to create. A country-specific safeguard and special recognition of nonmarket economy provisions in trade remedies were included in the Protocol of Accession. While China accepted all three provisions to obtain membership in the WTO, China always expressed its views that these additional provisions were discriminatory and an effort to hold China back in terms of economic growth.

While China continued to make progress in its reform program for a number of years after acceding to the WTO, beginning with the financial crisis of 2008-2009 China reversed direction and increased the importance of state-owned and state-invested enterprises, state planning and state control of a wide array of factors of production. A former Director-General of the WTO and former EC Trade Commissioner reviewed the challenges for market economy countries in dealing with a country with a large share of its economy controlled by the state. See July 27, 2020, Pascal Lamy’s recent comments on the challenges facing the WTO, https://currentthoughtsontrade.com/2020/07/27/pascal-lamys-recent-comments-on-the-challenges-facing-the-wto/.

Many major trading partners have worked with China since its WTO accession to address perceived distortions flowing from its economic system and to help China handle the obligations it had undertaken upon joining the WTO. Many commitments for change were made by China with limited actual forward movement achieved in the views of at least some trading partners. Members like the United States undertake their own annual review of China’s compliance with WTO obligations in an effort to chronicle China’s changing economic system and whether there are distortions of concern to China’s trading partners. See, e.g., U.S. Trade Representative, 2019 Report to Congress on China’s WTO Compliance (March 2020)(embedded below). As stated on page 4:

“Over the past nearly two decades, a variety of bilateral and multilateral efforts were pursued by the United States and other WTO members to address the unique challenges presented by China’s WTO membership. However, even though these efforts were persistent, they did not result in meaningful changes in China’s approach to the economy and trade.

“In our past reports, we identified and explained the numerous policies and practices pursued by China that harm and disadvantage U.S. companies and workers, often severely. We also catalogued the United States’ persistent yet unsuccessful efforts to resolve the many concerns that have arisen in our trade relationship with China. We found that a consistent pattern existed where the United States raised a particular concern, China specifically promised to address that concern, and China’s promise was not fulfilled.

“The costs associated with China’s unfair and distortive policies and practices have been substantial. For example, China’s non-market economic system and the industrial policies that flow from it have systematically distorted critical sectors of the global economy such as steel and aluminum, devastating markets in the United States and other industrialized countries. China also continues to block valuable sectors of its economy from foreign competition, particularly services sectors. At the same time, China’s industrial policies are increasingly responsible for displacing companies in new, emerging sectors of the global economy, as the Chinese government and the Chinese Communist Party powerfully intervene on behalf of China’s domestic industries. Companies in economies disciplined by the market cannot effectively compete with both Chinese companies and the Chinese state.”

2019_Report_on_Chinas_WTO_Compliance

The 11th Ministerial Conference and a Joint Statement by EU, Japan and the United States

The challenges of China’s economic system have been felt in many global industries in a number of ways. There has been massive excess capacity created by China’s policies (and those of some other countries). Efforts to address excess capacity in steel proved unsuccessful. But literally dozens of industries faced excess capacity in China which has resulted in flooded global markets and harm to competing producers in other countries.

At the same time there have been major concerns about forced technology transfers for companies wanting to operate in China, a myriad and changing set of barriers (formal and informal) discriminating against imports and foreign owned enterprises in certain sectors.

By the 11th WTO Ministerial Conference, the United States, European Union and Japan had decided more formal action was needed to address the ongoing distortions being created by China and other countries emulating the Chinese model of economic system. At the end of the Conference, the three WTO Members issued a joint statement which stated in large part,

“We shared the view that severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, unfair competitive conditions caused by large market-distorting subsidies and state owned enterprises, forced technology transfer, and local content requirements and preferences are serious concerns for the proper functioning of international trade, the creation of innovative technologies and the sustainable growth of the global economy.

“We, to address this critical concern, agreed to enhance trilateral cooperation in the WTO and in other forums, as appropriate, to eliminate these and other unfair market distorting and protectionist practices by third countries.”

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/december/joint-statement-united-states

There have been a series of meetings of the three trade ministers since then providing an update on their joint efforts. A joint statement in January 2020 outlined the types of industrial subsidies where the three major WTO Members believed greater disciplines were needed and outlined other areas where joint efforts were underway. The 2018, 2019 and 2020 joint statements can be found here, with the 2020 statement embedded after the links. See Joint Statement on Trilateral Meeting of the Trade Ministers of the United States, Japan, and the European Union, 09/25/2018, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/august/statement-meetings-between-united; Joint Statement of the Trilateral Meeting of the Trade Ministers of the United States, European Union, and Japan, 05/23/2019, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/may/joint-statement-trilateral-meeting; Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States, and the European Union, 01/14/2020, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/january/joint-statement-trilateral-meeting-trade-ministers-japan-united-states-and-european-union.

1-14-2020-Joint-Statement-of-the-Trilateral-Meeting-of-the-Trade-Ministers-of-Japan-the-United-States-and-the-European-Union-_-United-States-Trade-Representative

U.S. Section 301 Investigation of Certain Chinese Policies, U.S. imposition of tariffs and Chinese retaliation

In August 2017, the U.S. Trade Representative initiated an investigation on certain of China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation. 82 Fed. Reg. 40,213-40,215 (Aug. 24, 2017). The investigation resulted in a determination by USTR on March 22, 2018 that various Chinese acts, policies and practices violated Section 301 of the Trade Act of 194, as amended. The President authorized the imposition of additional duties to encourage China to address the problems raised. China retaliated and through a series of further escalations, the U.S. has imposed additional duties on some $350 billion of imports from China and China has imposed additional duties on the vast majority of U.S. exports to China. The 301 report and supplement are embedded below.

Section-301-FINAL

301-Report-Update

The United States viewed the Section 301 investigation as necessary to address practices of China not addressed by WTO rules or not adequately addressed. China viewed the investigation as not permitted under WTO rules. The trade conflict and efforts to find a solution, resulted in a Phase 1 Agreement between the United States and China with most additional duties remaining in place, some substantive changes made on some issues of concern to the United States and a Phase 2 negotiation to resolve outstanding issues which has not begun as of mid-August 2020.

China’s effort to be treated as a market economy under trade remedies

China has long felt that nonmarket economy methodology employed by trading partners discriminated against China and was unjustified. On December 12 2016, the day after certain language in China’s Protocol of Accession became ineffective, China filed requests for consultations with each of the European Union (WT/DS/516) and the United States (WT/DS/515). China has not actively pursued the action against the United States. On the action against the European Union, after the matter was fully briefed at the panel stage and it was understood that an interim panel report was released to the parties, China requested on 7 May 2019 the panel to suspend its proceedings in accordance with Article 12.12 of the DSU. The panel proceeding was suspended on 14 June 2019. On 15 June 2020, the Secretariat released a note indicating that the panel’s authority in the dispute had lapsed since China had not requested the resumption of work within one year.

Thus, China remains subject to nonmarket economy methodologies by certain of its trading partners.

Proposed General Council decision submitted by the United States

The United States has raised an issue for WTO Member consideration in the form of a proposed General Council decision. The issue goes to whether the WTO is predicated on market-oriented economic principles and rests on the concern that some large WTO Members (including China) have economic systems that are characterized as non-market and that create various distortions in the global marketplace including creating massive excess capacity and other issues. While the issue has been raised by the United States for the last several years within the WTO, the U.S. permanent representative to the WTO made a strong case at the General Council meeting (Dec. 9, 2019), raised the matter again along with the draft General Council decision at the March 3, 2020 General Council meeting and raised it again at the July 22-23, 2020 General Council meeting. The proposal was opposed by China at each General Council meeting. Many Members provided comments either supporting, opposing, raising questions with the proposal or indicating the matter was being considered in capital (minutes for the July General Council meeting are not yet available). Members besides the U.S. and China who spoke include the European Union, Japan, Canada, Australia, United Kingdom, Switzerland, Norway, Mexico, Brazil, Colombia, Chinese Taipei, Uruguay, Indonesia, Nigeria, South Africa, India, Pakistan, Russian Federation, and Sri Lanka. See, e.g., Minutes of General Council Meeting, 9-10 December, 2019, WT/GC/M/181 at 59-64 (24 February 2020); The Importance of Market-Oriented Conditions to the World Trading System, Draft General Council Decision, Communication from the United States, WT/GC/W/796 (20 February 2020)(embedded below); Minutes of General Council Meeting, 3 March 2020, WT/GC/M/182 at 35-44 (16 April 2020); General Council Meeting of 22-23 July 2020, Proposed Agenda, WT/GC/W/802 (item 11)(20 July 2020).

WTGCW796

Conclusion

The crisis at the WTO has many elements but a central concern of many is whether the current WTO can be effective in ensure competitive markets when one or more major Members have an economic system largely at odds with that of most Members. The tensions created by the distortions caused by different systems has led both to increasing use of trade remedies, efforts to identify changes or additions to rules needed if convergence is not required of Members, and actions outside of the WTO where long term discussions have not resulted in the level of changes needed by countries working from market-oriented economies.

While the U.S. has reviewed provisions of the WTO that indicate the system is premised on market economy principles, a number of Members disagree that the WTO can address different economic systems. One of the Deputy-Directors General has identified core principles of the WTO and opined that the system supports convergence not coexistence. See Remarks before the Korean International Trade Association. 27 May 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_27may20_e.htm back to text

It is against this complex background that candidates for the Director-General post of the WTO will be evaluated by many Members. In the next post, I turn to how the eight candidates have addressed these complex issues in terms of their prepared statements to the General Council, press conference after the General Council meeting and in the WITA webinars.

Stay tuned.

Is the world at the peak of the COVID-19 pandemic? Last two weeks suggest a peaking of the growth of global infections may be at hand

Much of the world recorded sharp contractions in GDP during the second quarter as countries restricted travel, issued mandatory stay at home orders and took other steps to try to control the spread of the COVID-19 pandemic. Many countries have been easing restrictions in the last several months that were imposed typically in March. The hoped for revival of the global economy is being slowed by the continued high incidence of new COVID-19 cases, the resurgence of cases (albeit so far at low levels) following reopening actions in many of the countries who had gotten control of the virus. In a number of countries, schools are reopening presenting additional challenges for governments in trying to control the spread of the COVID-19 virus. News reports continue to be promising that one or more vaccines may be approved by the end of 2020 or early 2021, and the Russian Federation has gone into production of a vaccine which reportedly has not undergone a phase three trial.

One question of potential importance in mid-August is has the world gotten to the peak of the number of new cases during the last two weeks or will the number of new cases resume an upward trajectory in the coming weeks?

The world has seen a rapid growth of new cases during the March – July period. As recently as the two week period of May 11-May 24, the total new cases globally in the two week period was 1.28 million. The next two weeks (May 25-June 7) showed new cases of 1.57 million. June 8-June 21 recorded 1.93 million new cases; June 22 – July 5 added 2.46 million. July 6-July 19 added 3.02 million new cases. July 20-August 2 added 3.57 million new cases. The data for the last two weeks, August 3-16 added 3.62 million new cases. So the rate of growth is slowing. While the number of new cases in the most recent two weeks was nearly three times as many as recorded in mid-May, in the last two weeks, the growth was only 1.4%.

The United States for the first time since early June has seen the number of new cases fall from the prior two weeks, although the new cases in August 3-16 were still the second largest (740,721) after only India (838,959) and remain two and a half times as high as the May 25-June 7 period (297, 391) and were 81.5% higher than the original peak figure (409,102) in the latter part of April. Complicating the picture going forward for the United States are the early problems with school reopenings in certain states with most school districts working to open in person, remotely or in some combination in the coming weeks. The U.S. also has a very high incidence of affirmative tests in large parts of the country which is problematic particularly as testing (while large in number) continues to have problems in timeliness of results. Despite the need for even larger numbers of tests (that are timely), the number of tests has been declining in the U.S. despite the continued high level of new cases on a daily basis. In addition, the U.S. continues to suffer from mixed messages from government officials on actions needed to control the virus, and from a general fatigue by large parts of the public with the efforts to minimize the spread. This past week’s Sturgis motorcycle rally, where some 250,000 bikers from around the country were expected to attend, is an example of a huge social gathering where limited safety precautions have been seen at least at some events with unknown consequences for the spread of the virus not just in South Dakota (Sturgis is a small town in South Dakota) but across the United States.

Brazil was also slightly lower in the last two weeks (609,219) than the preceding two-week period (633,017) but remains a major source of new cases. South Africa showed a significant decline from 152,411 new cases in the July 20-August 2 period to 80,363 new cases in the last two weeks.

India has taken over the top spot for most new cases in the last two weeks, 838,959, more than 160,000 higher than the prior two weeks (673,108).

There have been upticks in the number of new cases in a number of developed countries reflecting presumably the effects of reopening the economy — Germany, France, Spain, Poland, Australia, New Zealand, Japan. The spike of cases (though still small compared to prior volumes) has led for some tightening up on the economic restrictions in particular cities or more broadly.

Continued growth of cases in the developing world

With the number of new cases in the United States declining, the trend to new cases being focused on the developing world continues. While India and Brazil had by far the largest number of new cases from developing countries, they were followed by Colombia (150,508), Peru (103,620), Argentina (91,135), Mexico (83,521), South Africa (80,363) and then dozens of other countries with smaller numbers of new cases.

Deaths/100,000 population

The United States has the largest number of deaths of any country to date and in the last two weeks. If one looks at deaths/100,000 population, in the lats two weeks, the countries with the highest number of deaths per 100,000 population were the following: Peru (20.91), Colombia (8.90), Bolivia (8.16), Mexico (7.11), Panama (6.99), Brazil (6.48), South Africa (6.02), United States (4.57). All other countries (including all other developed countries) had lower rates of death per 100,000 population. For all countries, the death rate over the last two weeks was 1.06 deaths/100,000 population.

If looking at the entire period since the end of December 2019 through August 16, the average number of deaths for all countries per 100,000 of population has been 10.09 deaths. The seven countries (of 71 which account for 98% of total deaths) with the highest death rates/100,000 for the full period are: Belgium (86.73), Peru (80.20), United Kingdom (62.06), Spain (60.97), Italy (58.54), Sweden (which did not impose any restrictions)(56.53), the United States (51.50). With the exception of Peru and the United States, each of the other top countries overall has shown a drastic reduction since their peaks in April and as reflected in the experience in the last two weeks (all the European countries were less than 1 death per 100,000).

Conclusion

The world in the first seven and a half months of 2020 has not managed to get the COVID-19 pandemic under control. While many countries in Europe and some in Asia and the major countries in Oceania have greatly reduced the number of new cases over time, that has not been true for the Americas (other than Canada), for parts of Asia and for parts of Africa where the pandemic has turned its attention or where the pandemic has not been brought under control.

That said, the last two weeks suggest the global total of new cases in a two week period may have just peaked in August. There are major challenges ahead as reopening of economies gets tested against possible resurgence of cases, schools reopen in many countries, and greater indoor months approach. So there are potentially unwelcome scenarios that could see the huge number of new cases resume an upward trend. But with effort, the world may see the backside of the growth curve.

With the sharpest global economic contraction since World War II, with slumping global trade, with even the wealthier countries struggling to maintain the needed stimulus to reduce the severity of the economic contraction and with potentially hundreds of millions of people around the world losing their jobs, and food insecurity rising with increasing poverty, the world needs to see the pandemic receding and needs breakthroughs in both vaccines and therapeutics, although realistically, 2021 is more likely than the rest of 2020 for the medicaL breakthroughs.

The WTO webpage has a page dedicated to COVID-19, and the WTO Secretariat has generated a host of information notes reviewing the range of challenges that the pandemic is presenting to nations. The most recent looks at the increased costs of trade that flow from the travel and other restrictions. My post from yesterday, looked at the rising food insecurity for dozens of countries facing rising extreme poverty because of the economic contraction being experienced around the world. Stated differently, the trade, economic, health and humanitarian challenges flowing from the COVID-19 pandemic are extraordinary. Stemming the number of new cases is an important step to reduce the pressures on governments, companies and citizens.

Food security and COVID-19 — how World Trade Organization Members could fill a pressing need

In 2020 as the world has been dealing with the health and economic consequences of the COVID-19 pandemic, the World Trade Organization has focused attention on keeping markets open by urging Members to provide notifications of trade restrictive and trade liberalizing measures taken not just on medical goods but also on agricultural products. The G20 countries and various groups of WTO Members have made commitments to impose restrictions only under limited circumstances and only temporarily, consistent with WTO obligations. Some Members have urged countries to agree not to impose export restraints on agricultural goods to limit worsening challenges during the COVID-19 pandemic. On agricultural export restrictions, a number of countries have applied some restrictions despite information that global food supplies are sufficient which should make restrictions unnecessary. The attention paid to the issue by the WTO and its Members have limited the number of countries engaged in agricultural export restraints which is a positive development.

With the steps many countries have taken to limit the spread of the COVID-19, there has been enormous economic pain incurred by most countires, with tens of millions of people in countries temporarily unemployed, schools closed, food distribution disrupted with the closure of restaurants which constitute a large part of food shipped from processing plants and farms.

The UN, World Bank and others have projected huge increases in the number of people pushed into extreme poverty because of the effects flowing from the pandemic. Extreme poverty brings with it food security issues as people suffering extreme poverty don’t have the means to procure basic food needs.

The United Nation’s World Food Programme (WFP) has long been involved in helping address food security needs around the world. In the COVID-19 pandemic, the WFP is mobilizing to provide assistance to some 138 million people in 83 countries. With most countries occupied with dealing with the needs of their own populations, countries and private citizens have been slow to respond to the humanitarian challenges facing so many around the world. The WFP has appealed for US$4.9 billion to let them perform their stepped up function during COVID-19 through the end of 2020. As of August 6, they had received only 9 percent of what they need, $US440 million.

The WFP during the pandemic has been involved in facilitating services by many NGOs and international organizations. For example, “Over 16,500 health and humanitarian personnel from 288 organizations have now been transported to destinations throughout Africa, Asia, the Middle East and the Commonwealth of Independent States countries by WFP’s air passenger service since its launch on 1 May. 53 destinations are now being served, with approximately 2,500 passengers using WFP’s service per week.” WFP, COVID-19, Level 3 Emergency, External Situation Report #12 (6 August 2020)(emphasis in original). The latest situation report is embedded below and reviews the wide array of services provided as well a review of some of the countries with acute needs. It also provides a link to contribute to the WFP.

