Challenging China’s Trade Practices — What Role for the WTO?

The U.S.-China Economic and Security Review Commission (USCC) is holding a hearing on April 14, 2022 looking at the following topic — Challenging China’s Trade Practices:  Promoting Interests of U.S. Workers, Farmers, Producers and Innovators. See U.S.-China Economic and Security Review Commission, Notice of Public Hearing, 87 Fed. Reg. 18,075 (March 29, 2022. I am participating on the fourth panel which looks at China and the WTO. I copy below my written testimony. Before that I provide a summary of my thoughts and some recommendations for U.S. action.

As is broadly recognized, the WTO is struggling to maintain relevance and develop updated rules for international trade that reflect the changing landscape on critical issues. The growth of the WTO in terms of membership and accession applications is notable but has resulted in an organization where progress on multilateral issues is nearly impossible and in any event too slow. China and other Members emulating China’s state-directed economic model have pushed the organization into a nonsustainable position as the current rules are premised on major Members having market economies. The clash between the economic systems has resulted in increasing tensions as market economies struggle to deal with distortions created by China and others, many of which distortions are not addressable by existing WTO rules. With a consensus based system for modifications to existing rules or for the creation of new rules, there are questions about the ability to move forward to address China’s massive distortions. Similarly, while there are important activities that the WTO can and sometimes does do in the Committee structure, the Committees are not generally effective and a lack of transparency in practices, particularly in areas such as subsidies by China and others, reduces the effectiveness of the Committee function. Dispute settlement, while important, has developed a range of problems that both harm Members’ maintenance of existing rights and which complicate the ability of Members to address state-directed economies distortions. This is not to say that there aren’t important efforts underway within the WTO, often on a plurilateral vs. multilateral basis, that can be useful in the U.S.-China relationship. Moreover, frequently the ability of the WTO to collect and disseminate of information on important issues such as import and export restrictions introduced during the pandemic and the recent work looking at the trade effects of the Russian invasion of Ukraine is important in helping Members understand current challenges and identify activities that may be useful in improving the global economy.

The Biden Administration has made it clear that it wants to work within multilateral organizations as possible while pursuing domestic tools where needed and making the investments in the country to improve U.S. competitiveness.

So within the WTO, the U.S. should continue to pursue reforms that would make the WTO better able to address the distortions that flow from state-directed economies like China. The work that has been underway with the EU and Japan on industrial subsidies, global excess capacity and state-owned/invested companies is an excellent example, although what can be achieved in the WTO is likely to be far less than what is needed.

Similarly, working to complete the fisheries subsidies negotiations (including the ban on forced labor) is an important multilateral undertaking.

There are a number of plurilateral negotiations that are ongoing (so-called Joint Initiative Statements) that deal with important issues like e-commerce and domestic regulation of services and a number of environmental and other issues. The U.S. is active in some but not all. It should be active in all of the JSIs.

On dispute settlement, there are fundamental reforms needed that I have outlined in earlier posts as well as changes to the trade defense agreements to restore rights. 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/. But the U.S., EU, Japan and others could bring a broad based case against China focusing on the many ways in which China has not fulfilled its commitments under the protocol of accession. Such a case would permit an identification of the many failures of China to in fact implement the obligations it undertook in 2001 in joining the WTO. A panel report would help focus the WTO membership on the changes that need to be made by China to have an economic system that is compatible with the WTO or that will address Chinese distortions and can lead to more flexibilities in terms of WTO reform. Depending on the outcome of the challenges to U.S. Section 232 actions on steel and aluminum (national security claims), the U.S. may also need/want to obtain reforms in whether national security claims are reviewable and whether the standards contained within GATT 1994 Art. XXI need updating/revision.

Much of what needs to be done to address China’s trade practices will be handled through domestic legislation and regulation or through bilateral negotiations with China or through unilateral actions that may not be consistent with WTO requirements.

Getting better enforcement of the Phase I Agreement and pursuing a Phase II Agreement presumably are elements of bilateral talks. Making U.S. trade remedies more effective and less costly can be done through domestic legislation and agency regulations.

Beefing up transparency requirements for foreign owned companies listing on U.S. stock exchanges is important and needs to be fully implemented and enforced.

The U.S.-U.K. agreement on steel and aluminum contains an important requirement that Chinese owned companies in the U.K. in these sectors be audited to determine if there are subsidies provided from China.

Resources to permit aggressive implementation of the ban on forced labor imports from Xinjiang is also within the Congress’ purview.

Tighter oversight of Chinese investment (direct and indirect) in strategic sectors, as well as addressing investment needs in critical sectors domestically, improving the resiliency of supply chains and getting infrastructure modernized are all important actions – a number of which are already approved by the Congress or being pursued by the Administration.

Written Testimony Submitted to the U.S.-China Economic and Security Commission for April 14 Hearing

Since joining the WTO at the end of 2001, China has risen to become the world’s largest exporter and has generally outperformed the world economy becoming the world’s second largest economy.  China will likely overtake the United States in terms of national GDP in the coming years.  So WTO membership has been of enormous benefit to China including through encouraging foreign investment, transfer of technology, improved productivity and quality and higher living standards.  Indeed, hundreds of millions of Chinese have been lifted out of poverty over the last decades.

When China was admitted to the WTO, the Chinese economy was not yet market oriented nor consistent with a wide range of WTO obligations.  The result was a Protocol of Accession and Working Party Report that were the most complicated in terms of additional efforts needed by China and a timeframe for making additional wide ranging modifications to its economic system.

While China adopted many of its obligations at the beginning of WTO membership in 2002 and worked for a number of years to implement further important structural changes, China has moved away from its efforts to reform its economy to be more market driven and has reembraced its state-directed economic model over the last decade or so. 

Because of the size of the Chinese economy and the enormity of the government’s involvement and distortions imposed on the functioning of the economy, the distortions caused to trading partners operating on market principles have been massive.  These have included massive excess capacity in many industries flowing from state plans and subsidies, restricted market access to foreign products, theft of intellectual property and forced technology transfer, and the creation of false market signals in terms of costs of production.  There have been many critiques of China’s WTO membership.  My reflections are contained in a recent post.  See December 11, 2021:  20 Years of China’s Membership in the WTO — a brief critique, https://currentthoughtsontrade.com/2021/12/11/20-years-of-chinas-membership-in-the-wto-a-brief-critique/.

Even without China, the WTO has struggled since its creation to update global trade rules.  The inability to have successful negotiations on a range of topics flows from a variety of reasons including the consensus based decision making, large differences in views of purpose of and direction for the WTO among Members, and a dispute settlement system that has often deviated from its limited role encouraging members to file disputes instead of negotiating.  The organization has struggled to maintain its relevance in a rapidly changing world.  For many market economies, the WTO is not viewed as able to adequately address the distortions created by a state-directed economy the size of China’s.  

From the beginning of China’s WTO membership, other Members have worked to help China conform its system to the WTO requirements.  For example, major trading partners of China, including the U.S., European Union, Japan, Canada, Australia and others spent years working with Chinese agencies to help them bring laws into compliance with WTO obligations and worked bilaterally to resolve problems as they arose.  Such activity has not been unusual for WTO Members in the early years of membership to help new Members understand what additional changes are appropriate or to resolve practices of concern bilaterally.  

Where China was unable or unwilling to bring practices or laws/regulations into conformity, the U.S., EU and others have brought disputes at the WTO.  As of April 8, 2022, China is or has been a respondent in 49 WTO disputes.  It has also brought 22 cases against the U.S., EU and others and participated as a third party in 192 disputes.  Most of the cases that have brought against China consisted of situations where China’s actions were facially inconsistent with WTO obligations. Where cases weren’t resolved through consultations and China lost the dispute, China has typically implemented the loss although in a narrow fashion.  China has brought cases to address what it considered to be “discriminatory” provisions of its Protocol of Accession (country specific safeguard; continuation of treatment as a non-market economy after 15 years) or to attempt to weaken trade remedies of major trading parties like the United States and the EU.  Some of these efforts were unsuccessful.  However, China has been able to obtain weakening of trade remedy practices with reports by WTO panels and the Appellate Body viewed by the U.S. and others as changing the rights they had under the trade remedy agreements.

As the 2020 USTR report on the WTO Appellate Body made clear, dispute settlement at the WTO has had the unintended consequence of changing the bargain reached in the Uruguay Round for the United States.  See February 14, 2020: USTR’s Report on the WTO Appellate Body – An Impressive Critique of the Appellate Body’s Deviation from Its Proper Role, https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/.

Moreover, as articulated by the prior Administration and the present Administration, the current WTO agreements and dispute settlement don’t adequately address the global distortions caused by the state-directed economy of China and those copying its practices.  See, e.g., December 14, 2020:  WTO December 14th Heads of Delegation meeting – parting comments of U.S. Ambassador Dennis Shea, https://currentthoughtsontrade.com/2020/12/14/wto-december-14th-heads-of-delegation-meeting-parting-comments-of-u-s-ambassador-dennis-shea/

There have been efforts by the U.S., EU and Japan to start an evaluation of possible modifications to the Subsidies and Countervailing Measures Agreement to address the massive industrial subsidies, global excess capacity and state-owned, state-invested enterprises that characterize some of the important ongoing distortions created by the Chinese state-directed economy.  While China has indicated it would be open to a reexamination of all subsidy practices, it is unclear what agreement could be reached within the WTO.  In any event, agreement on any changes will take years to accomplish and will almost certainly be less than what is needed because of the consensus approach to decision making at the WTO.  Presumably the first panel today reviewed the eforts at WTO reform on industrial subsidies, excess capacity and state-owned enterprises.  Several posts of mine have addressed some aspects of the issue. See, e.g., January 14, 2020: WTO Reform – Joint Statement of January 14, 2020 of Japan, the U.S. and the EU, https://currentthoughtsontrade.com/2020/01/14/wto-reform-joint-statement-of-january-14-2020-of-japan-the-u-s-and-the-eu/.

China has been viewed by many WTO Members as retaliating against WTO Members who bring disputes or who use trade remedies by bringing disputes themselves or bringing trade remedy cases.   They also resort to intimidation through wide ranging and often non-transparent actions to punish trading partners who take positions China strongly disagrees with.  China’s actions against Australia and more recently Lithuania are just two examples.   I have looked at both cases in posts in the last several years.  See January 27, 2022:  The European Union requests consultations with China at the WTO for restrictions on Lithuanian goods imposed by China,

https://currentthoughtsontrade.com/2022/01/27/the-european-union-requests-consultations-with-china-at-the-wto-for-restrictions-on-lithuania-goods-imposed-by-china/; January 7, 2022:  China’s “bullying” of Lithuania — a repeating story inconsistent with WTO rules, https://currentthoughtsontrade.com/2022/01/07/chinas-bullying-of-lithuania-a-repeating-story-inconsistent-with-wto-rules/; December 22, 2020:  China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/.

The lack of transparency in the Chinese system permits a wide range of trade distortions to arise (e.g., when state, provincial or local governments ban imports without formal notice or explanation, when technology transfer is required to operate but not included in documents, etc.).  China’s submissions to the WTO in areas such as subsidies have been viewed by the U.S., EU and others as woefully incomplete and have led to counternotifications being made by the U.S.  See, e.g., USTR Press Release, United States Details China and India Subsidy Programs in Submission to WTO, October 6, 2011, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-prog; SUBSIDIES, Request from the UNITED STATES to CHINA, Pursuant to Article 25.10 of the Agreement,  G/SCM/Q2/CHN/42 (11 October 2011).

While China has long been cited as having major human rights problems, in recent years, the trade implications of forced labor and other human rights issues have led to increased activity in an effort to cut off imports into the U.S. of products made from forced labor (in part or total).  See, e.g., February 13, 2022:  February 10, 2022 release of ILO report and subsequent U.S. State Department press release on forced labor and other human rights issues in Xinjiang Autonomous Region of China, https://currentthoughtsontrade.com/2022/02/13/february-10-2022-release-of-ilo-report-and-subsequent-u-s-state-department-press-release-on-forced-labor-and-other-human-rights-issues-in-xinjiang-autonomous-region-of-china/; February 11, 2022:  Stopping imports made in whole or in part from forced labor — U.S. law and the looming challenge on goods made from cotton and polysilicon, https://currentthoughtsontrade.com/2022/02/11/stopping-imports-made-in-whole-or-in-part-from-forced-labor-u-s-law-and-the-looming-challenge-on-goods-made-from-cotton-and-polysilicon/; December 19, 2021:  Forced labor and trade — U.S. Congress passes legislation to address China’s treatment of Uyghurs, https://currentthoughtsontrade.com/2021/12/19/forced-labor-and-trade-u-s-congress-passes-legislation-to-address-chinas-treatment-of-uyghurs/; January 25, 2021:  Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, https://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/; January 24, 2021:  Forced labor and child labor – a continued major distortion in international trade for some products, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/.

The array of inconsistencies with WTO norms are reviewed annually in the USTR Report to Congress on China’s Compliance with the WTO.  See, e.g., February 16, 2022:  USTR’s 2021 Report to Congress on China’s WTO Compliance — a recognition that all of China’s distortions to competition cannot be dealt with within the WTO, https://currentthoughtsontrade.com/2022/02/16/ustrs-2021-report-to-congress-on-chinas-wto-compliance-a-recognition-that-all-of-chinas-distortions-to-competition-cannot-be-dealt-with-within-the-wto/.

Prior Administrations have engaged both bilaterally with China and through disputes to get China to live up to its commitments under the WTO.  The Trump Administration sought to address global excess capacity in steel and aluminum through use of Section 232 of the Trade Expansion Act  of 1962, as amended on national security concerns and conducted a section 301 investigation on a range of Chinese practices in, inter alia, the intellectual property area which resulted in additional tariffs being imposed on most goods coming from China.  WTO challenges and court challenges in the U.S. have been testing the breadth of the U.S. national security law and the WTO consistency of such actions.

While some observers have called for excluding China from the WTO or forming a separate grouping that excludes China, the WTO has no identified process for removing countries from membership, although the current crisis caused by the Russian Federation’s invasion of Ukraine has shown the willingness of a number of major economies to remove most favored nation status on a Member for national security reasons.  See, e.g.,  January 16, 2022:  Is it time for a new approach to bilateral trade with China?, https://currentthoughtsontrade.com/2022/01/16/is-it-time-for-a-new-approach-to-bilateral-trade-with-china/; March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; March 20, 2022:  Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine, https://currentthoughtsontrade.com/2022/03/20/banned-imports-higher-tariffs-other-actions-by-trading-partners-as-russia-and-belarus-lose-most-faovered-nation-treatment-by-g-7-countries-and-eu-during-the-conflict-in-ukraine/.

The Biden Administration has expressed the intention of working with allies to improve the WTO while looking at additional tools to address the distortions caused by the Chinese system.  See, e.g,. Testimony of Ambassador Katherine Tai Before the Senate Finance Committee Hearing on the President’s 2022 Trade Policy Agenda, https://ustr.gov/about-us/policy-offices/press-office/speeches-and-remarks/2022/march/testimony-ambassador-katherine-tai-senate-finance-committee-hearing-presidents-2022-trade-policy (March 31, 2022).  Thus, the Biden Administration will engage bilaterally with China, will focus on strengthening the U.S. economy (e.g., improved infrastructure, more resilient supply chains, more domestic production of key products, improved Buy America), explore new tools to address distortions (e.g., the U.S.-EU efforts on steel and aluminum to address excess capacity), and will work regionally and through the WTO to address issues of importance where possible.  

Questions of interest to the USCC for this panel

  1.  China has repeatedly refused to abide by the spirit of the World Trade Organization.  Is the WTO still relevant to addressing the challenges posed by China’s policies?

The fundamental problem posed by China in the WTO is its state-directed economic system which is fundamentally at odds with market economies.  Former Deputy Director-General of the WTO Alan Wolff has opined on a number of occasions that a core principle of the WTO is the need for convergence of economic systems of WTO Members.  Coexistence of different economic systems is not dealt with by the WTO Agreements and is not compatible with WTO rules.  See, e.g., November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/  August 19, 2020 [updated August 27]; August 19, 2020 [updated August 27]:   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/.

While the U.S., EU and others have raised the need to address the myriad distortions caused by non-market economies (or state directed economies) as part of WTO reform, it is highly unlikely that WTO Members will agree to broad based changes, although some changes to the Subsidies Agreement may be accomplished over the medium term (5 years or more). 

  • Can the WTO meaningfully address the repeated problem of Chinese subsidies?  In particular, with subsidies emanating from state-owned companies, is it feasible to overcome the WTO’s definition of what constitutes a “public body”?  Was the WTO’s decision correctly decided based on negotiated commitments?

While the U.S. lost the dispute on “public bodies,” the U.S. has continued to pursue countervailing duty cases against imports from China, typically with large countervailable subsidies found.  Thus, U.S. countervailing duty law can likely still be effective in many cases despite the adverse public body decision.  That does not protect U.S. export interests both in China and in third countries.

The WTO adverse decision will almost certainly be part of the package of proposals for reform coming from the U.S., EU and Japan.  Because of China’s interest in maintaining the Appellate Body’s  reading of “public body”, it is unclear if revision at the WTO will be possible.

The United States identified the public body decision as one of the most egregious Appellate Body overreach decisions in its 2020 report on the Appellate Body.  See USTR,  REPORT ON THE APPELLATE BODY OF THE WORLD TRADE ORGANIZATION, February 2020, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf, pages 82-88 (“The Appellate Body’s Erroneous Interpretation of ‘Public Body’ Threatens the Ability of WTO Members to Counteract Trade-Distorting Subsidies Provided through SOEs, Undermining the Interests of All Market-Oriented Actors”).  I concur that the decision is inconsistent with the underlying WTO Subsidies and Countervailing Measures Agreement.

The decision has been widely criticized, including by people who were actively involved in the negotiations (Jan Woznowski, Director of the Rules Division; Michael Cartland, Permanent Representative of Hong Kong who served as the Chair of the Subsidies and Countervailing Measures negotiations, and Gerard DePayre, negotiator for the European Union on Subsidies and Countervailing Measures).  See Cartland, Michael, Depayre, Gérard &Woznowski, Jan. “Is Something Going Wrong in the WTO Dispute Settlement?” Journal of World Trade 46, no. 5 (2012): 979–1016, at 996.  USTR characterized the paper as follows in its 2020 Report (pages 86-87):

“Commentators have also criticized the Appellate Body’s interpretation. For example, in an article in the Journal of World Trade, Michael Cartland, Gérard Depayre, and Jan Woznowski – each of whom participated in the Negotiating Group on subsidies and countervailing measures in the Uruguay Round – present a detailed discussion of the Appellate Body report in US – Anti-Dumping and Countervailing Duties (China) and raise a host of concerns with the Appellate Body’s interpretation of the term ‘public body,’ calling the analysis ‘internally contradictory’ and ‘disingenuous.’”

  • As national security becomes a higher priority for both the United States and China, how can the WTO remain relevant or useful in breaking down barriers to trade?

Since the GATT started in the late 1940s there has always been a national security exception to obligations assumed under the GATT and now under the WTO. GATT 1994 Article XXI reads:

Article XXI

Security Exceptions

Nothing in this Agreement shall be construed

  • to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
  • to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests
  • relating to fissionable materials or the materials from which they are derived;
  • relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods ad materials as is carried on directly or indirectly for the purpose of supplying a military establishment;
  • taken in time of war or other emergency in international relations; or
  • to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. 

Similar provisions are in the Services and TRIPS Agreements.

The bulk of the actions taken by the United States against China have not been premised on national security.  Trade remedies (antidumping, countervailing duty, safeguard), Section 301 actions have not been premised on national security but other statutory bases. Section 232 actions, such as on steel and aluminum, have been based on national security concerns.

Similarly, U.S., EU, UK, Canada, Japan and others who have removed most favored nation treatment from the Russian Federation after its invasion of Ukraine have justified such action on national security (presumably GATT 1994 Art. XXI (b)(iii) for goods).

Many WTO Members, including China, the EU, Canada, Mexico and others, took unilateral action without WTO authorization when the U.S. imposed duties under Section 232, some claiming that such action was supported by the Safeguard Agreement where imports had not increased. Such actions by U.S. trading partners were not justified on national security grounds.

U.S. 232 action is currently subject to panel review at the WTO with panel reports currently due by the end of the first half of 2022. See, e.g., UNITED STATES – CERTAIN MEASURES ON STEEL AND ALUMINIUM PRODUCTS COMMUNICATION FROM THE PANEL, WT/DS544/12 (China as complainant)(10 December 2021).

The U.S. has long contended that when a Member claims national security as the basis for action, there is no role for the WTO dispute settlement system.  National security actions by other countries whether involving goods or TRIPS have been found by WTO panels and the Appellate Body as subject to review and permissible if in accordance with the provisions of GATT 1994 Article XXI (or comparable provisions in the TRIPS Agreement).  See, e.g.,  World Trade Institute Working Paper No. 03/2020,  Peter Van den Bossche and Sarah Akpofure, The Use and Abuse of the National Security Exception under Article XXI(b)(iii) of the GATT 1994, https://www.wti.org/media/filer_public/50/57/5057fb22-f949-4920-8bd1-e8ad352d22b2/wti_working_paper_03_2020.pdf.

If the panel report finds the U.S. not having complied with WTO obligations, the U.S. will have the option of seeking a resolution with the complainants or filing an appeal.

To the extent that the U.S. views an increased need to invoke national security justification for action contrary to other WTO obligations and such actions would not fall under the exceptions as construed by panels, the U.S. will be left with seeking modification of GATT Art. XXI (and the comparable GATS and TRIPS provisions) as part of WTO reform or can hold up reacceptance of binding dispute settlement, or can simply accept the retaliation likely to follow.

It is not my view that national security will be the major tool used going forward to address distortions from China.  

  • Katherine Tai recently posed the question of whether U.S. policy is aiming for a greater quantity of liberalized trade or “for smarter and more resilient trade.”  Is the WTO compatible with a latter vision?

The GATT and now WTO have always had provisions permitting members to deviate from obligations in certain circumstances and to adopt laws and regulations to address health, quality and other national concerns.  Thus, there is nothing in the WTO that prevents countries from engaging in smarter or more resilient trade.

The U.S. during the Trump Administration, had raised a series of issues concerning whether the existing system was sustainable as being tilted against the United States.  The issues included self-selection as a developing country (with entitlement to special and differential treatment), lack of transparency by some Members, the need to rebalance tariff commitments in light of current level of economic development, revised agreements to address distortions created by state-directed economies like China.  See, e.g., August 24, 2020:  USTR Lighthizer’s Op Ed in the Wall Street Journal – How to Set World Trade Straight, https://currentthoughtsontrade.com/2020/08/24/ustr-lighthizers-op-ed-in-the-wall-street-journal-how-to-set-world-trade-straight/.  These types of changes, if made to the WTO, would make the international trading system smarter and more resilient.  Most observers believe such changes are unlikely to be achievable.

The Biden Administration has been putting a push on trading partners to take action against forced labor within the ongoing negotiations on fisheries subsidies.  While it is unlikely that such provisions will be accepted by all WTO Members (particularly China) as part of the fisheries subsidies negotiations, such action is being pursued within USMCA countries and some others.  Eliminating trade based on forced labor would be smarter and more resilient trade.

The WTO and GATT before it have historically been reluctant to embrace labor and environmental issues, though there has been a trade and environment committee for many years and there are now a range of environmental plurilateral negotiations taking place.  Dealing with environmental issues and to the extent possible labor issues would make for smarter and more resilient trade.  The environmental negotiations are likely to be plurilateral but open to all to join.

In short, it should be possible for WTO Members to adopt at least many aspects of “smarter and more resilient trade” without running afoul of WTO obligations. 

  • What is the promise of other initiatives taking place in the WTO related to digital trade and what is the likelihood that they can change Chinese practices?

WTO Members launched a series of Joint Statement Initiatives (JSIs) among the willing at the 11th Ministerial Conference held in Buenos Aires in 2017.  While countries like India and South Africa have not joined any of the JSIs and have raised questions about the propriety of the WTO incorporating plurilateral agreements without consensus of all Members, there has been a lot of effort over the last four years on moving the negotiations forward, seeking some completions by the 12th Ministerial Conference this June. 

Ongoing JSI include those on electronic commerce, investment facilitation for development, plastics pollution and environmentally sustainable plastics trade, services domestic regulation, informal working group on MSMEs, and trade and environmental sustainability.  The WTO issues periodic press releases on developments in the talks.  See, e.g., JOINT INITIATIVE ON E-COMMERCE, E-commerce negotiators seek to find common ground, revisit text proposals, 21 February 2022, https://www.wto.org/english/news_e/news22_e/jsec_23feb22_e.htm (hoping to have convergence on majority of issues by end of 2022)(86 WTO Members participating accounting for 90% of e-commerce trade including China, U.S. and most other major countries);  INVESTMENT FACILITATION FOR DEVELOPMENT, Investment facilitation negotiators take steps to assess needs of developing countries, 15 February 2022, https://www.wto.org/english/news_e/news22_e/infac_23feb22_e.htm (looking to complete by end of 2022)(over 100 WTO Members participate including China and most developed countries, but not the U.S.); INFORMAL DIALOGUE ON PLASTICS POLLUTION AND ENVIRONMENTALLY SUSTAINABLE PLASTICS TRADE, Plastics dialogue emphasizes need for international collaboration, cooperation, 30 March 2022, https://www.wto.org/english/news_e/news22_e/ppesp_31mar22_e.htm  (70 Members participate including China and most major developed countries but not the U.S.); Joint Initiative on Services Domestic Regulation, Negotiations on services domestic regulation conclude successfully in Geneva, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm (67 Members participated including China, the U.S. and other major developed countries); . MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMES), Working group on small business welcomes three more members, 8 February 2022, https://www.wto.org/english/news_e/news22_e/msmes_08feb22_e.htm (94 participants including China and most major developed countries but not the U.S.).

Since the Doha Development Agenda reached an impasse in 2008, U.S. Administrations have participated in WTO activities but have also pursued free trade agreements and other regional and plurilateral activities.  There is good progress being made in Geneva on the various JSIs, although the impact of the Russian Federation’s invasion of Ukraine may create challenges to forward movement in some talks.

The U.S. is obviously pursuing important topics like e-commerce in multiple fora.  While the WTO may result in a plurilateral agreement that is less robust than U.S provisions with Canada and Mexico or that get achieved with other trading partners, the plurilaterals at the WTO are an important effort to maintain relevance for the WTO in a rapidly changing world.

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Additional trade and financial sanctions imposed on Russian Federation as evidence of atrocities in Ukraine by Russian soldiers mounts

As the Russian troops withdrew from around Kyiv, images of dead civilians in the town of Bucha led to further outrage among many countries resulting in a new round of trade and financial sanctions being imposed by the U.S., EU, U.K., Canada, Japan, Australia and New Zealand. The atrocities also led to a vote at the U.N. to suspend the Russian Federation from the Human Rights Council. See White House, Statement of President Joe Biden on the UN Vote Suspending Russia from the Human Rights Council, April 7, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/07/statement-of-president-joe-biden-on-the-un-vote-suspending-russia-from-the-human-rights-council/.

Keeping up with all sanctions being imposed is challenging in light of the expanding set of actions being taken although different organizations have compiled lists. For example, Reuters posts a time and country based list in Tracking sanctions against Russia, https://graphics.reuters.com/UKRAINE-CRISIS/SANCTIONS/byvrjenzmve/. The version I reviewed was updated on April 8, 2022 and shows actions through April 7. “Reuters is tracking government sanctions and actions against Russia taken by large companies and organisations around the world in the lead up to and following its invasion of Ukraine.” Reuters shows sanctions imposed by 41 governments (viewing the EU as 27) and 99 actions taken by large companies and organizations.

A fact sheet released by the White House on April 6 summarizes actions being taken by the United States in light of the continuing Russian aggression and atrocities. The White House, FACT SHEET: United States, G7 and EU Impose Severe and Immediate Costs on Russia, April 6, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/06/fact-sheet-united-states-g7-and-eu-impose-severe-and-immediate-costs-on-russia/. The fact sheet is copied below.

“Today, the United States, with the G7 and the European Union, will continue to impose severe and immediate economic costs on the Putin regime for its atrocities in Ukraine, including in Bucha. We will document and share information on these atrocities and use all appropriate mechanisms to hold accountable those responsible. As one part of this effort, the United States is announcing devastating economic measures to ban new investment in Russia, and impose the most severe financial sanctions on Russia’s largest bank and several of its most critical state-owned enterprises and on Russian government officials and their family members. These sweeping financial sanctions follow our action earlier this week to cut off Russia’s frozen funds in the United States to make debt payments. Importantly, these measures are designed to reinforce each other to generate intensifying impact over time.

“The United States and more than 30 allies and partners across the world have levied the most impactful, coordinated, and wide-ranging economic restrictions in history. Experts predict Russia’s GDP will contract up to 15 percent this year, wiping out the last fifteen years of economic gains. Inflation is already spiking above 15 percent and forecast to accelerate higher. More than 600 private sector companies have already left the Russian market. Supply chains in Russia have been severely disrupted. Russia will very likely lose its status as a major economy, and it will continue a long descent into economic, financial, and technological isolation. Compared to last year, U.S. exports to Russia of items subject to our new export controls have decreased 99 percent by value – and the power of these restrictions will compound over time as Russia draws down any remaining stockpiles of spare parts for certain planes, tanks, and other resources needed for Putin’s war machine.

“As long as Russia continues its brutal assault on Ukraine, we will stand unified with our allies and partners in imposing additional costs on Russia for its actions. Today, the United States is announcing the following actions:

Full blocking sanctions on Russia’s largest financial institution, Sberbank, and Russia’s largest private bank, Alfa Bank. This action will freeze any of Sberbank’s and Alfa Bank’s assets touching the U.S financial system and prohibit U.S. persons from doing business with them. Sberbank holds nearly one-third of the overall Russian banking sector’s assets and is systemically critical to the Russian economy. Alfa Bank is Russia’s largest privately-owned financial institution and Russia’s fourth largest financial institution overall.

Prohibiting new investment in the Russian Federation. President Biden will sign a new Executive Order (E.O.) that includes a prohibition on new investment in Russia by U.S. persons wherever located, which will further isolate Russia from the global economy. This action builds on the decision made by more than 600 multinational businesses to exit from Russia. The exodus of the private sector includes manufacturers, energy companies, large retailers, financial institutions, as well as other service providers such as law and consulting firms. Today’s E.O. will ensure the enduring weakening of the Russian Federation’s global competitiveness.

Full blocking sanctions on critical major Russian state-owned enterprises. This will prohibit any U.S. person from transacting with these entities and freeze any of their assets subject to U.S. jurisdiction, thereby damaging the Kremlin’s ability to use these entities it depends on to enable and fund its war in Ukraine. The Department of Treasury will announce these entities tomorrow.

Full blocking sanctions on Russian elites and their family members, including sanctions on: President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of Russia’s Security Council including former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin. These individuals have enriched themselves at the expense of the Russian people.  Some of them are responsible for providing the support necessary to underpin Putin’s war on Ukraine. This action cuts them off from the U.S. financial system and freezes any assets they hold in the United States.

The U.S. Treasury prohibited Russia from making debt payments with funds subject to U.S. jurisdiction. Sanctions do not preclude payments on Russian sovereign debt at this time, provided Russia uses funds outside of U.S. jurisdiction. However, Russia is a global financial pariah — and it will now need to choose between draining its available funds to make debt payments or default. 

Commitment to supporting sectors essential to humanitarian activities. As we continue escalating our sanctions and other economic measures against Russia for its brutal war against Ukraine, we reiterate our commitment to exempting essential humanitarian and related activities that benefit the Russian people and people around the world: ensuring the availability of basic foodstuffs and agricultural commodities, safeguarding access to medicine and medical devices, and enabling telecommunications services to support the flow of information and access to the internet which provides outside perspectives to the Russian people. These activities are not the target of our efforts, and U.S. and Western companies can continue to operate in these sectors in Russia. When necessary, relevant departments and agencies will issue appropriate exemptions and carveouts to ensure such activity is not disrupted.”

Similarly, the European Commission announced proposed additional sanctions (fifth round) on April 5 and agreed sanctions were announced by the Council of the European Union on April 8. See Press statement by President von der Leyen on the fifth round of sanctions against Russia, Strasbourg, 5 April 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_2281; Council of the EU Press release, 8 April 2022, EU adopts fifth round of sanctions against Russia over its military aggression against
Ukraine, https://www.consilium.europa.eu/en/press/press-releases/2022/04/08/eu-adopts-fifth-round-of-sanctions-against-russia-over-its-military-aggression-against-ukraine/; Official Journal of the European Union, L111, 8 April 2022. The Council’s statement is copied below.

“In light of Russia’s continuing war of aggression against Ukraine, and the reported atrocities committed by Russian armed forces in Ukraine, the Council decided today to impose a fifth package of economic and individual sanctions against Russia.

“The agreed package includes a series of measures intended to reinforce pressure on the Russian government and economy, and to limit the Kremlin’s resources for the aggression.

“‘These latest sanctions were adopted following the atrocities committed by Russian armed forces in Bucha and other places under Russian occupation. The aim of our sanctions is to stop the reckless, inhuman and aggressive behaviour of the Russian troops and make clear to the decision makers in the Kremlin that their illegal aggression comes at a heavy cost.’ Josep Borrell, High Representative for Foreign Affairs and Security Policy

“The package comprises:

“- a prohibition to purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as from August 2022. Imports of coal into the EU are currently worth EUR 8 billion per year.

“- a prohibition to provide access to EU ports to vessels registered under the flag of Russia. Derogations are granted for agricultural and food products, humanitarian aid, and energy.

“- a ban on any Russian and Belarusian road transport undertaking preventing them from transporting goods by road within the EU, including in transit. Derogations are nonetheless granted for a number of products, such as pharmaceutical, medical, agricultural and food products, including wheat, and for road transport for humanitarian purposes.

“- further export bans, targeting jet fuel and other goods such as quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery and transportation equipment, and new import bans on products such as: wood, cement, fertilisers, seafood and liquor. The agreed export and import bans only account for EUR 10 billion and EUR 5.5 billion respectively.

“- a series of targeted economic measures intended to strengthen existing measures and close loopholes, such as: a general EU ban on participation of Russian companies in public procurement in member states, the exclusion of all financial support to Russian public bodies. an extended prohibition on deposits to crypto-wallets, and on the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural or legal person, entity or body in Russia and Belarus,.

“Furthermore, the Council decided to sanction companies whose products or technology have played a role in the invasion, key oligarchs and businesspeople, high-ranking Kremlin officialsproponents of disinformation and information manipulation, systematically spreading the Kremlin’s narrative on Russia’s war aggression in Ukraine, as well as family members of already sanctioned individuals, in order to make sure that EU sanctions are not circumvented.

“Moreover a full transaction ban is imposed on four key Russian banks representing 23% of market share in the Russian banking sector. After being de-SWIFTed these banks will now be subject to an asset freeze, thereby being completely cut off from EU markets.

“In its conclusions of 24 March 2022, the European Council stated that the Union remains ready to close loopholes and target actual and possible circumvention of the restrictive measures already adopted, as well as to move quickly with further coordinated robust sanctions on Russia and Belarus to effectively thwart Russian abilities to continue the aggression.

“Russia’s war of aggression against Ukraine grossly violates international law and is causing massive loss of life and injury to civilians. Russia is directing attacks against the civilian population and is targeting civilian objects, including hospitals, medical facilities, schools and shelters. These war crimes must stop immediately. Those responsible, and their accomplices, will be held to account in accordance with international law. The siege of Mariupol and other Ukrainian cities, and the denial of humanitarian access by Russian military forces are unacceptable. Russian forces must immediately provide for safe pathways to other parts of Ukraine, as well as humanitarian aid to be delivered to Mariupol and other besieged cities.

“The European Council demands that Russia immediately stop its military aggression in the territory of Ukraine, immediately and unconditionally withdraw all forces and military equipment from the entire territory of Ukraine, and fully respect Ukraine’s territorial integrity, sovereignty and independence within its internationally recognised borders.

“The relevant legal acts will soon be published in the Official Journal.”

As listed above, the Official Journal with the legal actions identified was published on April 8 (OJ L111).

The United Kingdom also took action on April 6 to expand sanctions. Government of the United Kingdom Press Release, UK imposes sweeping new sanctions to starve Putin’s war machine, 6 April 2022, https://www.gov.uk/government/news/uk-imposes-sweeping-new-sanctions-to-starve-putins-war-machine. The sanctions announced in the press release are listed below.

“Key sanctions announced today include:

“asset freezes against Sberbank and Credit Bank of Moscow. Sberbank is Russia’s largest bank and this freeze is being taken in co-ordination with the US

“an outright ban on all new outward investment to Russia. In 2020 UK investment in Russia was worth over £11 billion. This will be another major hit to the Russian economy and further limit their future capabilities

“by the end of 2022, the UK will end all dependency on Russian coal and oil, and end imports of gas as soon as possible thereafter. From next week, the export of key oil refining equipment and catalysts will also be banned, degrading Russia’s ability to produce and export oil – targeting not only the industry’s finances but its capabilities as a whole

“action against key Russian strategic industries and state owned enterprises. This includes a ban on imports of iron and steel products, a key source of revenue. Russia’s military ambitions are also being thwarted by new restrictions on its ability to acquire the UK’s world-renowned quantum and advanced material technologies

“and targeting a further eight oligarchs active in these industries, which Putin uses to prop up his war economy.”

Canada, Japan and Australia also announced additional sanctions. See Government of Canada, Canada announces it will impose additional sanctionson Russian and Belarusian regimes, April 4, 2022, https://www.canada.ca/en/global-affairs/news/2022/04/canada-announces-it-will-impose-additional-sanctions-on-russian-and-belarusian-regimes.html; Reuters, Japan bans Russian coal imports, expels eight diplomats, April 8, 2022, https://www.reuters.com/world/asia-pacific/japan-considers-restrictions-coal-imports-russia-jiji-2022-04-07/; The Japan Times, Japan to expel eight Russians, including diplomats, as Kishida announces new sanctions, 8 April 2022, https://www.japantimes.co.jp/news/2022/04/08/national/japan-russia-expel-diplomats/ (“Kishida, however, announced a sweeping new round of sanctions, declaring that Japan will phase out imports of Russian coal, ban imports of Russian machinery, lumber and vodka, bar new investments in Russia and freeze assets held by major Russian lenders Sberbank and Alfa Bank. Japan will also freeze the assets of an additional 400 or so military personnel and lawmakers and some 20 military-related organizations, including state-run companies, Kishida said.”); Reuters, Australia to impose sanctions on 67 more Russians over Ukraine, April 7, 2022, https://www.reuters.com/world/australia-impose-sanctions-67-russians-over-ukraine-2022-04-07/; New Zealand to apply trade sanctions in response to Russian atrocities, April 6, 2022, https://www.beehive.govt.nz/release/new-zealand-apply-trade-sanctions-response-russian-atrocities (“The Government have announced that they will apply 35% tariffs to all imports from Russia, and extend the existing export prohibitions to industrial products closely connected to strategic Russian industries. This is New Zealand’s most significant economic response to the Russian invasion to date. ‘The images and reports emerging of atrocities committed against civilians in Bucha and other regions of Ukraine is abhorrent and reprehensible, and New Zealand continues to respond to Putin’s mindless acts of aggression,’ Foreign Minister Nanaia Mahuta said. ‘Under the Russia Sanctions Act, New Zealand will apply tariffs across the board to all Russian imports, as well as ban the export of industrial products such as ICT equipment and engines, sending a clear message that New Zealand will not fund or support the Russia war machine,’ Trade and Export Growth Minister Damien O’Connor said.”).

On April 8, President Biden also signed two Congressional bills into law, one suspending normal trade relations with Russia and Belarus and one banning imports of oil, gas and coal from Russia (President Biden had already banned such imports). See White House, Bills Signed: H.R. 6968 and H.R. 7108, APRIL 08, 2022, https://www.whitehouse.gov/briefing-room/legislation/2022/04/08/bills-signed-h-r-6968-and-h-r-7108/ (“On Friday, April 8, 2022, the President signed into law: H.R. 6968, the ‘Ending Importation of Russian Oil Act,’ which statutorily prohibits the importation of energy products from the Russian Federation; and H.R. 7108, the ‘Suspending Normal Trade Relations with Russia and Belarus Act,’ which suspends normal trade relations with the Russian Federation and the Republic of Belarus and seeks to further leverage trade and human rights sanctions.”).

While major importing nations of Russian oil and gas have been unable or unwilling to date to cut off purchases of oil and gas, the level of economic and financial sanctions imposed on the Russian Federation and Belarus coupled with the withdrawal of major businesses (temporarily or permanently) from Russia are having significant negative effects on the Russian economy both short term and longer term. These effects coupled with the damage to the Ukrainian economy inflicted by the Russian war on Ukraine will have global effects. As reviewed in an earlier post, Ukraine and Russia are major exporters of various agricultural products. The war is both creating increased food insecurity and driving inflation on agricultural products which hurts all consumers but the poorest the hardest. See March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/. Indeed, global food prices reached an all time high in March. UN News, Ukraine war drives international food prices to ‘new all-time high’, 8 April 2022, https://news.un.org/en/story/2022/04/1115852

The WTO’s Director-General Ngozi Okonjo-Iweala has indicated that global trade growth will be nearly 50% lower than previously projected for 2022 (2.5% vs. 4.7%) flowing from the war in Ukraine and ongoing supply chain issues. Sunday Observer, Ukraine war to halve global trade growth – WTO, 10 April 2022, ww.sundayobserver.lk/2022/04/10/business/ukraine-war-halve-global-trade-growth-wto. The war and individual countries reactions to Russia’s aggression are also likely to have longer term effects on global integration and supply chains. One is already seeing significant reductions in foreign investment flows into China. China’s actions or inactions towards Russia’s aggression may reduce foreign investor confidence in the Chinese economy as a place for investment at least for exports. A return to isolation of some countries from the larger global community is certainly afoot. The only question is whether states besides Russia and Belarus will be in the ostracized group.

With Russia continuing its aggression against Ukraine and with apparent scorched earth tactics being pursued, it is likely that the latest round of sanctions will not be the last. The strains on the global economy are likely to worsen in the coming months.

WTO Dispute Settlement in 2022 — to date (April 5, 2022) European Union is only WTO Member to file new disputes

With 2022 more than one quarter over, the European Union remains the only WTO Member to file a new WTO dispute this year, and it has filed five requests for consultation. The United States has spent the first fifteen months of the Biden Administration seeking resolution to long-standing disputes but to date has filed no new cases (2021-2022). China had filed a number of disputes in 2021 and is the subject of various disputes filed in the 2021-2022 including two of the EU cases this year.

Two of the five cases filed in 2022 by the EU were against China and are reviewed in prior posts. See February 21, 2022:  The European Union’s February 18, 2022 request for consultations with China over China’s “anti-suit injunctions” in intellectual property disputes and its failure to publish decisions and respond to EU inquiries, https://currentthoughtsontrade.com/2022/02/21/the-european-unions-february-18-2022-request-for-consultations-with-china-over-chinas-anti-suit-injunctions-in-intellectual-property-disputes-and-its-failure-to-publish-decisions-and-respond/; January 27, 2022:  The European Union requests consultations with China at the WTO for restrictions on Lithuanian goods imposed by China, https://currentthoughtsontrade.com/2022/01/27/the-european-union-requests-consultations-with-china-at-the-wto-for-restrictions-on-lithuania-goods-imposed-by-china/. On the intellectual property dispute, Japan, United States and Canada have requested to join the consultations. On the EU’s challenge to China’s actions on goods from Lithuania, six other Members have sought to join the consultations — Australia, Taiwan, Japan, United States, United Kingdom, and Canada.

The other three requests for consultations filed by the EU this year include one filed with the Russian Federation (DS608) concerning the exportation of wood products, one with Egypt (D609) concerning registration requirements relating to the importation of certain products and the latest one with the United Kingdom (DS612) concerning measures relating to the allocation of contracts for difference in low carbon energy generation.

The case against the Russian Federation deals with the termination of tariff-rate quotas on exports of wood products, other increases in export duties on wood products, reduction of the number of border crossing points for the exportation of wood products and the introduction of export restrictions or prohibitions on certain wood products by the Eurasian Economic Union. WTO inconsistencies alleged by the EU include Art. I:1, II:1(a), XI:1, XIII:1 of GATT 1994 and Paragraph 2, second sentence, of the Protocol on the Accession of the Russian Federation in conjunction with paragraphs 638, 668, and 1450 of the Report of the Working Party. WT/DS608/1/Rev.1, G/L/1434/Rev.1 (27 February 2022).

The request for consultations with Egypt involves challenges to Egyptian measures that apply to EU companies wishing to export to Egypt where registration requirements exist (29 categories of goods “including agricultural and food products, cosmetics, toys, textiles, garments, household appliances, furniture and ceramic tiles.”). The requirements are alleged to burdensome, non-transparent, costly and time-consuming and some registration applications have not been processed even after years. The Egyptian measures of concern raise questions about consistency with WTO GATT 1994 Articles XI:1, VIII:1(c), VIII:3, X:1, X:3(a); Art. 4.2 of the Agriculture Agreement and Articles 1.2, 1.5 3.3, 3.5(e) and 3.5(f) of the Import Licensing Agreement. WT/DS609/1, G/L/1425 (27 January 2022). The Russian Federation has sought to join consultations. WT/DS609/2.

The most recent request for consultations with the United Kingdom involves local content requirements for incentivised low carbon electricity generation projects (e.g., offshore wind). “The measures at issue described above appear to be inconsistent with the United Kingdom’s obligations under the covered agreements, in particular Article III:4 of the GATT 1994, inasmuch as, by incentivising applicants to commit to and implement an ambitious percentage of Untied Kingdom content of the allocation of CfD, they accord less favourable treatment to imported goods than to like domestic goods.” WT/DS612/1, G/L/1428 (30 March 2022).

Of the five cases, the two against China are probably the most important systemically. The case about retaliation by China against Lithuania addresses a recurring problem with China punishing WTO Members who take positions with which China disagrees, The intellectual property case as described in a prior post is important to prevent China from blocking IP rights holders from obtaining the benefits of IP that the TRIPS Agreement safeguards.

The Russian Federation case may proceed but is overshadowed by Russia’s invasion of Ukraine and sanctions imposed by many countries, including by the EU. That said, the case deals with what appear to be clear violations of WTO obligations by Russia.

The case against Turkey is typical of a range of disputes over the years against countries who adopt a series of barriers to access to the market to protect domestic industries. While there can always be potentially relevant standards issues or health/safety issues, the actions of Egypt sound as though they simply slow down, limit or block import trade.

Finally, the case against the United Kingdom deals with the efforts of many countries to speed up adoption of renewable energy and reflect the important systemic issue of the interface between domestic incentives and WTO obligations on national treatment.

At the last Dispute Settlement Body meeting (March 28, 2022), many WTO Members continued to seek the reestablishment of a two tier dispute settlement process which the United States continues to block. See WTO News Release, Members continue push to commence Appellate Body appointment process, 28 March 2022, https://www.wto.org/english/news_e/news22_e/dsb_28mar22_e.htm. The statements made appear to be identical or similar to those made over the last several years. The WTO news release on the meeting and the issue of the Appellate Body is copied below in relevant part.

“Appellate Body appointments

“Mexico, speaking on behalf of 123 members, introduced for the 52nd time the group’s proposal to start the selection processes for filling vacancies on the Appellate Body. The extensive number of members submitting the proposal reflects a common concern over the current situation in the Appellate Body which is seriously affecting the overall WTO dispute settlement system against the best interest of members, Mexico said for the group.

“The United States reiterated it was not in a position to support the proposed decision.  The US continues to have systemic concerns with the Appellate Body, which it has explained and raised over the past 16 years and across multiple administrations.  The US said it believes that WTO members must undertake fundamental reform if the dispute settlement system is to remain viable and credible.  The dispute settlement system can and should better support the WTO’s negotiating and monitoring functions, the US said, adding that it looked forward to further discussions with members on these important issues.

“Around 20 delegations (including the EU for its 27 members and Nigeria for the African Group) took the floor to reiterate the importance of the WTO’s two-tiered dispute settlement system to the stability and predictability of the multilateral trading system.  Several cited this issue as the top priority for reform of the organization and said the continued impasse was causing both commercial harm to members and systemic harm to multilateral trade.

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

“The DSB chair, Ambassador Athaliah Lesiba Molokomme of Botswana, noted the previous General Council chair has been working on the issue of restoring a fully functioning dispute settlement system within the context of preparations for the WTO’s 12th Ministerial Conference. She said she hoped members would be able to find a solution to this matter.”

I have reviewed in many prior posts the longstanding and well articulated concerns of the United States, concerns which have largely not been addressed in the process to date. See, e.g., February 14, 2020: USTR’s Report on the WTO Appellate Body – An Impressive Critique of the Appellate Body’s Deviation from Its Proper Role, https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/

I have also in recent posts looked at individual disputes where the U.S. was the respondent and reviewed problems with the decisions. See, e.g., February 9, 2022:  The WTO Panel Report, UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS, WT/DS546/R (8 February 2022), https://currentthoughtsontrade.com/2022/02/09/the-wto-panel-report-united-states-safeguard-measure-on-imports-of-large-residential-washers-wt-ds546-r-8-february-2022/; January 27, 2022:  WTO Arbitration Report on China’s challenge to U.S. countervailing duty investigations — while retaliation is much smaller than China sought, core problems with original Appellate Body decision flags challenge to restoring the Dispute Settlement binding process, https://currentthoughtsontrade.com/2022/01/27/wto-arbitration-report-on-chinas-challenge-to-u-s-countervailing-duty-investigations-while-retaliation-is-much-smaller-than-china-sought-core-problems-with-original-appellate-body-decision-flag/; December 29, 2021:  WTO Dispute Settlement — What the Recently Adopted Panel Report on United States – Antidumping and Countervailing Duties on Ripe Olives from Spain says about the existing dispute settlement system and about needed WTO reforms, https://currentthoughtsontrade.com/2021/12/29/wto-dispute-settlement-what-the-recently-adopted-panel-report-on-united-states-antidumping-and-countervailing-duties-on-ripe-olives-from-spain-says-about-the-existing-dispute-settlement-system-an/.

Thus, it is unlikely that the twice delayed 12th Ministerial Conference to be held in Geneva June 13-15 this year will resolve the impasse on the Appellate Body. While it is possible that a process may be agreed to to examine the root problems and formulate possible solutions as part of the WTO reform agenda, even that may be optimistic in the current environment.

Existing disputes continue to proceed, with various resolutions possible in cases even among countries who have not signed up to the Agreement on the Interim Arbitration Process, although two dozen panel reports have been “appealed” but cannot be heard until/unless an Appellate Body is reconsituted. Such appeals have been taken by a number of Members including by Members who are parties to the interim process (e.g., EU on a panel report of a challenge to a trade remedy proceeding against the Russian Federation). See, e.g., WTO Dispute Settlement, Appellate Body, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm (listing 24 cases where appeals are pending).

This Friday (April 8, 2022) , there is a Dispute Settlement Body meeting to consider a joint request by the Republic of Korea and the United States in the dispute involving UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS that would have the DSB adopt a decision that the panel report is adopted unless an appeal is filed by July 7, 2022 (essentially extending the time to appeal the panel report presumably to give the parties more time to consider a mutually acceptable resolution). WT/DS546/8 (29 March 2022).

So whether there is a resolution to the Appellate Body impasse or not, WTO Members have ongoing options to address trade concerns including through Committee work, bilateral interactions and disputes through the WTO or through FTAs.

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Food security challenges posed by the Russian invasion of Ukraine

Ukraine and Russia are important exporters of wheat, corn and sunflower oil. See, e.g., WTO Trade Profiles 2021 at 376 (Ukraine top three agricultural expoers were sunflower-seed, or cotton oil ($5.32 billion), corn ($4.885 billion) and wheat and meslin ($3.594 billion)) and 298 (Russian Federation, top two agricultural exports were wheat and meslin ($6.403 billion), sunflower seed or cotton oil ($2.206 billion). Ukraine’s exports in 2022 are certain to be disrupted by the Russian war in the country which is harming infrastructure, the ability of farmers to plant crops, increasing input costs and maritime costs. Effects on Russian exports are less clear but could be affected as well.

The United Nation’s Food and Agriculture Organization (FAO) released an updated evaluation of risks on food security both for Ukrainians and for the world from the ongoing conflict last week (March 25), See FAO, Information Note, The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict, 25 March 2022 Update, https://www.fao.org/3/cb9236en/cb9236en.pdf. The Executive Summary (pages 1-4) is copied below.

“Executive Summary

“1. Market structure, trade profiles and recent price trends

“1.1 Market shares

“• The Russian Federation and Ukraine are among the most important producers of agricultural commodities in the world. Both countries are net exporters of agricultural products, and they both play leading supply roles in global markets of foodstuffs and fertilisers, where exportable supplies are often concentrated in a handful of countries. This concentration could expose these markets to increased vulnerability to shocks and volatility.

“• In 2021, either the Russian Federation or Ukraine (or both) ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, while the Russian Federation also stood as the world’s top exporter of nitrogen fertilizers, the second leading supplier of potassium fertilizers and the third largest exporter of phosphorous fertilizers.

“1.2 Trade profiles

“• Many countries that are highly dependent on imported foodstuffs and fertilizers, including numerous that fall into the Least Developed Country (LDC) and Low-Income Food-Deficit Country (LIFDC) groups, rely on Ukrainian and Russian food supplies to meet their consumption needs. Many of these countries, already prior to the conflict, had been grappling with the negative effects of high international food and fertilizer prices.

“Risk analysis: Assessing the risks emanating from the conflict

“2.1 Trade risks

“• In Ukraine, the escalation of the conflict raises concerns on whether crops will be harvested and products exported. The war has already led to port closures, the suspension of oilseed crushing operations and the introduction of export licensing requirements for some products. All of these could take a toll on the country’s exports of grains and vegetable oils in the months ahead. Much uncertainty also surrounds Russian export prospects, given sales difficulties that may arise as a result of economic sanctions imposed on the country.

“2.2 Price risks

“• FAO’s simulations gauging the potential impacts of a sudden and steep reduction in grain and sunflower seed exports by the two countries indicate that these shortfalls might only be partially compensated by alternative sources during the 2022/23 marketing season. The capacity of many exporting countries to boost output and shipments may be limited by high production and input costs. Worryingly, the resulting global supply gap could raise international food and feed prices by 8 to 22 percent above their already elevated baseline levels.

“• If the conflict keeps crude oil prices at high levels and prolongs the two countries’ reduced global export participation beyond the 2022/23 season, a considerable supply gap would remain in global grain and sunflowerseed markets, even as alternative producing countries expand their output in response to the higher output prices. This would keep international prices elevated well above baseline levels.

“2.3 Logistical risks

“• In Ukraine, there are also concerns that the conflict may result in damages to inland transport infrastructure and seaports, as well as storage and processing infrastructure. This is all the more so given the limited capacity of alternatives, such as rail transport for seaports or smaller processing facilities for modern oilseeds crushing facilities, to compensate for their lack of operation.

“• More generally, apprehensions also exist regarding increasing insurance premia for vessels destined to berth in the Black Sea region, as these could exacerbate the already elevated costs of maritime transportation, compounding further the effects on the final costs of internationally sourced food paid by importers.

“2.4 Production risks

“• Although early production prospects for 2022/23 winter crops were favourable in both Ukraine and the
Russian Federation, in Ukraine, the conflict may prevent farmers from attending to their fields and harvesting and marketing their crops, while disruptions to essential public services could also negatively affect agricultural activities.