WFP-0000118265

The External Situation Report indicates that there are 27 countries (based on an FAO-WFP hotspot analysis) which “are at risk of significant food security deterioration in the next six months”. (page 2). Countries at risk are Guatemala, Honduras, El Salvador, Nicaragua, Haiti, Peru, Ecuador, Colombia, Venezuela, Burkina Faso, Mali, the Niger, Sierra Leone, Liberia, Nigeria, Cameroon, Central African Republic, Democratic Republic of the Congo, Lebanon, Sudan, South Sudan, Mozambique, Zimbabwe, Somalia, Yemen, Ethiopia, Iraq, Syrian Arab Republic, Afghanistan and Bangladesh (total is 31, though Peru, Ecuador, Colombia appear to be at a lower level of risk based on coloration used on page 2). FAO – WFP early warning analsyis of acute food insecurity hotspots, https://docs.wfp.org/api/documents/WFP-0000117706/download/.

Where is the food aid?

For many countries, agricultural production has remained reasonably strong but large volumes of agricultural products have been destroyed based on lack of domestic markets, typically flowing from the collapse of the restaurant trade and the challenges in redirecting product, packaging and labeling into retail channels. See, e.g., New York Times, April 11, 2020, Dumped Milk, Smashed Eggs, Plowed Vegetables: Food Waste of the Pandemic, https://www.nytimes.com/2020/04/11/business/coronavirus-destroying-food.html.

At the same time, there have been huge increases in internal-country demand for help from food banks in some countries. See, e.g., for the United States: Feeding America, The first months of the food bank response to COVID, by the numbers, https://www.feedingamerica.org/hunger-blog/first-months-food-bank-response-covid-numbers.

It would seem that coordinated action by major agricultural goods producers in the WTO with the WFP and other groups should be able to provide large quantities of agricultural goods to those in need globally in the remaining months of 2020, goods which might otherwise simply be destroyed.

Similarly, while all countries are financially stretched during the pandemic, helping WFP obtain the needed financial resources to provide a coordinated pledging event should be of interest to WTO Members and many of the multilateral organizations working on COVID responses, as well as the business community and the general public.

While the WTO has grappled with limiting/eliminating export subsidies for agricultural goods, the WTO has always recognized the need to maintain the flow of humanitarian need particularly in agricultural goods. Consider these paragraphs from the 2015 Nairobi Ministerial Conference Decision on Export Competition (WT/MIN(15)45, WT/L/980 (21 Dec. 2015) at 6-7):

“International Food Aid

“22. Members reaffirm their commitment to maintain an adequate level of international food aid, to take account of the interests of food aid recipients and to ensure that the disciplines contained hereafter do not unintentionally impede the delivery of food aid provided to deal with emergency situations. To meet the objective of preventing or minimizing commercial displacement, Members shall ensure that international food aid
is provided in full conformity with the disciplines specified in paragraphs 23 to 32, thereby contributing to the objective of preventing commercial displacement.

“23. Members shall ensure that all international food aid is:

“a. needs-driven;

“b. in fully grant form;

“c. not tied directly or indirectly to commercial exports of agricultural products or other goods and services;

“d. not linked to the market development objectives of donor Members;
and that

“e. agricultural products provided as international food aid shall not be re-exported in any form, except where the agricultural products were not permitted entry into the recipient country, the agricultural products were determined inappropriate or no longer needed for the purpose for which they were received in the recipient country, or re-exportation is necessary for logistical reasons to expedite the provision of food aid for another country in an emergency situation. Any reexportation in accordance with this subparagraph shall be conducted in a manner that does not unduly impact established, functioning commercial markets of agricultural commodities in the countries to which the food aid is re-exported.

“24. The provision of food aid shall take into account local market conditions of the same or substitute products. Members shall refrain from providing in-kind international food aid in situations where this would be reasonably foreseen to cause an adverse effect on local13 or regional production of the same or substitute products. In addition, Members shall ensure that international food aid does not unduly impact established, functioning commercial markets of agricultural commodities.

“25. Where Members provide exclusively cash-based food aid, they are encouraged to continue to do so. Other Members are encouraged to provide cash-based or in-kind international food aid in emergency situations, protracted crises (as defined by the FAO14), or non-emergency development/capacity building food assistance environments where recipient countries or recognized international humanitarian/food entities, such as the United Nations, have requested food assistance.

“26. Members are also encouraged to seek to increasingly procure international food aid from local or regional sources to the extent possible, provided that the availability and prices of basic foodstuffs in these markets are not unduly compromised.

“27. Members shall monetize international food aid only where there is a demonstrable need for monetization for the purpose of transport and delivery of the food assistance, or the monetization of international food aid is used to redress short and/or long term food deficit requirements or insufficient agricultural production situations which give rise to chronic hunger and malnutrition in least-developed and net food-importing developing countries.15

“28. Local or regional market analysis shall be completed before monetization occurs for all monetized international food aid, including consideration of the recipient country’s nutritional needs, local United Nations Agencies’ market data and normal import and consumption levels of the commodity to be monetized, and consistent with Food Assistance Convention reporting. Independent third party commercial or non-profit
entities will be employed to monetize in-kind international food aid to ensure open market competition for the sale of in-kind international food aid.

“29. In employing these independent third party commercial or non-profit entities for the purposes of the preceding paragraph, Members shall ensure that such entities minimize or eliminate disruptions to the local or regional markets, which may include impacts on production, when international food aid is monetized. They shall ensure that the sale of commodities for food assistance purposes is conducted in a transparent, competitive and open process and through a public tender.16

“30. Members commit to allowing maximum flexibility to provide for all types of international food aid in order to maintain needed levels while making efforts to move toward more untied cash-based international food aid in accordance with the Food Assistance Convention.

“31. Members recognize the role of government in decision-making on international food aid in their jurisdictions. Members recognize that the government of a recipient country of international food aid can opt out of the usage of monetized international food aid.

“32. Members agree to review the provisions on international food aid contained in the preceding paragraphs within the regular Committee on Agriculture monitoring of the implementation of the Marrakesh Ministerial Decision of April 1994 on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-developed and net food-importing developing countries.

“13 The term ‘local’ may be understood to mean at the national or subnational level.

“14 FAO defines protracted crises as follows: ‘Protracted crises refer to situations in which a significant portion of a population is facing a heightened risk of death, disease, and breakdown of their livelihoods.’

“15 Belize, the Plurinational State of Bolivia, Ecuador, Fiji, Guatemala, Guyana, Nicaragua, Papua New Guinea and Suriname shall also have access to this provision.

“16 In the instance where it is not feasible to complete a sale through a public tender, a negotiated sale can be used.”

It is believed that the current WTO provisions on food aid should not pose hurdles to countries providing in kind aid where there are needed food products that can be exported during the pandemic. If that is not the case, then the WTO Members should agree to a temporary waiver of relevant restrictions to permit food aid during the pandemic.

There has been much discussion within the G20, WTO, WHO and other groups that collective action on the medical front is critical to see that medical goods, vaccines, are therapeutics are available equitably and at affordable prices. What one hasn’t seen is the same focus on ensuring that the world’ populations have access to food equitably and at affordable prices. During the pandemic, WTO Members have the opportunity to work together to see that food is not wasted and that food aid is supplemented to the extent possible to alleviate the unique challenges to food security presented by the COVID-19 pandemic.

The race to become the next WTO Director-General — where candidates are on important issues: eligibility for Special and Differential Treatment/self-selection as a developing country

[Updated August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova at a WITA webinar held on August 26]

During the years of the General Agreement on Tariffs and Trade, countries engaged in a series of rounds of tariff liberalization. The basic principle of Most Favored Nation ensured that any participating country or customs territory would receive the benefits of trade liberalization of others whether or not the individual country made tariff liberalization commitments of its own.

Moreover, the GATT and now the WTO have recognized that countries at different levels of economic development will be able to make different contributions and some may need special and differential treatment to better participate.

Historically, there has been a distinction between developed countries and developing countries, with special and differential (S&D) treatment reserved for the latter. Typically, S&D treatment would permit, inter alia, lesser trade liberalization commitments and longer phase-ins for liberalization undertaken.

During the Uruguay Round, least-developed countries, as defined by the United Nations, were broken out from developing countries to receive lesser obligations than other developing countries. But the categorization as a developing country has always been a matter of self-selection within the GATT and now within the WTO.

Some three quarters of WTO’s current 164 Members have self-declared themselves to be developing countries or are least-developed countries under UN criteria. Thus, only one fourth of WTO Members shoulder full obligations under the current system.

While the Uruguay Round negotiations attempted to deal with “free riders” by requiring all countries and customs territories to bind all or nearly all tariff lines, the results at the creation of the World Trade Organization was a system where the vast majority of Members had relatively high tariff rates in their bindings while developed countries typically have very low tariff rates bound.

After twenty-five years of operation and dramatic economic development by many Members and limited trade liberalization through WTO multilateral negotiations, questions have been raised by the United States and others as to whether the concept of self-selection by countries of developing country status has contributed to the inability of the WTO to achieve further liberalization through negotiations. The U.S. has put forward a definition of who would eligible for developing country status based upon a country not qualifying under any of four criteria. See December 28, 2019, WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved? https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/. Countries who would not qualify under the U.S. proposal include:

Member of the OECD or in the accession process:

Chile, South Korea, Mexico, Turkey, Colombia, Costa Rica.

Member of the G-20:

India, South Africa, Turkey, Argentina, Brazil, Mexico, China, Indonesia, South Korea.

Classified by World Banks as “high income” for 2016-2018 (includes):

Antigua and Barbuda, Bahrain, Brunei Darussalam, Chile, Hong Kong, South Korea, Kuwait, Macao, Panama, Qatar, Saudi Arabia, Seychelles, Singapore, St. Kitts and Nevis, Trinidad and Tobago, United Arab Emirates, Uruguay.

0.5% of Merchandise Trade (includes):

China, South Korea, Hong Kong, Mexico, Singapore, United Arab Emirates, Thailand, Malaysia, Vietnam, Brazil, Indonesia, Turkey, South Africa.

For many countries who have self-declared as developing countries, the concept of changing their status, regardless of economic development, is untenable and has been actively opposed at the WTO (including by China, India and South Africa).

Four WTO Members who had self-declared as developing countries — Korea, Singapore, Brazil and Costa Rica — have indicated to the WTO that they will not seek special and differential treatment in ongoing or future negotiations (but maintain such rights for existing agreements). Other countries who are self-declared developing countries have blocked an Ambassador from one of the four who have agreed to accept greater obligations from assuming the Chair post for one of the WTO Committees.

The United States has also raised questions about the imbalance of tariff bindings which have flowed from economic development of some countries without additional liberalization of tariffs by those countries and the lack of progress on negotiations. Thus, for the United States there is also the question of whether tariff bindings should be reexamined in light of economic developments over the last twenty-five years. From the WTO’s World Tariff Profiles 2020 the following simple bound tariff rates for all goods are identified for a number of countries. See https://www.wto.org/english/res_e/booksp_e/tariff_profiles20_e.pdf. While for developing countries, bound rates are often much higher than applied rates, the bound rates give those countries the ability to raise applied tariffs without challenge:

“Developed Countries”

United States: 3.4%

European Union: 5.1%

Japan: 4.7%

Canada: 6.4%

“Developing Countries”

China: 10.0%

Brazil: 31.4%

Chile: 25.2%

Costa Rica: 43.1%

Republic of Korea: 16.5%

India: 50.8%

Indonesia: 37.1%

Singapore: 9.5%

South Africa: 19.2%

Thus, for the eight candidates competing for the position of Director-General of the World Trade Organization, a challenging topic within the WTO for possible reform is whether the issue of Special and Differential treatment needs review to ensure that its provisions apply to those who actually have a need and not to three quarters of the Members simply because they self-selected. While not necessarily encompassed by the S&D question, for the United States, the issue also subsumes whether WTO reform needs to permit a rebalancing of tariff bindings based on changing economic development for WTO Members.

What follows is a review of the prepared statements to the General Council made by each candidate during July 15-17, my notes on candidates’ responses to questions during the press conference immediately following each candidate’s meeting with the General Council, and my notes on candidates’ responses to questions during webinars hosted by the Washington International Trade Association (WITA) and Asia Society Policy Institute (ASPI) (as of August 13, seven of the eight candidates have participated in such webinars; the webinar with the Moldovan candidate is being scheduled).

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade did not take up the question of special and differential treatment directly as part of his prepared statement. One can read part of his statement to indicate that part of the challenges facing the WTO flow from the lack of success of the negotiating function on traditional issues (which would include further tariff liberalization). Also one could construe the need to modernize the organization as including the need to better reflect the need for all Members to carry the extent of liberalization that their stage of economic development permits.

“In the medium and long term, and in order to prevent the Organization from becoming obsolete and obsolete, it is important that mechanisms be
adopted to modernize it. I will seek to establish an informal dialogue on the
weaknesses and challenges of the Organization in the current context, through annual forums or specialized conferences.

“But thinking about long-term expectations, I am convinced that they have been affected by the lack of significant results in the negotiations since the
creation of the WTO. Thus, as results are achieved on 21st century issues, it will be very important to also energetically take up the traditional priority issues on the sustainable development agenda.” (Google translation from French)

During the press conference, Dr. Seade was asked a question on the issue of developed versus developing country designation. My notes on his response are as follows:

On the question of developed vs. developing country, Dr. Seade looks at it from the perspective of special and differential treatment. On the one hand the world keeps changing, so it’s reasonable to ask what a Member can do. The idea of changing classification of countries from developing to developed will take a very long time and so is probably the wrong approach. The question should be what contribution can a particular member make, which may be different in different industries.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. Dr. Seade was asked about the issue of self-selection of developing country status and how he would try to get Members to address. My notes on his response follow:

Dr. Seade had this to say:  he believes countries are looking at the issue the wrong way.  Special and differential treatment is like a discount card which you can use at a store.  Some customers have the discount card; some don’t.  The reality in the WTO is that everything is negotiated.  When you negotiate, you can talk to every Member.  If Members make whether and what type of special and differential treatment a Member needs part of negotiations, the outcome can be tailored so that Members are contributing what they can while still accommodating Members where there is a real need. While seeking to define who is a developing country may be an approach that can be taken, Dr. Seade believes that actually getting Members to agree to changing status is an impossible issue.  In his view, status is “theological” for many Members. 

One can look at the trade facilitation agreement for an example of where Members were asked to take on obligations to the extent they could; there were negotiations if more was felt possible from a Member.  The same type of approach can be taken in ongoing and new negotiations.  He believes this is the way to go.  The key question is not who is eligible, but for what does a Member need S&D.  This will be true at a country level (e.g., in Dr. Seade’s view Mexico and Brazil don’t need the same flexibilities as Angola).  But the need for differentiation in a given country may also differ by sector.  In fact the need for special and differential treatment can vary by product. Dr. Seade mentioned Mexico’s agriculture sector, where corn production is not efficient or modern and hence S&D may be necessary but where that is not the case for fruits and vegetable production.  Thus, Dr. Seade believes that going about it on a more practical way is the right way to make progress in the WTO.  Negotiate by agreement by country, etc.

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala’s prepared statement directly notes the differing positions on the issue of special and differential treatment and also mentions concerns of Members in terms of imbalances in rights and obligations and distribution of gains (which presumably includes the U.S. concern about high bound tariff rates of many countries who have gone through significant ecoonomic growth in the last 25 years).

“Members’ views differ on a number of fundamental issues, such as special and differential treatment or the need for the WTO to tackle new issues and develop new or enhanced rules to deal with SOEs and agricultural subsidies, for example.”

“While a key objective of the WTO is the liberalization of trade for the mutual benefit of its Members, it appears that this very concept is now a divisive issue as a result of the perceived imbalances in the rights and obligations of Members and the perceived uneven distribution of the gains from trade. I would constantly remind Members about the value of the MTS and help energize them to work harder to overcome the challenges that have paralyzed the WTO over the years.”

During the press conference on July 15th, Dr. Ngozi Okonjo-Iweala was not a question on S&D treatment, classification of developing countries or on tariff bindings.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. Dr. Ngozi Okonjo-Iweala in her opening comments identified the issue of special and differential treatment as an issue that could be considered as part of WTO reform, although it wasn’t in her list of topics for tackling by the next WTO Ministerial Conference. She was asked a question about how to restore trust among Members and used that question to review her thoughts on special and differential treatment and the question of self-selection by Members as developing countries. Below is my summary of Dr. Ngozi Okonjo-Iweala’s discussion of the issue.

One issue being pushed by the United States and others that is very divisive is the issue of special and differential treatment and self-selection of developing country status.  The concern of those wanting a change is that self-selection and the automatic entitlement to S&D treatment shifts the balance of rights and obligations to advanced developing countries.  There is no disagreement that least-developed countries need special and differential treatment. In her view, the real question is whether other countries that view themselves as developing should get special and differential treatment automatically.  Dr. Ngozi Okonjo-Iweala believes the WTO needs a creative approach to resolve the issue.  For example, Members should address the need of individual Members for special and differential treatment on a negotiation by negotiation basis.  Members should, as part of each negotiation, consider what other Members believe their needs are based on level of development.  She references the Trade Facilitation Agreement as an example where Members took on obligations based on their level of development vs. a one size fits all approach.  Dr. Ngozi Okonjo-Iweala believes that if the Members can reach a resolution on this issue, the resolution would help build trust among Members and hence help the WTO move forward.

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh’s prepared statement did not directly deal with the topic of special and differential treatment or the changing economic competitiveness of Members. There is one statement towards the end of his statement which recognizes the evolving nature of the Membership.

“Since then, global trade has transformed, and trading powers have evolved. The circumstances and dynamics have changed. But the skillset we require of the leadership: imaginative thinking, and the ability to come up with legally sound and enforceable solutions – remain the same.”

During his press conference on July 15, Mr. Mamdouh was not asked a question on S&D treatment or the criteria for being a developing country.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. Mr. Mamdough was asked a question during the webinar on whether the large number of WTO Members who have self-declared as developing countries and hence are eligible for special and differential treatment doesn’t undermine the credibility of the organization and what he would do about it if he was Director-General. Below is my summary of Mr. Mamdouh’s response.

Mr. Mamdouh believes that the issue should be addressed in a pragmatic maner. He referred back to the General Agreement on Trade in Services (GATS) negotiated during the Uruguay Round and noted that the GATS contains no special and differential treatment provisions.  Thus, in the GATS, Members moved away from a system of country classifications.  In Mr. Mamdouh’s view, obligations should be customized based on a Member’s needs/abilities through negotiations.  Flexibilities to address particular Member needs can be determined individually.  While this was the approach in GATS, Members can do that on goods on any area that can be scheduled but also rule making areas.  In Mr. Mamdouh’s view for any substantive obligations, there is room to customize obligations through negotiations.  He believes that big developing countries wouldn’t oppose different countries taking on different obligations.  He doesn’t believe that a solution will be in negotiating a different categorization system.  The solution for the WTO is to take a pragmatic approach and customize the outcome based on negotiations.  Mr. Mamdouh referenced fisheries subsidies as an example where that could occur.  He believes customizing obligations based on individual Member needs will be increasingly necessary, citing the 164 current Members.  But he cautions that no “one size fits all”.  Every solution would need to be tailored on the basis of the area being negotiated.