“• Current indications are that, as a result of the conflict, between 20 and 30 percent of areas sown to winter crops in Ukraine will remain unharvested during the 2022/23 season, with the yields of these crops also likely to be adversely affected. Furthermore, considerable uncertainties surround Ukrainian farmers’ capacity to plant crops during the fast approaching spring crop cycle.

“• The conflict is also likely to affect the ability of Ukraine to control its animal disease burden, significantly increasing the risk of proliferation of animal diseases, notably of African swine fever (ASF), within Ukraine and in neighbouring countries.

“• In the case of the Russian Federation, although no major disruption to crops already in the ground appears imminent, uncertainties exist over the impact that the international sanctions imposed on the country will have on food exports. Any loss of export markets could depress farmer incomes, thereby negatively affecting future planting decisions.

“• Economic sanctions imposed on the Russian Federation could also disrupt its imports of agricultural inputs, notably pesticides and seeds, on which the country is highly dependent. This could result in less plantings, lower yields and lower qualities, exposing the Russian agricultural sector and global food supplies, at large, to non-negligible risks.

“2.5 Humanitarian risks

“• The conflict is set to increase humanitarian needs in Ukraine, while deepening those of millions of people that prior to its escalation were already displaced or requiring assistance due to the more than eight-year conflict in the eastern part of the country. By directly constraining agricultural production, limiting economic activity and raising prices, the conflict will further undercut the purchasing power of local populations, with consequent increases in food insecurity and malnutrition.

“• Humanitarian needs in neighbouring countries, where displaced populations are seeking refuge, are also set to increase substantially.

“• Globally, if the conflict results in a sudden and prolonged reduction in food exports by Ukraine and the Russian Federation, it will exert additional upward pressure on international food commodity prices to the detriment of economically vulnerable countries, in particular. FAO’s simulations suggest that under such a scenario, the global number of undernourished people could increase by 8 to 13 million people in 2022/23, with the most pronounced increases taking place in Asia-Pacific, followed by sub-Saharan Africa, and the Near East and North Africa. If the war lasts, impacts will go well beyond 2022/23.

“2.6 Energy risks

“• The Russian Federation is a key player in the global energy market. As a highly energy-intensive industry, especially in developed regions, agriculture will inevitably be affected by the sharp increase in energy prices that has accompanied the conflict.

“• Agriculture absorbs high amounts of energy directly, through the use of fuel, gas and electricity, and indirectly, through the use of agri-chemicals such as fertilisers, pesticides and lubricants.

“• With prices of fertilizers and other energy-intensive products rising as a consequence of the conflict, overall input prices are expected to experience a considerable boost. The higher prices of these inputs will first translate into higher production costs and eventually into higher food prices. They could also lead to lower input use levels, depressing yields and harvests in the 2022/23 season, thus giving further upside risk to the state of global food security in the coming years.

“• Higher energy prices also make agricultural feedstocks (especially maize, sugar and oilseeds/vegetable oils) competitive for the production of bio-energy and, given the large size of the energy market relative to the food market, this could pull food prices up to their energy parity equivalents.

“2.7 Exchange rate, debt, and growth risks

“• The Ukrainian hryvnia reached a record low against the United States dollar (USD) in early March 2022, with likely repercussions for Ukrainian agriculture, including a boost to its export competitiveness and curbs on its ability to import.

“• Although their extent remains unclear at this stage, conflict-induced damages to Ukraine’s productive capacity and infrastructure are expected to entail very high recovery and reconstruction costs.

“• The economic sanctions imposed on the Russian Federation have also led to a significant depreciation of the Russian rouble. Although this should make Russian exports of agricultural commodities more affordable, a lasting rouble depreciation would negatively affect investment and productivity growth prospects in the country.

“• Weakening economic activity and a depreciated rouble are also expected to have serious effects on countries in Central Asia through the reduction of remittance flows, as for many of these countries remittances constitute a significant part of gross domestic product (GDP)

“• The current conflict may also have global spillovers. While its impact on the global economy remains uncertain at this stage and will depend on several factors, the most vulnerable countries and populations are expected to be hit hard by slower economic growth and increased inflation, at a time when the world is still attempting to recover from the recession triggered by the COVID-19 pandemic.

“• Agriculture is the backbone of the economies of many developing countries, the majority of which rely on the United States dollar for their borrowing needs. As such, a lasting appreciation of the USD vis-à-vis other currencies may have negative significant economic consequences for these countries, including for their agrifood sectors. Moreover, the potential reduction of GDP growth in several parts of the world will affect global demand for agrifood products with negative consequences for global food security. Lower GDP growth will also likely reduce the availability of funds for development, especially if global military expenses increase.

“Policy recommendations

“• In order to prevent or limit the conflict’s detrimental impacts on the food and agricultural sectors of Ukraine and the Russian Federation, every effort should be made to keep international trade in food and fertilizers open to meet domestic and global demand. Supply chains should be kept fully operational, including by protecting standing crops, livestock, food processing infrastructure, and all logistical systems.

“• In order to absorb conflict-induced shocks and remain resilient, countries that depend on food imports from Ukraine and the Russian Federation will need to find alternative export suppliers for their food needs. They should also rely on existing food stocks and enhance the diversity of their domestic production bases.

“• The food security impacts of the conflict on vulnerable groups necessitate timely monitoring and well-targeted social protection interventions to alleviate the hardship caused by the conflict and to foster a fast recovery from it. To assist the internally displaced people, refugees and groups directly affected by the conflict, the reach of Ukraine’s national social protection system should be expanded by registering additional population groups within the Unified Social Information System.

“• In countries hosting refugees, access to existing social protection systems and job opportunities should also be eased by lifting legal access barriers and, where needed, by increasing the capacity of host countries’ social protection systems to absorb additional caseloads.

“• Countries affected by potential disruptions ensuing from the conflict must carefully weigh measures they put in place against their potentially detrimental effect on international markets including over the longer term. Particularly, export restrictions must be avoided. They exacerbate price volatility, limit the buffer capacity of the global market, and have negative impacts over the medium term.

“• The spread of African swine fever (ASF) and other animal diseases must be contained by improving biosecurity and good husbandry practices at all geographical levels, by taking steps to facilitate early detection, timely reporting and rapid disease containment, and by implementing measures that support virus detection, such as surveillance schemes and targeted sampling of animals.

“• Market transparency and policy dialogue should be strengthened, as they play key roles when agricultural commodity markets are under uncertainty and disruptions need to be minimised to ensure that international markets continue to function properly and that trade in food and agricultural products flows smoothly.”

Figure 15 of the paper (page 10) identifies countries largely dependent on Ukraine and Russia for wheat.

The FAO also released a separate paper on the food security challenges for the people of Ukraine on March 25, 2022. See FAO, Note on the impact of the war on food security in Ukraine, 25 March 2022, https://www.fao.org/3/cb9171en/cb9171en.pdf.

The FAO’s latest Food Price Index (released March 4, 2022, shows agricultural products already at all time highs. See FAO, The FAO Food Price Index rises to a new all-time high in February, Release date: 04/03/2022, https://www.fao.org/worldfoodsituation/foodpricesindex/en/#:~:text=Release%20date%3A%2004%2F03%2F,February%202011%20by%203.1%20points.

As reviewed in a prior post, countries imposing sanctions on Russia, including the G-7 and the EU, are working to minimize the food security issues. March 26, 2022:  Blockage of Accession of Belarus to WTO, additional sanctions on Russia and other recent developments, https://currentthoughtsontrade.com/2022/03/26/blockage-of-accession-of-belarus-to-wto-additional-sanctions-on-russia-and-other-recent-developments/ (“The G-7 Leaders’ Statement on March 24, 2022 outlined their efforts to address the potential food security issues caused by Russia’s invasion of Ukraine. See G-7 Leaders’ Statement, March 24, 2022, paragraphs 17 and 18,  https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/g7-leaders-statement/#:~:text=We%2C%20the%20Leaders%20of%20the,against%20independent%20and%20sovereign%20Ukraine. ’17. More immediately, President Putin’s war places global food security under increased pressure. We recall that the implementation of our sanctions against Russia takes into account the need to avoid impact on global agricultural trade. We remain determined to monitor the situation closely and do what is necessary to prevent and respond to the evolving global food security crisis. We will make coherent use of all instruments and funding mechanisms to address food security, and build resilience in the agriculture sector in line with climate and environment goals. We will address potential agricultural production and trade disruptions, in particular in vulnerable countries. We commit to provide a sustainable food supply in Ukraine and support continued Ukrainian production efforts. 18. We will work with and step up our collective contribution to relevant international institutions including the World Food Programme (WFP), in parallel with Multilateral Development Banks and International Financial Institutions, to provide support to countries with acute food insecurity. We call for an extraordinary session of the Council of the Food and Agriculture Organization (FAO) to address the consequences on world food security and agriculture arising from the Russian aggression against Ukraine. We call on all participants of the Agriculture Markets Information System (AMIS) to continue to share information and explore options to keep prices under control, including making stocks available, in particular to the WFP. We will avoid export bans and other trade-restrictive measures, maintain open and transparent markets, and call on others to do likewise, consistent with World Trade Organization (WTO) rules, including WTO notification requirements.’”).

The issue is taking center stage at the WTO as reviewed in a recent press notice from the WTO on the Director-General’s comments at an informal meeting of the General Council. See WTO news release, DG Okonjo-Iweala: “This is not the time to retreat inward,” 28 March 2022, https://www.wto.org/english/news_e/news22_e/dgno_28mar22_e.htm. Some of the news release is copied below.

“’For dozens of poor countries and tens of millions of people, basic food security is in danger,” she warned. “These countries already have been some of the slowest economic recoveries from the pandemic, and international cooperation on trade is necessary to help mitigate risks of poverty, hunger, even famine and social unrest.’

“The Director-General noted that the UN Secretary-General has set up a three-tiered steering committee involving heads of government, heads of international organizations and technical experts to deal with the issue of surging energy and food prices. 

“The WTO is also expected to play a key role in finding solutions to the food crisis, the Director-General noted. The chair of the WTO’s agriculture negotiations, Ambassador Gloria Abraham Peralta of Costa Rica, is planning a food security conference that will take place at the end of April.  WTO Secretariat staff have also been carrying out analysis on food security issues which will be shared with members shortly.

“’We at the WTO have a solid basis on which to consider workable solutions to the present crisis,” the DG declared.

“In the near-term, international cooperation on trade will be needed to minimize the impact of supply crunches for key commodities where prices are already high by historical standards and to keep markets functioning smoothly, the Director-General said. While only 12 members have imposed export restrictions on food to date, coordinated government action is needed to avoid a repeat of the cascading export restrictions that exacerbated the rise of food prices in the crisis of 2008-2010.

“In addition, countries with buffer stocks that can afford to share could coordinate the release of wheat, barley, other cereals and grains and oils into international markets, thereby alleviating the supply squeeze.  Countries such as the United States, Canada, Australia, Argentina, and France could increase wheat cultivation while others such as China, Germany, Morocco, Saudi Arabia, Egypt, and Nigeria could increase global supply of fertilizer. Africa, with plentiful land and other resources, can also take steps to produce more food itself by using more adaptable varieties of wheat, maize and other crops.

“Trade facilitation measures could also be brought into play to ease the free flow of goods, while efforts should be made to allow the UN’s World Food Programme full access to humanitarian purchases. Prompt notification and information sharing regarding food supplies and stockpiles can help the international community better manage the situation and keep markets functioning more smoothly.”

WTO Members have a poor track record of not retreating from sharing core commodities during periods of shortages, which actions result in increased price volatility and significant harm to food importing nations. The transparency exercise as part of the COVID-19 pandemic on actions on both medical goods and agricultural products has improved the ability to understand actions being taken. But to date, Members continue to take actions to restrict exports when internal food security concerns arise.

I have written with former colleagues a number of papers in the past looking at the food security problems during earlier periods in the last fifteen years and the risks of social unrest that arise for many countries when core commodities become unaffordable. They are imbedded below.

GDP

1-Stewar-Manaker

2-2015-Global-Hunger-and-the-WTO-how-the-International-Trade-Rules-Address-Food-Security

Let’s hope that the focus of the G-7, EU and agricultural exporting countries and the attention being given to the issue at the WTO will result in a minimization of increased food insecurity to people around the world in the coming months.

Blockage of Accession of Belarus to WTO, additional sanctions on Russia and other recent developments

Extensive trade and financial sanctions have been imposed by the G-7 countries and EU and others on Russia and Belarus for Russia’s unprovoked war on Ukraine. The U.S., EU, United Kingdom, Japan, Republic of Korea, Australia, Canada, New Zealand and others have imposed a series of actions. In meetings of the G-7, NATO and U.S.-EU this week, joint action to continue to pressure Russia and Belarus to cease hostilities in Ukraine was reviewed.

At the WTO, a number of Members notified the General Council that accession negotiations with Belarus would not continue. Belarus was described as “unfit” to be a Member. JOINT STATEMENT REGARDING THE APPLICATION FROM BELARUS FOR ACCESSION TO THE WORLD TRADE ORGANIZATION, COMMUNICATION FROM ALBANIA; AUSTRALIA; CANADA; EUROPEAN UNION; ICELAND; JAPAN; REPUBLIC OF KOREA; MONTENEGRO; NEW ZEALAND; NORTH MACEDONIA; NORWAY; UKRAINE; UNITED KINGDOM AND UNITED STATES, 24 March 2022, WT/GC/246. The joint statement is embedded below.

246-1

While, as the joint statement notes, there has been no progress in the accession talks since 2000 based on events within Belarus, the joint statement makes clear that Belarus will not become a member of the WTO, certainly not in the foreseeable future.

The actions of Russia with the support from Belarus in invading Ukraine have led to a massive backlash and effort to remove or limit the role of Russia (and Belarus) in the global economy and in multilateral organizations. In previous posts, I have reviewed efforts by various countries to remove most favored nation treatment on Russia and Belarus. March 20, 2022:  Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine, https://currentthoughtsontrade.com/2022/03/20/banned-imports-higher-tariffs-other-actions-by-trading-partners-as-russia-and-belarus-lose-most-faovered-nation-treatment-by-g-7-countries-and-eu-during-the-conflict-in-ukraine/. The G-7 and EU have limited access to funding for Russia from the IMF, World Bank and other institutions, are attempting to limit Russia’s role in the WTO. Additional sanctions were announced this week in Brussels. See FACT SHEET: United States and Allies and Partners Impose Additional Costs on Russia, March 24, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/fact-sheet-united-states-and-allies-and-partners-impose-additional-costs-on-russia/.

“Today’s actions include:

“Full blocking sanctions on more than 400 individuals and entities, including the Duma and its members,
additional Russian elites, and Russian defense companies that fuel Putin’s war machine.

“This includes:

“328 Duma members and sanctioning the Duma as an entity.

“Herman Gref, the head of Russia’s largest financial institution Sberbank and a Putin advisor since the 1990s.

“Russian elite Gennady Timchenko, his companies and his family members.

“17 board members of Russian financial institution Sovcombank.

“48 Large Russian defense state-owned enterprises that are part of Russia’s defense-industrial base and produce weapons that have been used in Russia’s assault against Ukraine’s people, infrastructure, and territory, including Russian Helicopters, Tactical Missiles Corporation, High Precision Systems, NPK Tekhmash OAO, Kronshtadt. We are targeting, and will continue to target, the suppliers of Russia’s war effort and, in turn, their supply chain.

“Establishment of an initiative focused on sanctions evasions.

“G7 leaders and the European Union today announced an initiative to share information about and coordinate responses related to evasive measures intended to undercut the effectiveness and impact of our joint sanctions actions. Together, we will not allow sanctions evasion or backfilling. As part of this effort, we will also engage other governments on adopting sanctions similar to those already imposed by the G7 and other partners.

“Continuing to blunt the Central Bank’s ability to deploy international reserves, including gold, to prop up the Russian economy and fund Putin’s brutal war.

“G7 leaders and the European Union will continue to work jointly to blunt Russia’s ability to deploy its international reserves to prop up Russia’s economy and fund Putin’s war, including by making clear that any transaction involving gold related to the Central Bank of the Russian Federation is covered by existing sanctions.”

This week President Biden noted the U.S. preference to have Russia removed from the G-20, although press accounts indicate such a move even if backed by the G-7 would be blocked by China and possibly others. See, e.g., Reuters, Russia’s G20 membership under fire from U.S., Western allies, March 22, 2022, https://www.reuters.com/world/europe/poland-pushes-call-russia-be-excluded-g20-2022-03-22/; Reuters, Russia’s Putin gets Chinese backing to stay in G20, March 23, 2022, https://www.reuters.com/world/europe/russias-ambassador-indonesia-says-putin-plans-attend-g20-summit-2022-03-23/. If Russia is not excluded, it is unclear if G-7 Members and others might opt not to attend any G-20 meetings during the pendency of the war.

At the WTO, the joint statement to the General Council on the need of Members to take actions in light of the threats posed by Russia was followed by a response from Russia. The two documents are embedded below.

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245

The two largest economic challenges from the war in Ukraine is escalating energy prices and food security flowing from the large percentage of global wheat shipments coming from Ukraine and Russia. While the U.S. and Canada have banned imports of oil and/or gas from Russia in recent weeks, that option is not immediately available to the EU countries. See March 9, 2022:  U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil, https://currentthoughtsontrade.com/2022/03/09/u-s-joins-canada-in-banning-imports-of-russian-oil-and-gas-eu-announces-plan-to-drastically-reduce-reliance-on-russian-gas-united-kingdom-will-phase-out-imports-of-oil-and-gas-from-russia-by-end-of/ (“The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two-thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents.”).

The U.S. and the EU reached agreement on joint efforts to help reduce EU dependence on Russia energy which include U.S. commitments to export to the EU (or get third countries to export to the EU) a quantity of liquified natural gas equal to the LNG purchased from Russia in 2021 (15 BCM) and to ramp up exports to the EU of LNG in the coming years to 50 BCM. See Joint Statement between the United States and the European Commission on European Energy Security, March 25, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/25/joint-statement-between-the-united-states-and-the-european-commission-on-european-energy-security/; FACT SHEET: United States and European Commission Announce Task Force to Reduce Europe’s Dependence on Russian Fossil Fuels, March 25, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/25/fact-sheet-united-states-and-european-commission-announce-task-force-to-reduce-europes-dependence-on-russian-fossil-fuels/.

Because of the dependence of many countries on imports of grains from Ukraine and Russia, the war in Ukraine poses significant food security issues. The WTO’s Director-General has recently noted the potential for social unrest from food insecurity. See The Guardian, War in Ukraine could lead to food riots in poor countries, warns WTO boss, March 24, 2022. (“In an interview with the Guardian, the WTO director general expressed concern about the knock-on effects of Russia’s invasion – stressing the dependence of many African countries on food supplies from the Black Sea region.”).

The G-7 Leaders’ Statement on March 24, 2022 outlined their efforts to address the potential food security issues caused by Russia’s invasion of Ukraine. See G-7 Leaders’ Statement, March 24, 2022, paragraphs 17 and 18, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/24/g7-leaders-statement/#:~:text=We%2C%20the%20Leaders%20of%20the,against%20independent%20and%20sovereign%20Ukraine.

“17. More immediately, President Putin’s war places global food security under increased pressure. We recall that the implementation of our sanctions against Russia takes into account the need to avoid impact on global agricultural trade. We remain determined to monitor the situation closely and do what is necessary to prevent and respond to the evolving global food security crisis. We will make coherent use of all instruments and funding mechanisms to address food security, and build resilience in the agriculture sector in line with climate and environment goals. We will address potential agricultural production and trade disruptions, in particular in vulnerable countries. We commit to provide a sustainable food supply in Ukraine and support continued Ukrainian production efforts.

“18. We will work with and step up our collective contribution to relevant international institutions including the World Food Programme (WFP), in parallel with Multilateral Development Banks and International Financial Institutions, to provide support to countries with acute food insecurity. We call for an extraordinary session of the Council of the Food and Agriculture Organization (FAO) to address the consequences on world food security and agriculture arising from the Russian aggression against Ukraine. We call on all participants of the Agriculture Markets Information System (AMIS) to continue to share information and explore options to keep prices under control, including making stocks available, in particular to the WFP. We will avoid export bans and other trade-restrictive measures, maintain open and transparent markets, and call on others to do likewise, consistent with World Trade Organization (WTO) rules, including WTO notification requirements.”

It is clear that food security in the coming months will be an important focus within the WTO Committee on Agriculture. See WTO news release, Agriculture negotiators chart path towards MC12, 21 March 2022, https://www.wto.org/english/news_e/news22_e/agng_21mar22_e.htm (“Several members highlighted the impact of the conflict in Ukraine on the negotiation process as well as the resulting threats to food security. Some members also highlighted the importance of transparency, called for food markets to be kept open, and urged members to refrain from imposing export restrictions. Delegations acknowledged the unprecedented challenges to global food security and stressed the need to deliver a comprehensive outcome on agriculture at MC12 that would place food security at the forefront. Many reiterated their clear support for a multilateral decision as soon as possible to waive food purchases by the World Food Programme (WFP) from any export restriction.”).

Comments

The war in Ukraine is leading to an isolation of the Russian Federation and Belarus and a rethinking of the global economic integration of the last thirty years. How large the retreat from global economic integration turns out to be will depend on various factors including the duration of the war, the extent to which some countries aid the Russian war effort and hence lead to a larger group of sanctioned countries, and the basic incompatibility of state-controlled/directed economies with the current global trading system architecture. The changes in supply chains, trade flows and investment decisions that have been made in the last month will have profound effects on global commerce going forward.

Short term, because of the disruption in grain production and shipments from Ukraine, there is an immediate challenge to food security which if not addressed effectively can have debilitating effects including societal upheaval in a number of developing countries as was seen in 2008-2009.

The WTO has an obvious role to play on the food security issue. Time will tell how many Members contribute to a meaningful solution on food security.

Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine

In prior posts, I reviewed the joint statement by G-7 countries on their intention to suspend most favored nation treatment on Russia and stop the accession process into the WTO for Belarus in light of the ongoing conflict in Ukraine as well as actions to ban imports of petroleum and coal products and other economic sanctions. See, e.g., March 13, 2022:  Additional trade and other sanctions imposed by G-7 and EU countries on Russia and Belarus on March 11, 2022, https://currentthoughtsontrade.com/2022/03/13/additional-trade-and-other-sanctions-imposed-by-g-7-and-eu-countries-on-russia-and-belarus-on-march-11-2022/; March 9, 2022:  U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil; https://currentthoughtsontrade.com/2022/03/09/u-s-joins-canada-in-banning-imports-of-russian-oil-and-gas-eu-announces-plan-to-drastically-reduce-reliance-on-russian-gas-united-kingdom-will-phase-out-imports-of-oil-and-gas-from-russia-by-end-of/.

Press accounts review Japan suspending most favored nation treatment as part of the G-7 effort last week. Kyodo News, Japan to revoke Russia’s “most favored nation” status over Ukraine, March 16, 2022, https://english.kyodonews.net/news/2022/03/2f6fbf6da2af-update1-japan-to-revoke-russias-most-favored-nation-status-over-ukraine.html.

Canada, a G-7 member, took action first, both banning imports of oil and applying 35% tariffs to other imports from Russia and Belarus. Government of Canada, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2022, https://www.canada.ca/en/department-finance/news/2022/03/canada-cuts-russia-and-belarus-from-most-favoured-nation-tariff-treatment.html (“Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, and the Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, announced that the Government of Canada has issued the Most-Favoured-Nation Tariff Withdrawal Order (2022-1), removing these countries’ entitlement to the Most-Favoured-Nation Tariff (MFN) treatment under the Customs Tariff.  This Order results in the application of the General Tariff for goods imported into Canada that originate from Russia or Belarus. Under the General Tariff, a tariff rate of 35 per cent will now be applicable on virtually all of these imports. Russia and Belarus will join North Korea as the only countries whose imports are subject to the General Tariff.”); Government of Canada, Government of Canada Moves to Prohibit Import of Russian Oil, February 28, 2022, https://www.canada.ca/en/natural-resources-canada/news/2022/02/government-of-canada-moves-to-prohibit-import-of-russian-oil.html

The United Kingdom has also taken action on revoking MFN treatment of Russian goods. UK Government Press Release, UK announces new economic sanctions against Russia and Belarus, 15 March 2022, https://www.gov.uk/government/news/uk-announces-new-economic-sanctions-against-russia (“UK to deny Russia and Belarus access to Most Favoured Nation tariff for hundreds of their exports, depriving both nations key benefits of WTO membership. UK government publishes initial list of goods worth £900 million – including vodka – which will now face additional 35 percent tariff, on top of current tariffs.”).

In the European Union, action has been announced denying most favored nation status to Russia. European Commission, Statement by President von der Leyen on the fourth package of restrictive measures against Russia, 11 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_1724 (” First, we will deny Russia the status of most-favoured-nation in our markets. This will revoke important benefits that Russia enjoys as a WTO member. Russian companies will no longer receive privileged treatment in our economies.” “Fifth, very importantly, we will prohibit the import of key goods in the iron and steel sector from the Russian Federation.”). The fourth package of restrictive measures are contained in regulations and decisions included in L81I of volume 65 of the European Union Official Journal, March 15, 2022, Fifth, very importantly, we will prohibit the import of key goods in the iron and steel sector from the Russian Federation.”). The European Commission provided the following question and answer about denying Russia MFN treatment.

“What are the consequences of denying Russia most-favoured-nation (MFN) status?

“Removal of MFN status means suspending the benefits that come from being a WTO Member, more specifically the benefit of not being discriminated against by other Members. For example, MFN treatment guarantees that a Member will not be subject to higher tariffs than other Members, or to import bans that do not apply to other Members. Suspension of MFN treatment means that the Member concerned – in this case Russia – may be subject to higher tariffs and import bans.

“The EU has decided to act not through an increase on import tariffs, but through set of sanctions that comprise bans on the imports or exports of goods, as this is much quicker and more effective than preparing a completely new tariff schedule from scratch.

“In practice, the EU has already removed a number of trade benefits that Russia previously enjoyed through the imposition of sanctions. Additionally, the EU has restricted the provision of SWIFT financial services to certain Russian banks, which constitutes a disapplication of MFN vis-à-vis Russia under the General Agreement on Trade in Services (GATS). Today’s sanctions remove further trade benefits from Russia.”

European Commission, Question and Answers: fourth package of restrictive measures against Russia, 15 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/QANDA_22_1776.

In the United States, the President through executive order has restricted exports of luxury goods and many other items to Russia and Belarus and banned imports of oil, gas, coal and a number of other products reviewed in earlier posts. March 13, 2022:  Additional trade and other sanctions imposed by G-7 and EU countries on Russia and Belarus on March 11, 2022, https://currentthoughtsontrade.com/2022/03/13/additional-trade-and-other-sanctions-imposed-by-g-7-and-eu-countries-on-russia-and-belarus-on-march-11-2022/; March 9, 2022:  U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil. https://currentthoughtsontrade.com/2022/03/09/u-s-joins-canada-in-banning-imports-of-russian-oil-and-gas-eu-announces-plan-to-drastically-reduce-reliance-on-russian-gas-united-kingdom-will-phase-out-imports-of-oil-and-gas-from-russia-by-end-of/; February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/.

Such actions constitute treating Russia and Belarus differently (though Belarus is not a WTO Member and hence not entitled to MFN treatment by reason of WTO membership). To formally remove most favored nation treatment from Russia in the U.S., Congress must act. On Thursday, March 17, 2022, the House of Representatives passed a bill that would, inter alia, deny MFN treatment to Russia and Belarus and encourage USTR to take other actions at the WTO to block forward movement on Belarus’ accession to the WTO and urge other WTO Members to similarly deny MFN treatment to Russia. H.R. 7108 is embedded below.