Amb. Tudor Ulianovschi (Moldova)

Amb. Ulianovschi’s prepared statement to the General Council on July 16 covers a wide range of issues that need to be addressed going forward, but, does not mention the issue of special and differential treatment or which Members should not be eligible to be developing countries based on economic developments. Amb. Ulianovschi does have one sentence in his prepared statement which talks generally about addressing global inequalities.

“The WTO is one of the most complex organizations in the world today, and it’s one of the most needed as to ensure open, predictable, inclusive, rule based multilateral trading system, as well as – to address global inequalities and bridge the gap between the least developed, developing and developed countries.”

At the press conference on July 16, Amb. Ulianovschi was asked many questions but none of the developing country/special and differential treatment issue.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi mentioned special and differential treatment both in his opening statement and in answer to a question. My notes on Amb. Ulianovschi’s comments are provided below.

From his opening statement, Amb. Ulianovschi noted that as a member driven organization, the WTO needs Members to negotiate to move forward.  He believes that a diplomatically active Director-General can help the WTO move forward, and he can help address lack of trust which he believes is largely psychological primarily based on unfinished business but also dispute settlement, special and differential treatment and other issues.

Q:  How important is it to have a reform agenda, and how can you convince major Members to agree on a common agenda? A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the WTO needs to address the horizontal issue of Special and Differential Treatment (S&D).  The S&D principle is at the core of the organization, but it is how you apply the principle which determines commitments of Members.  From that point of view, Amb. Ulianovschi sees it as a positive signal that major players are putting forward proposals on this topic.  The proposals should be the starting point for discussions.  Amb. Ulianovschi would invite those who have put forward proposals to start discussions with other Members.  Negotiations need political will to succeed, and Members need to agree on how to proceed.  He believes that if he is Director-General, he can get Members to that point.

H.E. Yoo Myung-hee (Republic of Korea)

Minister Yoo’s prepared statement covers many issues but does not address the issue of special and differential treatment/developing country classification.

In her press conference on July 17 after meeting with the General Council, Minister Yoo was asked a question on developing vs. developed country status. My notes on her response follow:

A question was asked how Minister Yoo viewed the question of the status of Members as developed or developing countries particularly in light of Korea viewing itself as a developing country in the WTO although Korea has indicated it will not seek additional special and differential treatment under future WTO Agreements. Minister Yoo started her response by noting that the Marrakesh Agreement requires that the WTO work to help developing and least developed countries secure their fair share of trade. There are competing issues at the WTO. Should the WTO make special and differential treatment provisions more operational in existing Agreements is one issue. Should the WTO change the classification status of some countries based on economic development is the other issue. For Korea, the. world has changed, and countries have changed in terms of their stage of economic development. Korea decided to take on more responsibility based on its changing level of economic development. But many countries continue to need special and differential treatment. It would be ideal for developing countries to take on more responsibilities as they are able. But this is a sensitive issue on which there is no consensus as yet.

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. Below is my summary of the question asked on the issue of special and differential treatment and self-selection of developing country status, and Minister Yoo’s response:

Korea has informed the WTO that Korea will not seek S&D treatment in ongoing or future negotiations.  Many Members thinks the self-selection of developing country status is undermining the system.  How do you evaluate the issue and how important is it to resolve?

Minister Yoo indicated that this is an important issue to resolve to make progress in ongoing and future negotiations.  She believes it is important to reflect on a core principle of the WTO to ensure that developing countries and least-developed countries secure their fair share of global trade.  The question for the WTO is how to effectuate this embedded principle.

Over half of WTO Members are developing countries and 36 others are least developed countries. In total roughly three fourths of all Members get special and differential treatment.  If so many are eligible for special and differential treatment, it likely means that the countries with the greatest needs are not receiving the assistance actually needed to help their development and greater participation in international trade.

In Minister Yoo’s view, the WTO has very divergent views among Members about changing the classification process for Members from self-selection to a set of factual criteria.  US has put forward a proposal to categorize members as developed based on different factual criteria.  However, there is no consensus at the WTO at the moment which means that changing the classification process will not happen until there is consensus.  In light of the lack of consensus, a pragmatic approach may be to have countries who can take on more responsibilities to do so voluntarily.  This will permit those who need assistance to get it.

Looking at the Trade Facilitation Agreement, while the Agreement is not necessarily representative of other areas under negotiation, it shows one way to handle the issue of special and differential treatment in a pragmatic way.  Some developing countries take on more responsibility than others without S&D treatment and without a transition period.  This is an example of how through negotiations, Members can customize obligations to individual Member capabilities.  Such an approach is practical and pragmatic.

In Korea’s case, Korea indicated that they would not seek S&D treatment in ongoing and future negotiations based on Korea’s state of economic development.  It was not an easy decision and required extensive internal consultations.  Korea wants to promote the WTO system.  She believes it is useful for each country to step up and take on more responsibility if they are capable of doing so.  The U.S. proposal has been important in raising the issue.  While no consensus exists at the moment, the U.S. action has gotten Members discussing the matter.  If Minister Yoo is selected to be the next Director-General, she would continue to raise the issue with Members to achieve a good outcome for all. She believes resolution of the issue can help unlock progress in ongoing and future negotiations.

H.E. Amina C. Mohamed (Kenya)

Minister Mohamed’s prepared statement contains a number of statements which recognize the need of Members to contribute according to their ability, although she does not address the classification of developing countries or the need for special and differential treatment specifically.

“Renewal has to start with facing up to the defects that have weakened the system in recent years: the inability to update rules to reflect the changing realities of how trade is conducted; the sterility of ideological standoffs; the retreat into defensiveness; and the sense of the benefits of trade not being equitably shared.”

“All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.”

“We need a WTO that is fair and equitable, taking into account the level of economic development of each member. All WTO Members must be prepared to contribute to improving and strengthening the organization, so that it can facilitate trade for the benefit of all, and contribute to economic recovery from the effects of the pandemic.”

During Minister Mohamed’s press conference on July 16, no questions were asked about developing country status or on special and differential treatment.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed both made several comments on special and differential treatment and self-selection of developing country status, but also answered a question. My notes on her comments and the question asked are summarized below:

One of issues needing to be addressed by the WTO are the current “divisions over developing country status”.

We need a WTO that is fair and equitable considering the level of economic development of each Member.  The WTO should give effect to its development objectives in a practical and enabling way that takes into account needs and results.  All WTO Members must be prepared to contribute to strengthening and improving the WTO system.

Q: The U.S. has raised the issue of self-declaration of developing country status.  How would you handle the issue if you become Director-General?

Minister Mohamed noted that special and differential treatment is an integral part of existing agreements.  However, going forward, the journey to modify the approach to S&D has already begun. ” The train has already left the station.” Minister Mohamed noted that in the Trade Facilitation Agreement, any special treatment was based on the need of the individual Member. Countries assumed obligations they were able to, so different developing countries assumed different levels of obligations with or without transition periods.

Second, self-declaration by certain countries that they would no longer seek special and differential treatment has already occurred (Korea, Brazil, Singapore and Costa Rica).  Minister Mohamed believes the WTO will see more of this going forward by other countries.  If Minister Mohamed is selected to be the next Director-General, she would continue discussions among the Members and have candid discussions with some of the Members.  But she believes moving forward, special and differential treatment will be increasingly based on actual need.

H.E. Mohammed Maziad Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri in his prepared statement to the General Council on July 17 addressed briefly the proposal from the U.S. on special and differential treatment (classification of developing countries):

“Concerning Special and Differential Treatment, the bottom line is, without negotiations that include incentives for everyone to participate actively, I do not think it will be possible for Members to address the issue of SDT. This is one of the main reasons that the negotiating function needs to start working. Members have various capacities to implement and take advantage of new rules and commitments, so it is clear that each Member must decide for itself what is in its own interest.”

At his press conference on July 17, Minister Al-Tuwaijri was not asked a question on special and differential treatment or of classification of developing countries.

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar Minister Al-Tuwaijri was not asked a question on self-selection of developing country status or on special and differential treatment.

The Rt Hon Dr. Liam Fox MP

Dr. Fox’s prepared statement to the General Council on July 17 did not include any references to special and differential treatment or to the classification of developing countries.

During his press conference on July 17, Dr. Fox was not asked a question dealing with special and differential treatment or the classification of developing countries.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. Dr. Fox was asked about the concerns expressed by the U.S. and others that the process of self-selection of developing country status had resulted in too many Members having special and differential treatment. There was a need to see that S&D is limited to those who actually need help. How would Dr. Fox address this issue if he were selected as the Director-General? What follows reflects my notes on Dr. Fox’s response.

Dr. Fox stated that first, the WTO must reassess that we are all aiming at the same goal.  As the WTO has expanded membership, Members knew that the organization would have countries with vast differences in capabilities and that it would take different countries different amounts of time to get to full implementation.  Thus, special and differential treatment is available. However, Dr. Fox understands that there are some WTO Members who want to be perpetually exempted from undertaking full obligations regardless of the level of economic development they have achieved. Dr. Fox views this approach as unacceptable. Membership in an organization envisions equal rights and obligations, though it may take some members longer to get there.

On the topic of special and differential treatment, Dr. Fox believes that it is important to accelerate the rate of development for countries that are developing or least-developed, so that their improved level of economic development means they don’t need special and differential treatment.  One of the reasons some Members gave Dr. Fox for not wanting to be moved into a different category, was the concern over loss of trade preferences.  Dr. Fox used as an example, small coastal economies who can experience wide swings in per capita GDP based on external events (hurricanes, etc.) which can move them from high income to low income and back in short order.  Dr. Fox believes WTO Members must think creatively on how to address concerns of Members that giving up developing country status will put them in difficulties. On his example, he suggested using multiple year averages.

Conclusion

As the WTO has become a much more universal organization, membership has widely expanded beyond the historical developed country proponents of the GATT. At the same time, in recent decades there has been tremendous economic development by many countries which should mean that the ability of Members to handle full or increased obligations of the WTO has increased for many countries.

Yet, the current system does not provide a means for modifying obligations of Members who joined as developing country members regardless of the level of development achieved after joining. The view of some Members is that this disconnect between actual economic development and level of commitments undertaken has contributed to the inability to conclude negotiations. The issues raised by the United States have resulted in a few countries indicating that they will not seek special and differential treatment in ongoing or future negotiations. In at least one recent agreement, the Trade Facilitation Agreement, countries have assumed obligations based on their perceived need and not as a general right with the result of countries who may have self-selected developing country status taking on more obligations with lower or no delay in implementation than other developing countries.

For the incoming Director-General, finding a solution to this issue acceptable to all Members could be critical to unlocking progress on other negotiations.

The race to become the next WTO Director-General — where candidates are on important issues: reform of the Appellate Body

[Post updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova made at the WITA webinar on August 26. The post was previously updated on August 11 to incorporate comments by Minister Yoo Myung-hee of Korea at the WITA webinar that morning]

With less than a month to go before the last phase of the selection process begins for the next Director-General of the World Trade Organization, the eight candidates have engaged in large numbers of meetings (in person or virtually) with Missions in Geneva, with trade officials in capitals and have done outreach to the media and have participated in webinars put on by various organizations. These meetings and outreach are part of Phase 2 of the selection process where candidates make themselves known to the WTO Members. This phase ends on September 7.

All candidates are understandably guarded on specifics about many issues, all recognizing the WTO is a member driven organization. Similarly, with sharp divisions within the WTO membership, candidates are also careful not to express support for any of the major Members as a general rule. At the same time, all candidates have been asked about current pressing issues before the WTO and the topic of overall WTO reform.

Today’s post looks at how candidates have positioned themselves on one such issue — the impasse over the functioning of the Appellate Body.

Presentations to the General Council and Later Press Conferences

During the three days of meetings of the General Council in mid-July, each candidate was able to provide a statement of his/her vision for the WTO, answer questions posed by WTO Members and also had a thirty minute press conference. In a prior post, I had summarized the prepared statements and the press conferences. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/. In addition to prepared statements and press conferences after meeting with the General Council, I am also including selected comments made by the candidates during webinars held by the Washington International Trade Association (WITA) and the Asia Society Policy Institute (ASPI) with six of the candidates (through August 6; a seventh is scheduled for August 11).

On the topic of the Appellate Body, the eight candidates had the following public comments:

Dr. Jesus Seade Kuri (Mexico):

From his prepared statement to the General Council, Dr. Seade made it clear that a top priority for him if selected as the next Director-General would be to get the Appellate Body refunctioning, something he would work to see happened in the first 100 days he was Director-General: “It is also necessary to give back to the dispute settlement mechanism its strength and certainty.” (Google translation from Spanish) “Within the first hundred days: I will work closely with members in seeking to * * * ii. restore the second instance of the dispute settlement system.” (Google translation from French).

In the press conference, Dr. Seade was asked how he would address the Appellate Body impasse. My notes on his answer are as follows:

On the question of the Appellate Body impasse, Dr. Seade noted that none of the Members were denouncing any provision within the Dispute Settlement Understanding. Rather concerns had been voiced on how DSU provisions had been applied. Dr. Seade believes that what is missing is the way to operationalize the role of the Dispute Settlement Body (all WTO Members sitting as the DSB) which is organizationally above the Appellate Body but for which there are currently no procedures for communications from the DSB to the Appellate Body to address issues generally (vs. in specific disputes). Such procedures were needed. He also had other ideas for how to resolve the impasse that he was interested in reviewing with Members to see if there could be movement. On the question of the interim arbitration arrangement, Dr. Seade thought a temporary arrangement made sense as it provided Members a second stage to dispute settlement as provided in the DSU. Key is finding a solution to the impasse so the two-tier dispute settlement system is restored for all.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade addressed the need to get the Appellate Body functioning again. In pointing out why he would be the right person to be the next Director-General, Dr. Seade reviewed the importance of bringing to the table a knowledge of the underlying Uruguay Round negotiations and the purpose of the provisions in the agreements. He asked “Why is the U.S. frustrated with the Appellate Body?” It is because of the history of the negotiations and what was actually agreed to. Dr. Seade also viewed restoring the dispute settlement system as important to address problems other Members are having with China (in addition to negotiations on issues like industrial subsidies). He stated that the U.S. points about problems with the Appellate Body are good. The U.S. is not challenging the Dispute Settlement Understanding (“DSU”), but rather is arguing that the provisions of the DSU are not being respected by the Appellate Body. Thus, the problem is with the application of the DSU not the terms of the DSU as such. Dr. Seade believes that it is possible to find solutions that all Members can live with. He noted that the Appellate Body issue reflects different views of the DSU by the EU and the U.S.

Dr. Ngozi Okonjo-Iweala (Nigeria):

From her prepared statement, Dr. Ngozi Okonjo-Iweala had relatively short statements about the Appellate Body: “A refreshed WTO must find solutions to the stalemate over dispute settlement. It is clear that a rules-based system without a forum in which a breach of the rules can be effectively arbitrated loses credibility over time.” “I would also prioritize updating the rulebook, unlocking the dispute settlement system, working on transparency and notification, enhancing the work of regular bodies, and strengthen the Secretariat.”

While Dr. Ngozi Okonjo-Iweala was asked many questions at the press conference, none dealt with the Appellate Body.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/

Dr. Ngozi Okonjo-Iweala noted that addressing the Appellate Body impasse was a priority for the next Ministerial and repeated her view that a WTO without effective dispute settlement would lose its legitimacy over time.

In response to a question on how she would restore dispute settlement, Dr. Ngozi Okonjo-Iweala noted that there is a common desire among WTO Members to have the dispute settlement system work and function. The question is how. There is a common belief that the panel process has been working well, so that places the focus on the Appellate Body. To address the various issues that have been raised by the United States, the WTO has the work product of the Walker process (note: Amb. Walker (NZ) was a facilitator to the General Council in 2019 to see if he could work with Members to find a solution to issues raised by the U.S.). Some of the proposals made by Amb. Walker can be used to move the process forward. The U.S. is seeking to go back to what the existing Dispute Settlement Understanding requires — 90 days for decisions, not creating rights or obligations (“overreach”), Appellate Body members working on appeals after their terms have expired, etc. We should take them up one at a time and find solutions that work. Can Members agree that appeals should be resolved in 90 days? Very likely. Can Members agree that the Appellate Body is limited to reviewing issues of law and not reviewing fact finding by panels? Very likely.

Mr. Abdel-Hamid Mamdouh (Egypt):

Mr. Mamdouh in his prepared statement reviewed the challenge to the WTO from the imbalance resulting from growing importance of dispute settlement while the negotiating function has been reduced in effectiveness:

“In my view, over the past quarter of a century, the WTO has suffered from a chronic imbalance across all its vital functions. That is, dispute settlement, negotiation, and the transparency/deliberative functions

“In any legal system, there needs to be a balance between the ‘legislative’ and the ‘judicial’ functions. For the WTO, these are the negotiating and the dispute settlement functions. While dispute settlement gained strength due to the inherent automaticity of procedures, the negotiating function has broken down. This created an unsustainable imbalance.” (Page 3)

During the press conference, Mr. Mamdouh was asked about how to bring the Appellate Body back. My notes on his answer are as follows:

Asked what he would do to revive the Appellate Body, Mr. Mamdouh responded that he would build off of the work already done. Most logical and productive first step is to build on that work and see what else is needed. And there is a need to look deeper into causes which he believes are rooted in differences in legal and regulatory systems. Mr. Mamdouh has not heard any suggestions that rules within the Dispute Settlement Understanding need to be changed. He concluded by saying that the size of the problem needs to be put into perspective and one needs to remember that on this issue, the WTO Members are not starting from zero.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. There were no specific questions asked on dispute settlement, but Mr. Mamdouh provided some introductory thoughts on the genesis of the crisis in the WTO. He noted that the WTO has been suffering from a chronic imbalance between the negotiating function and the dispute settlement function.  He indicated that the negotiating function has underperformed miserably.  Dispute settlement system, being automatic adoption at the end of disputes absent a negative consensus has grown in importance and hence has created imbalance.  Mr. Mamdouh views that there is a critical need to reboot the negotiating function to help restore better balance.

Amb. Tudor Ulianovschi (Moldova):

Amb. Ulianovschi, in his prepared statement, had reform of the Appellate Body as a top priority for the incoming Director-General:

“Dispute Settlement

“The reform of the dispute settlement mechanism and particularly the reform of the Appellate Body will be one of the main priorities for the next Director General. This process needs to be open, inclusive and constructive. We need to find a way for all members to accept a two-step binding independent Dispute Settlement system.

“I believe that the issues and concerns were clarified by the members already and now they have to be addressed.

“I am aware of the on-going consultations on this important matter among the Members. In my opinion, there is a general common understanding on fundamentals of the DSU, which is already a good start.

“The least a DG can do is to facilitate discussions among Members to agree together on how to move forward and eventually agree on a roadmap and mechanisms – ‘agree on how to agree’ on this sensitive but crucial issue and devise a process of further engagement to reach an acceptable solution.”

During the press conference following his appearance before the General Council, Amb. Ulianovschi was asked several questions about the Appellate Body impasse. Below are my notes on Amb. Ulianovschi’s answers.

There were several questions on the Appellate Body including how Mr. Ulianovschi would reactivate the Appellate Body and whether reform of the dispute settlement system should be broader than getting the Appellate Body back functioning. Mr. Ulianovschi indicated that on the provisions of the Dispute Settlement Understanding, all Members agree on the provisions as written. With the application of the DSU by the AB, there are concerns raised by the U.S. and others. The Director-General can provide a process to help Member’s discuss. Solutions to the concerns raised need to be found, but the parameters of the solutions need to be found by members themselves. In his view, the Director-General’s role is to help Members identify how to move forward on the Appellate Body impasse with resolution by the next Ministerial Conference. On the question of breadth of action on the dispute settlement system, Mr. Ulianovschi stated that Members are not looking for a complete redrafting of the Dispute Settlement Understanding. What is needed is a targeted approach to address issues raised by certain members on the operation of the Appellate Body.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. Amb. Ulianovschi referenced the impasse on the Appellate Body (dispute settlement system) both in his opening statement at the webinar and in answer to a number of questions. My notes on his statements are provided below.

In his opening statement, Amb. Ulianovschi noted that as a member driven organization, the WTO needs Members to negotiate to move forward.  He believes that a diplomatically active Director-General can help the WTO move forward, and he can help address lack of trust which he believes is largely psychological primarily based on unfinished business but also on the dispute settlement impasse on the operation of the Appellate Body, Special and differential treatment and other issues.

Q:  How important is it to have a reform agenda, and how can you convince the major Members to agree on a common agenda?

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system.  Also the impasse on dispute settlement and the concerns raised by the United States and the EU position on an interim arbitration agreementwith MPIA.  He sees a positive signal that major players are putting forward proposals; this should be starting point for discussions.  He would invite those who have put forward proposals to start discussions.  The process will require political will, and members will need to agree on how to proceed).  Amb. Ulianovschi believes he can get Members to that point.  On dispute settlement, Members have the paper from Amb. Walker which can be used to move forward.  Will have to see how deep reforms will be.

Q:  If you are the next Director-General, what would be your priorities for the 2021 Ministerial Conference and how would you define success?

A:  In Amb. Ulianovschi’s view, the next Ministerial must show some results.  He believes the top priority would be completing the ongoing negotiations on fisheries subsidies, which is important to fulfill U.N. Sustainable Development Goal 14.6.  He believes that the Members are close to getting language agreed to.  Completing the fisheries subsidies agreement Is just the first step, but it is an important one.  On the current impasse on the Appellate Body (and hence the lack of a second-tier dispute settlement stage), Amb. Ulianovschi doesn’t see a clear cut resolution of the reform needed by the next Ministerial but rather hopes the Members will have a road map of how to proceed by the Ministerial. 

Q:  On dispute settlement, it is becoming quite clear that the divergences are growing between the Trump Administration and some of our trading partners.  Many Members have shared the view that there have been problems with the Appellate Body engaging in overreach in certain situations.  The recent Op Ed in the Wall Street Journal by USTR Lighthizer suggests that Amb. Lighthizer is looking to eliminate the Appellate Body and change the system so that panels’ role is limited to helping resove specific disputes between Members, more like commercial arbitration, without broader effect of the decisions.  Is it realistic to go back to a system without an Appellate Body?

A:  Amb. Ulianovschi responded that understand the U.S. concerns at the WTO on the Appellate Body both procedural (e.g., decisions within 90 days; Appellate Body members not involved in appeals after their four year term expires) and substantive (e.g., overreaching).  He recognizes that the U.S. concerns are shared by other members of the organization.  Amb. Ulianovschi believes that this is the moment to put forward different opinions on both problems and how to proceed, but all issues have to be negotiated.  The role of the Director-General is to put Members together to permit Members to present the details of their proposals.  In Amb. Ulianovschi’s view, the Recent Op Ed by Amb. Lighthizer is another idea put forward to find a solution to the ongoing problem at the WTO.  He has talked with all of the major Members on how to deal with the broader issue of Appellate Body reform.  The Director-General is there to encourage members to put forward proposals but also to use his/her good offices to encourage discussions.  Having said that, Amb. Ulianovschi noted that some Members have undertaken different initiatives under Rule 25 of the Dispute Settlement Understanding, such as MPIA, to provide a second-tier of review.  These initiatives are interim efforts.  Such actions don’t have to distract the Members from the main task of finding a common understanding on the purpose of the dispute settlement understanding or on a sustainable solution.  So the WTO Members have to identify the consensual solution and how we can ensure a compliance mechanism so that the system works as intended and agreed to.  This should be a top priority of the next Director-General.

H.E. Yoo Myung-hee (Republic of Korea):

In her prepared statement, Minister Yoo includes one paragraph on the Appellate Body impasse:

“Another urgent, pressing issue is restoring the dispute settlement system. We need a stable and fully-functioning dispute settlement system which would effectively contribute to the prompt and satisfactory resolution of the disputes. I will act as an honest broker to facilitate constructive discussions to find an effective and permanent solution.”

During the press conference, Minister Yoo was asked two questions about dispute settlement, one dealing with resolving the impasse on the Appellate Body and the other on the Multi-Party Interim Arbitration Agreement. My notes of Minister Yoo’s responses to these questions follows:

On the issue of The Appellate Bidy impasse, Minister Yoo was asked how she would solve the impasse. She indicated that Members have very divergent views on the role of the Appellate Body. All members understand the need for a two-tier dispute settlement system. If selected as the next Director-General, Minister Yoo would accelerate members’ consultations to resolve the issue.

On the interim arbitration mechanism adopted by the EU, China and about 20 other Members, Korea is not a party. Does Minister Yoo have any concerns that the interim arrangement (MPIA) might become permanent? Minister Yoo responded that the MPIA was being used by some Members to overcome the current vacuum with the Appellate Body being shut down. The key for the WTO is to focus on finding a permanent solution, and she would do that if selected as the next Director-General.

WITA had a webinar with H.E. Yoo scheduled on August 11,https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. My summary of Minister Yoo’s comments on dispute settlement follow.

from her opening comments: Restoring dispute settlement system is an urgent need.

Questions asked on Dispute settlement – do you share assessment of US and others that there have been problems of overreach by AB?  Secondly, there are procedural flaws that need to be addressed?  What can a DG do about it?

Minister Yoo’s response: Clearing impasse on the Appellate Body is a top priority.  The WTO needs a prompt resolution to restore the two-tier dispute settlement system.  There are divergent views of the proper role of the Appellate Body.  Some countries, like the United States, have said the Appellate Body has gone too far — overreaching by creating or diminishing rights and obligations of Members.  However, some members say that the Appellate Body has been working to clarify of the provisions of Agreements to provide stability to the multilateral trading system.  So there are competing views of what the role of the Appellate Body is supposed to be.  The Walker process has put forward certain ideas.  Still the gap is very wide between the two views.  If we look at three pillars of WTO (negotiations, notifications, dispute settlement), over the first 25 years of the WTO, there have been no major agreements from negotiations other than Trade Facilitiation Agreement. This failure of the negotiating function to work has put much strain on the dispute settlement system.  Members are resorting to dispute settlement to address issues not handled by negotiations.  So, lacking periodic updates through negotiations, it is easy for the Appellate Body to engage in creating obligations to fill gaps.  So Minister Yoo agrees to some extent with US (and others) about of overreach.  The question for the WTO and the incoming Director-General is how to move forward to find solutions acceptable to all.  There have been very divergent views within the WTO for a long time.  If Minister Yoo becomes the Director-General, she would try to increase communication with missions in Geneva and ministers in capital.  Need some political involvement to resolve the impasse.  Minister Yoo would also look at some ideas floated by academia as well to see if those views might provide different approaches that would be of interest of Members.  Several examples would include strengthening qualifications of AB members and what role of Appellate Body Secretariat should be, etc.  I would encourage Members to engage in open, transparent and inclusive discussions on these issues. 

Minister Yoo wanted to highlight importance of revitalizing negotiating function. If there is a more active negotiating functions, Members would be able to address needs to update and clarify agreements which should be done by Members and not the dispute settlment system.

H.E. Amina C. Mohamed (Kenya):

Minister Mohamed in her prepared statement reviewed the need for a functioning dispute settlement system:

“The WTO’s dispute settlement function is key to the credibility and effectiveness of the rules. We need to find a way through its problems to make it once again an instrument that all Members can use with confidence.”

During the press conference, Minister Mohamed was asked about the Appellate Body impasse. My notes on her response are as follows:

On the issue of how to remove the impasse on the Appellate Body, Minister Mohamed indicated that Members need to consult and negotiate. The WTO needs members to find solutions to permit the second-tier of dispute settlement to be restored. A Director-General DG can offer technical assistance and process to help Members find the solutions.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. Minister Mohamed had a number of comments about the Appellate Body impasse.

Restoring the Appellate Body is an important priority for the incoming Director-General.

The WTO dispute settlement process is key to the credibility and effectiveness of the WTO.  Members have been working for some time on finding solutions.  Minister Mohamed takes seriously US concerns about the operation of the Appellate Body. If she becomes Director-General, she will use her skills at building consensus to help Members find solutions.  Finding solutions is important so that the WTO Members can get back to a dispute settlement system that all can use.

Minister Mohamed was Chair of the Dispute Settlement Body in 2004.  She made sure that there was continuous flow of information from the Dispute Settlement Body to the Appellate Body.  She had lunch with the Appellate Body quarterly.  Issues she had been raising back in 2004 as of concern to Members remain unresolved today. 

WTO Members designed a system that was complete from negotiations to dispute settlement.  In Minister Mohamed’s view the system was designed really well.  Now there is a gap in the system with the inoperability of the Appellate Body.  The WTO needs to fill the gap quickly. Absent a resolution, some Members will comie up with an interim system (MPIA).  Thus, Minister Mohamed believes the WTO needs to deal with the issues raised by the United States urgently.  She agrees with some of the issues raised by the U.S.  Many of those same concerns were around in 2004 when she chaired the Dispute Settlement Body.  In her quarterly meetings with the Appellate Body, Minister Mohamed told the Appellate Body members that they had a specific mandate laid out by Members in the Dispute Settlement Understanding.  It was not the role of the Appellate Body to add to or diminish the mandate.  Minister Mohamed believes that Members need to see where the Appellate Body veered off of the mandate.  She believes that the new Director-General should look at te Walker process (note: Amb. Walker (NZ), as facilitator to the General Council in 2019 had met with Members to see if solutions to the U.S. concerns could be found) and see how to move forward.  But it is critical for the WTO to resolve the issues raised by the U.S. to permit the Appellate Body to resume.

H.E. Mohammad Mazaid Al-Tuwaijri (Saudi Arabia):

In his prepared statement, Minister Al-Tuwaijri referenced the challenges in the dispute settlement system but did not identify any specific approach to addressing Appellate Body reform if selected as the next Director-General other than his overall approach reviewed in the statement on all issues. Several quotes from his prepared statement follow:

“As you all know, the WTO has three main functions for monitoring trade issues, settling disputes, and negotiations, which include improvements to existing rules, new rules and market access.”

“We also need to recognize the consequences for the WTO of over-performance in litigation, while neglecting the negotiating and monitoring functions. A system out of balance cannot move forward.”

During the press conference, Minister Al-Tuwaijri was asked what his plan was to address U.S. concerns with the Appellate Body. My notes on his response are provided below.

On the Appellate Body, what is your plan to addressing U.S. concerns and do you plan to get it back functioning? Minister Al-Tuwaijri’s approach is the same as reviewed elsewhere. Determine what is the root cause of AB not functioning. He believes it is because negotiations are not functioning well. Therefore, he wants to get the negotiating process to improve and to gain data to improve the system. For example, he believes it is important to be able to quantify the effect of delay of even one month in resolution of disputes.

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/.

Minister Al-Tuwaijri provided some comments in his opening statement and responded to a question on the dispute settlement system.

The structure of the organization is not functioning – negotiations, dispute settlement, notifications.  Key is what type of change is needed to help organization be fit for the 21st century.

Minister Al-Tuwaijri believes the correct analysis for any issue is: what is the problem, what needs to be done, consult with the Members for possible solutions.

Does Dispute Settlement reform need to be taken up as a condition precedent to broader WTO reform?

In Minister Al-Tuwaijri’s view, the role the Director-General can play is resolving the impasse on the Appellate Body is somewhat limited. Can the Director-General help with a procedural question?  Yes. Is there an interpretation issue that the Director-General may be able to assist in resolving?  Yes.  In 2019, the General Council had Amb. Walker, acting as a facilitator, work with Members to see if solutions could be found to the issues raised by the U.S. So that work product is available.  The EU has also pursued a multi-party interim arbitration agreement to help at least some Members handle a second stage dispute process while the Appellate Body is not functioning.  Despite these efforts, there is the question why resolution of the impasse is not happening.  Minister Al-Tuwaijri believes that the answer goes back to his core point, the WTO must fix its negotiating function.  If Members want to change the rules on the operation of the Appellate Body, that is for the Members to decide.  As Director-General, Minister Al-Tuwaijri would encourage Members to think differently about the impasse and the options for finding solutions.

The Rt Hon Dr. Liam Fox MP (United Kingdom):

Dr. Fox’s prepared statement talked about many topics, including WTO reform, but did not speak specifically about the impasse on the Appellate Body or needed reforms to permit reactivating the second stage of dispute settlement.

During the press conference, Dr. Fox was asked about how he would address U.S. concerns with the WTO. My notes on his response are provided below:

A question was asked of how Dr. Fox would address the broad concerns of U.S. with the WTO. Dr. Fox noted that the U.S. has some very specific concerns with the WTO, particularly with regards to the Appellate Body. Dr. Fox stated that the WTO has the Appellate Body because countries felt panels in GATT disputes went too wide. The Appellate Body was set up with a limited mandate. He is aware that there are different views of the role of Appellate Body and whether it has engaged in mission creep or handled incomplete texts by filling them out. If WTO Members are able to get back to a more narrow definition of the function of the Appellate Body, there may be some concept of precedent being set. Dr. Fox asks the question, does everyone want the AB to be functioning properly or not. If not, the multilateral trading system is under threat as obligations can’t be enforced. Believe there is room for compromise.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. His comments on dispute settlement from the webinar are summarized below.

A rules-based system must have a functioning dispute settlement system, a top priority for the incoming Director-General.  To have a rules-based system without a functioning dispute settlement system is nonsensical.  For many countries, the dispute settlement system is the value added that membership in the WTO brings.

All members need to focus on adhering to the rules that they have already agreed to.  The WTO needs an effective dispute settlement system for that.  The WTO needs all Members to adhere to all rules they have signed up for and not decide that some rules don’t apply to them.

Questions asked of Dr. Fox: There have been some problems with the Appellate Body overreaching.  Do you agree we need a more realistic approach by Appellate Body where there is ambiguous language in an agreement?  How would you resolve the impasse on the Appellate Body?

Resolution of the Appellate Body impasse is the most urgent task facing the incoming Director-General.  Dispute Settlement is the value-added to many Members of joining the WTO.  Many members view the Appellate Body as having gone beyond the Dispute Settlement Understanding.  Moreover, the excessive length of time to render an appeal decision undermines the system by itself — Members violating their obligations can get a three-year free ride.  The WTO needs to tighten up the parameters and limit the areas that the Appellate Body examines.  While the Appellate Body can’t create binding precedent, the need for consistency supports the ability to review how issues have been handled in other cases.  Thus, looking at prior disputes makes sense, but the Appellate Body can’t create law through the process.

On any negotiation there are technical, political and timing issues. WTO Members are not going to see any concessions from the U.S. before the presidential election.  It may be possible for the U.S. to make compromises, but the timing of major political events affects the ability to do so.    

Conclusion

One of the major current challenges for the WTO and its Members is finding solutions to the impasse on the Appellate Body. The eight candidates for the Director-General post have all expressed views on the importance of resolving the issue and where in the hierarchy of issues to be addressed by an incoming Director-General the impasse is found. Presumably, most Members will be carefully considering each candidate’s views and suggested approach on all key issues, including resolving the Appellate Body impasse.

The fundamental disconnect between the EU (which has been reluctant to recognize any deviation from the Dispute Settlement Understanding by the Appellate Body) and the United States (which has focused on the limited role of the Appellate Body as laid out in the Dispute Settlement Understanding) remains. The role of honest broker and consensus builder that the incoming Director-General will assume later this year will be tested by the gulf in positions of two of the WTO’s major Members.

USTR Lighthizer on WTO dispute settlement, answers to Congressional questions from June 17 hearings

At the June 17 hearings before the U.S. House and Ways Committee and the U.S. Senate Finance Committee, the U.S. Trade Representative Robert Lighthizer testified about the Trump Administration’s 2020 trade agenda. While there were few questions during the hearing that were addressed to dispute settlement at the WTO, the Committees forwarded follow-up questions to Amb. Lighthizer for responses. Several dealt with WTO dispute settlement, in particular, reform of the Appellate Body (“AB”).

For example, Senate Finance Chairman Chuck Grassley (question 4) and Ranking Member Ron Wyden (question 16) each inquired about the next steps by the U.S. to achieving AB reform. Both Chairman and Ranking Member are strong supporters of achieving Appellate Body reform and limiting the Appellate Body to the role envisioned in the Dispute Settlement Understanding. Amb. Lighthizer’s answer to them was the same. Both questions asked and Amb. Lighthizer’s answer are provided below.

Chairman Grassley, Question 4
“I’m a strong supporter of reforming the WTO Appellate Body, but I’m worried that we still have not made any concrete proposal of our own for reforming dispute settlement. A number of allies who have been supportive of WTO reform have told me that they are discouraged by the continued lack of a proposal from the United States. Unfortunately, many of these countries are now signing up for the EU’s alternative: the Multiparty Interim Arbitration Arrangement.