House-bill-to-strip-PNTR-from-Russia-passed-House-on-3-17-2022

The United States tariff schedule has two columns of rates. Column 1 is the most favored nation rate. Column 2 is the other rate, often considerably higher. The House bill would have all imports from Russia and Belarus subject to the Column 2 rate. Moreover, the bill gives the President the authority to raise rates on products from those two countries above the Column 2 rate. The vast majority of imports from Russia are oil and gas products ($17.4 billion of $29.7 bill total imports in 2021) which already banned by Executive Order. Other products (worth about $1.5 billion) have also been banned by Executive order. Of the remaining imports the following fourteen 4-digit HS categories accounted for $8.14 billion of the imports from Russia in 2021

HS7110 PLATINUM  $ 2,449,856,890

HS7201 PIG IRON AND SPIEGELEISEN IN PIGS, BLOCKS OR OTHER PRIMARY FORMS  $1,157,617,274

HS7207 SEMIFINISHED PRODUCTS OF IRON OR NONALLOY STEEL  $886,744,073

HS3102 MINERAL OR CHEMICAL FERTILIZERS, NITROGENOUS  $723,784,769

HS2844 RADIOACTIVE CHEMICAL ELEMENTS AND ISOTOPES AND THEIR COMPOUNDS  $669,931,951

HS7601 ALUMINUM, UNWROUGHT  $423,969,585

HS7202 FERROALLOYS  $419,659,133

HS3104 MINERAL OR CHEMICAL FERTILIZERS, POTASSIC  $366,158,625

HS4412 PLYWOOD, VENEERED PANELS AND SIMILAR LAMINATED WOOD  $345,745,434

HS9306 BOMBS, GRENADES, TORPEDOES, ETC., AMMO  $173,633,545

HS7106 SILVER (INCLUDING SILVER PLATED WITH GOLD OR PLATINUM)  $144,208,220

HS8412 ENGINES AND MOTORS NESOI, AND PARTS THEREOF  $133,429,434

HS8108 TITANIUM AND ARTICLES THEREOF, INCLUDING WASTE AND SCRAP  $130,833,908

HS4002 SYNTHETIC RUBBER AND FATICE IN PRIMARY FORMS, ETC.  $114,129,678  

For three of the 14 categories, the column 2 rate is duty free just like the column 1 rate — HS7110, HS3102, HS 3104. For three others, column 2 rates range free to 45% (HS2844, HS8108) or 65% (HS7106. The other 8 categories had column 2 rates that were all above free and generally substantially higher than column 1 rates.

HS 7201, column 2 rates rom 2.5% to $1.10/ton

HS7207, 20%

HS7601, 10.5-25%

HS7202, 6.5-35%; up to 6.6cents/kg.

HS4412, 40-50%

HS 9306, 30-45%

HS8412, 27.5-35%

HS4002, 20%.

When the legislation becomes law (likely by end of March), the higher column 2 rates will apply to all imports from Russia and Belarus not banned from entry. For those categories that would remain duty free under column 2, President Biden will have the authority to raise rates (actually he will have the authority to raise rates on any products from the two countries).

While the trade actions outlined above are but one part of a much broader set of sanctions imposed by many trading partners, they add to the breadth of sanctions being imposed in light of the unprovoked invasion of Ukraine by Russia and the complicity of Belarus. The sanctions will remain in place and will likely continue to be increased until Ukraine’s sovereignty is respected, Russian troops (and various mercenaries brought in by Russia) withdrawn and a freely elected Ukrainian government either remains in place or is elected.

Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India

Press articles and a release from the World Trade Organization indicate that the small group negotiations between the European Union, United States, India and South Africa have reached a compromise on the India-South Africa proposal for a broad waiver of TRIPS requirements during the COVID-19 pandemic and the European Union’s proposal for a different solution that wouldn’t constitute a waiver. See PoliticoPro, SCOOP: There’s a TRIPS waiver compromise. It’s been reached between EU, SA, India & US and currently only covers vaccines, March 15, 2022, https://twitter.com/ashleighfurlong/status/1503799100214583300; Inside U.S. Trade’s World Trade Online, USTR: High-level TRIPS waiver talks yield compromise; text not yet agreed to, March 15, 2022,https://insidetrade.com/daily-news/ustr-high-level-trips-waiver-talks-yield-compromise-text-not-yet-agreed; Inside U.S. Trade’s World Trade Online, Okonjo-Iweala hails TRIPS compromise as industry remains opposed, March 16, 2022, https://insidetrade.com/daily-news/okonjo-iweala-hails-trips-compromise-industry-remains-opposed; Washington Trade Daily, Details of TRIPS Waiver Compromise, March 17, 2022, https://files.constantcontact.com/ef5f8ffe501/abdf1d95-8d5b-4bb6-87e9-9ad73bcae287.pdf.

The agreement, which still requires final agreement on text by the small group and then consideration and acceptance by the full WTO Membership, is a staged one, applying first to vaccines and six months later (if subsequently agreed) to diagnostics and therapeutics. The agreement would apply to developing countries other than those who exported 10% or more of vaccines in 2021. Based on the WTO-IMF COVID-19 Vaccine Trade Tracker, the only developing country with 10% or more of global exports in 2021 was China. https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm.

By picking exports in 2021 as the test for eligibility for developing countries, India remains eligible for the proposed compromise simply because the country, one of the world’s largest vaccine producers and a country that had contracts to export huge quantities to many of the world’s poorest countries in 2021, closed off exports for much of 2021 because of internal needs.

Press reports have indicated that some other countries, like Brazil, are not eligible. If true, this would flow from something other than export volume (e.g., indication that it would not seek special and differential treatment going forward) as Brazil had a negligible share of global exports of COVID vaccines in 2021.

The WTO’s Director-General released a press statement on March 16 which is copied below. See WTO news release, Director-General Okonjo-Iweala hails breakthrough on TRIPS COVID-19 solution, 16 March 2022, https://www.wto.org/english/news_e/news22_e/dgno_16mar22_e.htm

“World Trade Organization Director-General Ngozi Okonjo-Iweala today warmly welcomed the breakthrough among four WTO Members on a waiver of the Trade Related Intellectual Property agreement for the production of vaccines against the COVID-19 pandemic.

“’This is a major step forward and this compromise is the result of many long and difficult hours of negotiations. But we are not there yet. We have more work to do to ensure that we have the support of the entire WTO Membership,’ the Director-General said.

“While the agreement between the European Union, India, South Africa and the United States is an essential element to any final deal, she cautioned that not all the details of the compromise have been ironed out and that internal domestic consultations within the four members are still ongoing. Moreover, she stressed that work must commence immediately to broaden the discussions to include all 164 members of the WTO.

“’In the WTO we decide by consensus, and this has not yet been achieved. My team and I have been working hard for the past three months and we are ready to roll up our sleeves again to work together with the TRIPS Council Chair Ambassador Lansana Gberie (Sierra Leone) to bring about a full agreement as quickly as possible. We are grateful to the four Members for the difficult work they have undertaken so far,’ said Dr. Okonjo-Iweala.”

Neither the EU nor the U.S. have released statements which is consistent with the apparent state of play of the negotiations in the small group. One of the parties or one of those private parties being consulted by WTO Members presumably has leaked the text which is available on Stats News. See Stat News, Ed Silverman, A compromise is reached on an intellectual property waiver for Covid-19 vaccines, but does it go far enough?, March 15, 2022, https://www.statnews.com/pharmalot/2022/03/15/covid19-vaccine-patents-wto/. The two page document is embedded below.

TRIPS-COVID-19-solution-document

Proponents and opponents of a TRIPS waiver responded quickly as reflected in press releases and other articles. See, e.g., KNOWLEDGE ECOLOGY INTERNATIONAL, QUAD’s tentative agreement on TRIPS and COVID 19, March 15, 2022, https://www.keionline.org/37544; In These Times, New “Compromise” on an IP Waiver for Covid Vaccines Is Worse Than No Deal, Activists Say, March 16, 2022, https://inthesetimes.com/article/wto-trips-waiver-intellectual-property-biden-vaccines-diagnostics-treatments; Devex, Devex Check Up: At last, a TRIPS waiver compromise. But who’s happy?, March 17, 2022, https://www.devex.com/news/devex-checkup-at-last-a-trips-waiver-compromise-but-who-s-happy-102844; InfoJustice, STATEMENT ON THE LEAKED COVID-19 TRIPS WAIVERPROPOSAL, Posted by
Sean Flynn, Mar 16, 2022, http://infojustice.org/archives/43947; Relief Web, MSF responds to potential compromise on the ‘TRIPS Waiver’, 16 March 2022, https://reliefweb.int/report/world/msf-responds-potential-compromise-trips-waiver; U.S., Chamber of Commerce, U.S. Chamber of Commerce Opposes Proposal at WTO to Waive Intellectual Property Rights , March 16, 2022, https://www.uschamber.com/intellectual-property/u-s-chamber-of-commerce-opposes-proposal-at-wto-to-waive-intellectual-property-rights; , International Federation of Pharmaceutical Manufacturers & Associations, IFPMA statement on TRIPS discussion document, 16 March 2022, https://www.ifpma.org/resource-centre/statement-ifpma-trips-discussion-document/.

The proponents of a waiver are basically unhappy with the compromise which is not a waiver but rather a modification to requirements under TRIPS Art. 31. They are also unhappy with the fact that only vaccines are covered initially and the fact that the draft agreement deals with patents only versus the broader array of intellectual property rights. The statement from Doctors Without Borders reflects the types of concerns from those wanting a broader agreement and is copied below.

“MSF responds to potential compromise on the ‘TRIPS Waiver’

“Compromise neglects COVID-19 treatments and diagnostics and fails to address intellectual property barriers beyond patents, but there’s still time to get it right

“Geneva, 16 March 2022

“– The European Union, India, South Africa and the United States are working on a possible compromise to address intellectual property (IP)barriers on COVID-19 medical products. Médecins Sans Frontières/Doctors Without Borders (MSF) acknowledges the efforts towards a final resolution, but notes that the text that was leaked today is far from being an IP ‘waiver’ for pandemic medical tools.

“MSF urges all World Trade Organization (WTO) members to be aware of the limitations of the leaked text. WTO members should work together to ensure that any agreement tackles the current barriers to accessing all COVID-19 medical tools, including treatments and diagnostics, and also addresses patents and non-patent barriers in an effective way.

“According to MSF’s initial analysis, key limitations of the leaked text include that it covers only vaccines, is geographically limited, and covers only patents and does not address other intellectual property barriers, such as trade secrets, which may cover critical information needed to facilitate manufacturing. Regarding compulsory licensing for patents on COVID-19 vaccines, the leaked text introduces unnecessary reporting requirements for WTO members that could undermine the effectiveness of the mechanism.

“The leaked text appears to leave the door open for possible inclusion of treatments and diagnostics at a later stage. But delaying the decision on treatments is unacceptable, as many people will have no access to generic antivirals and countries are paying high prices for access to lifesaving treatments like baricitinib due topatent monopolies that block more affordable generic versions.

“The leaked text also fails to cover all countries. It limits ‘eligible members’ to developing countries and only those who exported less than 10 percent of the world’sCOVID-19 vaccine exports in 2021, effectively excluding Brazil and China from being able to use the ‘waiver’.

“The proposed compromise would require authorisation by governments on a product-by-product basis, which was one of the shortcomings of the existing mechanism in a pandemic context and makes its use very cumbersome. There is also a new obligation to identify all patents covered by the authorisation, something not required today under WTO trade rules.

“MSF points again to our position underlining the necessary scope and duration of an effective TRIPS Waiver for COVID-19.

Dimitri Eynikel, EU Policy Advisor for MSF’s Access Campaign:

“‘While it is good to see the groundwork for a potential compromise on addressing COVID-19 intellectual property barriers, all WTO members should remain vigilant to the fact that this leaked text contains considerable limitations, and needs to be urgently improved.

“It is incredibly concerning that the leaked text currently only covers vaccines, but neither treatments nor diagnostics. Excluding treatments and diagnostics is acritical weakness, especially as access to COVID-19 treatments remains a significant problem in many low- and middle-income countries, particularly in Latin America, in part because of patent barriers and restrictive licensing deals controlled by pharmaceutical corporations. Excluding countries with significant manufacturing and supply capacity like Brazil is highly problematic as it arbitrarily blocks potential critical avenues to increase access to COVID-19 medical tools for low- and middle-income countries.

“‘The world needs effective solutions to the inequities in access for all COVID-19 medical tools witnessed in this pandemic. The good news is there is still room for governments to improve and make sure that any final agreement adequately addresses the remaining barriers now missing in the leaked text. We urge all WTO members to do so.’”

The pharmaceutical industry’s concerns basically follow their longstanding position that with the rapid increase in vaccine production in 2021 and ongoing in 2022, there is no need for the agreement and it sends the wrong message to innovators. The statement from the IPFMA is copied below.

Following reports on the status of informal discussions led by the WTO Secretariat with the European Union (EU), India, South Africa, and the USA, on 16 March 2022, biopharmaceutical companies reaffirm their position that weakening patents now when it is widely acknowledged that there are no longer supply constraints of COVID-19 vaccines, sends the wrong signal. 

“2022 kicked off with COVID-19 vaccine production from both developing and developed country manufacturers reaching 12 billion within a year of the first vaccine being authorized. Today industry is able to produce over a billion vaccine each month. COVAX is now fully meeting its commitments. Since the beginning of 2022, there has been broad consensus that the challenge now is how to get the vaccines into the arms of people who need them, rather than vaccine supply. When the IP TRIPS Waiver was first proposed in 2020, it was to the wrong solution to the problem of scaling up manufacturing of potential COVID-19 vaccines which at the time had not yet even been authorized. Now the problem of supply has been addressed thanks to unprecedented collaboration involving companies from industrialized and developing countries, the TRIPS Waiver is not only the wrong solution, it is also an outdated proposal, that has been overtaken by events.

“Weakening intellectual property (IP) will do nothing to help the scaling up of vaccine manufacturing. There is a broad consensus among experts that waiving patents would not add a single additional vaccine dose, because technology transfer goes far beyond the patent, is built on trust, know-how sharing and voluntary licensing. This is exactly what manufacturers have done on an unprecedented scale. As of now, there are 371 collaborations on vaccines manufacturing and 155 for therapeutics and, in addition, the multiple announcements of partnerships to improve geographical diversity of vaccine production, are proof in themselves that the proposed IP TRIPS waiver is unnecessary and irrelevant, at worst sends the wrong signal at the wrong time.

“The IP TRIPS Waiver proposals should be recognized for what they are – political posturing that are at best a distraction, at worse creating uncertainty that can undermine innovation’s ability to respond to the current and future response to pandemics. The current proposals should be shelved; and the focus should be directed, to admittedly more difficult actions that will change lives for the better: supporting country readiness, contributing to equitable distribution, and driving innovation (Ref Three priorities to urgently increase access to COVID-19 vaccines).”

Comments

Over the last eighteen months, I have posted regularly on the COVID-19 pandemic and the Indian and South African proposal for a broad TRIPS waiver. Following the recent European Union – African Union meeting in Brussels, it was clear that the EU was committed to finding a mutually agreeable solution with the countries of Africa in the coming months. Thus, the announcement of a breakthrough in the small group negotiations is not surprising. See February 21, 2022:  The EU – AU Summit and the promise of a resolution to the WTO pandemic response package, https://currentthoughtsontrade.com/2022/02/21/the-eu-au-summit-and-the-promise-of-a-resolution-to-the-wto-pandemic-response-package/.

Data gathered and published by various multilateral organizations confirm the enormous ramp up in both vaccine capacity and production. And there has been significant movement in increasing production of vaccines in more developing countries, including a number in Africa. See, e.g., February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

Articles also confirm that the challenge in low-income countries is now not access to vaccines but rather all of the other requirements to achieve much higher vaccination rates (including better access to testing). See, e.g., WHO, WHO Director-General’s remarks atSession 2 – Potential Opportunities for Innovation and Collaboration, 3 March 2022, https://www.who.int/director-general/speeches/detail/who-director-general-s-remarks-at-session-2-potential-opportunities-for-innovation-and-collaboration-covid-19-dialogue-with-ministers-of-health-3-march-2022.

Thus, it is hard for me to find merit in the ongoing claims for a need for a broad TRIPS waiver or even the draft agreement at least as it pertains to the COVID-19 pandemic and equitable access to vaccines. WTO relevance requires addressing either current pressing issues or those that will continue to be present in the future. The draft agreement may meet the need for some compromise between Members like the EU and India, South Africa and other supporters of the waiver. However, the agreement doesn’t appear to serve a useful purpose by addressing current challenges (e.g., testing) or addressing a road forward for future pandemics.


Despite the China-Russian Federation Relationship, is supporting Russia in China’s economic interest?

The United States and China met in Italy on March 14th for a lengthy meeting on the Russia-Ukraine conflict. Press accounts make clear that the United States has articulated its concern about any nation serving to undermine the sanctions being imposed on Russia for its unprovoked invasion of Ukraine. See, e.g., CNBC, China says it wants to steer clear of U.S. sanctions over Russia’s invasion of Ukraine, March 15, 2022, https://www.cnbc.com/2022/03/15/ukraine-crisis-china-wants-to-avoid-us-sanctions-over-russias-war.html (“The U.S. has warned of consequences for any country that provides Russia with support amid the Kremlin’s conflict with Ukraine. ‘We are watching very closely to the extent to which the PRC [People’s Republic of China] or any country in the world provides support material, economic, financial, rhetorical otherwise, to this war of choice that President [Vladimir] Putin is waging against the government of Ukraine, against the state of Ukraine and against the people of Ukraine,’ State Department spokesman Ned Price said at a news briefing Monday. ‘We have been very clear both privately with Beijing and publicly with Beijing that there would be consequences for any such support,’ Price said.).

Indeed, the U.S. has indicated it has information suggesting that Russia has asked China for such assistance, although China has denied the U.S. claim. See, e.g., Financial Times, US officials say Russia has asked China for military help in Ukraine, March 13, 2022, https://www.ft.com/content/30850470-8c8c-4b53-aa39-01497064a7b7; New York Times, Russia Asked China for Military and Economic Aid for Ukraine War, U.S. Officials Say, March 13, 2022, https://www.nytimes.com/2022/03/13/us/politics/russia-china-ukraine.html.

The relationship between the Russian Federation and China is currently quite close as shown in the meeting between Xi Jining and Vladimir Putin at the start of the Winter Olympics last month. See, e.g., Ministry of Foreign Affairs of the People’s Republic of China, President Xi Jinping Held Talks with Russian President Vladimir Putin, February 4, 2022, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202202/t20220204_10638923.html; NPR, Parsing the meaning of the Xi-Putin meeting on the sidelines of the Beijing Olympics, February 8, 2022, https://www.npr.org/2022/02/08/1079112810/parsing-the-meaning-of-the-xi-putin-meeting-on-the-sidelines-of-the-beijing-olym (“After Russian President Vladimir Putin attended the opening ceremony in Beijing last Friday, he met with China’s President Xi Jinping. The two men declared there were no limits to their strategic partnership. And they went further, too. In a statement, China backed Russia’s demand to stop the NATO expansion to the East. The countries took aim at the U.S. with a promise to, quote, ‘counter interference by outside forces in the internal affairs of sovereign countries under any pretext.'”).

In a blog post today, Alan Wolff and Nicolas Veron explore reasons why China’s providing assistance to Russia should be increasingly unattractive. Nicolas Veron and Alan Wm. Wolff, Six reasons why backstopping Russia is an increasingly unattractive option for China, Bruegel blog, March 15, 2022, https://www.bruegel.org/2022/03/six-reasons-why-backstopping-russia-is-an-increasingly-unattractive-option-for-china/. Alan Wolff is a former Deputy Director-General at the WTO and a former Deputy U.S. Trade Representative. Nicolas Veron is a senior fellow at Bruegel, a Brussels-based economic policy think tank he helped cofound in 2002–04.  Both are with the Peterson Institute for International Economics. The blog post is an excellent review of reasons why China should find it in its own interest to distance itself from the war of aggression by Russia.

The six reasons are laid out in the post as follows:

“First, China in recent decades has displayed a preference for stability. Its primary engagement with the world at large has been as a trading partner and major investor in infrastructure. As the war grinds on, the invasion of Ukraine looks increasingly like a reckless gamble that will disrupt and break many relationships, including trade and financial ones. By supporting Russia, China can only prolong the conflict, actively contributing to continued destabilisation of the international order. A return to stability can only come with an early peaceful resolution in Ukraine.

“Second, China has promoted a geo-economic vision for Eurasia, in which it stands at the eastern end of a trading network that extends all the way to Western Europe. China has invested heavily in its relationships with the countries to its west, including Russia and Ukraine. With the EU now firmly on the side of the Ukrainian government, the new reality is that Ukraine will emerge more closely integrated with the rest of Europe. If China stands on the Russian side in a prolonged conflict, it would undermine its Eurasian vision of the Belt and Road.

“Third, China has a longstanding diplomatic doctrine that emphasises five principles of mutual coexistence: mutual respect for sovereignty and territorial integrity; mutual non-aggression; mutual non-interference in each other’s internal affairs; equality and mutual benefit; and peaceful coexistence. A quick Russian operation that delivered a stable puppet government in Ukraine could have allowed China to formulate a narrative in which these principles were upheld, but the evidence of Ukrainian patriotism in a war of resistance renders this impossible. To be seen to be discarding the foundational principles of its diplomacy would be costly for China, not least in its relations with its Asian neighbours.

“Fourth, China wants to reunify Taiwan with the mainland. A quick Russian victory in Ukraine might have provided support for a Chinese strategy of seizing the ‘23rd province’ by force. By contrast, a protracted conflict in which the Ukrainian side achieves impressive feats of resistance is a reality from which China may want to distance itself as much as possible. By propping up Russia, China could solidify the pro-Ukraine camp into a durable coalition that could provide a similarly unified response to any Chinese move against Taiwan.

“Fifth, China is energy-dependent. The oil price inflation resulting from the war in Ukraine is bad news for the Chinese economy – even assuming it can buy more oil and gas from Russia at a discount. Furthermore, the war-induced price increases in commodities such as wheat, which are basic to the well-being of many developing countries, could subtract from the goodwill built up via the Belt and Road Initiative if China’s actions are viewed as prolonging the conflict.

“Sixth, China’s extraordinary growth has been critically supported by access to markets and a continuing flow of international investment. Were China to materially support Russia’s aggression, the pro-Ukraine camp’s sanctions could begin to apply to Chinese interests. Russia’s increasingly murderous attacks against civilians add to the challenge. If China supports Russia, the implied reputational damage may lead to boycotts and lost investment, not to mention moral revulsion among the Chinese population as well. A scenario of significant decoupling of pro-Ukraine countries from China would do direct harm to China’s economic interests.”

A recent Financial Times article looked at the rising costs for China of its close relationship with Russia. Financial Times, The rising costs of China’s friendship with Russia, March 10, 2022, https://www.ft.com/content/50aa901a-0b32-438b-aef2-c6a4fc803a11. The article reviews the serious reputational problems for China from Russia’s brutal war. On the topic of trade costs, the article also notes both its reliance on imported oil, gas, iron ore and wheat and reviews the fact that China is facing the worst harvest in recent memory of wheat requiring increased imports of about 50% more than the average over recent years.

“Among the large economies, China is one of the most exposed to the fallout from the war. As the world’s biggest importer of oil, it has watched crude prices — which were already high — surge 27 per cent since the war began, while Chinese iron ore contracts surged 25 per cent over the first 10 days of the conflict.

“The impact could be even more pronounced on food. Chinese wheat prices and corn futures are also at record highs, perhaps prompting a lecture on Sunday by Xi about the importance of food security to a group of delegates attending the annual session of China’s parliament.”

According to the WTO Trade Profiles 2021, China imported in 2019 $176.321 billion of crude oil, $118.944 billion of iron ores and concentrates and $42.078 of petroleum gases. Page 80. Wheat and corn are not among the top five agricultural imports and so their value in 2019 were each below $4 billion. So the big hit economically in terms of higher costs will be in oil, gas and steel inputs.

The higher costs for imported products may be the smallest of the costs China faces from the potential rupture in relations with the EU, U.S. and other countries, and the other issues identified above. That said, the challenge for China may flow from the leader-to-leader commitments which may make it hard for Xi to accept distancing from Russia and the misinformation being spread by Chinese officials which may prevent a rational evaluation of self-interest by top Chinese leadership. Let’s hope that China is able to understand the costs they are incurring and likely to incur from solidarity with Russia.

A global trading system without the Russian Federation (and other autocratic states?) – what the fallout from the Russian invasion of Ukraine may mean for global trade

The unprovoked invasion by the Russian Federation into Ukraine has led to the largest group of financial and economic sanctions by a large portion of the global community in modern times. Canada has withdrawn most favored nation treatment from Russia, a move that is being followed by the EU, United States and others. Russia has been excluded from the Developed Countries Coordinating Group within the WTO, and G-7 countries (and the EU) are working to ensure that multilateral organizations like the IMF and World Bank and the European Bank for Reconstruction and Development cannot be used by Russia for loans. There are calls in some countries (e.g., the United States) to work to remove Russia from the WTO.

On March 11, 2022 two staunch supporters of the global trading system penned an article that appeared in The National Interest that raise a number of important questions including the following one —

“As the collective will grows to confront the destabilizing authoritarianism of Russia, as well as one of its strongest backers, China, what should become of the institutions that enabled their rapid integration into the post-Cold War world economy?” Rufus Yerxa and Wendy Cutler, No Longer Business as Usual at the World Trade Organization, March 11, 2022, https://nationalinterest.org/feature/no-longer-business-usual-world-trade-organization-201149. Amb. Yerxa is a former Deputy Director-General of the WTO and former Deputy U.S. Trade Representative and U.S. Ambassador to the GATT. Ms. Cutler is a former Acting Deputy U.S. Trade Representative who was deepely involved in the Trans Pacific Partnership negotiations for the United States and is the Vice President and Managing Director of the Asia Society Policy Institute. Both are lifelong supporters of a global trading system and the rule of law. The answer to the question posed appears in the next to last paragraph of the article.

“Indeed, the current crisis may lead the United States and like-minded members to chart a new trade future outside of the WTO framework, not necessarily abandoning the WTO entirely, but creating a new multilateral structure with deeper commitments among countries dedicated to free-market democracy. This may be the only leverage available to change the status quo.”

The article is surprising considering the authors but reflects the evolving concerns of many former trade negotiators that the global trading system is not functioning well because of the non-market economic system of some (particularly China) and now the unacceptable actions of the autocratic state of the Russian Federation. For example, in 2020 I reviewed an article by a former director general for trade for the European Commission that argued for the need for countries to leave the WTO and set up a separate multilateral trading system to exclude China since China was not moving to a market economy. July 25, 2020:  A new WTO without China?  The July 20, 2020 Les Echos opinion piece by Mogens Peter Carl, a former EC Director General for Trade and then Environment, https://currentthoughtsontrade.com/2020/07/25/a-new-wto-without-china-the-july-20-2020-les-echos-opinion-piece-by-mogens-peter-carl-a-former-ec-director-general-for-trade-and-then-environment/.

Many commentators, including me, have written on the need for a new trading order among countries with similar economic systems. See, e.g., March 31, 2021:  “Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system, https://currentthoughtsontrade.com/2021/03/31/blowing-up-the-trading-system-clyde-prestowitzs-suggested-way-for-the-world-to-move-forward-in-light-of-chinas-economic-system/; January 16, 2022:  Is it time for a new approach to bilateral trade with China?, https://currentthoughtsontrade.com/2022/01/16/is-it-time-for-a-new-approach-to-bilateral-trade-with-china/.

One possible approach to a parallel system with more ambitious and current rules among largely market economies would be an expansion of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) to include the United States and European Union (neither of which has a current application — the U.S. having withdrawn under the Trump Administration) with acceptance of current applicants other than China. A former European Commissioner for Trade advocated the EU and US joining the CPTPP in an article for the Peterson Institute for International Economics in January this year. See Cecilia Malmstrom (PIIE), The EU should use its trade power strategically, January 4, 2022, https://www.piie.com/blogs/realtime-economic-issues-watch/eu-should-use-its-trade-power-strategically (“The European Union should also seek to enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and convince the United States to do the same. The European Union already has agreements with most members of the CPTPP, but an FTA would signal the European Union’s readiness to strengthen global trading rules with its partners.”). Considering China’s record at the WTO and its coercive practices against some of the CPTPP members, it is hard to understand how the CPTPP members can accept China as a member in the coming years.

While neither the United States nor the European Union are looking to abandon the WTO, the Russian invasion of Ukraine is creating enormous tensions for many Members in dealing with the Russian Federation within the WTO, and there have been growing concerns about the inability of the WTO system to address the massive distortions to global trade created by the Chinese economic system. Reform at the WTO is difficult and typically requires consensus of existing Members. This presumably dooms reforms needed to bring China’s system into alignment with WTO principles including market orientation. While Members can decide to suspend most favored nation treatment, there is no obvious path to removing Russia as a member. Thus, continued challenges at the WTO are likely to continue in the months and years ahead.

The article last week from Amb. Yerxa and Ms. Cutler points to the growing concern about the survivability of the current system with rogue states like the Russian Federation and non-market economic actors like China. As the article concludes, “Responsible global leaders now confront a troubling reality: the old notion that countries who trade together are less likely to go to war has been laid to rest on Ukrainian soil. It can no longer be business as usual at the WTO.” What the current war in Ukraine means for the WTO remains unclear. The coming months will likely provide answers to the continued relevance of the WTO and the need for a separate system for democratic, market economies.

Additional trade and other sanctions imposed by G-7 and EU countries on Russia and Belarus on March 11, 2022

As Russia continues its hostilities towards Ukraine with assistance from Belarus, a wide range of countries continue to ratchet up sanctions, both trade and non-trade, on Russia and Belarus. The latest announcements came on March 11, 2022.

The G-7 issued a joint statement on March 11th. The joint statement is embedded below followed by an excerpt of the language on new actions being taken. The G-7 includes Canada, France, Germany, Italy, Japan, United Kingdom, United States and the European Union.

3-11-2022-Joint-Statement-by-the-G7-Announcing-Further-Economic-Costs-on-Russia-_-The-White-House

“Since President Putin launched the Russian Federation’s invasion on February 24, our countries have imposed expansive restrictive measures that have severely compromised Russia’s economy and financial system, as evidenced by the massive market reactions. We have collectively isolated key Russian banks from the global financial system; blunted the Central Bank of Russia´s ability to utilise its foreign reserves; imposed sweeping export bans and controls that cut Russia off from our advanced technologies; and targeted the architects of this war, that is Russian President Vladimir Putin and his accomplices, as well as the Lukashenko regime in Belarus.

“In addition to announced plans, we will make further efforts to reduce our reliance on Russian energy, while ensuring that we do so in an orderly fashion and in ways that provide time for the world to secure alternative and sustainable supplies. In addition, private sector companies are leaving Russia with unprecedented speed and solidarity. We stand with our companies that are seeking an orderly withdrawal from the Russian market.

“We remain resolved to isolate Russia further from our economies and the international financial system. Consequently, we commit to taking further measures as soon as possible in the context of our ongoing response and consistent with our respective legal authorities and processes:

First, we will endeavor, consistent with our national processes, to take action that will deny Russia Most-
Favoured-Nation status relating to key products. This will revoke important benefits of Russia’s membership of the World Trade Organization and ensure that the products of Russian companies no longer receive Most-Favoured-Nation treatment in our economies. We welcome the ongoing preparation of a statement by a broad coalition of WTO members, including the G7, announcing their revocation of Russia’s Most-Favoured-Nation status.

“Second, we are working collectively to prevent Russia from obtaining financing from the leading multilateral financial institutions, including the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development. Russia cannot grossly violate international law and expect to benefit from being part of the international economic order. We welcome the IMF and World Bank Group’s rapid and ongoing efforts to get financial assistance to Ukraine. We also welcome the steps the OECD has taken to restrict Russia’s participation in relevant bodies.

“Third, we commit to continuing our campaign of pressure against Russian elites, proxies and oligarchs close to President Putin and other architects of the war as well as their families and their enablers. We commend the work done by many of our governments to identify and freeze mobile and immobile assets belonging to sanctioned individuals and entities, and resolve to continue this campaign of pressure as a matter of priority. To that end, we have operationalised the task force announced on February 26, which will target the assets of Russian elites close to President Putin and the architects of his war. Our sanctions packages are carefully targeted so as not to impede the delivery of humanitarian assistance.

“Fourth, we commit to maintaining the effectiveness of our restrictive measures, to cracking down on evasion and to closing loop-holes. Specifically, in addition to other measures planned to prevent evasion, we will ensure that the Russian state and elites, proxies and oligarchs can not leverage digital assets as a means of evading or offsetting the impact of international sanctions, which will further limit their access to the global financial system. It is commonly understood that our current sanctions already cover crypto-assets. We commit to taking measures to better detect and interdict any illicit activity, and we will impose costs on illicit Russian actors using digital assets to enhance and transfer their wealth, consistent with our national processes.

“Fifth, we are resolved to fighting off the Russian regime’s attempts to spread disinformation. We affirm and support the right of the Russian people to free and unbiased information.

“Sixth, we stand ready to impose further restrictions on exports and imports of key goods and technologies on the Russian Federation, which aim at denying Russia revenues and at ensuring that our citizens are not underwriting President Putin’s war, consistent with national processes. We note that international companies are already withdrawing from the Russian market. We will make sure that the elites, proxies and oligarchs that support President Putin’s war are deprived of their access to luxury goods and assets. The elites who sustain Putin’s war machine should no longer be able to reap the gains of this system, squandering the resources of the Russian people.

“Seventh, Russian entities directly or indirectly supporting the war should not have access to new debt and equity investments and other forms of international capital. Our citizens are united in the view that their savings and investments should not fund the companies that underpin Russia’s economy and war machine. We will continue working together to develop and implement measures that will further limit Russia’s ability to raise money internationally.

“We stand united and in solidarity with our partners, including developing and emerging economies, which unjustly bear the cost and impact of this war, for which we hold President Putin, his regime and supporters, and the Lukashenko regime, fully responsible. Together, we will work to preserve stability of energy markets as well as food security globally as Russia’s invasion threatens Ukraine’s capacity to grow crops this year.

“We continue to stand with the Ukrainian people and the Government of Ukraine. We will continue to evaluate the impacts of our measures, including on third countries, and are prepared to take further measures to hold President Putin and his regime accountable for his attack on Ukraine.”

Thus, the additional sanctions include actions going forward to remove most favored nation treatment to Russia which will permit countries to impose higher tariffs on imports from Russia, to prohibit certain imports (e.g., oil and gas by Canada and the U.S., other products as identified by individual countries) and expand export restraints (e.g., new ban on export of luxury goods to Russia), eliminating access to financing from the IMF, World Bank and European Bank for Reconstruction and Development, clarifying that crypto assets are subject to sanctions and more.

In the United States, President Biden signed an Executive Order on March 11 to identify additional sanctions being imposed by the United States. The Executive Order is copied below (https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/11/executive-order-on-prohibiting-certain-imports-exports-and-new-investment-with-respect-to-continued-russian-federation-aggression/)

“Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression

“MARCH 11, 2022

“PRESIDENTIAL ACTIONS

“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,
I, JOSEPH R. BIDEN JR., President of the United States of America, in order to take additional steps with respect to the national emergency declared in Executive Order 14024of April 15, 2021, relied on for additional steps taken in Executive Order 14039 of August 20, 2021, and expanded by Executive Order 14066 of March 8, 2022, hereby order:

“Section 1. (a) The following are prohibited:

“(i) the importation into the United States of the following products of Russian Federation origin: fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce;

“(ii) the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United Statesperson, wherever located, of luxury goods, and any other items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in the Russian Federation;

“(iii) new investment in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person, wherever located;

“(iv) the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United Statesperson, wherever located, of U.S. dollar-denominated banknotes to the Government of the Russian Federation or any person located in the Russian Federation; and

“(v) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

“(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, or pursuant to the export control authorities implemented by the Department of Commerce, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.

“Sec. 2. (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.

“(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

“Sec. 3. Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.

“Sec. 4. For the purposes of this order:

“(a) the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;

“(b) the term ‘person’ means an individual or entity;

“(c) the term ‘Government of the Russian Federation’ means the Government of the Russian Federation, any political subdivision, agency, or instrumentality thereof, including the Central Bank of the Russian Federation, and any person owned, controlled, or directed by, or acting for or on behalf of, the Government of the Russian Federation; and

“(d) the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

“Sec. 5. The Secretary of the Treasury and the Secretary of Commerce, in consultation with the Secretary of State, are hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order. The Secretary of the Treasury and the Secretary of Commerce may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury and the Department of Commerce, respectively. All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.

“Sec. 6. (a) Nothing in this order shall be construed to impair or otherwise affect:

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

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

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

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

“JOSEPH R. BIDEN JR.
“THE WHITE HOUSE,
“March 11, 2022.”

The European Commission’s President, Ursula von der Leyen, provided an overview of additional EU sanctions in her statement of March 11th (https://ec.europa.eu/commission/presscorner/detail/en/statement_22_1724).

“Statement by President von der Leyen on the fourth package of restrictive measures against Russia

“Versailles, 11 March 2022

“Russia’s ruthless invasion of Ukraine continues. Civilians are relentlessly attacked, including in
schools, apartment buildings, and hospitals. And despite repeated offers by the Ukrainian side,
Russia has not shown any willingness to seriously engage so far in negotiations for a diplomatic
solution. Instead, all we hear are new lies and false accusations. And cynically, humanitarian
corridors are either still not opened or being bombed by Russian forces shortly after they are
announced.

“So today, we, the EU and our partners in the G7, continue to work in lockstep to ramp up the
economic pressure against the Kremlin. The three sweeping waves of sanctions we have adopted, as
well as the extension of their scope this week, have hit Russia’s economy very hard. The ruble has
plummeted. Many key Russian banks are cut-off from the international banking system. Companies
are leaving the country, one after the other, not wanting to have their brands associated with a
murderous regime. Tomorrow, we will take a fourth package of measures to further isolate Russia
and drain the resources it uses to finance this barbaric war.

“First, we will deny Russia the status of most-favoured-nation in our markets. This will revoke
important benefits that Russia enjoys as a WTO member. Russian companies will no longer receive
privileged treatment in our economies. We will also work to suspend Russia’s membership rights in
leading multilateral financial institutions, including the International Monetary Fund and the World
Bank. We will ensure that Russia cannot obtain financing, loans, or any other benefits from these
institutions. Because Russia cannot grossly violate international law and, at the same time, expect to
benefit from the privileges of being part of the international economic order.

“Second, we will continue pressuring Russian elites close to Putin as well as their families and
enablers. This is why G7 Finance-, Justice- and Home Affairs Ministers will meet next week to
coordinate the task force we set up targeting Putin’s cronies.

“Third, we are making sure that the Russian state and its elites cannot use crypto assets to
circumvent the sanctions. We will stop the group close to Putin and the architects of his war from
using these assets to grow and transfer their wealth.

“Fourth, we will ban the export of any EU luxury goods from our countries to Russia, as a direct blow
to the Russian elite. Those who sustain Putin’s war machine should no longer be able to enjoy their
lavish lifestyle while bombs fall on innocent people in Ukraine.

“Fifth, very importantly, we will prohibit the import of key goods in the iron and steel sector from the
Russian Federation. This will hit a central sector of Russia’s system, deprive it of billions of export
revenues and ensure that our citizens are not subsidising Putin’s war.

“Finally, we will propose a big ban on new European investments across Russia’s energy sector.
Because we should not be feeding the energy dependency which we want to leave behind us. This
ban will cover all investments, technology transfers, financial services, etcetera, for energy
exploration and production – and thus have a big impact on Putin.

“The EU stands firmly with the brave people of Ukraine. This is why, just this morning, we disbursed
EUR 300 million in emergency macro-financial assistance to support Ukraine’s finances. This is the
first tranche of our EUR 1.2 billion financial aid package. More will follow. This crisis is
unprecedented. And so is the unity and speed of reaction our democracies have shown so far. You
have heard me say this before and I firmly repeat it: Ukraine will prevail.”

Similar actions are being taken by the United Kingdom and Japan.

Canada had already announced revoking most favored nation treatment for Russia and Belarus and had banned imports of oil and gas. My last post reviewed actions by the U.S., EU and United Kingdom in the oil and gas space. See March 9, 2022:  U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil, https://currentthoughtsontrade.com/2022/03/09/u-s-joins-canada-in-banning-imports-of-russian-oil-and-gas-eu-announces-plan-to-drastically-reduce-reliance-on-russian-gas-united-kingdom-will-phase-out-imports-of-oil-and-gas-from-russia-by-end-of/.

Based on the WTO’s publication Trade Profiles 2021, in 2019 the EU (which included the United Kingdom at the time) was the largest destination for Russian exports (41.3%) and largest source of Russian imports (34.2%). The U.S., Canada and Japan are not shown as among Russia’s five largest export markets for goods. The U.S. (5.4%) and Japan (3.6%) join the EU as among the top five sources of imports into Russia in 2019. WTO Trade Profiles 2021, page 298, https://www.wto.org/english/res_e/publications_e/trade_profiles21_e.htm.

As noted in an earlier post,

“The Russian Federation is not a major trading partner of the United States. In 2021, U.S. imports for consumption from Russia were just $29.657 billion (just 1.05% of total U.S. imports for consumption). The bulk of U.S. imports from Russia ($17.406 billion) are products from Chapter 27 of the Harmonized System (largely oil, gas and downstream products)). Russia accounts for 8.17% of total U.S. imports of products under Chapter 27. At the same time, the United States exports to the world nearly 12 times the amount of the oil and gas products that it imports from Russia in the three major four-digit HS categories (HS 2709, HS 2710, HS 2711). The U.S. also exports relatively small volumes of goods to Russia — $5.531 billion (less than 4/10ths of 1 percent of total U.S. exports).”

February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/

The U.S. has now prohibited the imports of oil, gas, and coal products. The additional announced import bans cover around $1.5 billion of goods from Russia ($1.2 of fish and seafood products, $305 million of diamonds and $18.5 million of spirits (2021 U.S. imports for consumption of HS 03, 7102 and 2208). Other products could be added as noted in the Executive Order. Based on 2021 U.S. import statistics, here are other major 4-digit HS categories of products from Russia.

HS7110, PLATIMUN, UNWROUGHT OR IN SEMIMANUFACTURED FORMS, OR IN POWDER FORM $2,449,856,890

HS7201, PIG IRON AND SPIEGELEISEN IN PIGS, BLOCKS OR OTHER PRIMARY FORMS $1,157,617,274

HS7207, SEMIFINISHED PRODUCTS OF IRON OR NONALLOY STEEL $886,744,073

HS3102, MINERAL OR CHEMICAL FERTILIZERS, NITROGENOUS $723,784,769

HS2844, RADIOACTIVE CHEMICAL ELEMENTS AND ISOTOPES AND THEIR COMPOUNDS; MIXTURES AND RESIDUES CONTAINING THESE PRODUCTS $669,931,951

HS7601 ALUMINUM, UNWROUGHT $423,969,585

HS7202 FERROALLOYS $419,659,133

HS3104, MINERAL OR CHEMICAL FERTILIZERS, POTASSIC $366,158,625

HS4412 PLYWOOD, VENEERED PANELS AND SIMILAR LAMINATED WOOD $345,745,434

HS9306, BOMBS, GRENADES, TORPEDOES AND SIMILAR MUNITIONS OF WAR AND PARTS THEREOF; CARTRIDGES AND OTHER AMMUNITION AND PROJECTILES AND PARTS THEREOF $173,633,545.

As the EU is Russia’s largest trading partner, actions by the EU will have the largest trade effect on Russia. The ban on imports of some iron and steel products from Russia by the EU is presumably a multibillion Euro action.

A joint paper from UC San Diego and St. Gallen Endowment released on March 11, 2022 provides estimates of additional costs on the Russian economy from the loss of most favored nation treatment and actions on oil and gas. See Simon J. Evenett and Marc-Andreas Muendler, Making Moscow Pay, How Much Extra Bite will G7 & EU Trade Sanctions Have?, 11 March 2022. https://mcusercontent.com/4d3c72e64f71605940b148af0/files/ec2fa8af-8662-06b7-05b0-6defeac28f74/Making_Moscow_Pay_by_Revoking_MFN_11_March_2022_finalised.pdf. The authors summarize the results of their analysis as follows (page 1).

“Following the revocation of MFN treatment of Russian goods, the members of the G7 and European Union (EU27) can raise import tariffs sharply. We outline three trade sanction scenarios in this computation-based brief and report their predicted effects on Russian GDP, on bilateral exports, and on Russian job losses. Once the Russian economy has adjusted, the most severe trade sanction scenario is expected to result in a permanent GDP reduction of 1.06%, in bilateral Russian exports to the G7 and EU27 nations falling by 70.9%, and in 522,000 job losses from the Russian energy sector. Losses on this scale for Russia amount to a third of the estimated GDP gain from its WTO accession. The same scenario is estimated to result in 206,000 job losses in the G7 and EU27 and to reduce their joint GDP by 0.06% permanently.”

The additional trade sanctions are, of course, just the latest actions and the short term results of the other collective sanctions has been severe on the Russian economy. Bans on investment and financing and exports of technology and critical goods have potentially significant short, medium and long-term effects on the Russian economy. The world has already seen the steep decline of the Russian currency and a need to close the Russian stock market over the last week or so.

The luxury goods export ban by the G-7 countries and EU is another shot at Pres. Putin’s inner circle and the nation’s oligarchs who support Putin and those in Belarus. In the U.S., the initial list of “luxury goods” is included in a notice from the U.S. Department of Commerce Bureau of Industry and Security. See unpublished Federal Register notice (to be published on March 16, 2022), U.S. Department of Commerce Bureau of Industry and Security, Imposition of Sanctions on ‘Luxury Goods’ Destined for Russia and Belarus and for Russian and Belarusian Oligarchs and Malign Actors Under the Export Administration
Regulations (EAR), 2022-05604.pdf (federalregister.gov). The list of luxury goods in the notice includes wines and spirits, tobacco products, perfumes and certain beauty products, plastic products for sports, yachts, travel bags and handbags, furs and fur skins, silk and silk products, carpets, high value clothing ($1,000/unit or higher), camping and sporting equipment, high value footwear ($1,000/unit or higher), porcelain and china, lead crystal glassware, jewelry including gemstones, silver and gold bullion, coins and products, marine engines, passenger vehicles, motorcycles, watches, pianos, art works (paintings, sculpture, other).

Final comments

Sanctions are intended to apply pressure on Russia and Belarus to expedite a resolution to the unprovoked conflict underway in Ukraine. While many have pointed to the challenges of making sanctions effective, there are few other options short of an expanded war to press the Russians to cease their aggression.

The latest package of sanctions agreed to by the G-7 countries and EU continue to ratchet up pressure on the governments of Russia and Belarus and isolate them from multilateral financial institutions and other multilateral organizations and reduce their access to the markets of many major countries. With the withdrawal of many non-Russian companies from the Russian market during the war and the refusal of many others to deal with Russian goods, President Putin’s war is moving Russia backwards economically — a process likely to take decades to overcome.

With the war continuing to escalate in Ukraine, the sanctions announced on March 11 will not be the last.

U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil.

March 8, 2022 saw major announcements on new sanctions on the Russian Federation and/or Belarus from the United States, European Union and the United Kingdom and a continued exodus of major oil companies from Russian involvement.

In the United States, President Biden announced new actions in the form of an Executive order which bans –

“The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal.

“* * *

“New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s eff orts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.”

The White House, FACT SHEET: United States Bans Imports of Russian Oil, Liquefied Natural Gas, and Coal, March 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/08/fact-sheet-united-states-bans-imports-of-russian-oil-liquefied-natural-gas-and-coal/.

The Executive Order reads in full –

“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,

“I, JOSEPH R. BIDEN JR., President of the United States of America, hereby expand the scope of the national emergency declared in Executive Order 14024 of April 15, 2021, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, finding that the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine, including its recent further invasion in violation of international law, including the United Nations Charter, further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States.  Accordingly, I hereby order:

     “Section 1.  (a)  The following are prohibited:

“(i)    the importation into the United States of the following products of Russian Federation origin:  crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;

“(ii)   new investment in the energy sector in the Russian Federation by a United States person, wherever located; and

“(iii)  any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

     “(b)  The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.

     “Sec. 2.  (a)  Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.

     “(b)  Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

     “Sec. 3.  Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.

     “Sec. 4.  For the purposes of this order:

     “(a)  the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;

     “b)  the term ‘person’ means an individual or entity; and

     “(c)  the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

     “Sec. 5.  The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order.  The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury.  All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.

     “Sec. 6.  (a)  Nothing in this order shall be construed to impair or otherwise affect:

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

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

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

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

                             “JOSEPH R. BIDEN JR.

“THE WHITE HOUSE,

    “March 8, 2022.”

Executive Order on Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine, March 8, 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/08/executive-order-on-prohibiting-certain-imports-and-new-investments-with-respect-to-continued-russian-federation-efforts-to-undermine-the-sovereignty-and-territorial-integrity-of-ukraine/.

The new prohibitions do not prevent honoring existing contracts in the next 45 days. President Biden reviewed that the steps were taken after consultations with allies realizing that many allies were not in a position to take identical action at the moment reflecting very different situations in terms of domestic production of oil and gas and dependency on imports from Russia. See The White House, Remarks by President Biden Announcing U.S. Ban on Imports of Russian Oil, Liquefied Natural Gas, and Coal, March 8, 2022, https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/03/08/remarks-by-president-biden-announcing-u-s-ban-on-imports-of-russian-oil-liquefied-natural-gas-and-coal/ (“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us.  The United States produces far more oil domestically than all of European — all the European countries combined.  In fact, we’re a net exporter of energy.  So we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”).

The United Kingdom announced that it would phase out imports of oil from Russia during 2022. See Financial Times, US and UK ban Russian oil and gas imports in drive to punish Putin, March 8, 2022, https://www.ft.com/content/2e0b1d84-e595-4c5a-be4e-928417b9c7cc (“UK prime minister Boris Johnson’s government said it would phase out the import of Russian oil by the end of the year. Kwasi Kwarteng, UK business secretary, said the British government would organise an ‘orderly transition’ away from Russian oil imports. But Rishi Sunak, UK chancellor, told a cabinet meeting that consumers would pay a price for the ban, with lower-income households particularly hard hit. The UK is less dependent on Russia than much of mainland Europe, with Russian supplies making up 8 per cent of overall oil imports into the UK. Johnson is expected to make a statement later this week on reducing British imports of Russian gas.”).

The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two-thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents. The opening statement of Executive Vice-President Timmermans is copied below in part.

“Opening remarks by Executive Vice-President Timmermans

“* * *

“It is abundantly clear that we are too dependent on Russia for our energy needs. It is not a free
market if there is a state actor willing to manipulate it.

“The answer to this concern for our security lies in renewable energy and diversification of supply.

“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours.
And, instead of continuing to fund fossil fuel imports and fund Russian oligarchs, renewables create
new jobs here in Europe.

“With the plan we outline today, the EU can end its dependence on Russian gas and repower Europe.
Fit for 55, once implemented, will reduce the EU’s total gas consumption by 30% by 2030. That’s
100 billion cubic meters of gas we will no longer need.

“Now, we will take it to the next level.

“By the end of this year, we can replace 100 bcm of gas imports from Russia. That is two-thirds of
what we import from them. This will end our over-dependency and give us much needed room to
maneuver. Two thirds by the end of this year.

“It is hard, bloody hard. But, it is possible, if we are willing to go further and faster than we have
done before.

“REPowerEU is our plan to make Europe independent from Russian gas.

“It is based on two tracks:

“First: we will diversify supply and bring in more renewable gases.

“With more LNG and pipeline imports, we can replace 60 bcm of Russian gas within the next
12 months.

“By doubling sustainable production of biomethane we can replace another 18 bcm, using
the Common Agricultural Policy to help farmers become energy producers.

“We can also increase the production and import of renewable hydrogen. A Hydrogen
Accelerator will develop integrated infrastructure and offer all Member States access to
affordable renewable hydrogen. 20 million tonnes of hydrogen can replace 50 bcm of Russian
gas.

“We will also start replacing natural gas with renewable gases. This, in sum, is the first pillar of
REPowerEU.

“In parallel, we must accelerate our clean energy transition. Renewables make us more
independent, and they are more affordable and reliable than the volatile gas market.

“So, we need to put millions more photovoltaic panels on the roofs of our homes,
businesses, and farms. We must also double the installation rate of heat pumps over the
next 5 years.

“This is low-hanging fruit. By the end of this year, almost 25% of Europe’s current electricity
production could come from solar energy.

“In addition to this, we need to speed up permitting procedures to grow our on- and offshore wind capacity, and rollout large-scale solar projects. This is a matter of overriding public interest.

“Some of these changes will not happen overnight, and that’s why we also need to prepare for next
winter.

“By October, gas storage facilities in the EU must be filled up to 90% capacity. And the Commission is
ready to support joint procurement of gas.

“Finally, and most importantly, we need to protect those who are struggling to pay their energy bills.

“Our plan today proposes several ways to help the most exposed households and businesses.

“Kadri will go through these in more detail.

“To conclude, RePowerEU is our plan to break our dependency on Russian gas, and to find freedom in
our energy choices.

“We can do it, and we can do it fast.

“All we need is the courage and grit to get us there. If ever there was a time to do it, it is now.

European Commission, Opening remarks by Executive Vice-President Timmermans and Commissioner Simson at the press conference on the REPowerEU Communication, Brussels, 8 March 2022.

See European Commission, COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS, REPowerEU: Joint European Action for more affordable, secure and sustainable energy, Strasbourg, 8.3.2022, COM(2022) 108 final.

While Australia does not appear to have announced a ban on imports of Russian oil into Australia, its two oil companies have announced cessation of procurement or lack of procurement from Russia. See Reuters, Australian refiners cease purchase of Russian crude oil, voice support for Ukraine, March 8, 2022, https://www.reuters.com/business/energy/australias-viva-energy-cease-purchase-russian-crude-oil-2022-03-08/.

Other actions

While the U.S. Congress has bills pending before both the House of Representatives and the Senate that would remove normal trade relations status on Russia (i.e., end most favored nation treatment) and instruct the US Trade Representative to seek suspension or removal of Russia from the WTO, press reports indicate that with President Biden’s action on Russian oil, gas and coal, the Administration has asked for a different piece of legislation from Congress, one that wouldn’t (at least at present) address normal trade relations or Russia in the WTO. See Inside U.S. Trade’s World Trade Online, House drops push to strip Russia of PNTR at administration’s request, March 8, 2022, https://insidetrade.com/daily-news/house-drops-push-strip-russia-pntr-administration%E2%80%99s-request. While Canada has suspended normal trade relations on goods from Russia and Belarus, U.S. inaction presumably reflects the focus of the U.S. and European allies on other sanction issues while seeking internal support for the step of suspending normal trade relations.

On March 9, 2022, the EU announced additional financial sanctions of Belarus and an expansion of individuals being sanctioned in Russia. See European Commission press release, Ukraine: EU agrees to extend the scope ofsanctions on Russia and Belarus, 9 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1649. Most of the press release is copied below.

“The European Commission welcomes today’s agreement of Member States to adopt further targeted sanctions in view of the situation in Ukraine and in response to Belarus’s involvement in the aggression. In particular, the new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia’s actions destabilising the situation in Ukraine. These amendments create a closer alignment of EU sanctions regarding Russia and Belarus and will help to ensure even more effectively that Russian sanctions cannot be circumvented, including through Belarus.

“For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russia regime, clarify that crypto assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions.

“In particular, the agreed measures will:

“Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries.

“Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.

“Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.

“Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro-denominated securities to Belarusian clients.

“Prohibit the provision of euro denominated banknotes to Belarus.

“For Russia, the amendment introduces new restrictions on the export of maritime navigation and radio communication technology, adds Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations and introduces a prior information sharing provision for exports of maritime safety equipment.