“I believe we need to do more than identify problems. We need to propose and build consensus for solutions that will carry out what Congress understood it approved in 1995: binding dispute settlement on certain rules carefully negotiated by Members, not discovered by appointed judges. Accordingly, we need solutions that address overreach and other problems like the AB’s failure to follow the 90 day rule.

What efforts are you taking to develop a proposal that we can rally our allies around, and will you commit to working with Congress on it – as is required by the constitution and the law?

Ranking Member Wyden Question 16

“For more than a year, this Administration blocked approval for new Appellate Body Members in an effort to draw attention to concerns regarding the WTO dispute resolution system. I share these concerns, and I want them to be addressed. Last December these concerns captured the world’s attention when the Appellate Body became unable to hear new cases after the retirement of two judges left only one remaining judge. The United States has yet to put forward a reform proposal despite opposing other WTO members’ reform suggestions.

What are the next steps in addressing the problems at the WTO?

“Amb. Lighthizer Answer: The Administration is committed to working with any interested WTO Member to find solutions to the failure of the Appellate Body to follow WTO rules. This means first understanding what is the root of the problem: Why has the Appellate Body consistently broken WTO rules – that is, those rules agreed by WTO Members in the Uruguay Round and approved by the Congress in the Uruguay Round Agreements Act – despite every effort by U.S. Administrations to get it to stop.

“By exercising our right not to approve new members to the Appellate Body, the Administration has forced the WTO to engage in a long-overdue debate on this problem. My office also comprehensively detailed the Appellate Body’s pervasive rule-breaking in its Report on the Appellate Body earlier this year.1 The Report details the concerns expressed by the United States for more than 20 years and the repeated failure of the Appellate Body to apply the rules of the WTO agreements in a manner that adheres to the text of those agreements. The Report also highlights several examples of how the Appellate Body has altered WTO Members’ rights and obligations through erroneous interpretations of WTO agreements.

“Appellate Body overreaching has unfairly taken away U.S. rights and advantaged China. Through a series of deeply flawed reports, the Appellate Body has eroded the U.S. ability under WTO rules to counteract economic distortions caused by China’s non-market practices that harm our workers and businesses. For example, the Appellate Body’s erroneous interpretation of “public body” threatens the ability of WTO Members to counteract trade-distorting subsidies provided through state-owned enterprises, favoring non-market economies at the expense of market economies.

“The dispute settlement system should support, rather than weaken, the WTO as a forum for discussion, monitoring, and negotiation. The Appellate Body has facilitated efforts by some Members to obtain through litigation what they have not achieved – and could not achieve — through negotiation. If WTO Members believe in a rules-based trading system, then we must ensure the dispute settlement system follows the rules that WTO Members established. Without understanding the problem of why the Appellate Body has not followed the rules Members agreed to for it, simply writing new rules or affirming the existing rules in whatever form will not fix the problem. This is why we have continued to insist that Members need to understand why the Appellate Body does not consider itself bound by the rules so that we can find real, lasting solutions.

“Unfortunately, some of our trading partners – prominently, the EU and China – continue to deny that the Appellate Body has broken the rules. Rather than seeking reform in the areas of concern raised by the United States and other WTO Members, the EU and China have pursued an arbitration arrangement that incorporates and exacerbates some of the worst aspects of the Appellate Body’s practices. The numerous departures from agreed WTO rules in the EU-China arrangement highlight a fundamental difference among WTO Members: Some Members prefer an appellate “court” with expansive powers to write new rules and impose new obligations on the United States, instead of the more narrow appellate review as agreed to by Members in the DSU.

“The United States continues to engage with our trading partners and remains committed to working with any WTO Member that acknowledges U.S. concerns and is willing to work together to find real solutions and reform. I look forward to continuing to work with you and the Committee on these important issues.

“1 United States Trade Representative, Report on the Appellate Body of the World Trade Organization, February 2020, available at: https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf.”

In the questions from the House Ways and Means Committee members, one question dealt with WTO reform, and the answer from Amb. Lighthizer included not only reform of the WTO generally but also the needs for addressing Appellate Body overreach. See question 1 from Rep. Jason Smith:

“Rep. Jason Smith

“1. The World Trade Organization (WTO) is in urgent need of reform and modernization. For too long, the WTO has been left stagnant, unable to adapt to the challenges presented by a rapidly changing global economy. As a result, American manufacturing and other critical U.S. industries have suffered the consequences of a body that has time and again, sought to diminish US. sovereignty. I am pleased that you and President Trump have taken on this task and have put forth a vision for a reformed WTO that will better serve the interests of America and our allies. With that in mind, what steps are you and your team taking this year to advance the necessary solutions the WTO system desperately needs?

“Answer: We continue to engage extensively with WTO Members to pursue meaningful reform of the WTO. The United States is pleased that Brazil, Costa Rica, Korea, and Singapore have responded to our reform initiatives by agreeing to forego special and differential treatment in future WTO negotiations. We are continuing to work to ensure all countries are contributing to the WTO commensurate with their role in the global economy. The United States is also leading an effort to bring the WTO back to upholding its core principle of market orientation to ensure a level playing field for U.S. workers, farmers, and businesses. We have also advanced work on transparency, ensuring timely notifications that can help get the WTO back to its core function of negotiating new trade rules.

“Additionally, we cannot allow overreaching by the Appellate Body to continue to weaken our ability under WTO rules to address the harm to our workers and businesses caused by non-market practices such as China’s economic distortions. WTO Members must come to terms with the failings of the Appellate Body and understand the causes if we are to achieve lasting and effective reform of the WTO dispute settlement system. The United States will continue to engage with any WTO Member in order to restore the WTO dispute settlement system to the role given to it by WTO Members and to ensure that dispute settlement supports, rather than weakens, the WTO. The United States led a group of 11 Members to issue a statement calling for transparency in dispute settlement through open meetings and public submissions, and we will continue to work to persuade Members who did not join the statement (such as the EU, China, and India) to support greater transparency.”

No movement at the WTO

Now that the Appellate Body has been without three members for nearly eight months, one would have expected that negotiations would be intense to find a solution acceptable to the United States and the membership. But other than certain Members seeking at each Dispute Settlement Body meeting to get agreement to start looking for new Appellate Body members (which is blocked by the United States), there is no indication that any meaningful activities are being pursued in 2020 to resolve the longstanding concerns of the United States.

With Director-General Azevedo’s announcement on May 14 that he would step down as the Director-General at the end of August 2020, much attention within the WTO in recent months has understandably been focused on finding a new Director-General. The selection process will likely continue until early November. This makes it unlikely that any major effort to address U.S. concerns will happen in the remainder of 2020.

Similarly, as we are less than three months from U.S. Presidential elections, many WTO Members will likely prefer to wait to see the results of the election before engaging with the U.S. on its core concerns.

Some major Members, like the EU, keep talking about looking for permanent solutions. See August 3, 2020, European Commission, Directorate-General for Trade, The WTO multi-party interim appeal arrangement gest operational, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2176. “Commissioner for Trade Phil Hogan said: ‘With the agreed pool of arbitrators, the interim appeal arrangement for the WTO disputes is now up and running. * * * It shows that participating WTO members are willing to take concrete action to preserve an independent dispute settlement system with an appeal function. We can now turn our attention to finding a solution to the underlying problems through reform of the WTO Appellate Body and other aspects of the WTO system that need improvement.'” (emphasis added).

However, it has been the EU’s failure to recognize the departure of the Appellate Body from its limited role and the EU’s embrace of an Appellate Body creating rights and obligations that are not part of existing agreements that have significantly contributed to the problems identified by the United States. While Europe has shown some flexibility on addressing process issues, it has not acknowledged the serious overreach problems that the U.S. and many other Members have identified over the years. Thus, the EU concept of permanent solutions to the Appellate Body reform effort ignores core concerns of the U.S.

Conclusion

The U.S. has documented over the last several years the pervasive problems with the WTO’s dispute settlement system, particularly the actions of the Appellate Body. Since the Dispute Settlement Understanding already makes clear the proper role for the Appellate Body and the limitation on panels and the Appellate Body not to create rights or obligations, the U.S. insistence on Members focusing on why the Appellate Body has felt free to ignore the limits on its authority is understandable as a first step to determining what needs to be done to get the dispute settlement system back to what was agreed to by Members at the creation of the WTO. The U.S. concerns also explain its lack of support for a mere reaffirmation of the original Dispute Settlement Understanding language.

In prior posts, I have put forward thoughts on how one could make the original language self-executing or enforceable by Members to a dispute and hence address U.S. concerns if other countries will not focus on why the Appellate Body has been willing to ignore limits on its authority. See, e.g., July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

Absent an agreement among Members as to the reasons for Appellate Body departure from its limited role, Members will need to make modifications to the Agreement or to what is contained in binding interpretations that actually prevent future departures from the correct, limited role of the Appellate Body.

Don’t hold your breath that Members will find solutions any time soon.

U.S.-China Phase 1 Trade Agreement — Review of U.S. domestic exports through June 2020

As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020. See July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

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

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year (February 14, 2020-February 13, 2021).

As reviewed in earlier posts, some goods categories have data issues on the U.S. side (aircraft (orders and deliveries) show $0 exports for the entire period between 2017 and June 2020). Moreover, Amb. Lighthizer has testified to Congress that China is making some large agricultural purchases for shipments later in the year that don’t show up in the U.S. export data at the present time. Similarly, U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. However, services trade data with China for 2020 are not yet available. Total U.S. exports of services in the first half of 2020 to all countries was down 14.83%. Travel services were down more sharply, 46.32%. While the Phase 1 Agreement has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels), the data doesn’t presently exist to measure progress on services under the Phase 1 Agreement, though it is believed that China is far behind on its commitments to increase U.S. exports of services.

Looking just at U.S. domestic export data for goods to China for the period March – June 2020, China is far behind meeting the ambitious purchase commitments made with the United States for the first year of the Agreement.

Looking at total U.S. domestic exports to China for the period March-June 2020, U.S. exports were $31.0 billion ($7.761 billion/month) compared to $35.922 billion in 2017 ($.8.98 billion/month). In fact, 2018 shows the highest March-June exports to China ($40.998 billion ($10.249 billion/month). The March-June 2020 figures are below even 2019 which were $32.425 billion ($8.106 billion/month).

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49.026 billion in 2017 (full year). For the period March – June, 2020 figures for the 18 categories have increased 0.98% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 33.30%, and total exports to China are down 13.58%.

Thus, the first four months of the 1st year of the U.S.-China Phase 1 Agreement suggest that U.S. domestic exports will be $72.934 billion if the full year shows the same 0.98% increase over 2017; non-covered products would be $32.701 billion, for total U.S. domestic exports to China of $105.635 billion. This figure would be far below 2017, below 2018 and just 12.26% above 2019. It is obviously dramatically below the target of $184.0 billion.

Even accepting the steep decline in non-covered goods, the first year should result in total U.S. domestic exports of $167.683 billion if the increase in covered goods is achieved — an amount 58.7% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the July 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $114.114 billion ($14.264 billion/month) an amount more than twice the monthly rate of exports of the 18 categories to China in the March – June 2020 period.

Chinese data on total imports from all countries (in U.S. dollars) for January-June show a decline of 6.4% from the first six months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, June 2020 (in USD). China’s imports from the U.S. were down 4.8% during the same time period. Total U.S. domestic exports to China are down slightly more for the first six months vs. 2019, -4.99%.

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

Product categoryMarch-June 2017March-June 2020% change 2017-2020 March-JuneGrowth to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery $3724.8 $4130.5 +10.89%
2. electrical equipment and machinery $1426.7 $1634.3 +14.55%
3. pharmaceutical products $920.2 $936.9 +1.82%
4. aircraft (orders and deliveries)* NA NA NA
5. vehicles $3,675.8 $1,269.7 -65.46%
6. optical and medical instruments $1,086.8 $1,143.0 +5.17%
7. iron and steel $417.6 $164.2 -60.67%
8. other manufactured goods $3,481.9 $4,738.8 +36.10%
Total for mfg goods$14,733.8$14,017.5 -4.86% +86.18%**
Agriculture
9. oilseeds $1,029.7 $411.2 -60.07%
10. meat $216.7 1,156.4+433.72%
11. cereals $486.5 $616.4 +26.71%
12. cotton $317.0 $460.3 +45.21%
13. other agricultural commodities $1,583.4 $1,319.1 -16.69%
14. seafood $357.7 $285.0 -20.32%
Total for agriculture $3,990.9 $4248.3 +6.45% +50.26%
Energy
15. liquefied natural gas $42.2 $300.5+611.23%
16. crude oil $1,125.9 $1,811.1 +60.86%
17. refined products $608.8 $433.8 -28.75%
18. coal $164.7 $57.8 -64.91%
Total for energy $1,941.7 $2603.2 +34.07% +156.78%
Total for 1-18$20666.4$20869.0 +0.98% +85.08%**
  • HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-June 2020 period based on U.S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
  • The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first six months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen.

Conclusion

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

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement, there has been very little forward movement in expanding U.S. exports to China. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $62 – 78.4 billion.

The bilateral relationship is under increasing strains reflecting both reactions to China’s actions vis-a-vis Hong Kong, the disagreements on the COVID-19 pandemic, ongoing concerns in the United States about possible cyber espionage by Chinese entities which has resulted in the closure of a Chinese consulate in the U.S. and a retaliatory closure of one of the U.S. consulates in China, among other current flash points.

In such circumstances, it is hard to know whether China will fully implement the bilateral agreement or be willing to move forward on a Phase 2 negotiation. While the January – June data support a possible lack of interest by China in fulfilling the purchase agreement provisions, China has released its July data which show a significant increase in imports from the U.S. to $11.276 billion in July which is at least an improvement over the monthly figures for March-June ($7.761 billion/month). On the prospect for interest by China in addressing a Phase 2 negotiation, U.S. intelligence has indicated that China is hoping for a regime change in the U.S. through the November elections, a reading, if correct, which supports a likely wait-and-see approach on any renewed interest in negotiations.

Similarly, it is hard to know if the U.S. will view the agreement as being implemented by China sufficiently to move to the next stage. As the U.S. Administration is in full campaign mode, it is likely the U.S. Administration perceives more electoral value in identifying practices of concern by China than pursuing forward movement on any Phase 2 negotiations. The long distance that exists between current export levels and Agreement targets could well lead the U.S. to view the agreement on the subject of expanded exports to China as not being met and to pursue tariff action under the Agreement. September or October would be the likely months if there are not significant increases in trade volume. As noted, China reports significantly increased imports from the U.S. in July and USTR Lighthizer has indicated that there are large purchases of agricultural goods for late year delivery that are not reflected in U.S. export data. Thus, facts on the ground may lead to focusing Administration concerns with China on issues not involving the Phase 1 Agreement.

What is clear is that trade frictions between the world’s two largest economies are serious, reflect fundamental differences in economic systems, and are complicated by a myriad of other differences between the two nations.

COVID-19 — Adverse effects on gender equality and trade’s role in limiting the adverse effects on women

The UN 2030 Agenda for Sustainable Development agreed to in 2015 includes 17 broad sustainable development goals (“SDGs”). The fifth SDG is achieving gender equality and empowering all women and girls. The UN’s Sustainable Development Goals Report 2020 paints a grim picture of the challenge to meeting the gender equality SDG and the complications flowing from COVID-19. See https://unstats.un.org/sdgs/report/2020/The-Sustainable-Development-Goals-Report-2020.pdf. Specifically, pages 34 and 35 of the 2020 report review progress towards the fifth SDG. The text (but not the tables and charts) from pages 34-35 is copied below

Achieve gender equality and empower all women and girls

“International commitments to advance gender equality have brought about improvements in some areas: child marriage and female genital mutilation (FGM) have declined in recent years, and women’s representation in the political arena is higher than ever before. But the promise of a world in which every woman and girl enjoys full gender equality, and where all legal, social and economic barriers to their empowerment have been removed, remains unfulfilled. In fact, that goal is
probably even more distant than before, since women and girls are being hit hard by the COVID-19 pandemic. The crisis is creating circumstances that have already contributed to a surge in reports of violence against women and girls, and may increase child marriage and FGM. Moreover, women are likely to take on most additional care work owing to the closure of schools and day-care centres. They are also on the front lines in fighting the coronavirus, since women account for nearly 70 per cent of health and social workers globally.

COVID-19 is intensifying the risk of violence against women and girls

“The coronavirus pandemic lockdowns have confined many women and girls to their homes, sometimes with abusive partners, putting them at greater risk of domestic violence. Even before the pandemic, physical and sexual violence against women were all too common. According to surveys conducted between 2005 and 2017 in 106 countries, 18 per cent of ever-partnered women and girls 15 to 49 years of age experienced such violence by a current or former intimate partner in the 12 months prior to the survey.

“Already, data from several countries show an increase in reporting of domestic violence to helplines, women’s refuges and shelters, and the police. When considering such data, it is important to keep in mind that less than 40 per cent of women who experience violence report this crime or seek help. Being confined at home with an abusive partner and, in some countries, lacking access to mobile phones or the Internet, makes it more difficult for women to safely reach out for help. According to data from 66 countries over the period 2016 to 2018, mobile phone ownership among women was 6.8 percentage points lower than for men, on average. Women are also more likely to have their phones monitored by abusive or controlling partners. In addition, because of service disruptions and closures, women experiencing violence have less access to support and may not seek or be able to receive medical care, if needed.

The global pandemic could set back progress to end child marriage and female genital mutilation

“Marriage before the age of 18 is a human rights violation, mostly affecting girls, and can lead to a lifetime of disadvantage and deprivation. One in five women (20.2 per cent) between the ages of 20 and 24 was married before the age of 18 around 2019, compared with about one in four (23.8 per cent) 10 years earlier. Southern Asia has seen the greatest decline over this period. Today, the risk of child marriage is highest in sub-Saharan Africa, where more than one in three women (34.5 per cent) between the ages of 20
and 24 were married before the age of 18. School closures and widening poverty as a result of the pandemic could put more girls at risk.

“FGM is another blatant violation of human rights. At least 200 million girls and women have been subjected to FGM in 31 countries where the practice is concentrated; half of these countries are in Western Africa. Although this harmful practice has been declining, there are still countries where FGM is
almost universal – where at least 9 in 10 girls and women aged 15 to 49 years have been cut. Even in countries where the practice has become
less common, progress would need to accelerate by a factor of 10 to meet the global target of elimination by 2030, owing to population growth. COVID-19 is interrupting programmes to end FGM, which could threaten progress.