“In addition, it also extends the exemption relating to the acceptance of deposits exceeding €100.000 in EU banks to Swiss and EEA nationals.

“Finally, the EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.

“Furthermore, the amendment introduces new restrictions.

“Furthermore, an additional 160 individuals have been listed in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

“The listed individuals include:

“- 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation – notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries -, as well as their family members.

“- 146 members of the Russian Federation Council, who ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Donetsk People’s Republic’ and the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Luhansk People’s Republic’.

“Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.”

As Russia continues to escalate its hostilities in Ukraine, the U.S., EU, G7 and other countries continue to make clear that there will be major costs imposed on Russia for the unprovoked war. While many of the sanctions are financial, some are trade focused. The move away from Russian oil and gas and the restrictions on the export to Russia of materials and technology for the sector will significantly reduce Russian gross domestic product over time with so much of the economy currently tied to oil, gas and coal.

The 2022 Trade Policy Agenda of the President of the United States

On Mach 1, 2022, USTR released the 2022 Trade Policy Agenda & 2021 Annual Report of the President of the United States on the Trade Agreements Program. https://ustr.gov/sites/default/files/2022%20Trade%20Policy%20Agenda%20and%202021%20Annual%20Report.pdf. The fact sheet on the new report released on March 1 provides a good summary of the 2022 trade policy agenda. See USTR, Fact Sheet: USTR Releases 2022 Trade Policy Agenda and 2021 Annual Report, March 1, 2022, https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2022/fact-sheet-ustr-releases-2022-trade-policy-agenda-and-2021-annual-report. The fact sheet is copied below.

“WASHINGTON – Ambassador Katherine Tai and the Office of the United States Trade Representative today delivered President Biden’s 2022 Trade Policy Agenda and 2021 Annual Report to Congress. This report details USTR’s work to implement the Biden Administration’s trade priorities and advance a worker-centered trade policy.

“Over the last year, Ambassador Tai and USTR, working with partners across the Biden Administration, have pursued a new approach to trade policy that empowers workers, defends their rights, and stops the global race-to-the-bottom. By reaching new and historic agreements with our allies, Ambassador Tai and USTR have revitalized important global partnerships and built coalitions around shared priorities and values.

“Key elements of the 2022 Trade Policy Agenda and 2021 Annual Report include:

Standing up for Workers’ Rights: The Biden Administration’s worker-centered trade policy reflects our commitment to use our trade agreements, tools, and relationships to empower workers. We are working with our trading partners to support workers’ rights and stop the global race to the bottom. We will seek to establish new, high-standard commitments on labor rights under our current and new frameworks for trade. Strengthening labor rights will benefit American workers, as well as workers all over the world.

Accelerating Decarbonization and Promoting Sustainable Environmental Practices: Combating the climate crisis and promoting sustainable environmental practices are top priorities for the Biden Administration. For many years, trade has been seen as exacerbating these challenges. The same dynamic that has created a race to the bottom with respect to labor rights exists with respect to environmental protection.

Supporting U.S. Agriculture: The Biden Administration understands the importance of trade to U.S. farmers, ranchers, fishers, and food manufacturers. From 2000 to 2020, annual U.S. agricultural exports grew from $58 billion to $155 billion. Through our commitment to creating sustainable economic growth and establishing a level playing field, USTR is preserving and building on those gains. The Biden Administration is also focused on creating new opportunities for American agriculture, including using our existing Free Trade Agreements (FTAs) and Trade and Investment Framework Agreements (TIFAs) to support U.S. agriculture exports.

Bolstering Supply Chain Resiliency: Bolstering supply chain resiliency is a critical component of the Biden Administration’s efforts to advance our worker-centered trade policy and create sustainable economic growth. Supply chains are integral to the global trading system, and the COVID-19 pandemic and the associated disruption to the global economy have highlighted major vulnerabilities in our existing supply chains, as well as underscored the importance of promoting supply chain resiliency.

“To begin addressing these challenges, President Biden signed Executive Order 14017 (America’s Supply Chains) last year, directing a whole-of-government approach to assess vulnerabilities in, and strengthen the resilience of, critical U.S. supply chains. Pursuant to the Executive Order, the Biden Administration conducted a 100-day review for four priority product areas: semiconductors, large capacity batteries, critical minerals and materials, and pharmaceuticals and active pharmaceutical ingredients.

Following the recommendations that emerged from the 100-day reports, the Biden Administration established an interagency Supply Chain Trade Task Force led by USTR. This task force is directed to identify both unfair foreign trade practices that have eroded U.S. critical supply chains and opportunities to use U.S. trade agreements and future trade agreements to strengthen the collective supply chain resilience of the United States and our trade partners.

Combatting the COVID-19 Pandemic: Consistent with our trade policy agenda that recognizes that people are the core of our economy, USTR is working closely with a number of agencies to ensure that trade rules support, and do not impede, the global response to the COVID-19 pandemic. The Biden Administration is taking a whole-of-government approach to address the pandemic, at home and abroad. These efforts include COVID-19 vaccine donations through COVAX and other fora, investment in vaccine production and delivery infrastructure in underserved regions, and working with trading partners to identify obstacles and solutions – including through supporting a waiver of intellectual property protections for COVID-19 vaccines at the World Trade Organization (WTO), as well as measures to facilitate the flow of goods necessary to fight the pandemic.

Re-Aligning the U.S.-China Trade Relationship:The U.S.-China economic and trade relationship is one of profound consequence. As the two largest economies in the world, the bilateral relationship affects not just the two participants, but the entire globe.

“The Biden Administration acknowledges that this relationship is complex and competitive. With respect to trade, we can be both partners and competitors, but any competition must be fair. China’s approach to trade drives frictions in many of China’s trade relationships – not just ours. China, as a large, non-market economy, is uniquely able to engage in unfair, anticompetitive practices, which harm workers and businesses in the United States and in other countries, including some of our closest allies and partners. By unduly concentrating production of certain goods in China, these non-market practices also undermine supply chain resilience and harm consumers that, in the long run, are deprived of the innovation and choice that fair competition would produce.

Engaging with Key Trading Partners and Multilateral Institutions: Growing the middle glass, redressing inequality, and incentivizing climate and environmental action are goals we share with many of our trading partners. Working with others to craft trade policies that promote these goals reflects the American leadership that many of our trading partners are seeking. The Biden Administration is meeting the challenge.

“Using trade policy as a tool to achieve these shared goals, USTR is stepping up its engagement with partners, allies, multilateral institutions and organizations. These actors and institutions play a pivotal role in cultivating any meaningful outcomes to address shared concerns. But to achieve a more resilient and just global economy, reform is necessary. The policies of the past contributed to contemporary challenges; we need different policies to achieve a different outcome.

Promoting Confidence in Trade Policy Through Enforcement: The Biden Administration is committed to vigorously enforcing our trade agreements as a critical element of pushing a global race to the top. Enforcement is a key component of our worker-centered trade policy agenda. We are using all of the tools at our disposal to combat unfair economic practices, defend American jobs, and create broad-based economic prosperity. American workers and businesses can compete with anyone when the playing field is level and competition is fair, and trade policy is an indispensable tool in achieving those goals. We are shaping a global trading system that enforces labor and environmental standards, protects intellectual property rights, and ensures that regulations are science-based and predictable.

Promoting Equitable, Inclusive, and Durable Trade Policy and Expanding Stakeholder Engagement: Trade policy can play a critical role in advancing equitable and resilient economic growth for underserved and marginalized communities, here in the United States and with trading partners who share concerns about rising inequality. The Biden Administration is committed to thorough and thoughtful engagement as we develop and implement the President’s trade policy agenda. Inclusive engagement is a key component to ensuring that our resulting trade policies are durable and equitable, and account for previous common policy shortfalls of failing to engage with communities that will be affected by those decisions. As such, the Biden Administration will continue to give all stakeholders a seat at the table as we evaluate and make these decisions.”

Comments

Consistent with the Biden Administration’s actions in 2021, the 2022 trade policy agenda includes focus on labor rights both in terms of existing agreements (USMCA) and addressing forced labor, tackling climate change, addressing agriculture market access through enforcement and country-specific negotiations, establishing rules for digital trade, making supply chains more resilient, addressing distortions caused by nonmarket economic behavior and combatting the COVID-19 pandemic. As stated in the introduction to the President’s Trade Agenda (pages 1-2 of the report),

“The Biden Administration recognizes that trade can––and should––be a force for good. Done right, and in coordination with other policy disciplines, it can grow the middle class, redress inequality, and level the
playing field by promoting fair competition. We remain committed to upholding a fair and open global
trading system – one that follows through on our trading partners’ longstanding commitment to conduct
economic relations with a view to raising standards of living, ensuring full employment, and promoting
sustainable development.

“To realize these goals, we must take stock of what has worked and what has not. This requires us to identify and rethink aspects of the existing trading system that incentivize or enable unfair competition.

“Competition in a global market provides Americans access to a wider variety of goods and services at
competitive prices. But, too often our existing global trade rules have rewarded advantages that are not
based on fair competition – or American values more broadly. Consumers in the global marketplace are
also wage earners and producers, and members of broader communities that feel the effects of our trade
policies. A trade model that promotes exploitation, whether of workers or the environment, is not efficient
– it is a form of unfair competition. And it is not sustainable.

“For these reasons, the Administration continues to advance its worker-centered trade policy. We are
standing up for workers’ rights – but it is more than that. We are promoting a broader agenda of fair
competition to ensure that workers are competing on the basis of skills and creativity, not exploitative cost advantages. We are laser-focused on working with partners and allies to chart new trade rules that do more to advance decarbonization and other critical environmental standards, support U.S. farmers, promote sustainable and resilient supply chains, and combat the COVID-19 pandemic. Through this approach, we can harness fair competition and support the American middle class with increased prosperity while promoting core American values.

“As President Biden has explained, ‘[We] will pursue new rules of global trade and economic growth that
strive to level the playing field so that it’s not artificially tipped in favor of any one country at the expense
of others, and every nation has a right and the opportunity to compete fairly.’

“Exploitation of workers and the environment are not the only forms of unfair practices that distort global
trade at the expense of Americans. We must recognize that China, as a large, non-market economy, has
uniquely distorted global trade through its economic policies and practices, causing harm to U.S.
production, investment, and even consumption. In many ways, China’s integration into the global trading
system has highlighted weaknesses in the current system – and the urgent need for reform. Lack of
protections for workers, a weak environmental regime, and anticompetitive subsidies are the hallmarks of
China’s artificial comparative advantage. It is an advantage that puts others out of business and violates
any notion of fair competition.

“That’s why the Biden Administration is realigning our trade policies towards China to defend the interests of America’s workers and businesses to strengthen our middle-class, create shared sustainable growth, and spur resilient climate action. We are working to counter China’s unfair economic practices, including by raising our concerns directly with China and working with our partners and allies to address shared challenges.

“We know we cannot effectively advance our worker-centered trade policy alone. Many of our partners and allies share our goal of a fairer, more sustainable international economic regime, and we are steadily forging the partnerships necessary to update and enforce the rules governing the global economy and trade. One example is the Administration’s success in rallying the world behind a Global Minimum Tax on
corporations to address yet another race to the bottom that, among other things, has deprived the United States of resources that should rightfully allow for investment in communities here at home. Another is the deal we reached with the European Union (EU) to combat global oversupply in the steel and aluminum industry and negotiate a first-of-its-kind trade arrangement predicating market access on the greenhouse gas emissions of imported steel and aluminum. A third example is the agreements we reached with the EU and the UK to resolve the longstanding aircraft disputes involving Boeing and Airbus, which allowed us to move past a perennial irritant and focus on shared interests, including financing on market terms and the challenges posed by non-market economies. We are building on this momentum to advance broader goals of fair competition through all available avenues, whether bilateral, regional, or multilateral discussions; existing trade agreements and frameworks; or new initiatives. Where the scope of the challenge requires new tools, we will pursue them as well.

“A vital element of our effort to build an inclusive trade policy agenda is understanding the effects of our
policies on underrepresented and underserved workers and communities, and ensuring that they have a say in how our policies are designed going forward. A more inclusive framework will lead to more durable
trade policy. Approaches to trade that rest on a narrow base of support are unsustainable, and could
ultimately undermine U.S. leadership at a critical juncture. While our ambition is high, we are rising to the
challenge.

“Precisely because it is focused on workers as the engine of the global economy, the Biden Administration’s trade policy will be a force for good – and will lead to a more durable, stable, and resilient trading system.”

What the 2022 agenda doesn’t envision is new free trade agreements being negotiated by the United States covering all or nearly all goods and services. Sectoral or limited agreements with trading partners, working through various multilateral or other organizations are the primary objectives of the stated U.S. trade policy along with enforcement of existing agreements. The report lists eight bilateral initiatives and support for one regional free trade agreement (European Union, India, Japan, Kenya, African Continental Free Trade Area, United Kingdom, Korea, Taiwan and Singapore). A major initiative for the U.S. is the so-called Indo-Pacific Economic Framework (IPEF). USTR’s report identifies the areas where negotiations with IPEF countries will focus (pages 10-11 of the report).

“We will use this framework to address a range of important areas of economic cooperation, including: fair and resilient trade (including labor, digital and other elements); supply chain resilience; infrastructure,
decarbonization, and clean energy; and, tax and anti-corruption. USTR will lead efforts to craft a trade
arrangement with parties that includes provisions on: high-standard labor commitments; environmental
sustainability; cooperation in the digital economy; sustainable food systems and science-based agricultural regulation; transparency and good regulatory practices; competition policy; and, trade facilitation. The specific content of the trade arrangement will be developed through extensive consultation with trading partners, a broad base of stakeholders, and Congress.”

While the Biden Administration supports the WTO, the WTO is but one forum for seeking progress on the President’s trade policy agenda. Reform of the WTO is the top U.S. priority at the WTO although dispute settlement reform is not specifically mentioned. The Biden Administration is also interested in conclusion of the fisheries subsidies negotiations and some of the Joint Statement Initiatives (e.g., on digital trade). The discussion of the WTO (page 11 of the report) is copied below.

“The Biden Administration is committed to the WTO. Consistent with our approach to trade policy more
broadly, the Biden Administration believes the WTO can––and should––be a force for good that encourages a race to the top and confronts global challenges as they arise. There is strong precedent for this approach: the Marrakesh Declaration and Agreement, on which the WTO is founded, begins with the recognition that the purpose of trade should be to raise living standards and ensure full employment, bearing in mind the objective of sustainable development, and the need to protect and preserve the environment.

“Unfortunately, the WTO has fallen short with respect to these ambitions, and its relevance and credibility
have accordingly come under fire. In recent years, the WTO’s inadequacy in responding to the needs of
everyday people and the inability of current rules to effectively constrain unfair trade and economic
practices have only become clearer. The pandemic has put a fine point on the WTO’s struggle to adapt as
an organization and to be relevant in responding to pressing global challenges.

“That is why the Biden Administration supports a WTO reform agenda that reflects the priorities of our
worker-centered approach – one that protects our planet, improves labor standards, and contributes to
shared prosperity. Our WTO reform agenda includes restoring efficacy to the negotiating arm and
promoting transparency; improving compliance with and enforcement of Members’ WTO commitments;
and equipping the Organization to effectively address the unfair practices of non-market economies––such as economic coercion––and global market distortions.

“The Biden Administration understands that these reform conversations will take time, and we are working to deliver results on achievable outcomes through the WTO’s existing structure. Throughout 2021, WTO Members undertook work to orient Members’ efforts towards a pandemic response and greater preparedness, and sought to identify priority steps that could be taken including in the area of trade facilitation and intellectual property protections. While some progress has been made, there is still no multilaterally agreed outcome. The Biden Administration supports a waiver of intellectual property
protections for COVID-19 vaccines, but the broader institution has not been able to reach consensus on an agreement to do so. We will continue to press for solutions on this issue in 2022.

“Additionally, the postponement of last year’s 12th Ministerial Conference (MC12) was a disappointment,
but safety and security in the midst of a pandemic appropriately take priority. However, the work can, and
must, continue and MC12 is being rescheduled for late Spring 2022. The Biden Administration worked
diligently throughout 2021 to secure meaningful outcomes for the planned Ministerial across a range of
topics including broad reform of the WTO. We will continue engaging with partners to make progress on
these issues in 2022.”

As described later in the report, the U.S. puts its focus in dispute settlement, whether under the WTO or FTAs, on achieving a mutually agreeable solution where possible. For cases where the U.S. filed a request for consultation, USTR reports that 38 disputes were so resolved by the end of 2021. An additional 46 disputes were resolved by completing the dispute settlement process. Report at 32-33. While many WTO Members are seeking the return to a two-tiered binding dispute settlement system within the WTO, the U.S. concerns with the system remain largely unaddressed, including an understanding of why the system became out of sync with the Dispute Settlement Understanding over time.

In short, look for much of the U.S. trade policy actions in 2022 to be occurring bilaterally or plurilaterally with continued WTO engagement but with more limited expectations for progress within the WTO in 2022.

Joint letter from European Union and United States on removing the Russian Federation from the WTO Developed Countries Coordinating Group

With the Russian war in Ukraine intensifying, western countries and their allies continue to up the level of sanctions. My last three posts have looked at trade components of the sanctions imposed by a host of governments and what steps might occur at the WTO. See March 4, 2022:  Removal of MFN benefits for goods from Russia and Belarus — Canada moves first; Ukraine applies economic embargo on Russia; EU and US consider removal of MFN benefits, https://currentthoughtsontrade.com/2022/03/04/removal-of-mfn-benefits-for-goods-from-russia-and-belarus-canada-moves-first-ukraine-applies-economic-embargo-on-russia-eu-and-us-consider-removal-of-mfn-benefits/; March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/.

On March 4, 2022, the European Union and the United States forwarded a joint letter to the WTO’s Chairman of the General Council alerting the WTO that the other members of the Developed Countries Coordinating Group would no longer be including the Russian Federation in their deliberations on potential chairs of WTO bodies and committees.

The EU Mission to the WTO provided a tweet that included the joint letter. The tweet says, “EU 🇪🇺 and US 🇺🇸 informed the Chair of the WTO General Council today that Russia’s participation in the Developed Countries Coordinating Group of the WTO is suspended. Russia is an aggressor state that blatantly violates international law. #StandWithUkraine️”. https://twitter.com/EUmissionWTO

The letter is included below.

EU-US-letter-to-WTO-re-removal-of-Russia-from-developed-country-coordinating-group

Yesterday’s article in Inside U.S. Trade’s World Trade Online reviews the limited effect of the action, particularly in light of the recent announcement of the slate of Chairs for committees and bodies. See Inside U.S. Trade’s World Trade Online, U.S., EU, others suspend Russia from WTO coordinating group, March 4, 2022, https://insidetrade.com/daily-news/us-eu-others-suspend-russia-wto-coordinating-group (“The move will have little immediate impact, according to Inu Manak, a senior fellow at the Council on Foreign Relations, because the WTO announced its committee chairs last month. However, she said, it sends a “fairly big signal,” as the members of the coordinating group are symbolically kicking Russia out of the influential club that chooses who leads discussions at the WTO.”).

Still in the offing is what additional trade actions — such as stripping Russia of most favored nation (“MFN”) tariff treatment, banning imports of Russian oil and gas, or attempting to expel Russia from the WTO — will be pursued or implemented. As noted in yesterday’s post, Canada has led on stripping Russia of MFN treatment and banning imports of Russian oil and gas. The U.S. and EU have one or both under consideration. It is unclear if other countries are considering one or both actions as well. None have yet endorsed the idea of expelling Russia from the WTO, though at least one former WTO Appellate Body Chair has opined that such an action could occur under WTO provisions. See March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/.

Yesterday’s action by developed countries in the WTO signals that actions within multilateral organizations will be part of the effort to get the Russian Federation to cease its unprovoked war with Ukraine. Considering the increasing levels of hostility, countries opposing the Russian and Belarusan actions need to speed up further sanctions.

Removal of MFN benefits for goods from Russia and Belarus — Canada moves first; Ukraine applies economic embargo on Russia; EU and US consider removal of MFN benefits

  1. Canada

Amid the global outcry at the actions of the Russian Federation in waging war on Ukraine, countries are reviewing options to increase the economic pain on Russia and Belarus which has permitted its country to be used for staging and other purposes. Canada acted on March 3, 2022 by removing both the Russian Federation and Belarus from receiving most favored nation treatment on any imports into Canada. See Department of Finance Canada, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2020, https://www.canada.ca/en/department-finance/news/2022/03/canada-cuts-russia-and-belarus-from-most-favoured-nation-tariff-treatment.html; Deputy Prime Minister of Canada Chrystia Freeland, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2022, https://deputypm.canada.ca/en/news/news-releases/2022/03/03/canada-cuts-russia-and-belarus-most-favoured-nation-tariff-treatment; Canada Border Services Agency, Order withdrawing the Most-Favoured-Nation status from Russia and Belarus, Customs Notice 22-02, https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn22-02-eng.html. The press releases contain the following explanation of the action being taken.

“Russia’s invasion of Ukraine, supported by Belarus, is a violation of international law and threat to the rules-based international order. Canada is taking further action to ensure those who do not support the rules-based international order cannot benefit from it.

“Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, and The Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, announced that the Government of Canada has issued the Most-Favoured-Nation Tariff Withdrawal Order (2022-1), removing these countries’ entitlement to the Most-Favoured-Nation Tariff (MFN) treatment under the Customs Tariff.

“This Order results in the application of the General Tariff for goods imported into Canada that originate from Russia or Belarus. Under the General Tariff, a tariff rate of 35 per cent will now be applicable on virtually all of these imports. Russia and Belarus will join North Korea as the only countries whose imports are subject to the General Tariff.

“This measure is in addition to the many punitive actions that Canada and its allies have already taken against Russia and Belarus as a result of the illegal and unprovoked invasion of Ukraine, including other trade restrictions under the Special Economic Measures Act.

“Quotes

“‘Today, I am announcing that Canada will be the first country to revoke Russia’s and Belarus’s Most-Favoured-Nation status as a trading partner under Canadian law. We are working closely with our partners and allies to encourage them to take the same step. Simply put, this means that Russia and Belarus will no longer receive the benefits – particularly low tariffs – that Canada offers to other countries that are fellow members of the WTO. The economic costs of the Kremlin’s barbaric war are already high, and they will continue to rise. Canada and our allies are united in our condemnation of President Putin and his war of aggression, and we are united in our support for the remarkable Ukrainians who are so bravely resisting his assault.’

“– The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

“‘It is the direct result of Russia’s unjustified invasion of Ukraine that has triggered our government’s removal of the Most-Favoured-Nation Tariff (MFN) treatment on almost all imports from Russia and Belarus. Canada is stepping up by putting significant economic pressure on Russia, and is providing resources to Ukraine including military equipment and emergency humanitarian support. Canada remains resolute in our solidarity with Ukraine and the Ukrainian people, and we will continue supporting them as they fight to defend their freedom and democracy.’

“– The Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business
and Economic Development”.

Later in the press release there is a list of other actions Canada has taken in response to the Russian war against Ukraine including the following.

“This measure complements other recent measures targeting trade with Russia and Belarus, which will come into force imminently, including the ban on crude oil imports from Russia and Belarus, announced on February 28, 2022, and the ban on Russian owned or registered ships and fishing vessels from Canadian ports and internal waters, announced on March 1, 2022.

2. Ukraine

Ukraine notified the WTO on March 2, 2022 that “Ukraine severed its diplomatic relations with the aggressor state, decided to impose a complete economic embargo and no longer apply the WTO agreements in its relations with the Russian Federation.” The Ukrainian letter to the Chairman of the WTO General Council is included below.

Letter-from-Ukraine-to-WTO-re-not-applying-WTO-obligations-to-Russia

3. United States

In the United States, withdrawal of MFN treatment is being considered by the Congress with bills introduced in both the House and the Senate as well as bills to ban imports of oil and petroleum products from Russia. See February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/ (reviewing H.R. 6835); see also S.3717 introduced by Senators Cassidy and Brown (“A bill to withdraw normal trade relations treatment from, and apply certain provisions of title IV of the Trade Act of 1974 to, products of the Russian Federation, and for other purposes”); S.3722 introduced by Senate Finance Committee Chairman Wyden (“a bill to withdraw normal trade relations treatment from, and apply certain provisions of title IV of the Trade Act of 1974 to products of the Russian Federation, and for other purposes”); S.3718 introduced by Senator Marshall and eight others (a bill to prohibit the importation of petroleum and petroleum products from the Russian Federation”). These bills are in addition to many others looking to impose additional sanctions on the Russian Federation.

While the U.S. has applied some sanctions on Belarus, at present the bills before Congress do not seek removal of MFN treatment from goods from Belarus. As Belarus is not yet a WTO Member (it is going through the accession process), there are not the same WTO considerations in removal of MFN treatment on goods from Belarus.

4. European Union

Press articles indicate that the EU is actively considering whether to remove MFN treatment for Russia. See, e.g., Bloomberg, EU Seeks to End Russia’s Most-Favored Nation Status at WTO, March 3, 2022, https://www.bloomberg.com/news/articles/2022-03-03/eu-seeks-to-suspend-russia-s-most-favored-nation-status-at-wto (“‘In reaction to the Russian aggression against Ukraine, the EU has adopted sweeping sanctions vis-a-vis Russia, which undoubtedly have a major impact on trade,’ European Commission Spokeswoman Miriam Garcia Ferrer said in an emailed reply to Bloomberg. ‘We are discussing options available to us in the WTO context. This includes the possibility of removing MFN treatment to Russia on the basis of the WTO national security exception.’”); Financial Times, Canada imposes tariffs on Russian imports by using WTO exemption, March 4, 2022, https://www.ft.com/content/88b1b680-cc23-4e69-ba2d-69c7d96910b0 (“Bernd lange, chair of the European parliament’s international trade committee, tweeted: ‘We cannot continue with business as usual in WTO when it comes to trade with Russia. One step could be to remove MFN status.'”).

The EU has been Russia’s largest trading partner, importing $188 billion worth of goods in 2021. See https://www.statista.com/statistics/1099626/russia-value-of-trade-in-goods-with-eu/. A large portion of EU imports from the Russian Federation are oil and gas. The Financial Times articles indicates that in 2020 more than two thirds of imports from Russia into the EU were oil and gas.

Comments

One can expect that there will be continuing efforts to increase the sanctions and trade costs on Russia and Belarus for the unprovoked war in Ukraine. Denying both countries MFN treatment can be expected by some countries. Canada’s lead hopefully will be followed by the U.S. and EU and others.

In a number of countries, informal bans on Russian goods, including oil and gas is already occurring. See, e.g., BBC News, Ukraine sanctions: UK dockers refuse tanker of Russian gas, March 4, 2022, https://www.bbc.com/news/uk-england-kent-60619112.

The larger issue of whether WTO Members should exclude Russia from the organization is also attracting at least private sector comments. See, e.g., March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; Kevin D. Williamson, National Review, Force Russia from WTO?, February 28, 2022, https://www.nationalreview.com/corner/force-russia-from-wto/.

Many countries have raised the conflict at the WTO during the recent February 23-24, 2022 General Council meeting and at the recent February 28, 2022 Dispute Settlement Body meeting. See, e.g., EU Statements at the General Council Meeting, 23 and 24 February 2022, https://eeas.europa.eu/delegations/world-trade-organization-wto/111430/eu-statements-general-council-meeting-23-and-24-february-2022_en (“Thursday 24 February 2022 (morning), STATEMENT ON THE INVASION OF UKRAINE BY THE RUSSIAN FEDERATION, We heard many Delegations talking about the tragedy to human lives brought about by the Covid pandemic. Today the tragedy is people being killed by the use of force following the invasion of Ukraine this morning. This is a sad day for Europe, a sad day for the world. The European Union strongly condemns this unjustified attack on Ukraine, an independent and sovereign State. This constitutes a gross violation of international law. In these dark hours, our thoughts are with the innocent women, men and children as they face this unprovoked attack and fear for their lives.“); Statements by the United States at the Meeting of the WTO Dispute Settlement Body
Geneva, February 28, 2022, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2022/03/Feb28.DSB_.Stmt_.as_.deliv_.fin_.pdf “• Before addressing the present agenda item, the United States will comment on the atrocious situation that we see happening on the ground in Ukraine. • The United States stands with Ukraine. The United States condemns Russia’s further invasion of and continuing military assault against the sovereign nation and people of Ukraine, and condemns this violation of the core principles that uphold global peace and security. The United States will continue to support the Ukrainian people as they defend their country from this unprovoked attack and we commend the true and tremendous courage we are seeing from the Ukrainian people, the armed forces, and Ukrainian leaders. The United States has expressed its views before and after the UN Security Council vote and I refer Members to our previous official statements for more details.”).

While the WTO news releases include a statement from the Director-General on the Ukraine conflict, the press releases reviewing meetings where the Ukraine conflict has been raised by Members is silent on the issue being raised. See, e.g., WTO news release, WTO dispute panel to review Chinese complaint regarding Australian duties, February 28, 2022, https://www.wto.org/english/news_e/news22_e/dsb_28feb22_e.htm; WTO news release, WTO chairpersons for 2022, February 24, 2022, https://www.wto.org/english/news_e/pres22_e/pr898_e.htm; WTO news release, WTO members agree on mid-June dates for reconvening MC12, https://www.wto.org/english/news_e/news22_e/mc12_23feb22_e.htm; WTO news release, WTO members initiate membership talks for Turkmenistan, February 23, 2022, https://www.wto.org/english/news_e/news22_e/acc_23feb22_e.htm.

It is not clear if major Members like the U.S. and EU will seek specific action against Russia within the WTO in the coming weeks or simply pursue any action unilaterally (or in coordination with certain other trading partners). Hopefully, concerned nations will see that Russia is held accountable at all multilateral organizations, including the WTO. One can assume that accession negotiations with Belarus will stop progressing until there is a satisfactory resolution of the conflict from the view of many of the existing WTO Members (other than the Russian Federation).

It is possible that WTO Members at least on a plurilateral basis will look at steps to facilitate medical and food assistance to Ukraine during the crisis. Such action is occurring and will certainly continue to occur by certain WTO Members outside of the context of the WTO, but the WTO has a role it could play. Similarly, the WHO recently took action to get 36 tons of medical supplies to the Polish border with Ukraine as the following tweet reviews. More can and should be done.

WHO-medical-assistance

Just as the COVID-19 pandemic has tested the world and involve trade elements for its resolution, so too the unprovoked war on Ukraine started by Russia and facilitated by Belarus is testing the world and needs a meaningful trade response as part of the effort to achieve a peaceful resolution.

A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions

In my post on February 28, 2022, I reviewed actions in the U.S. and various other trading partners to impose additional export controls on goods going to Russia because of its invasion of Ukraine as well as a House bill to both strip normal trade relations from Russia and have the US seek to have Russia removed from the WTO. See February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/.

That same day, James Bacchus, a former WTO Appellate Body Chair, published an opinion in the Wall
Street Journal indicating that WTO Members have the ability under Art. X of the Marrakesh Agreement Establishing the WTO to expel Russia from the organization if they have the will. See Wall Street Journal, Boot Russia From the WTO, February 28, 2022, https://www.wsj.com/articles/boot-russia-from-the-wto-world-trade-organization-putin-international-economic-sanctions-tariff s-legal-authority-11646092051. Mr. Bacchus urges the United States to lead the effort to have Russia expelled from the WTO because of the unprovoked war started by Russia with Ukraine. Article X of the Marrakesh Agreement Establishing the WTO deals with amendments to the WTO and not specifically with removal of a Member. Mr. Bacchus’ piece is relying on language from Art. X:5 which states in part that “The Ministerial Conference may decide by a three-fourths majority of the Members that any amendment made effective under the preceding provision is of such a nature that any Member which has not accepted it within a period specified by the Ministerial Conference in each case shall be free to withdraw from the WTO or to remain a Member with the consent of the Ministerial Conference.” As recognized by Mr. Bacchus, the organization typically operates by consensus. Nonetheless, his opinion piece raises at least an approach that might be tried (propose an amendment to the WTO (e.g.. WTO membership is suspended at such time as the Member invades another WTO Member without UN authorization) and get Members to agree to vote on it and achieve 3/4 support).

In the U.S. Congress, the Chairman of the Senate Finance Committee, Senator Wyden of Oregon, issued a press release on March 1, 2022 which included some additional trade and finance steps that could be taken to increase the sanctions on Russia. See Wyden Outlines Finance Committee Next Steps to Hold Russia Accountablefor Ukraine Invasion, March 1, 2022, https://www.finance.senate.gov/chairmans-news/wyden-outlines-finance-committee-next-steps-to-hold-russia-accountable-for-ukraine-invasion. Chairman Wyden’s list provides six additional steps that the U.S. should be taking to sanction Russia. The second deals with trade and is copied below.

” Second, we need to make sure tariff treatment of Russia reflects its pariah status. Permanent normal trade relations are extended to countries as they join the World Trade Organization (WTO) and agree to abide by rules that ensure a level playing field in international trade. Removing normal trade relations will raise tariffs on Russian goods and send a message that unprovoked invasions of a foreign nation will not be tolerated in any arena. In addition, Russia’s actions to throttle internet access and censor online content as a means to crush dissent and limit access to reliable information not only raise human and civil rights concerns, but also act as a barrier to trade. We must consider how trade tools can be used to address such digital authoritarianism by any actor.”

President Biden, in his state of the union address on March 1, 2022, indicated that the United States was joining the European Union and Canada in closing U.S. airspace to Russian aircraft. Such closure obviously restricts trade in some service sectors.

Some states and businesses are boycotting purchase of Russian goods.

It is clear that countries around the world will be ratcheting up sanctions on Russia and Belarus as Russia’s war in Ukraine continues to intensify. Much of the sanctions are finance-related but trade sanctions are a part and likely to become more important over time.

Trade sanctions following Russia’s invasion of Ukraine

The United States, the European Union, United Kingdom, Canada, Japan, Republic of Korea, Taiwan, Australia and New Zealand have imposed various financial sanctions on certain actors in the Russian Federation following last week’s invasion of Ukraine.

There have also been new export restrictions on various products of potential importance to the Russian economy and military being imposed by these same countries. For example, the United States Department of Commerce is publishing revised regulations on export controls of products to the Russian Federation. The document which is available online at the moment will be published in the Federal Register on March 3, 2022. The “Background” section of the revised regulations describes the reason for the modifications and coverage. As noted the new restrictions are primarily aimed at Russia’s defense, aerospace and maritime sectors.

I. Background

“In response to the Russian Federation’s (Russia’s) further invasion of Ukraine, the Bureau of Industry and Security (BIS) imposes extensive sanctions on Russia by amending the Export Administration Regulations (15 CFR parts 730 – 774) (EAR). Russia’s invasion of Ukraine flagrantly violates international law, is contrary to U.S. national security and foreign policy interests, and undermines global order, peace, and security, and therefore necessitates these stringent and expansive sanctions. The Commerce Department’s sanctions are one aspect of the broad U.S. Government response to Russia’s unprovoked aggression and are being imposed in coordination with allies and partners.

“In response to Russia’s 2014 invasion of Ukraine and occupation of the Crimean region, the U.S. Government, in coordination with its partners and allies, imposed restrictions on Russia, including asset-blocking measures, licensing requirements applicable to exports, reexports, and transfers (in-country) of items subject to the EAR destined for certain Russian entities, and special controls on items subject to the EAR intended for use in specified Russian industry sectors. Leading up to Russia’s further invasion of Ukraine, the U.S. Government announced that should Russia encroach further on Ukraine’s territory, it would impose additional, comprehensive sanctions with significant consequences.

“The export control measures implemented in this final rule protect U.S. national security and foreign policy interests by restricting Russia’s access to items that it needs to project power and fulfill its strategic ambitions. These items include sophisticated technologies designed and produced in the United States, as well as certain foreign-produced items that contain or are based on U.S.-origin technology subject to the EAR or other technology that is subject to the EAR that are essential inputs to Russia’s key technology and other sectors. BIS is primarily targeting the Russian defense, aerospace, and maritime sectors with these new export controls. These export controls include controls on the export from abroad of certain foreign-produced items that are subject to the EAR. Given the global dominance of U.S.-origin software, technology, and equipment (including tooling), these new controls, implemented in parallel with similarly
stringent measures by partner and allied countries, will cover a broad scope of items that Russia seeks to advance its strategic ambitions and consequently impair the country’s key industrial sectors.”

DEPARTMENT OF COMMERCE, Bureau of Industry and Security, 15 CFR Parts 734, 738, 740, 742, 744, 746, and 772, [Docket No. 220215-0048], RIN 0694-AI71, Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR), https://public-inspection.federalregister.gov/2022-04300.pdf.

Will one or more countries impose import restrictions on Russia for its invasion of Ukraine?

In the United States, some members of Congress have introduced legislation which, if passed and signed into law, would revoke permanent most favored nation treatment for imports from the Russian Federation with an annual review on any waiver dependent on Russia’s withdrawal from Ukraine and the existence of freely elected Ukrainian leadership. In the House of Representatives, the bill introduced would also require the U.S. to seek to limit Russia’s participation in the WTO. See H.R. 6835, To Withdraw Normal Trade Relations Treatment from, and apply certain provisions of Title IV of the Trade Act of 1974 to, products of the Russian Federation, Congressional Record H1146, 117 Cong. 2nd Session (Feb. 25, 2022), https://www.congress.gov/117/crec/2022/02/25/168/35/CREC-2022-02-25.pdf. While the text of the bill is not yet available online, the press release from the sponsors (copied below) lays out the purpose.

“End ‘Favored Nation’ Trade Relations with Russia, Bar Russia From WTO

Washington, D.C. – U.S. Representative Lloyd Doggett, Chair of the House Ways and Means Health Subcommittee, and U.S. Representative Earl Blumenauer, Chair of the House Ways and Means Trade Subcommittee, announce today that they are introducing legislation to end Permanent Normal Trade Relations (PNTR) with the Russian Federation and to initiate a process to formally deny Russia access to the World Trade Organization (WTO), following its unprovoked invasion of Ukraine.

“’In seeking multiple ways to respond to Russia’s unprovoked invasion of Ukraine, we should close every possible avenue for Russian participation in the world economy,’ said Rep. Doggett. ‘Our legislation takes one such step of the type previously used in 1992 in response to Serbian aggression. It would remove most favored nation trade treatment for Russian imports by terminating Permanent Normal Trade Relations (PNTR). The U.S. should deny Russia previously-granted WTO terms and seek to expel Russia from the World Trade Organization (WTO). As Putin undermines the stability carefully built since World War II, he and his oligarch pals should not benefit from the trading system created to ensure that stability and peace.’

“’The United States must use every tool at our disposal, short of armed conflict, to protect Ukraine’s independence. Putin’s unprovoked and unprecedented actions warrant a proportional response that includes terminating Permanent Normal Trading Relations and denying it WTO membership,’ said Rep. Blumenauer. ‘Putin and his cronies should not be insulated from the consequences of their unjustified actions and I intend to use my position as the chairman of the Ways and Means Subcommittee on Trade to ensure that.’

End “Favored Nation” Trade Relations with Russia, Bar Russia From WTO, February 25, 2022, https://doggett.house.gov/media/blog-post/end-favored-nation-trade-relations-russia-bar-russia-wto.

It is understood that similar legislation will be introduced in the Senate this week.

The Russian Federation is not a major trading partner of the United States. In 2021, U.S. imports for consumption from Russia were just $29.657 billion (just 1.05% of total U.S. imports for consumption). The bulk of U.S. imports from Russia ($17.406 billion) are products from Chapter 27 of the Harmonized System (largely oil, gas and downstream products)). Russia accounts for 8.17% of total U.S. imports of products under Chapter 27. At the same time, the United States exports to the world nearly 12 times the amount of the oil and gas products that it imports from Russia in the three major four-digit HS categories (HS 2709, HS 2710, HS 2711). The U.S. also exports relatively small volumes of goods to Russia — $5.531 billion (less than 4/10ths of 1 percent of total U.S. exports).

If the U.S. enacts the introduced legislation, Russian imports would be subject to Column 2 rates of duty absent legislation modifying the non-MFN rate. For oil and gas products, Column 2 imports duties are 2-4 times the MFN rates for oil and derived products imported from Russia (HS 2709 and 2710) and duty free for natural gas products imported from Russia (HS 2711). However, rates are low even under Column 2. For other products from Russia, increased duties would be substantial. For example, most steel mill products under Chapter 72 would be subject to Column 2 tariffs of 20% or more versus duty free treatment pursuant to MFN. U.S. imports of such products from Russia in 2021 were $2.641 billion.

So revoking MFN treatment to Russia will have some effect, even if modest overall.

The WTO does not have a procedure for removing Members from the organization other than a Member choosing to withdraw. So it is not clear what opposition to continued membership of a country by other Members would lead to. Some have identified types of disputes that could be brought to address broad-based nullification and impairment from economic systems not like market based economies. See, e.g., Wall Street Journal, For U.S. to Stay in WTO, China May Have to Leave, August 22, 2018, https://www.wsj.com/articles/for-u-s-to-stay-in-wto-china-may-have-to-leave-1534935600. It is not clear that such an approach would be of interest vis-a-vis Russia.

It is, of course, the case that WTO Members are entitled to MFN treatment for their goods. To the extent trading partners opt to withdraw MFN treatment or other rights of Membership, there are potential justifications (e.g., GATT Art. XXI). But even without such justifications, it is a form of limiting WTO benefits to a Member who is viewed as a pariah for extraordinary conduct. Actions by WTO Members against Russia would likely be subject to retaliation (though no retaliation should be taken absent a WTO dispute resolution, though would likely be taken).

It is unknown if the U.S. Administration will support the legislation that has been introduced and, if so, if trading partners would join in adding import restrictions to the sanctions imposed to date on Russia. The fact that members of Congress are looking at additional sanction activity reflects the extraordinary situation Russia’s unprovoked invasion has created.


Addressing Medical Waste as Part of the Global Response to the COVID-19 Pandemic

On February 1, 2022, the WHO released a report on the challenges posed by additional medical waste as the world responds to the COVID-19 pandemic. See World Health Organization, Global analysis of health care waste in the context of COVID-19, February 2022, https://www.who.int/publications/i/item/9789240039612

The WHO news release describes the issues around medical waste during the pandemic. WHO News Release, Tonnes of COVID-19 health care waste expose urgent need to improve waste management systems, 1 February 2022, https://www.who.int/news/item/01-02-2022-tonnes-of-covid-19-health-care-waste-expose-urgent-need-to-improve-waste-management-systems.

“Tens of thousands of tonnes of extra medical waste from the response to the COVID-19 pandemic has put tremendous strain on health care waste management systems around the world, threatening human and environmental health and exposing a dire need to improve waste management practices, according to a new WHO report.

“The WHO Global analysis of health care waste in the context of COVID-19: status, impacts and recommendations bases its estimates on the approximately 87,000 tonnes of personal protective equipment (PPE) that was procured between March 2020- November 2021 and shipped to support countries’ urgent COVID-19 response needs through a joint UN emergency initiative. Most of this equipment is expected to have ended up as waste.

“The authors note that this just provides an initial indication of the scale of the COVID-19 waste problem. It does not take into account any of the COVID-19 commodities procured outside of the initiative, nor waste generated by the public like disposable medical masks.

“They point out that over 140 million test kits, with a potential to generate 2,600 tonnes of non-infectious waste (mainly plastic) and 731,000 litres of chemical waste (equivalent to one-third of an Olympic-size swimming pool) have been shipped, while over 8 billion doses of vaccine have been administered globally producing 144,000 tonnes of additional waste in the form of syringes, needles, and safety boxes.

“As the UN and countries grappled with the immediate task of securing and quality-assuring supplies of PPE, less attention and resources were devoted to the safe and sustainable management of COVID-19 related health care waste.

“’It is absolutely vital to provide health workers with the right PPE, ‘ said Dr Michael Ryan, Executive Director, WHO Health Emergencies Programme. ‘But it is also vital to ensure that it can be used safely without impacting on the surrounding environment.’

“This means having effective management systems in place, including guidance for health workers on what to do with PPE and health commodities after they have been used.

“Today, 30% of healthcare facilities (60% in the least developed countries) are not equipped to handle existing waste loads, let alone the additional COVID-19 load. This potentially exposes health workers to needle stick injuries, burns and pathogenic microorganisms, while also impacting communities living near poorly managed landfills and waste disposal sites through contaminated air from burning waste, poor water quality or disease carrying pests.

“’COVID-19 has forced the world to reckon with the gaps and neglected aspects of the waste stream and how we produce, use and discard of our health care resources, from cradle to grave,’ said Dr Maria Neira, Director, Environment, Climate Change and Health at WHO.

“’Significant change at all levels, from the global to the hospital floor, in how we manage the health care waste stream is a basic requirement of climate-smart health care systems, which many countries committed to at the recent UN Climate Change Conference, and, of course, a healthy recovery from COVID-19 and preparedness for other health emergencies in the future.’

“The report lays out a set of recommendations for integrating better, safer, and more environmentally sustainable waste practices into the current COVID-19 response and future pandemic preparedness efforts and highlights stories from countries and organizations that have put into practice in the spirit of ‘building back better’.

Recommendations include using eco-friendly packaging and shipping, safe and reusable PPE (e.g., gloves and medical masks), recyclable or biodegradable materials; investment in non-burn waste treatment technologies, such as autoclaves; reverse logistics to support centralized treatment and investments in the recycling sector to ensure materials, like plastics, can have a second life. (Emphasis added)

“The COVID-19 waste challenge and increasing urgency to address environmental sustainability offer an opportunity to strengthen systems to safely and sustainably reduce and manage health care waste. This can be through strong national policies and regulations, regular monitoring and reporting and increased accountability, behaviour change support and workforce development, and increased budgets and financing.

“’A systemic change in how health care manages its waste would include greater and systematic scrutiny and better procurement practices,’” said Dr Anne Woolridge, Chair of the Health Care Waste Working Group, International Solid Waste Association (ISWA).

“’There is growing appreciation that health investments must consider environmental and climate implications, as well as a greater awareness of co-benefits of action. For example, safe and rational use of PPE will not only reduce environmental harm from waste, it will also save money, reduce potential supply shortages and further support infection prevention by changing behaviours.’

“The analysis comes at a time when the health sector is under increasing pressure to reduce its carbon footprint and minimize the amount of waste being sent to landfill — in part because of the great concern about the proliferation of plastic waste and its impacts on water, food systems and human and ecosystem health.”

The importance of the report, which doesn’t account for the vast amount of medical waste from COVID in countries not procuring PPE and other products through the UN system, is reflected in a recent posting on the World Economic Forum’s webpage. See World Economic Forum, COVID-19 has caused a surge in medical waste. Here’s what needs to be done, February 17, 2022, https://www.weforum.org/agenda/2022/02/medical-waste-plastic-environment-covid/.

Role for Other Multilateral Organizations and Private Sector

While the WHO obviously has a central role in working with countries to help them improve their healthcare systems including best practices in medical waste disposal, it is clear that more can and should be done to address the current situation and minimize challenges going forward from other pandemics and everyday health care needs.

For example, the IMF, World Bank, WTO and WHO meet to jointly explore ways to improve vaccination and other health care responses to the COVID-19 pandemic. See MULTILATERAL LEADERS TASK FORCE ON COVID-19 VACCINES, THERAPEUTICS, AND DIAGNOSTICS, https://www.covid19taskforce.com/en/programs/task-force-on-covid-19-vaccines. Resources from the IMF and World Bank as well as from governments and the private sector are needed to improve in-country capabilities for medical waste handling. It is not clear that the four are working jointly on funding for improved medical waste treatment as part of the Multilateral Leaders Task Force. If not they should be. Such efforts should be happening now as resources are being spent to ramp up in-country vaccination capabilities so that additional vaccinations are coupled with proper medical waste handling. In addition, those institutions and some governments have been working to increase regional production of vaccines, but there has been no discussion of similar efforts on PPE or other items where local manufacture could reduce environmental and health challenges.

Similarly, the WTO has been exploring the trade response to the pandemic (and to future pandemics). Separately, there are several plurilateral negotiations on environmental issues, including one of plastics in the oceans. The WHO report raises the question of whether the WTO trade and health discussions need to consider what, if any, additional elements could be added to help Members address medical waste. Members should also be exploring whether the plurilaterals should be expanded to take on additional aspects of the medical waste challenge.

There is much that the private sector should be doing to find solutions to the problems of growing medical waste through redesign of products to use less plastic, increase reusability of PPE products and address other aspects of the WHO recommendations.

Time will tell whether the gaps in the health care system pertaining to medical waste are addressed meaningfully or not. Let’s hope this is an area where there will be global focus and coordination.

USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy

On February 17, 2022, USTR released its annual report on notorious markets for counterfeiting and piracy. See Office of the United States Trade Representative, 2021 Review of Notorious Markets for Counter- feiting and Piracy, February 2022, https://ustr.gov/sites/default/files/IssueAreas/IP/2021%20Notorious%20Markets%20List.pdf. The Press Release from USTR provided the following description of the report.

“WASHINGTON – The Office of the United States Trade Representative (USTR) today released the findings of its 2021 Review of Notorious Markets for Counterfeiting and Piracy (the Notorious Markets List). The Notorious Markets List highlights online and physical markets that reportedly engage in or facilitate substantial trademark counterfeiting or copyright piracy.

“‘The global trade in counterfeit and pirated goods undermines critical U.S. innovation and creativity and harms American workers,’ said Ambassador Katherine Tai. ‘This illicit trade also increases the vulnerability of workers involved in the manufacturing of counterfeit goods to exploitative labor practices, and the counterfeit goods can pose significant risks to the health and safety of consumers and workers around the world.’

“Reflecting the Biden-Harris Administration’s worker-centered trade policy, the 2021 Notorious Markets List’s issue focus section examines the adverse impact of counterfeiting on workers involved with the manufacture of counterfeit goods. The section describes how the illicit nature of counterfeiting requires coordination between relevant actors in order to effectively uncover and combat labor violations in counterfeiting operations across the globe.

“The 2021 Notorious Markets List also identifies 42 online markets and 35 physical markets that are reported to engage in or facilitate substantial trademark counterfeiting or copyright piracy. This includes identifying for the first time AliExpress and the WeChat e-commerce ecosystem, two significant China-based online markets that reportedly facilitate substantial trademark counterfeiting. Also, China-based online markets Baidu Wangpan, DHGate, Pinduoduo, and Taobao continue to be listed, as well as nine physical markets located within China that are known for the manufacture, distribution, and sale of counterfeit goods.

Background

“USTR first identified notorious markets in the Special 301 Report in 2006. Since February 2011, USTR has published annually the Notorious Markets List separately from the Special 301 Report, to increase public awareness and help market operators and governments prioritize intellectual property enforcement efforts that protect American businesses and their workers.

“he Notorious Markets List does not constitute an exhaustive list of all markets reported to deal in or facilitate commercial-scale copyright piracy or trademark counterfeiting, nor does it reflect findings of legal violations or the U.S. Government’s analysis of the general intellectual property protection and enforcement climate in the country concerned. Such analysis is contained in the annual Special 301 Report issued at the end of April each year.

“USTR initiated the 2021 Notorious Markets List Review on August 30, 2021, through publication in the Federal Register of a request for public comments. The request for comments and the public’s responses are online at http://www.regulations.gov, Docket number USTR-2021-0013.”

While counterfeiting can be found in every country, the USTR report is focused on online and physical locations where IP rights holders express concern with large volumes of counterfeit goods and poor enforcement. Many countries are flagged as hosting online problem actors and/or for having one or more physical locations where significant counterfeiting is occurring. The list is not intended to be exhaustive.

For example, the 42 online sites listed include eleven online markets where the country or countries where the servers operate are not known. In addition, online markets are attributed to nineteen countries (some online markets may list more than one country). China is listed for seven; Russia for five, the Netherlands for three, France, Bulgaria, Indonesia and Iraq for two and all other listed countries for one (Egypt, Finland, Iceland, Romania, India, Czech Republic, Vietnam, Panama, Israel, Singapore, Jordan and Switzerland).

In addition, eighteen countries are listed with one or more physical markets in the report. The eighteen countries include Argentina, Brazil, Cambodia, Canada, China, India, Indonesia, Krygyz Republic, Malaysia, Mexico, Paraguay, Peru, Philippines, Russia, Turkey, Ukraine, United Arab Emirates and Vietnam.

China has been and continues to be the country from which the greatest value and volume of counterfeit goods are seized each year by the U.S. Customs and Border Protection Service as this quote from page 41 of the report makes clear.

“China continues to be the number one source of counterfeit products in the world. Counterfeit and pirated goods from China, together with transshipped goods from China to Hong Kong, accounted for 83 percent of the value (measured by manufacturer’s suggested retail price) and 79 percent of the volume of counterfeit and pirated goods seized by U.S. Customs and Border Protection (CBP) in 2020.48

_____

“48 CBP, Intellectual Property Rights Seizure Statistics, Fiscal Year 2020, https://www.cbp.gov/document/report/fy-2020-ipr-seizure-statistics.”

A major purpose of the report each year is to highlight markets perceived as problematic and to focus USTR, foreign governments, market owners and businesses on the need to improve efforts to reduce counterfeiting in those markets. The report reflects the situation with individual markets and, where progress has been made, where ongoing issues may exist. As the press release and report make clear, the notorious market report is not a review of countries compliance/improvements on intellectual property protection. That is handled in the annual Special 301 Report which is released at the end of April.

While China criticized the report as not reflecting its efforts at improving IP enforcement and for not dealing with counterfeiting issues within the U.S., the criticism is misplaced. See Inside U.S. Trade’s World Trade Online, China blasts U.S. notorious markets list as ‘irresponsible,’ hypocritical, February 18, 2022, https://insidetrade.com/trade/china-blasts-us-notorious-markets-list-%E2%80%98irresponsible%E2%80%99-hypocritical. First, the report that looks at China’s efforts on intellectual property more broadly is the annual Special 301 Report. The 2021 Report and its analysis of China’s actions can be found at Office of the United States Trade Representative, 2021 Special 301 Report, https://ustr.gov/sites/default/files/files/reports/2021/2021%20Special%20301%20Report%20(final).pdf. The next report will be released by the end of April 2022. Second, the report is generated in large part by a review of submissions by companies to its annual Federal Register notice, hence the term “reportedly” used in the report. Finally, USTR’s task is to examine how trading partners are implementing intellectual property rights and obligations and how effective enforcement is. The report fulfills the mandate but doesn’t suggest that counterfeiting isn’t a problem globally or that efforts are required around the world to address the problem, including in the U.S.

Of particular interest in this year’s report is the issue focus section which looks at the effects of counterfeiting on working men and women. I copy pages 3-9 of the report below.

Issue Focus: The Adverse Impact on Workers Involved in the Manufacture of Counterfeit Goods

“This Administration is committed to a worker-centric trade policy as an essential part of the Build Back Better agenda that protects workers’ rights by fighting forced labor and exploitative labor conditions, and increases transparency and accountability in global supply chains. This year’s NML Issue Focus3 examines the adverse impact of counterfeiting on the workers who are involved in the manufacture of counterfeit goods. Inadequate labor market regulations contribute to the trade in counterfeit and pirated goods.4 Counterfeit manufacturing often occurs in clandestine work places outside the reach of labor market regulations and inspection systems, which increases the vulnerability of workers to exploitative labor practices. Evidence indicates that the production of counterfeit goods exists alongside widespread labor abuses, from substandard and unsafe working conditions to child labor and forced labor. The illicit nature of counterfeiting requires coordination between relevant actors, including IP right holders, labor organizations, workers’ rights associations, and government enforcement agencies in order to effectively uncover and combat labor violations in counterfeiting operations across the globe.