Women spend more time than men in unpaid work, a burden that is likely to get heavier during the pandemic

“In an average day, women spend about three times as many hours
in unpaid domestic and care work as men, according to the latest data from 89 countries and areas between 2001 and 2018. Time spent in these activities tends to be even higher for women with young children at home. In roughly 75 per cent of countries with trend data, a small decrease has been observed in the time spent by women on unpaid domestic and care work compared with that spent by men.

“The COVID-19 crisis is radically changing how people, particularly women, spend their time – often with a negative impact on their well-being. A poll conducted in 17 countries shows that both women and men are taking more responsibility for household chores and the care of children and family during the lockdown, but the majority of work continues to fall on
women and girls, reflecting a pre-pandemic pattern.

Women are increasingly assuming positions of power, but the world is still far from parity

“As of 1 January 2020, women’s representation in national parliaments (lower chamber and unicameral parliaments) had reached 24.9 per cent – up from 22.3 per cent in 2015. The share of female representation ranged from more than 30 per cent in Australia and New Zealand, Latin America and the Caribbean, and Europe to only 6.2 per cent in Oceania (excluding Australia and New Zealand). Data from 133 countries and areas show that women now have better access to decision-making positions at the local level, holding 36.3 per cent of elected seats in local deliberative bodies.
Only 13 per cent and 15 per cent of countries, respectively, have reached gender balance (40 per cent or more) in legislative bodies in national parliaments and in local government. This progress is largely attributed to legislated gender quotas.

“In 2019, women represented 39 per cent of the world’s workers and half of the world’s working-age population, but only 28 per cent of managerial positions (up from 25 per cent in 2000). Women face higher barriers than men in accessing employment. And when they do get a job, they are often
excluded from decision-making positions. In 2019, women accounted for 41 per cent of managerial positions in South-Eastern Asia and 40 per cent in Northern America, but only 8 per cent in Northern Africa.

“In the context of COVID-19, it is critical that women are fairly represented in leadership positions related to the pandemic. This will help to avoid deepening existing inequalities. It will also ensure that gender dimensions and investments in gender equality are included in response and recovery legislation, economic packages and budgets during and after the pandemic.

Women’s lack of decision-making power extends even to their own reproductive health

“Slightly more than half of all women (55 per cent) make their own decisions when it comes to sexual and reproductive health and rights, based on 2007–2018 data from 57 countries on women aged 15 to 49 who are either married or in union. The analysis also found that women have the most autonomy in deciding on the use of contraception (91 per cent). However, only three in four women are making their own decisions regarding health care or on whether or not to have sex.

“Progress on other fronts is encouraging: in 2019, countries had established 73 per cent of the laws and regulations needed to guarantee full and equal access to sexual and reproductive health and rights, according to data from 75 countries. The findings were particularly heartening when it comes to HIV. On average, countries had set in place 87 per cent of laws and regulations needed for HIV counselling and testing services; 91 per cent of those needed for HIV treatment and care services; and 96 per cent for HIV confidentiality. Meanwhile, countries had instituted 79 per cent of relevant laws and regulations that stipulate full, free and informed consent of individuals before they receive contraceptive services, including sterilization.”

The challenges for the world to achieve gender equality are daunting and in many ways not trade-connected. However, inequality in education, pay, access to capital and other issues have trade repercussions. Expanded trade has helped reduced some aspects of inequality. Government policies to address education and other elements can permit greater equality of opportunity and improve national competitiveness.

Trade and COVID-19

While COVID-19 is first and foremost a healthcare issue, the pandemic is having enormous economic consequences for countries around the world. A recent information note from the World Trade Organization, which builds on a World Bank and WTO report on trade and gender, reviews how women are being disproportionately harmed economically by COVID-19. The disproportionate adverse effects are making it harder to achieve gender equality and to empower all women and girls by 2030. The information note is dated August 3, 2020. See The Economic Impact of COVID-19 on Women in Vulnerable Sectors and Economies, Information Note, 3 August 2020, https://www.wto.org/english/news_e/news20_e/info_note_covid_05aug20_e.pdf. The World Bank and WTO report on trade and gender was released in July 2020, “Women and Trade: the role of trade in promoting gender equality”, https://www.wto.org/english/res_e/booksp_e/women_trade_pub2807_e.pdf.

While most business data are not collected on a gender specific basis, some information is available that reveals where there are higher levels of female employment. Some industries and service sectors where women have large numbers of workers have suffered serious contractions in work since the beginning of 2020 in response to efforts by governments to control the spread of COVID-19. One example presented in the information note is the textile/apparel sector where trade has been very severely affected by lockdowns and resulting reduced spending on clothing in many markets. Global value chains in the sector affect workers in many countries whether least-developed, developing or developed. Bangladesh is highlighted in the information note. In Bangladesh, ready-made garments comprised 84% of 2019 exports for the country. Eighty percent of the four million workers in the sector in Bangladesh are women. Economic reactions to the COVID-19 pandemic around the world resulted in a 45.8% reduction in business for Bangladesh’s ready-made garment companies in the first quarter of 2020 and an 81% contraction in April. Layoffs have been more than one million workers, mostly women. Depending on governmental safety nets and other economic opportunities in a country, a sharp contraction in a major manufacturing sector can set back efforts at gender equality and increase poverty as the Bangladesh example typifies.

Similarly, women have high employment levels in the travel and tourism sector around the world. Travel and tourism is another sector severely harmed by the response of countries to the COVID-19 pandemic. The UN World Tourism Organization has projected employment losses of as many as 100 million jobs in 2020 as international travel is severely restricted, governments impose restrictions on domestic travel and use of restaurants, bars, hotels, entertainment venues and more by the public and visitors is greatly reduced.

The information note provides a useful summary of the key points on how COVID-19 is impacting women. The following is copied from page 1 of the information note.

“KEY POINTS:

“• Women are at risk of suffering more than men from the trade disruption generated by the COVID-19 pandemic. One of the reasons for this is that a larger share of women works in sectors and types of firms that have been particularly hard-hit by the pandemic.

“• Women make up a larger share of the workforce in the manufacturing sectors, such as textiles, apparel, footwear and telecommunication products, that experienced some of the largest falls in export growth during the first months of the pandemic. For example, female employees
represent 80 per cent of the workforce in ready-made garment production in Bangladesh, in which industry orders declined by 45.8 per cent over the first quarter of 2020, and by 81 per cent in April alone.

“• A larger share of women than men works in services, such as tourism and business travel services, that have been directly affected by regional and international travel restrictions.

“• A large share of firms owned or managed by women are micro, small and medium-sized enterprises (MSMEs), and lower levels of financial resources and limited access to public funds are placing the survival of such businesses at greater risk.

“• The economic impact of the pandemic is expected to be particularly significant for women in least-developed and developing economies because fewer women than men are employed in these economies in occupations which can be undertaken remotely, and a larger share of women is employed in sectors highly exposed to international travel restrictions.

“• The effects of the pandemic are aggravating existing vulnerabilities. Many channels through which COVID-19 is having a greater impact on women are those at the heart of gender inequalities, such as lower wages for women, fewer educational opportunities, limited access to finance, greater reliance on informal employment and social constraints. Limited access to digital technologies and lower rates of information technology (IT) skills further reduce women’s opportunities for teleworking and e-commerce, and thus for adapting to the current crisis.

“• Many governments have adopted a broad range of support measures to help individuals and businesses. Some of these measures, mainly social protection initiatives adopted by some central or local governments, are specifically targeted at women.

“• Maintaining open trade during the economic recovery period is key to building faster and more inclusive growth.

“• The joint World Bank and World Trade Organization report on trade and gender, “Women and Trade: the role of trade in promoting gender equality”, published in July 2020, highlights ways in which trade can continue to benefit women in the post-COVID-19 recovery period.”

Keeping trade open will increase trade flows, increase jobs in agriculture, manufacturing, and services and will increase income of people around the world. With the sharp contraction in trade in the first half of 2020, a rapid rebound in trade is critical to support efforts at achieving gender equality.

For countries who don’t have the pandemic under control, the school year presents additional challenges

As the UN 2020 report points out, women bear the brunt of child care. In countries with households where both parents work or where there is a single female adult household, child care and school are critical elements of the infrastructure needed for the parent or both parents being able to work outside of the home.

In the United States, where we are still struggling to get the COVID-19 pandemic under control, parents now face the additional challenge of how to respond to the coming school year. While the Administration is urging all states to open all schools for in-school attendance immediately, the reality is likely to be significantly different based on the science and current rate of spread of COVID-19 in many states. Some school districts have indicated that school openings will be delayed several months. Others will handle school for at least the fall semester remotely. Some are looking at doing part of the school semester remote for each student and part where each student attends the school in person. Finally some schools intend to open requiring students to attend in person. Many school teachers are striking to keep schools closed where it is viewed as unsafe to reopen.

The experience of some school districts that have already opened is mixed in terms of whether a large number of COVID-19 cases arise. Problems with the rise in number of new cases following school reopening have also been reported by at least some countries who have done a much better job of controlling the COVID-19 pandemic than the United States. Israel, for example, has had a sharp increase in infections since reopening schools despite earlier good progress in controlling the spread of the coronavirus.

What U.S. federal stimulus programs will look like going forward for the rest of the year is not presently known. Parents are facing many challenges including whether to send children to school during the pandemic and if not how child care will be handled and who will provide in-home education/support.

News reports indicate that many mothers are making the decision to take on the child care and home education responsibilities, which will mean reduced outside-the-home economic activity for the mothers.

The most important action for the U.S. is to double down on getting the pandemic under control as quickly as possible, something we don’t have a national game plan to actually accomplish at the moment. In addition, government policies and assistance programs that get adopted/extended and private sector support of employees to permit greater telecommuting and flexible hours may hold the key to reducing the negative effects of women during the pandemic.

Conclusion

The COVID-19 pandemic has caused massive health challenges around the world and seen countries suffer the greatest economic contraction since World War II. The economic fallout from the efforts of governments to control the pandemic is harming the ability of the world to make progress on many of the UN’s sustainable development goals. SDG #5, achieving gender equality and empowering all women and girls is one of the SDGs being negatively affected.

Both during the pandemic and afterwords, it is critical that countries, businesses, multilateral organizations and others focus on pursuing actions that will minimize the loss of forward movement on achieving the SDG dealing with gender equality. In the trade arena, reducing uncertainty by keeping markets open, identifying steps that can be taken to expand liberalization particularly in goods or services employing large numbers of women, seeing that access to financing and trade finance has a focus on MSMEs, expanding infrastructure and education for broader internet access for populations with limited access at present are some of the needs for minimizing the global economic damage from the pandemic and helping promote greater gender equality.

U.S. Senate Finance Committee Hearing on WTO Reform: Making Global Rules Work for Global Challenges

On July 29, 2020, the United States Senate Finance Committee held a hearing on WTO Reform: Making Global Rules Work for Global Challenges. The hearing had four witnesses, including two prior Appellate Body Members (Jennifer Hillman and Thomas Graham) and two others.

Senators generally agreed that the dispute settlement system was in need of reform to address long standing U.S. concerns about overreach and other matters. At the same time, Senators view the WTO as an important organization where U.S. leadership is important to address problems and changing needs.

While most U.S. agricultural interests were perceived to have been generally upheld well through dispute settlement, concern was expressed with the Country of Origin Labeling (“COOL”) decision affecting the labeling of meat from animals imported into the United States.

There was broad concern about the problems created by Appellate Body overreach in the areas of trade remedies. For some, there is a belief, confirmed by at least one of the former Appellate Body members, that there has been a bias against trade remedy use by the U.S.

The hearing lasted about two hours and can be seen here. https://www.finance.senate.gov/hearings/wto-reform-making-global-rules-work-for-global-challenges. The prepared statements of the Senate Finance Committee Chairman and Ranking Member and of the witnesses are available for download from the same link.

Written comments to the Committee are accepted for two weeks (til August 12). I am submitting written comments today and provide them in the embedded document below.

August-4-2020-statement-to-Senate-Finance-Committee

As I note in my comments, U.S. concerns center around overreach – the creation of rights and obligations not contained in the agreements themselves. Such concerns can be addressed through clarifying that DSU Art. 3.2 and 19.2 prevent panels and the Appellate Body from filling gaps, construing silence and construing ambiguous provisions. Any clarification of those articles must be accompanied by an ability to correct prior decisions. My prior blogs have provided one suggestion which would address not just U.S. but other Member concerns about overreach.

On the other issues of concern to the U.S., any resolution must provide a means for the DSU terms to be enforced by Members where panels or the Appellate Body wander afield.

World Health Organization — July 31 meeting of Emergency Committee regarding the outbreak of coronavirus disease and July 30 note on public health considerations while resuming international travel

COVID-19 is first and foremost an international health challenge. The World Health Organization (“WHO”) spearheads international efforts at developing and communicating information on the coronavirus, coordinating efforts at addressing the health response and working with other organizations to help countries around the world obtain needed medical supplies and to facilitate best practices in addressing the pandemic. While the United States has given notice of its withdrawal from the WHO (which takes effect six months after the notice), the WHO is a critical organization for a coordinated response to health pandemics such as COVID-19. For example, the WHO put out on February 3, 2020, a publication entitled, “2019 Novel Coronavirus (2019-nCoV): Strategic Preparedness and Response Plan” and followed that up last month with a progress report covering 1 February to 30 June 2020. See https://www.who.int/docs/default-source/coronaviruse/covid-strategy-update-14april2020.pdf?sfvrsn=29da3ba0_19; https://www.who.int/publications/m/item/who-covid-19-preparedness-and-response-progress-report—1-february-to-30-june-2020. These types of publications provide important information to nations around the world as well as documenting progress being made in controlling the spread of the pandemic.

This post looks at several recent activities of the WHO.

July 31, 2020 4th Meeting of the Emergency Committee regarding the outbreak of coronavirus disease (COVID-19)

On July 31, a meeting of health experts from around the world was convened by the WHO’s Director-General under the Inernational Health Regulations (IHR)(2005). It was the fourth meeting of the Emergency Committee regarding the outbreak of coronavirus disease (COVID-19). A statement was released from the meeting on August 1. https://www.who.int/news-room/detail/01-08-2020-statement-on-the-fourth-meeting-of-the-international-health-regulations-(2005)-emergency-committee-regarding-the-outbreak-of-coronavirus-disease-(covid-19).

Much of the work of the Emergency Committee is confidential but the statement released includes a summary of issues reviewed and advice provided to the WHO and to States Parties. As reviewed in yesterday’s post, the number of new COVID-19 cases continues to increase around the world. While most of the growth is in developing and least-developed contries, the United States continues to experience huge numbers of new cases, increasing hospitalizations and increasing deaths. Many other developed countries are seeing some resurgence of cases as their economies reopen. See August 2, 2020,  Review of the COVID-19 pandemic – continued growth in cases and deaths, resurgence in some countries where COVID-19 had receded, https://currentthoughtsontrade.com/2020/08/02/review-of-the-covid-19-pandemic-continued-overall-growth-in-cases-and-deaths-resurgence-in-some-countries-where-covid-19-had-receded/.

While many developing and least-developed countries have had relatively small numbers of cases, that is not true for all such countries. Moreover, the sharp contraction in GDP and trade volumes in developed countries and developing countries with large numbers of cases has meant that the economic damage for many of the poorest countries is mounting and is debilitating. The World Bank and IMF are both actively engaged in providing financial assistance to many developing and developed countries. Still the World Bank’s June 2020 Global Economic Prospects estimates that COVID-19 will result in 71-100 million people being pushed into extreme poverty. See https://www.worldbank.org/en/topic/poverty/brief/projected-poverty-impacts-of-COVID-19; World Bank, Global Economic Prospects, June 2020, https://openknowledge.worldbank.org/handle/10986/33748.

Thus, with the continued growth in global cases, the increased concentration in developing and least-developed countries and the huge economic effects occurring as countries try to reduce the spread of COVID-19, it is not surprising that the Emergency Committee “unanimously agreed that the pandemic still constitutes a public health emergency of international concern.” The WHO’s Director-General included a declaration to that effect in the statement released on August 1.

Below is the advice the Committee provided to the WHO Secretariat and the temporary recommendations to State Parties (all material to the next header is from the statement):

Advice to the WHO Secretariat

  1. Continue to distill and rapidly communicate lessons learned and best practices from the COVID-19 pandemic and national
    intra-action reviews.
  2. Continue to coordinate and mobilize global and regional multi- lateral organizations, partners and networks for robust political
    commitment and resourcing of COVID-19 pandemic preparedness and response, including for development of vaccines and
    therapeutics.
  3. Provide nuanced, pragmatic guidance on criteria for appropriate COVID-19 response activities to reduce the risk of response fatigue in the context of socio-economic pressures.
  4. Continue to support State Parties and partners in conducting active and community-based COVID-19 surveillance, through technical and operational resources, such as guidance, tools, and trainings on case definitions and identification, contact tracing, and death certifications; encourage State Parties to continue reporting relevant data to WHO through platforms such as the Global Influenza Surveillance and Response System.
  5. Accelerate research into remaining SARS-CoV-2 critical unknowns, such as the animal source and potential animal reservoirs, and improve understanding of the epidemiology and severity of COVID-19 (including its long-term health effects; viral dynamics such as modes of transmission, shedding, potential mutations; immunity and correlates of protection; co-infection; as well as risk factors and vulnerabilities) and the effectiveness of public health measures.
  6. Continue to work with partners to counter mis/disinformation and infodemics by developing and disseminating clear, tailored
    messaging on the COVID-19 pandemic and its effects; encourage and support individuals and communities to follow recommended public health and social measures.
  7. Support diagnostics, safe and effective therapeutics and vaccines’ rapid and transparent development (including in developing countries) and equitable access through the Access to COVID-19 Tools (ACT) Accelerator; support all countries to implement the necessary clinical trials and to prepare for the rollout of therapeutics and vaccines.
  8. Work with partners to revise WHO’s travel health guidance to reinforce evidence-informed measures consistent with the provisions of the IHR (2005) to avoid unnecessary interference with international travel; proactively and regularly share information on travel measures to support State Parties’ decision-making for resuming international travel.
  9. Support State Parties, particularly vulnerable countries, in strengthening their essential health services and accompanying
    supply chains as well as preparing for and responding to concurrent outbreaks, such as seasonal influenza.

Temporary recommendations to State Parties

  1. Share best practices, including from intra-action reviews, with WHO; apply lessons learned from countries that are successfully
    re-opening their societies (including businesses, schools, and other services) and mitigating resurgence of COVID-19.
  2. Support multilateral regional and global organizations and encourage global solidarity in COVID-19 response.
  3. Enhance and sustain political commitment and leadership for national strategies and localized response activities driven by science, data, and experience; engage all sectors in addressing the impacts of the pandemic.
  4. Continue to enhance capacity for public health surveillance, testing, and contact tracing.
  5. Share timely information and data with WHO on COVID-19 epidemiology and severity, response measures, and on concurrent disease outbreaks through platforms such as the Global Influenza Surveillance and Response System.
  6. Strengthen community engagement, empower individuals, and build trust by addressing mis/disinformation and providing clear guidance, rationales, and resources for public health and social measures to be accepted and implemented.
  7. Engage in the Access to COVID-19 Tools (ACT) Accelerator, participate in relevant trials, and prepare for safe and effective therapeutic and vaccine introduction.
  8. Implement, regularly update, and share information with WHO on appropriate and proportionate travel measures and advice, based on risk assessments; implement necessary capacities, including at points of entry, to mitigate the potential risks of international transmission of COVID-19 and to facilitate international contact tracing.
  9. Maintain essential health services with sufficient funding, supplies, and human resources; prepare health systems to cope with seasonal influenza, other concurrent disease outbreaks, and natural disasters.

Travel and Tourism

In prior posts, I have reviewed the devastating economic consequences of the pandemic on the travel and tourism sector of global economies as countries have restricted entry of people from many countries to reduce the likelihood of travelers having and spreading COVID-19. See April 30, 2020, The collapse of tourism during the COVID-19 pandemic, https://currentthoughtsontrade.com/2020/04/30/the-collapse-of-tourism-during-the-covid-19-pandemic/; May 3, 2020, Update on the collapse of travel and tourism in response to COVID-19, https://currentthoughtsontrade.com/2020/05/03/update-on-the-collapse-of-travel-and-tourism-in-response-to-covid-19/.

The airline industries around the world are in serious trouble, as are restaurants, bars, hotels, sports and entertainment venues and more. The reduced level of air traffic has greatly reduced air cargo availability which has increased costs for many products. At the same time, countries have struggled to find ways to expedite movement of medical goods and permit the travel of essential personnel (e.g., health professionals, transportation employees, etc.). There are not uniform standards being applied by countries on access of international travelers which means confusion and less movement than would happen under agreed rules.

On July 30, the WTO released a document, entitled “Public health considerations while resuming international travel”. The link follows and the document is embedded below. https://www.who.int/news-room/articles-detail/public-health-considerations-while-resuming-international-travel.

Public-health-considerations-while-resuming-international-travel

The paper advises each country to conduct a risk-benefit analysis and decide on the national priorities of permitting the return/expansion of international travel.

“WHO recommends that priority should be given to essential travel for emergencies, humanitarian actions (including emergency medical flights and medical evacuation), travel of essential personnel (including emergency responders and providers of public health technical support, critical personnel in transport sector such as seafarers[5] and diplomatic officers), and repatriation. Cargo transport should also be prioritized for essential medical, food and energy supplies. Sick travellers and persons at risk including elderly travellers and people with chronic diseases or underlying health conditions, should delay or avoid travelling internationally to and from areas with community transmission.

“There is no ‘zero risk’ when considering the potential importation or exportation of cases in the context of international travel. Therefore, thorough and continuous risk assessment and management will help identify, reduce and mitigate those risks, while balancing the socio-economic consequences of travel measures (or temporary restrictions) against potential adverse public health consequences.

“The decision process should include an analysis of the situation, taking into account the local context in countries of departure and destination. The following factors should be considered: local epidemiology and transmission patterns, the national public health and social measures for controlling the outbreaks in both departure and in destination countries; public health and health service capacity at national and subnational levels to manage suspect and confirmed cases among travellers, including at points of entry (ports, airports, ground crossings) to mitigate and manage the risk of importation or exportation of the disease; and the evolving knowledge about COVID-19 transmission and its clinical features.”

All countries need to find ways to handle the travel of essential personnel and those involved with emergencies. However, as the note makes clear, while expanding international travel is important for countries, there are a host of considerations that will make movement of non-essential travel dependent on a range of considerations, including the extent to which the pandemic is under control in either the country from which passengers are travelling or in the country of entry. The EU’s list of countries from which non-essential travelers will be permitted into the EU is an example of the approach suggested by the WHO focusing on the extent of the spread in the country from which travelers would leave to arrive in the EU.

What the WHO note makes clear is that the fastest route to reopening of international travel safely is for greater cooperation among countries to both control the spread of COVID-19, for greater transparency in how governments are addressing emerging situations, and for greater attention to the level of health care preparedness to handle surges including testing, tracing and any needed quarantine capabilities.

Considering how quickly situations can change in a given country, an additional challenge for countries reopening international travel will be the flexibility and responsiveness of the country to changing health conditions in trading partners (and in its own country) over time.

Conclusion

The challenges of individual nations in addressing the COVID-19 pandemic should be made more manageable through cooperation with other nations and the work of multilateral organizations including the World Health Organization. Many countries have worked cooperatively to share information, including on research and best practices. The WHO provides a great deal of support to countries and serves as a gathering point for information to improve transparency in the health care responses around the world.

WTO Members need to address trade restrictions that have arisen as countries attempt to slow the spread of the COVID-19 pandemic. Reopening trade and keeping it open are critical to the ability of countries to minimize the economic fallout that has occurred in the first half of 2020 and will continue at least in part in the third quarter and likely beyond. Yet, the ability to keep markets open and increase international travel is complicated by the myriad differences between nations on factors like the level of COVID-19 infection, the health care infrastructure and ability of that infrastructure to handle surges where they occur. The WHO plays a critical role in helping nations understand the tools available to address the pandemic and the considerations that need to be taken into account when reopening markets, including international travel.

Review of the COVID-19 pandemic — continued overall growth in cases and deaths, resurgence in some countries where COVID-19 had receded

This past week saw the release of information on GDP contraction in the U.S. in the second quarter of 2020 (9.5% (annualized at 32.9%)) and in the European Union (11.9%). See U.S. Department of Commerce Bureau of Economic Analysis, News Release BEA 20-37, Gross Domestic Product, Second Quarter 2020 (Advance Estimate) and Annual Update, https://www.bea.gov/sites/default/files/2020-07/gdp2q20_adv_0.pdf; Eurostat newsrelease 121/2020 – 31 July 2020, Preliminary flash estimate for the second quarter of 2020, GD down by 12.1% in the euro area and by 11.9% in the EU, https://ec.europa.eu/eurostat/documents/2995521/11156775/2-31072020-BP-EN.pdf/cbe7522c-ebfa-ef08-be60-b1c9d1bd385b#:~:text=The%20next%20estimates%20for%20the,released%20on%2014%20August%202020.&text=Compared%20with%20the%20same%20quarter,respectively%20in%20the%20previous%20quarter. Japan has similarly suffered substantial contraction in its GDP through the second quarter. See https://asia.nikkei.com/Economy/Japan-GDP-to-shrink-22-in-Q2-in-biggest-postwar-drop-forecast.

These sharp contractions in U.S. and EU GDP reflect the effects of the actions by governments in the U.S. and in the EU to shut down parts of their economies in an effort to control the spread of the COVID-19 pandemic. The sharp contractions would have been far worse but for government efforts to provide emergency funding to support companies, workers and local governments. While the COVID-19 pandemic has been far less severe in terms of cases and deaths in Japan and in other countries in Asia, contraction in GDP reflects both declining consumer spending and global effects of trade contraction that are occurring.

China, where COVID-19 infections were first discovered, saw a decline in GDP in the 1st quarter of 2020 with a rebound in the second quarter to a 3.2% increase. See CNBC, China says its economy grew 3.2% in the second quarter this year, rebounding from coronavirus, July 15, 2020, https://www.cnbc.com/2020/07/16/china-economy-beijing-reports-q2-2020-gdp.html.

The sharp contractions in GDP from much of the developed world is consistent with projections by the IMF from June 2020. A summary table from the World Economic Outlook Update is copied below.

The hope was that after a sharp contraction in the second quarter, the world would experience a v-shaped recovery once the pandemic was brought under control in much of the world.

As we start August 2020, expectations are turning to a longer and shallower rebound in the third and fourth quarters of 2020 which will negatively affect billions of people. The world has not yet crested in terms of new COVID-19 cases and countries that had gotten the virus seemingly under control are seeing various levels of resurgence. The United States which never got the virus under control has seen a second surge that has reached levels at least twice as high as earlier levels of new cases and has seen a resurgence in hospitalizations and deaths.

There are a few bright spots. Some countries have managed to drastically reduce the spread of the virus and have been reopening in phases with limited recurrence. Moreover, a number of pharmaceutical companies have entered phase three trials of vaccines, and governments have fronted billions of dollars to build capacity for vaccines should they prove safe and effective. While major countries like the U.S. and the EU block have secured access to potentially hundreds of millions of doses from various companies should vaccines in trial receive approval for distribution, at least a number of these pharmaceutical companies (or consortia) have arrangements for massive production around the world including billions of doses for developing and least developed countries which should enable a more equitable and affordable distribution than may have been true in the past.

COVID-19, the number of new cases in the last fourteen days

Looking at the daily reports put out by the European Centre for Disease Prevention and Control, the world saw an additional 3,568,162 cases in the fourteen days ending August 2nd. This was an increase of some 550,000 from the previous fourteen days ending July 19 where new cases were 3,018,993. The July 19 two week figures were again up close to 550,000 from the period ending July 5 when there were 2,469,859 cases. The period ending June 21 has 1,932,024 new cases; the period ending June 7 had seen an additional 1,567,983 new cases. Thus, in less than two months the global number of new cases in a fourteen-day time period increased by 127.56 percent. The COVID-19 situation update worldwide, as of 2 August 2020 is embedded below.

COVID-19-situation-update-worldwide-as-of-2-August-2020

Fourteen of the forty-two countries or customs territories that I have been tracking who account for more than 90% of total cases and total deaths from the pandemic continue to not have peaked in terms of two week number of new cases. See July 21, 2020, COVID-19 – the United States continues to spin out of control with increasing shortages of medical goods; sharp increases in developing countries in the Americas and parts of Asia, https://currentthoughtsontrade.com/2020/07/21/covid-19-the-united-states-continues-to-spin-out-of-control-with-increasing-shortages-of-medical-goods-sharp-increases-in-developing-countries-in-the-americas-and-parts-of-asia/. Japan, which had peaked a number of months ago, has a resurgence of cases, so much so that the last two weeks (11,439 new cases) exceed any other two week period for the country. Other countries which have not peaked include the United States (908,980 new cases), India (673,105 new cases) Brazil (633,017 new cases), Colombia (115,481 new cases), Mexico (95,280 new cases), Argentina (72,001 new cases) and these additional countries — Bolivia, Dominican Republic, Ecuador, Honduras, Indonesia, Iraq, and the Philippines). South Africa peaked in the prior two week period but still had an additional 152,411 new cases (93.56% of its peak).

Many developed countries have seen sharp increases in the last two weeks, albeit from much lower levels than in the spring. These include Spain, France, Germany, Italy, Canada, Australia and Japan.

Many developing and least-developed countries in Central and South America, Africa and parts of Asia are seeing growing numbers of cases. While some of these countries have seen a peak in the number of new cases, for others that is not true. India and Brazil are continuing to struggle to contain the spread as are the Latin and Asian countries reviewed above.

In the last two weeks, the United States had more new cases per 100,000 population than all of the other 41 countries being monitored other than Brazil and Panama. The U.S. number of new cases per 100,000 population was 5.88 times the number for all countries (including the U.S) and 4-50 times as high as major EU countries. And on deaths in the last fourteen days, the U.S. has more deaths per 100,000 population than all of the other 41 countries other than Brazil, Mexico, Peru, South Africa, Chile, Bolivia, Colombia and Panama. The U.S. death rate in the last fourteen days is 3.95 times the rate/100,000 population for the entire world and 25-87 times the rate for major EU countries (France, Germany, Italy, Spain).

WTO Members have the opportunity to adopt rules to minimize trade disruptions and expedite economic recovery

Many Members of the WTO have submitted proposals for action by the Membership to minimize the harm to global economies and trade flows from addressing trade restrictions, trade liberalization possibilities and other matters within the WTO’s wheelhouse.

In a previous post, I reviewed the July 25 APEC trade ministers joint statement and annex which in my view could provide the platform for WTO Members coming together to adopt a group of principles that have been endorsed not only by the APEC countries but also by G-20 members (in various G-20 releases). See July 28, 2020, APEC trade ministers’ virtual meeting on July 25 – Declaration on Facilitating the Movement of Essential Goods during COVID-19, https://currentthoughtsontrade.com/2020/07/28/apec-trade-ministers-virtual-meeting-on-july-25-declaration-on-facilitating-the-movement-of-essential-goods-during-covid-19/.

The WTO, being a member-driven organization, requires the WTO Members to come together for the common good if progress is to be made. While recent actions on seemingly non-substantive issues, like selecting an acting Director-General (largely an administrative function pending selection of a new Director-General), lay bare the lack of trust and widely divergent views among WTO Members, adopting basic principles for getting through the pandemic should be a win-win for all Members.

Conclusion

The COVID-19 pandemic is continuing to wreak havoc across the globe with new cases and new deaths continuing to mount. The health consequences are severe and are increasingly shifting to developing and least-developed countries. However, some developed countries, like the U.S., have not gotten the virus under control. Moreover, a number of countries who have had success controlling the spread of COVID-19 are seeing a resurgence as reopening of economies continues. This has led some countries to slow or even reverse some of the reopening steps.

As the sharp economic contractions in major developed economies attest, there are huge economic costs to dealing with the pandemic. The economic rebound is unlikely to be as strong or as quick as many have hoped. While much of what is needed is focus by each country and its citizenry to follow the science and get the pandemic under control, there is also an important role for multilateral organizations to play in keeping markets open, providing financing for those in need and more. The WTO has a potentially important role on the trade front. It is unclear that WTO Members will embrace the opportunities presented, but if Members would it would reduce the depth of the trade contraction and help speed economic recovery.

WTO selection of next Director-General — phase three process; no acting Director-General chosen

Today’s informal Heads of Delegations meeting at the World Trade Organization has ended. It had two agenda items — finalizing the phase three procedures in the selection process of the next Director-General and seeing if agreement was possible on which of the four Deputy Directors-General should serve as acting Director-General beginning September 1 until a new Director-General is selected (probably by November 7). The current Director-General is stepping down on August 31, 2020, a year early.

No acting Director-General yet

Press reports indicate that WTO Members were not able to agree on an acting Director-General based on differences between the US and EU and opposition to Alan Wolff by three Members — China, Venezuela and Cuba. See Bryce Baschuk, July 31, 2020, Dysfunction Deepens at the WTO, https://www.bloomberg.com/news/articles/2020-07-31/wto-dysfunction-deepens-as-members-fail-to-pick-an-interim-chief. Instead the existing four Deputy Directors-General will continue on until a new Director-General is selected and will continue to handle their current portfolios.

Procedures for the final phase of the section process for a new Director-General

Phase three of the selection process will start on September 8 after candidates have had their two months to make themselves known to the membership. Chairman of the General Council, David Walker (NZ) confirmed the procedures for the third (final) phase as they were discussed at the Tuesday informal Heads of Delegations meeting. There will be three rounds of consultations, in the confessional format, where each Member identifies first four, then two and finally the one candidate the Member views as most likely to achieve consensus among the Members (i.e., the Member’s preference(s)). Members are not permitted to express negative preferences nor provide a ranking when giving their preferences.

Amb. Walker with two facilitators (the Chairs of the Dispute Settlement Body and of the Trade Policy Review Body) will then determine the three candidates having the least support in round one; those three candidates will be expected to withdraw. In round two, three more candidates from the remaining five candidates will be expected to withdraw based on results of the confessionals. The third round will have just two candidates remaining, with the candidate receiving the lesser support expected to withdraw. In each round, the Chair of the General Council and his facilitators will also consider breadth of support among Members (both geographic and type of Member (developed, developing, least developed). The three rounds of consultations are viewed as helping build a consensus among the membership. At the end of the third round, there will be one candidate remaining who will be presented by the Chair of the General Council to the General Council as the candidate most likely to obtain consensus. If the Members agree by consensus on the candidate, that candidate becomes the next Director-General. If not, taking a vote by Members is a possibility under the 2002 procedures adopted by the General Council on selecting Directors-General.

It is understood that Amb. Walker has indicated that there will a short period for each round of confessionals (six working days), consistent with prior selections. Members who have put forward candidates are informed of results first, and then results are reported to the Heads of Delegations. Confidentiality by the Chair of the General Council and his facilitators is obviously critical and historically has not been a problem.

Conclusion

It is obviously disappointing that the divisions in the WTO membership are so deep that something as simple as agreeing on which of the four Deputy Directors-General should be the acting Director-General (a role which is essentially just administrative) could not be accomplished before the August break. It seems highly unlikely that there will be a resolution of differences that would permit the selection of an acting Director-General before September 1. Thus, the WTO will likely proceed with the current Deputy Directors-General and no acting Director-General until a new Director-General is selected.

The third and final phase of the selection process will start in early September and be concluded within two months. The procedures adopted in 2002 and followed in 2005 and in 2013 were successful in helping Members build consensus behind a single candidate. The Chairman of the General Council has announced procedures which appear to be identical to those used successfully in the past. The open question is whether the current conflict among Members will frustrate obtaining consensus by early November. Let’s hope a consensus is possible.

Selecting an acting Director-General for the World Trade Organization — the road forward

At tomorrow’s informal meeting of the Heads of Delegation in Geneva, the hoped for agenda would include both finalizing the process for phase three of selecting a new Director-General and, if progress were made in consultations with Members, reviewing selection of an acting Director-General to serve after current Director-General Roberto Azevedo steps down on August 31 until a new Director-General is in place (likely November 7 or later). If the issue of the acting Director-General is resolved at the informal Heads of Delegation meeting, then a General Council meeting would be called, presumably tomorrow afternoon, to formally select the acting Director-General by consensus.

News articles indicate that the consultation process appears at an impasse with the United States wanting Deputy Director-General Alan Wolff to serve as the acting Director-General but facing opposition from both the EU and China. Mr. Wolff is from the United States. Apparently the other Deputy Director-General being actively considered is Karl Brauner who is from Germany. See, e.g., Reuters, July 29, 2020, Exclusive: WTO unlikely to get interim leader as U.S. insists on its candidate, causes impasse, https://www.reuters.com/article/us-trade-wto-usa-exclusive/exclusive-wto-unlikely-to-get-interim-leader-as-us-insists-on-its-candidate-causes-impasse-idUSKCN24U2P2. The article suggests that Members may be considering simply leaving the WTO organization without a Director-General until the selection process is completed. But the end game won’t be known until the meeting tomorrow morning.