I. Counterfeit Manufacturers Operate Outside the Law, Increasing Worker Vulnerability

“Counterfeit product manufacturing occurs in illicit operations that by nature do not operate within the wide range of regulations, licensing requirements, government oversight, and government inspections that not only ensure products are safe for consumers, but also ensure that the rights of workers are protected. A recent report by the Transnational Alliance to Combat Illicit Trade (TRACIT) outlines how the illicit trade in counterfeit merchandise is a subset of the informal economy that exists beyond the reach of the state such that production of these goods may be partially or totally concealed to avoid payment of taxes or to avoid labor or product regulations.5 The informal economy in which counterfeiting thrives makes the occurrence of labor abuses, including forced labor and child labor, in counterfeit production sites difficult to detect and report.

“Counterfeiting operations often exist outside of the monitoring ability of organizations including international and non-governmental organizations, such as the International Labor Organization’s Better Work Program, the Fair Labor Association, the Worker Rights Consortium, and the Clean Clothes Campaign.6 These organizations issue detailed public reports on workers’ rights violations, drawing upon their investigations, research, and interviews at production facilities. However, facilities engaged in the production of counterfeit goods do not receive the same level of oversight and are not included in these investigations or reports. Therefore, the public pressure on companies and governments to improve working conditions and address forced labor and child labor violations in legitimate production facilities does not exist in the same way for facilities that produce counterfeit goods.

“The regulatory and supervisory pressure, whether by government oversight or inspections by other organizations, on producers of legitimate goods does not, of course, eliminate workers’ rights abuses, leaving potential violations undetected or unremediated in workplaces around the world. Working conditions in counterfeiting facilities, however, are observed to a much lesser degree and, therefore, have a much smaller opportunity to be remedied. As pointed out by the United Nations Office on Drugs and Crime (UNODC), if workers’ rights violations “can happen in global companies whose supply-chain practices are at least open to some degree of scrutiny, then the situation would be much worse for workers in a clandestine setting.”7

II. Evidence of Forced Labor and Other Labor Violations in Counterfeiting Operations

“Government authorities, non-governmental organizations, and investigative journalists have documented evidence revealing that forced labor and child labor exists in counterfeit manufacturing operations, as well as other labor violations such as hazardous working and living conditions, restrictions on freedom of movement, and suppressed wages or wage garnishment. The informal economy, which includes the workplaces that produce counterfeit goods, is known to be where the vast majority of child labor, forced labor, and human trafficking occurs.8 As reported by UNODC, workers are often coerced into producing counterfeit items, and children and migrants who have been smuggled into a country are among the most vulnerable targets.9 The U.S. Department of Homeland Security agrees, explaining that counterfeit goods are “often produced in unsafe workplaces, with substandard and unsafe materials, by workers who are often paid little or sometimes nothing in the case of forced labor.”10 These abuses are not isolated to certain products or areas, but occur in counterfeit manufacturing facilities across countries, regions, and industrial sectors.

“For example, in 2020 in Istanbul, Turkey, an investigative firm found evidence of child labor while conducting raids on production facilities of counterfeit luxury goods.11 Children were working on machinery to produce counterfeit handbags and engaged in detailed sewing work, a task for which employers sometimes prefer to hire children. In 2017 in Lima, Peru, owners of a counterfeit lightbulb operation that were found to be utilizing forced labor, including of minors, were charged with aggravated human trafficking. The workers were reportedly locked in shipping containers while the production was carried out in twelve-hour shifts.

“Non-governmental organizations and industry contacts have reported that factories located in China making counterfeit products often have unsafe working conditions that do not adhere to local or international environmental, health, and safety standards. Right holders report that detecting these facilities is increasingly difficult for them because the operators know their operations are illegal and therefore take measures to evade detection. For example, some factories producing counterfeit goods operate at night or with blacked out windows and limited ventilation, even if they use dangerous chemicals. One brand protection manager explained that factories making counterfeit goods often save money by using chemicals, dyes, and adhesives that look and perform similarly to those in legitimate products but are unsafe for workers. Another contact claimed to have visited three counterfeit manufacturing factories in 2021 and described the conditions as ‘horrendously unsafe.’

“Recently, labor violations have been reported in the production of counterfeit personal protective equipment and other COVID-19 related products.12 These counterfeit products have been reported to be made in unsterile conditions, including in sweatshops previously used to make other types of counterfeit goods.13

“Finally, existing data shows a correlation between the use of forced labor and child labor in the global production of certain products and the types of products that are most commonly counterfeited. Data from the World Customs Organization,14 Organisation for Economic Cooperation and Development,15 and U.S. Customs and Border Protection16 identifies some of the top counterfeited products as garments, electronics, footwear, and fashion accessories. As reported by the U.S. Department of Labor, these product categories are also among those associated with labor exploitation, including child labor and forced labor.17 Similarly, China is the top country of origin for counterfeit goods seized by U.S. Customs and Border protection18 as well as the country with the greatest number of products made with forced labor, including state-sponsored forced labor.19

III. More Research, Coordination, and Documentation Is Needed

“The Federal Register Notice for the 2021 Notorious Markets List solicited information from the public on this Issue Focus. Few submissions provided relevant information.20 The lack of information, examples, and anecdotes on this pervasive issue highlights not only the need for more data on the adverse impact of counterfeit manufacturing on workers, but also the need for coordination between entities monitoring and enforcing intellectual property violations and labor violations. Additional data in this area can also improve our understanding of how illicit supply networks operate, as well as how they recruit, use, and abuse their labor force.21

“The lack of data can be largely attributed to the fact that counterfeiters work in the shadows of the informal economy and right holders only have visibility into counterfeit manufacturing facilities when they accompany law enforcement on raids. Law enforcement raids on counterfeiting facilities rarely involve participation from labor inspectors. The general absence of labor inspections in counterfeit manufacturing facilities leads to workers’ rights abuses going undetected and unresolved, and leaves little recourse for workers who have been compelled by coercion or force to produce counterfeit goods.

“In its recent report on the use of forced labor in counterfeit manufacturing and other sectors of the informal economy, TRACIT calls on governments to “strengthen inter-agency and inter-departmental cooperation at the national level, particularly by improving law enforcement capacities.”22 To help facilitate that coordination, the U.S. Department of Labor produces reports on international child labor and forced labor23 and provides other tools like the Better Trade Tool24 and Comply Chain25 that serve as valuable resources for research, advocacy, government action, and corporate responsibility to document the current situation of global labor abuse and take action.26 Further coordination between governments and relevant stakeholders would undoubtedly lead to the documentation and reporting of many more labor violations in the global counterfeit marketplace.

IV. Conclusion

“Manufacturers of counterfeit goods operate outside of regulations and inspection systems, leading to widespread labor violations alongside already well-known intellectual property violations. There is an opportunity for the companies and enforcement authorities that work to shut down counterfeiting operations for intellectual property violations to collaborate and coordinate with those focused on forced labor and other workers’ rights violations to uncover and remedy these critical issues. If labor inspectors, labor-focused organizations, workers’ rights associations, and others target counterfeit manufacturing facilities for enforcement, this will not only protect workers and consumers, but will also reduce global trade in counterfeit goods. Increased coordination between those that engage in labor monitoring and those that engage in intellectual property enforcement holds the potential to advance research on the subject and to remedy labor abuses that currently go unaddressed.

“___

“3 Each year, the “issue focus” section of the NML highlights an issue related to the facilitation of substantial counterfeiting or piracy. Past issue focus sections highlighted e-commerce and the role of Internet platforms in facilitating the importation of counterfeit and pirated goods into the United States (2020), malware and online piracy (2019), free trade zones (2018), illicit streaming devices (2017), stream ripping (2016), emerging marketing and distribution tactics in Internet-facilitated counterfeiting (2015), and domain name registrars (2014).

“4 Organisation for Economic Cooperation and Development (OECD) and European Union Intellectual Property Office (EUIPO), Trends in Trade in Counterfeit and Pirated Goods (March 2019), https://www.oecd-ilibrary.org/trade/trends-in-trade-in-counterfeit-and-pirated-goods_g2g9f533-en.5 TRACIT, The Human Cost of Illicit Trade: Exposing Demand for Forced Labor in the Dark Corners of the Economy at 15 (December 2021).

“6 Standards can be based on codes of conduct and international labor standards, such as those set by the International Labor Organization. See International Labor Organization, Labor Standards, https://www.ilo.org/global/standards/lang–en/index.htm.

“7. UNODC, Focus on the Illicit Trafficking of Counterfeit Goods and Transnational Organized Crime (February 2014), https://www.unodc.org/documents/counterfeit/FocusSheet/Counterfeit_focussheet_EN_HIRES.pdf.

“8 International Labor Organization, OECD, International Organization for Migration, and United Nations Children’s Fund, Ending Child Labor, Forced Labor, and Human Trafficking In Global Supply Chains (November 2019), https://www.ilo.org/ipec/Informationresources/WCMS_716930/lang–en/index.htm.

“9 UNODC, Focus on the Illicit Trafficking of Counterfeit Goods and Transnational Organized Crime (February 2014), https://www.unodc.org/documents/counterfeit/FocusSheet/Counterfeit_focussheet_EN_HIRES.pdf.

“10 DHS, Combating Trafficking in Counterfeit and Pirated Goods at 13 (January 2020), https://www.dhs.gov/sites/default/files/publications/20_0124_plcy_counterfeit-pirated-goods-report_01.pdf.

“11 TV2, På dette bakrommet lages din falske luksus-veske (September 2020), https://www.tv2.no/a/11494616/.12 TRACIT, The Human Cost of Illicit Trade: Exposing Demand for Forced Labor in the Dark Corners of the Economy (December 2021).

“13 E.g., B. Daragahi, Total Disregard for People’s Lives’: Hundreds of Thousands of Fake Masks Flooding Markets as Coronavirus Depletes World Supplies, The Independent (March 2020), https://www.independent.co.uk/news/health/coronavirus-face-mask-fake-turkey-medical-supply-shortage-covid-19-a9423426.html; M. Singh & S. Bhullar, The Epidemic of Fake Branded Masks (September 2020), https://law.asia/epidemic-fake-face-masks/.

“14 World Customs Organization, Enforcement and Compliance: Illicit Trade Report 2019 (June 2020), http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/enforcement-and-compliance/activities-and-programmes/illicit-trade-report/itr_2019_en.pdf.

“15 OECD / EUIPO, Trends in Trade in Counterfeit and Pirated Goods (March 2019), https://www.oecd.org/corruption-integrity/reports/trends-in-trade-in-counterfeit-and-pirated-goods-g2g9f533-en.html.

“16 U.S. Customs and Border Protection, Intellectual Property Rights Seizure Statistics: Fiscal Year 2020 (September 2021), https://www.cbp.gov/sites/default/files/assets/documents/2021-Sep/101808 FY 2020 IPR Seizure Statistic Book 17 Final spreads ALT TEXT_FINAL (508) REVISED.pdf.

“17 See U.S. Department of Labor, Better Trade Tool, https://www.dol.gov/agencies/ilab/better-trade-tool (last visited December 6, 2021).

“18 See U.S. Customs and Border Protection, Intellectual Property Rights Seizure Statistics: Fiscal Year 2020 (September 2021), https://www.cbp.gov/sites/default/files/assets/documents/2021-Sep/101808 FY 2020 IPR Seizure Statistic Book 17 Final spreads ALT TEXT_FINAL (508) REVISED.pdf.

“19 See U.S. Department of Labor, Against Their Will: The Situation in Xinjiang, https://www.dol.gov/agencies/ilab/against-their-will-the-situation-in-xinjiang (last visited December 7, 2021).

“20 See the submissions by the American Apparel & Footwear Association and the International Intellectual Property Alliance, available at https://www.regulations.gov/search/comment?filter=USTR-2021-0013.

“21 TRACIT, The Human Cost of Illicit Trade: Exposing Demand for Forced Labor in the Dark Corners of the Economy at 38 (December 2021).

“22 TRACIT, The Human Cost of Illicit Trade: Exposing Demand for Forced Labor in the Dark Corners of the Economy at 37 (December 2021).

“23 See U.S. Department of Labor, 2020 Findings on the Worst Forms of Child Labor, https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings (last visited December 10, 2021).

“24 See U.S. Department of Labor, Better Trade Tool, https://www.dol.gov/agencies/ilab/better-trade-tool (last visited December 7, 2021).

“25 See U.S. Department of Labor, Comply Chain: Business Tools for Labor Compliance in Global Supply Chains, https://www.dol.gov/general/apps/ilab-comply-chain (last visited December 7, 2021).

“26 U.S. Department of Labor, Child Labor, Forced Labor, and Human Trafficking, https://www.dol.gov/agencies/ilab/our-work/child-forced-labor-trafficking (last visited December 7, 2021).”

Comments

Because of the importance of intellectual property to innovation and higher standards of living including better wages for working men and women, there has been a long term interest in the United States in ensuring intellectual property rights are recognized and enforced. The growth of ecommerce and the pressures to reduce the de minimis level of imports to speed movement of goods greatly complicate the ability of national governments to identify imported and exported goods that are counterfeit. Hence enforcement is a challenge that continues to grow globally despite strong laws and significant public and private efforts at enforcement.

While in the 1980s and early 1990s, the business community understood the importance of ensuring international trade rules reflected intellectual property rights and could be enforced, many businesses didn’t see the value of ensuring labor rights within the trading rules. The Biden Administration is focused on ensuring that trade policies work for working men and women. The connection between informal economy businesses, counterfeiting and worker oppression as reviewed in this year’s report is obvious when noted. It will be interesting to see if the global business community chooses to unite with workers to see that the problems both face from oppression of workers and violations of intellectual property rights are equally addressed.

The European Union’s February 18, 2022 request for consultations with China over China’s “anti-suit injunctions” in intellectual property disputes and its failure to publish decisions and respond to EU inquiries

The European Union has been pursuing a series of new disputes since the start of 2022. Three are listed in the WTO list of disputes. See DS610 China — Measures Concerning Trade in Goods and Services (27 January 2022); DS609 Egypt — Registration requirements relating to the importation of certain products (26 January 2022); DS608 Russian Federation — Measures Concerning the Exportation of Wood Products (20 January 2022)(replaced by a request for consultations filed on February 17, 2022).

On Friday, February 18, 2022, the European Union filed a second request for consultations with China and its fourth request this year, this one addressing China’s use of anti-suit injunctions to prevent parties seeking redress from intellectual property infringement by Chinese firms from seeking redress in non-Chinese jurisdictions. Chinese courts can impose penalties of 1 million RMB per day for violating anti-suit injunctions. In addition, many of the court decisions issuing the anti-suit injunctions are not publicly available. China has taken the position it is not obligated to publish the decisions or to provide them when requested by a WTO Member.

The EU reviews in its request for consultations four decisions affecting EU companies all involving patents in the high tech sector (e.g., patents relevant to aspects of 3G, 4G or 5G telecommunications). See EU Request for Consultations, Geneva, 18 February 2022. Because of the importance of the dispute, the full request for consultations is included below.

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The European Commission’s press release on the request is copied below and reviews what the European Commission sees as important about the consultation request. See European Commission
Directorate-General for Trade, Press release, EU challenges China at the WTO to defend its high-tech sector, Brussels, 18 February 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1103.

“The European Union is filing today a case against China at the World Trade Organization (WTO) for restricting EU companies from going to a foreign court to protect and use their patents.

“China severely restricts EU companies with rights to key technologies (such as 3G, 4G and 5G) from protecting these rights when their patents are used illegally or without appropriate compensation by, for example, Chinese mobile phone manufacturers. The patent holders that do go to court outside China often face significant fines in China, putting them under pressure to settle for licensing fees below market rates. 

“This Chinese policy is extremely damaging to innovation and growth in Europe, effectively depriving European technology companies of the possibility to exercise and enforce the rights that give them a technological edge.

“Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade, said: ‘We must protect the EU’s vibrant high-tech industry, an engine for innovation that ensures our leading role in developing future innovative technologies. EU companies have a right to seek justice on fair terms when their technology is used illegally. That is why we are launching WTO consultations today.’

“Since August 2020, Chinese courts have been issuing decisions – known as “anti-suit injunctions” – to exert pressure on EU companies with high-tech patents and to prevent them from rightfully protecting their technologies. Chinese courts also use the threat of heavy fines to deter European companies from going to foreign courts.

“This has left European high-tech companies at a significant disadvantage when fighting for their rights. Chinese manufacturers request these anti-suit injunctions to benefit from cheaper or even free access to European technology.

“The EU has raised this issue with China on a number of occasions in an attempt to find a solution, to no avail. As the Chinese actions are, according to the EU, inconsistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the EU has requested consultations at the WTO.

Next steps

“The dispute settlement consultations that the EU has requested are the first step in WTO dispute settlement proceedings. If they do not lead to a satisfactory solution within 60 days, the EU can request the WTO to set up a panel to rule on the matter.

Background

“The patents concerned by this case are standard-essential patents (SEPs). SEPs are patents that are essential in order to manufacture goods that meet a certain international standard. Because the use of the technologies protected by these patents is mandatory for the production of, for example, a mobile phone, patent owners have committed to licensing these patents to manufacturers under fair, reasonable, and non-discriminatory (FRAND) terms. A mobile phone manufacturer should, therefore, obtain a license (subject to a license fee negotiated with the patent holder) for these patents. If a manufacturer does not obtain a licence, and/or refuses to pay, a patent holder can enforce these patents and get a court to stop the sales of the products incorporating that unlicensed technology.

“In August 2020, China’s Supreme People’s Court decided that Chinese courts can prohibit patent holders from going to a non-Chinese court to enforce their patents by putting in place an ‘anti-suit injunction’. The Supreme People’s Court also decided that violation of the order can be sanctioned with a €130,000 daily fine. Since then, Chinese courts have adopted four such anti-suit injunctions against foreign patent holders.”

Comments

The EU has been a strong backer of the WTO’s dispute settlement system. Launching four new disputes in the first two months of 2022 shows the EU’s continued intent to utilize the WTO dispute settlement system.

On the specific request for consultations filed last Friday with China, both the EU and China are parties to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) that was agreed to by some WTO Members for handling further review of panel decisions while the Appellate Body is not operational. Thus, there will not be an appeal into the wind by either China or the EU from whatever decision flows from the dispute if a panel is sought later this year.

On the substance of the request for consultations, China has demonstrated an unwillingness to comply with full transparency obligations at the WTO which is reflected in several of the issues raised by the EU (lack of public release of certain judicial decisions; failure to provide such information when requested by the EU). China’s failure to comply with transparency obligations is a major issue for trading partners in many areas of the WTO’s work.

More importantly, the actions of China in authorizing anti-suit injunctions is a major challenge to the proper functioning of intellectual property rights which should draw participation requests from many other WTO Members. China has been viewed by many as permitting/encouraging/supporting intellectual property theft — a view hotly denied by China. Letting Chinese courts prevent other courts around the world from evaluating patent infringement by Chinese companies or setting licensing fees is not consistent with WTO obligations and could obviously lead to abuse by the Chinese courts and substantial harm to innovative companies around the world.

The EU’s request for consultation is a very important first step in ensuring that China conforms to its obligations under the TRIPS Agreement. The fact that resolution will take years will permit Chinese companies to weaken intellectual property protection for years for innovative companies in other countries.

The EU – AU Summit and the promise of a resolution to the WTO pandemic response package

The sixth European Union – African Union summit took place last week in Brussels on February 17-18. The summit covered a broad array of topics including access to vaccines. It followed an event on vaccine equity in Africa hosted by BioNTech and the kENUP Foundation on the 16th which announced the schedule for shipping facilities to several African countries to produce mRNA vaccines in the second half of 2022. See February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

The Summit was an effort to have the two Unions form a new partnership, and for the EU to be the partner of choice for countries in Africa. The joint declaration from the summit is included below and reviews the broad areas of discussion and agreed actions to be taken by the two Unions following the Summit.

final_declaration-en

The discussion of the COVID-19 pandemic and the ongoing discussion on the WTO’s consideration of a response to the pandemic (both trade and intellectual property) was one of the important issues at the summit. The joint declaration discussion of the issue is copied below.

“The immediate challenge is to ensure a fair and equitable access to vaccines. Together we will support local and regional mechanisms for procurement, as well as allocation and deployment of medical products. The EU reaffirms its commitment to provide at least 450 million of vaccine doses to Africa, in coordination with the Africa Vaccine Acquisition Task Team (AVATT) platform, by mid-2022. Contributing to this and complementing the actions of the AVATT, Team Europe has provided more than USD 3 billion (i.e. the equivalent of 400 million vaccine doses) to the Covax Facility and to vaccination on the African continent.

“Team Europe will mobilise EUR 425 million to ramp up the pace of vaccination, and in coordination with the Africa CDC, to support the efficient distribution of doses and the training of medical teams and the capacity of analysis and sequencing. We will also contribute in this context to the fight against health-related disinformation.

“Learning from the current health crisis, we are committed to supporting the full-fledged African health sovereignty, in order for the continent to respond to future public health emergencies. To this end, we support a common agenda for manufacturing vaccines, medicines, diagnostics, therapeutics and health products in Africa, including investment in production capacities, voluntary technology transfers as well as strengthening of the regulatory framework to enable equitable access to vaccines, diagnostics and therapeutics.

“The African Union and the European Union underlined the urgency of the WTOs contribution to the fight against the pandemic and to the recovery of the global economy, and commit to engage constructively towards an agreement on a comprehensive WTO response to the pandemic, which includes trade related, as well as intellectual property related aspects.”

The European Commission’s President Ursula von der Leyen statement at the press conference on February 18 provided the timeline for reaching agreement with the African Union on the WTO response package to the COVID-19 pandemic, including finding an acceptable path forward on intellectual property. The EU and AU will be meeting in the Spring to find a mutually acceptable solution. President von der Leyen’s comments at the press conference on this topic are copied below.

“And finally, from the health of our planet, to the health of our people. Europe is Africa’s number one
partner in the fight against COVID-19. And we will do even more. We are on the right track to reach
our goal to share at least 450 million vaccine doses by this summer. And indeed, together, we are
building up mRNA manufacturing capacity across Africa. I will not go in detail because we have
discussed that in the press conference this morning.

“But important is that we had a very good, intense, constructive discussion on the question of TRIPS
waiver and compulsory licencing. We share the same goal. We have different ways to reach that goal.
There must be a bridge between those two ways. And therefore, we have decided that the two
Commissions – the African Union Commission and the European Union Commission – will work
together. We will organise a College-to-College meeting here in Brussels, in spring. And at that time,
at the latest, we have to deliver a solution. This will be accompanied by the WTO, Director-General
Ngozi. And therefore, I always like it when a task is clear and defined. The task is set for the two
Commissions. The frame is clear, the goal is clear, we have to deliver.”

Statement by President von der Leyen at the joint press conference following the 6th European Union-African Union Summit, Brussels, 18 February 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_1181.

The European Union has been working for most of the last year on moving towards significant vaccine production capacity being built in Africa. President von der Leyen’s statements at the start of the EU-AU Summit and her statement at the Vaccine Equity for Africa event on February 16 provide significant detail on actions the EU is taking to help Africa develop vaccine manufacturing capacity as well as address the build up of health care infrastructure on the continent. See Opening speech by President von der Leyen at the 6th European Union-African Union Summit, Brussels, 17 February 2022, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_1142; Statement by President von der Leyen at the‘Vaccine Equity for Africa’ launch event, co-organised by BioNTech SE and the kENUP Foundation, 16 February 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_1105.

Parts of the February 16 speech are copied below.

“This year already, at least two of these container factories will move to Africa. To Rwanda and to Senegal, where I visited last week the Institut Pasteur de Dakar. Close cooperation is ongoing with South Africa’s Biovac Institute. And with our partners in Ghana. We are advancing in record time. Commercial production is set to begin in 2023. 

“The ‘Vaccine Equity for Africa’ project is only possible thanks to teamwork. Starting with Africa’s declared ambition to build its own vaccine production capacity. Teaming up with a European innovation champion such as BioNTech. Supported by the European Union and the African Union. Governments in Europe and Africa. And the UN system. This is how we emerge from the pandemic and build a stronger future for Africa and Europe.

“The initiative is first and foremost about vaccine equity. Vaccines from the new factories will be sold at not-for-profit prices, exclusively to African countries. They will be made in Africa, for Africa, with world-class technology.

“At the same time, this initiative can advance public health and industry, well beyond the pandemic. We know the mRNA technology is revolutionary. It holds promises for the fight against other diseases, like malaria and tuberculosis. BioNTech factories can be adjusted within weeks to make different vaccines. It could thus be an African-made solution to diseases that currently kill millions.

“This project is part of a larger ambition. By 2040, the African Union wants that 60% of the vaccines used on the continent are manufactured on the continent. The European Union fully supports that goal. Together with our Member States and financial institutions, we have committed over one billion euros in financing. To strengthen regulatory frameworks, and transfer skills and know-how. Because regional capacities are the cornerstone of global public health.

“And the project goes even beyond public health. Building this technological capacity in Ghana, Rwanda, Senegal and South Africa – countries that are regional leaders in innovation – will strengthen the innovation ecosystem on the entire continent.”

Documents from the European Council and European Commission at the conclusion of the Summit provide the EU’s view of the healthcare portion of the summit and EU actions. See European Council, Council of the European Union, First technology transfer of mRNA vaccines: Working together to build new solutions, 18 February 2022, https://www.consilium.europa.eu/en/european-council/president/news/2022/02/18/20220218-mrna-vaccines-technology-transfer/ (“In the margins of the European Union-African Union Summit, the World Health Organisation (WHO) announced the first six countries that will receive the technology needed for the production of mRNA vaccines on the African continent. Egypt, Kenya, Nigeria, Senegal, South Africa and Tunisia all applied and have been selected as recipients. The announcement was made at a ceremony hosted by the European Council, France, South Africa and the WHO in the presence of the following leaders: Charles Michel, President of the European Council, Ursula von der Leyen, President of the European Commission. President Macron, President Ramaphosa, President Sall, President Kenyatta, President Buhari, President Saïed and  President al-Sisi.”); European Commission, EU-Africa: Global Gateway Investment Package – Health, factsheet, 9 February 2022,https://ec.europa.eu/commission/presscorner/detail/en/fs_22_870.

While vaccines and health issues were just one of a number of important topics reviewed during the Summit, it has been the focus of this post simply because the outcome and promised meeting in the Spring between the two Unions offers the hope of a resolution to the WTO’s ongoing negotiations on a pandemic response package — one that covers various trade actions as well as what, if any, actions are needed on intellectual property rights during a pandemic. While the member states of the EU and the AU are not the only parties with strong positions in the ongoing discussions at the WTO, it would seem likely that if the EU and AU are able to reach agreement on a package that will likely form the basis of a final resolution in Geneva.

With the WTO apparently discussing dates in June 2022 for rescheduling the 12th Ministerial Conference, the ability of the EU and AU countries to find a mutually agreeable solution to the intellectual property component of the pandemic response package could permit an agreed package to be accepted by WTO Members at the Ministerial Conference. See Inside U.S. Trade’s World Trade Online, World Trade Organization now eyeing June for 12th ministerial, February 18, 2022, https://insidetrade.com/daily-news/world-trade-organization-now-eyeing-june-12th-ministerial. The announcement last week of the Spring effort to reach agreement may also help facilitate movement on fisheries subsidies at the WTO — a negotiation that has been ongoing for more than 20 years.

In short, the EU-AU Summit while covering a lot of ground on issues of importance to both Unions may also have created a path to forward movement at the WTO on the response to the pandemic and more ahead of the 12th Ministerial Conference.

Actions by the US, EU, Quad (US, Japan, India, Australia), China and others should ensure that there are more than adequate vaccines available in 2022 to vaccinate all countries against COVID-19. Efforts by the WHO, GAVI, the U.S., EU and others are also likely to significantly increase the ability of countries in Africa to vaccinate their populations. Thus, the real benefit of resolving the WTO pandemic response at the 12th Ministerial will not be responding to COVID-19 but rather adopting rules and policies that will make the world more responsive to future pandemics.

We wish the EU and AU well in their upcoming negotiations.