Efforts by WTO Members to avoid blockage of selection process

The WTO Members agreed to a process for selecting a new Director-General at the end of 2002 to try to avoid the deep divisions and chaos that had characterized the 1999 selection process where there was a deadlock over two candidates, a delay in picking a Director-General and ultimately a decision to give the position of Director-General to each of the two candidates but at reduced time periods of three years each. In 1998-1999 there were no agreed-to procedures for either the selection of the next Director-General or for choosing an acting Director-General.

The 2002 procedures adopted by the General Council were intended to address both issues, although the vast majority of the procedures pertain to the selection of the Director-General while only one sentence of one paragraph addresses the selection of an acting Director-General. See Procedures for the Selection of Directors-General, adopted by the General Council on 10 December 2002, WT/L/509 (20 January 2003), para. 23 (“In the event of a vacancy in the post of Director-General, the General Council shall designate one of the existing Deputy Directors-General to serve as Acting Director-General until the appointment of a new Director-General.”). The 2002 procedures are embedded below.

WTL509

The lack of leadership by the U.S., EU and China

If the news articles are correct that the impasse flows from the views of the United States, the EU and China, then one can only shake one’s head in disappointment at each of the three for lack of leadership. In a prior post, I reviewed that the selection of an acting Director-General should be an easy job for the WTO membership. Each of the four Deputy Directors-General are well known to the Members and each is obviously qualified. The job of acting is temporary and has been described as administrative in nature. See July 24, 2020, WTO Director-General’s farewell address to the General Council while Members can’t agree on an acting Director-General, https://currentthoughtsontrade.com/2020/07/24/wto-director-generals-farewell-address-to-the-general-council-while-members-cant-agree-on-an-acting-director-general/.

Alan Wm. Wolff is an exceptionally talented individual who has probably had the largest public presence of any Deputy Director-General in the history of the WTO. His speeches which are available from the WTO news archives should be collected and released as a book by the Secretariat. They reflect Mr. Wolff’s deep commitment to the multilateral trading system, his deep knowledge of history and cover a broad array of topics. For example, he speaks eloquently on the role of the World Trade Organization in maintaining peace and stability, the history of the WTO, the values undergirding the organization, the hope that the WTO provides to countries seeking accession and the work ahead to keep the organization serving its core purposes. He would be a very interesting candidate for Director-General if the United States had put him forward. He certainly would be a competent acting Director-General.

But the same can be said for each of the other Deputy Directors-General. Each will be able to handle the interim task of being the acting Director-General pending the selection of a new Director-General.

So it is obviously disappointing to see the impasse which reflects poorly on each of the major players involved.

A possible solution

While the WTO Members can obviously ignore the procedures they adopted in 2002 for selecting an acting Director-General and proceed without a Director-General, there are different paths to a possible solution that could be taken.

Obviously, Members could opt to overcome the impasse and get behind one of the four Deputy Directors-General. That is the best possible outcome.

Absent the Members fulfilling their role and finding consensus, the Deputy Directors-General who are under active consideration could withdraw their names from consideration by indicating that they would not serve if selected. While WTO Members may be unable to look out for the best interest of the organization, there is little doubt that each of the Deputy Directors-General has the best interests of the WTO at heart.

While the impasse could be solved by just Alan Wolff withdrawing, it would be a stronger message if both Messrs. Wolff and Brauner withdrew. There would still be two individuals to choose from. And a needless problem for the organization would be solved by the Secretariat leadership despite the narrow thinking of some of its Members.

The above suggestion is just a thought for the good of the WTO and its Members.

Selecting the next WTO Director-General — process for phase three and selection of acting Director-General may be decided on July 31

On Tuesday, July 28, the WTO held an informal meeting of the Heads of Delegation. Reportedly, the meeting was spent discussing the process for the third phase of the selection process for a new Director-General for the WTO.

The current Director-General of the World Trade Organization is stepping down one year early on August 31st. The first phase of the selection process for a replacement ended on July 8 (nominations by Members of candidates). The second phase, which is to permit candidates to become known to Members ends on September 7 and has already had each of the eight candidates meet with the Members in a General Council meeting (July 15-17). The third phase involves the Chair of the General Council supported by the Chairs of the Dispute Settlement Body and the Trade Policy Review Body consulting with Members, typically in a process referred to as “confessionals” in which each Member is asked to identify either the candidates the Member believes is most likely to achieve consensus or the candidates least likely to achieve consensus. Those candidates who are not viewed as being in the top number of candidates likely to receive consensus (or most likely not to achieve consensus if questions are styled that way) are expected to withdraw.

In 2013, there were three rounds of consultations to go from nine candidates to five candidates to two candidates with one candidate then put forward by the Chair of the General Council to the membership for a consensus decision. By procedures adopted at the end of 2002, this third phase is intended to be completed in two months, with provisions for possible voting if a consensus is not possible.

On the WTO webpage this morning, an additional informal meeting of the Heads of Delegation has been added and is scheduled for this Friday at 10 a.m. July 31st is the last day before the WTO’s August recess. A press article yesterday indicated that the informal meeting on Friday would take back up the issue of process for the third phase of the selection process, that discussions had been about having three rounds of consultations to take the candidates from eight to five to two to one. It was also reported that the informal meeting of Heads of Delegation on Friday would take up the question of who would serve as the acting Director-General between September 1 and whenever the selection process for a new Director-General concludes (likely around November 7). See Inside U.S. Trade’s World Trade Online, WTO members to meet again this week on selection process, acting DG, July 28, 2020, https://insidetrade.com/trade/wto-members-meet-again-week-selection-process-acting-dg.

Should the informal meeting of Heads of Delegation reach agreement on an acting Director-General, a special General Council meeting would be called so the decision could formally be taken by consensus. By procedures adopted at the end of 2002, the acting Director-General is to be selected from the four Deputy Directors-General. All four of the Deputy Directors-General (DDGs) have indicated their willingness to serve as acting DG if selected. Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wm. Wolff (United States) and Yi Xiazhum (China) are the four DDGs.

Possible scenario for the phase 3 selection process

In a prior post, I provided a summary of statements made by each candidate to the General Council and a summary of press conference questions and answers. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/. As reviewed therein each candidate has his or her own story for why he/she would be the right person to become the next Director-General. There are also issues of whether the candidate (1) is from a geographical area not previously having a Director-General of the WTO, (2) has WTO/Geneva experience, (3) has served as a Trade Minister, (4) has served in other high-level government positions, (5) has been an official of a multilateral organization, (6) is from a developed or developing country. There are also potential political issues reflecting any ongoing conflicts the candidate’s country has with other WTO Members. Depending on how WTO Members actually weigh the candidates’ credentials and the other issues will resolve which candidates are viewed as most likely or least likely to receive consensus from the WTO membership.

WTO Members obviously have much greater information on each candidate and will have the opportunity to talk privately with each candidate if so inclined. What follows is simply an outside observer’s thoughts on how the consultations could proceed. I provide my assumptions as I proceed. As any of the eight could be the candidate selected as the next Director-General, my views on who may drop out in each of the rounds should not be taken as any comment on the capabilities of the individual candidates but simply an assessment from the private sector of how factors could combine to narrow the field.

Round 1 of consultations, going from eight to five candidates

While some former U.S. Trade Representatives have stated that technical expertise is not needed to be an effective Director-General (and indeed there have been both WTO Directors-General and USTRs who came to the position without extensive trade backgrounds), considering the challenges facing the WTO at the present time, I believe many Members will view having a trade background and a good familiarity with current WTO issues as a plus for any candidate.

As Director-General Azevedo demonstrated, a candidate doesn’t need to have a prior high political office (e.g., Minister of Trade or head of other ministry) to be able to effectively work with and communicate with senior government officials of Members in capitals. That view is supported by comments by former U.S. Trade Representatives as well. See WITA’s July 16, 2020 webinar, Three former USTRs on the WTO in a time of change, https://www.wita.org/event-videos/wita-webinar-three-former-ustrs-on-the-wto-in-a-time-of-change/ (former USTRs Froman, Schwab, and Hills). Even though that is true, I believe many Members will view prior senior government experience as important in any candidate.

While serving in other multilateral organizations will likely be viewed as a plus for any candidate, it is not likely in my view by itself to override the other elements.

Geographical diversity will be a plus for the three African candidates. Depending on whether Mexico is viewed as North American or Latin, Dr. Seade may be helped (if viewed as North American) or hurt (if viewed as Latin since the current DG is from Brazil). The Saudi Arabian candidate similarly would be helped if viewed as a Middle East candidate or possibly hurt if viewed as an Asian candidate (since Thailand’s candidate in the past was selected as Director-General). The other three candidates come from regions that have had prior DGs. While all candidates have stated that the best candidate should be selected and not be a candidate from a particular geographical area, the factor of geographical diversity will likely be significant in weeding out at least some of the candidates.

If being from a developed country is helpful (since the current DG is from a developing country), then the Moldovan and UK candidates would be viewed as helped as they are the only developed country candidates. While the EC Trade Commissioner had early on indicated he thought the next DG should be from a developed country, the U.S. did not support that position. I assume it will not be a relevant factor for most Members.

The WTO, and the GATT before it, have never had a female Director-General. Considering UN Sustainable Development Goals, for many Members whether the candidate is female may be an important factor.

While the selection process in phase three is set up to try to prevent Members from preventing a consensus from forming, it is unclear how the process will work if one or more major players will not accept a candidate for political or other reasons. During the press conferences, questions were raised about (1) ongoing political tensions between Korea and Japan and between Saudi Arabia and Qatar, (2) tensions between the United Kingdom and the European Union from Brexit, and (3) concerns China might have if an Asian candidate were selected in terms of its ability to maintain a Deputy Director-General position. It would seem likely that if the EU chose to defeat the U.K. candidate, between their member states and friends in the WTO, they would be able to block Dr. Fox. It is unclear if the same is true for the Korean candidate should Japan alone oppose, but it is more likely that the Korean candidate would be blocked if China also worked to defeat the candidate. I don’t believe that sufficient Members would oppose Saudi Arabia’s candidate on the basis of Saudi Arabia’s conflict with Qatar.

Based on the above assumptions, I believe that the first round of consultations will likely result in the following three candidates being viewed as least likely to obtain a consensus and hence withdrawing:

Tudor Ulianovschi (Moldova) – I believe many Members will view other candidates as having similar or greater strengths; he is from Europe which has dominated past DG selections.

H.E. Mohammad MazaidAl-Tuwaijiri (Saudi Arabia) – I believe his message of bringing strong business management skills to the job will not attract a large part of the WTO Members.

Dr. Liam Fox (United Kingdom) — while having strong free trade credentials, he has limited WTO experience; being from Europe will be a negative if Members get past credentials.

Round 2 of consultations, going from five candidates to two candidates

It is not surprising that even in the first round, it is possible that other candidates could be the ones who withdraw versus the three listed. That caveat is even stronger in round two. That said, here are two of the three whom I believe will drop out after Round 2:

Abdel-Hamid Mamdouh (Egypt) — while Mr. Mamdouh has a wealth of WTO experience and is well known to many if not all of the WTO Members, I believe he will not make it to the final round based on what many Members may view as lack of political experience not having served as a Minister or other high level government position.

H.E. Yoo Myung-hee (Korea) — Minister Yoo has an impressive resume and her arguments for why she would be a good Director-General resonated with me. Because other candidates have similar or more extensive backgrounds in trade, I believe Minister Yoo will drop out after the second round.

I consider the other three candidates to be the most likely to achieve consensus. Which of the three drops out after Round 2 will, in my view, depend on the weight members give to Dr. Seade being from a Latin American Member vs. the weight given to a strong reputation for reform and political capabilities vs. trade background and track record of accomplishments within the WTO.

If the Latin American label (versus Mexico being part of North America which has never had a Director-General) generates significant negatives, then I believe Dr. Jesus Seade (Mexico) will drop out at the end of round two. This would be unfortunate in my view because his understanding of pending challenges at the WTO and suggested approaches to addressing them sounded the most developed and most likely to achieve results of any of the candidates.

If Dr. Seade is not eliminated at the end of the second round of consultations, the choice for the third candidate eliminated comes down to H.E. Amina C. Mohamed (Kenya) or Dr. Ngozi Okonjo-Iweala (Nigeria). Minister Mohamed has a strong record of accomplishments at the WTO including at the 2015 WTO Ministerial Conference in Nairobi. She checks all of the boxes of factors listed and hence is likely to be one of the last candidates standing. Dr. Ngozi Okonjo-Iweala has a large reform reputation with a strong record at both the World Bank and as Finance Minister in Nigeria but has no WTO experience, and the trade experience that flows from her finance role or her role as a development economist.

Round 3 of consultations, from two candidates to the one candidate viewed as most likely to achieve consensus from the WTO Members

While any of the three reviewed above could be the one standing at the end of the process and all are obviously qualified to lead, I believe that Minister Mohamed of Kenya will be selected as the next Director-General.

Dr. Ngozi Okonjo-Iweala would be my guess at who emerges as DG if Members don’t select Minister Mohamed.

While I believe that Dr. Jesus Seade may be the best candidate in fact, the current Director-General being from Brazil will likely move enough Members to vote for one of the two women candidates from African countries so that Dr. Seade will not make the final cut (if he gets to round 3).

Conclusion

With the hour glass running, the eight candidates for the WTO Director-General post are fully engaged in reaching out to WTO Members to get themselves known. From social media to webinars to press interviews to virtual and actual meetings with individual Members and groups of Members, each candidate and his/her host government are pulling out all the stops to help Members understand why the particular candidate is the right person to lead the WTO at the end of 2020.

Who Members decide is the best person to achieve consensus and become the next Director-General will unfold over the period September 8-November 7. The WTO is fortunate to have so many candidates come forward. There are lots of factors that can be considered by Members. Time will tell who emerges.

APEC Trade Ministers’ Virtual Meeting on July 25 — Declaration on Facilitating the Movement of Essential Goods during COVID-19

The Asia-Pacific Economic Cooperation (APEC) has twenty-one members whose territories borders the Pacific Ocean. The twenty-one members include Australia; Brunei Darussalem; Canada; Chile; China; Hong Kong, China; Indonesia; Japan; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; the Philippines; Republic of Korea; Russia; Singapore; Chinese Taipei; Thailand; United States; and Viet Nam. According to a 2019 USTR note on U.S.-APEC Trade Facts, APEC countries account for 38% of the world’s population, 60% of the world’s GDP and 47% of world trade. See https://ustr.gov/trade-agreements/other-initiatives/asia-pacific-economic-cooperation-apec/us-apec-trade-facts#:~:text=APEC%20has%2021%20members%2C%20referred,percent%20of%20the%20world’s%20trade.

In May 2019, APEC Ministers Responsible for Trade (“MRTs”) issued a statement on COVID-19 recognizing both the centrality for all members in halting the spread of the pandemic and the need for members to also focus on remedying the economic challenges flowing from the pandemic. Like the G20 and other groups, APEC MRTs recognized the importance of keeping markets open, of limiting emergency restrictive measures and ensuring such measures are “targeted, proportionate, transparent, temporary and should not create unnecessary barriers to trade, and are consistent with WTO rules.” APEC MRTs encouraged cooperation and the sharing of information and more. See Statement on COVID-19 by APEC Ministers Responsible for Trade, 5 May 2020, WT/GC/213. The May 2019 statement is embedded below.

213

At the July 25, 2020 virtual meeting of MRTs, the ministers issued a joint statement and included as Annex A the Declaration on Facilitating the Movement of Essential Goods. See MRTs joint statement, https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT; Annex A,https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT/Annex-A. Both are embedded below.

Ministers-Responsible-for-Trade-Virtual-Meeting-Joint-Statement-2020

Declaration-on-Facilitating-the-Movement-of-Essential-Goods-by-the-APEC-Ministers-Responsible-for-Trade-MRT

The joint statement reiterates the May 2019 key points and incorporates the Declaration on Facilitating the Movement of Essential Goods “which is a clear indication of the region’s continued support for WTO work.” The MRTs “recognize the need for discussions to reduce non-tariff barriers which restrict trade in essential goods.” There are other supportive statements about the importance of WTO work. “We encourage continued constructive engagement on WTO issues, including in the lead-up to the 12th WTO Ministerial Conference.” At the same time, the MRTs are looking to the development of a “post-2020 Vision” which they are hopeful leaders can launch at the end of 2020. Presumably, such a vision will include trade- related components which may include reforms at the WTO or simply be regional cooperation on certain important topics (supply chain issues on adequacy of supplies, e-commerce, movement of people as region recovers from COVID-19, etc.).

The Declaration on Facilitating the Movement of Essential Goods has ten specific actions that are declared.

The first two deal with export restrictions and prohibitions. The first is that each APEC member will ensure that any emergency trade measures introduced to address COVID-19 are consistent with WTO rules. The second commits APEC members to notify all such measures in accordance with WTO obligations.

The third declared action addresses non-tariff barriers. Specifically APEC members “are encouraged to work together to identify and resolve any unnecessary barriers to trade in essential goods.”

The next five declared actions pertain to trade facilitation — to expedite and facilitate the flow and transit of essential goods; to enhance coordination, efficiency and transparency of border clearance of essential goods; expediting the release of essential goods upon arrival; facilitating the entry, transit and departure of air cargo dealing with essential medical goods; abiding by the International Health Regulations of 2005.

The ninth declared action deals with tariffs and while not committing APEC members to liberalize tariffs for essential medical supplies, notes that some economies have taken such liberalizing actions and notes that the business community supports such action.

The last statement deals with reviewing progress on the APEC initiatives annually until COVID-19 is no longer a public health emergency.

Conclusion

Many countries and customs territories around the world have expressed objectives which are generally not significantly different than those put forward by APEC members.

With the large share of global trade accounted for by APEC members and with similar-type commitments by the G20 (which includes major members of the EU and has the EU participating), one would think it should be possible to obtain WTO commitments along similar lines to the APEC Declaration. The Declaration would need to have added some of the developing country and least developed country needs that have been already presented to the WTO so that the concerns of all are addressed.

While the WTO is doing an excellent job of providing information about the pandemic and trade measures taken by Members (at least those notified), the WTO Members have yet to get behind a set of principles that all Members can sign off on. Perhaps the APEC MRT joint statement and Declaration on Facilitating the Movement of Essential Goods provides a good starting point for the full WTO membership. While some WTO Members have not wanted to address COVID-19 issues during the pandemic, obviously collective action during the pandemic would be most effective. The post-pandemic needs also should be addressed but can await individual and group developments of views.