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.

tradoc_160051

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.

Building Vaccine Capacity in Africa – Exciting News from BioNTech

BioNTech which has partnered with Pfizer in producing an mRNA vaccine to address COVID-19, issued a press release today (February 16, 2022) from Mainz, Germany outlining its development of modular mRNA manufacturing facilities and their intended deployment in Africa. See BioNTech, Press Release, BioNTech introduces first modular mRNA manufacturing facility to promote scalable vaccine production in Africa, 16 February 2022, https://investors.biontech.de/news-releases/news-release-details/biontech-introduces-first-modular-mrna-manufacturing-facility. Part of the press release is copied below.

” BioNTech SE (Nasdaq: BNTX, “BioNTech”) has taken a next step to improve vaccine supply in Africa. The
company has introduced its approach to establishing scalable vaccine production by developing and delivering turnkey mRNA manufacturing facilities based on a container solution. At a high-level meeting at BioNTech’s new manufacturing facility in Marburg and at the invitation of kENUP Foundation, the company presented the container solution named ‘BioNTainer’ to key partners.

“Attendees included President Macky Sall of Senegal, President Nana Akufo-Addo of Ghana, President Paul Kagame of Rwanda, Tedros Adhanom Ghebreyesus, Director General of the World Health Organization, John Nkengasong, Director of the Africa Centers for Disease Control and Prevention
(Africa CDC), and Svenja Schulze, the Federal Minister of Economic Cooperation and Development of Germany. Together with BioNTech’s Co-Founders Prof. Ugur Sahin, CEO, and Prof. Özlem Türeci, CMO, and COO Dr. Sierk Poetting, they jointly discussed the infrastructure, regulatory and technological requirements to establish an end-to-end manufacturing network for mRNA-based vaccines in Africa.

“The manufacturing solution consists of one drug substance and one formulation module, each called a BioNTainer. Each module is built of six ISO sized containers (2.6m x 2.4m x 12m). This allows for mRNA vaccine production in bulk (mRNA manufacturing and formulation), while fill-and-finish will be taken over by local partners. Each BioNTainer is a clean room which BioNTech equips with state-of-the-art manufacturing solutions. Together, two modules require 800 sqm of space and offer an estimated initial capacity of for example up to 50 million doses of the Pfizer-BioNTech COVID-19 vaccine each year. The BioNTainer will be equipped to manufacture a range of mRNA-based vaccines targeted to the needs of the African Union member states, for example the Pfizer-BioNTech COVID-19 vaccine and BioNTech’s investigational malaria and tuberculosis vaccines, if they are successfully developed, approved or authorized by regulatory authorities.

“The capacity can be scaled up by adding further modules and sites to the manufacturing network on the African continent. One of the most critical parts of the manufacturing process is quality control, which includes all necessary tests for each finished vaccine batch. In partnership with local quality control testing labs, BioNTech will help to ensure the identity, composition, strength, purity, absence of product- and process-related impurities, as well as the absence of microbiological contamination of each produced batch.

“The establishment of the first mRNA manufacturing facility by BioNTech in the African Union is expected to start in mid-2022. The first BioNTainer is expected to arrive in Africa in the second half of 2022. Manufacturing in the first BioNTainer is planned to commence approximately 12 months after the delivery of the modules to its final location in Africa. BioNTech expects to ship BioNTainers to Rwanda, Senegal and potentially South Africa in close coordination with the respective country and the African Union. BioNTech will be responsible for the delivery and installation of the modules, while local organizations, authorities and governments will ensure the needed infrastructure. Partners in Ghana and South Africa could support the manufacturing with fill-and-finish capacities. BioNTech will work closely with local authorities to ensure compliance to relevant regulatory procedures of the national regulatory agencies in each partner country, and also coordinate where appropriate with relevant continental and international agencies, including WHO, Africa CDC, the African Medicines Agency (AMA), and the African Union Development Agency (AUDA-NEPAD).

“BioNTech will initially staff and operate the facilities to support the safe and rapid initiation of the production of mRNA-based vaccine doses under stringent good manufacturing processes (“GMP”) to prepare for the transfer of know-how to local partners to enable independent operation. Vaccines
manufactured in these facilities are expected to be dedicated to domestic use and export to other member states of the African Union at a not-for-profit price.”

While the announcement by BioNTech will not address the short-term 2022 production and distribution needs of COVID-19 vaccines to low and lower-middle income countries (WHO is urging the world to obtain 70% vaccination rates in all countries by summer 2022), the announcement adds to the momentum of creating manufacturing of vaccines (for COVID-19 and other needs) in Africa. See Carnegie Endowment for International Peace, Is there Any COVID-19 Vaccine Production in Africa?, September 13, 2021, https://carnegieendowment.org/2021/09/13/is-there-any-covid-19-vaccine-production-in-africa-pub-85320#:~:text=Africa%20manufactures%20less%20than%20one,have%20faced%20severe%20supply%20shortages (“Efforts are being made to ramp up production of COVID-19 vaccines on the African continent. As of September 2021, there are at least twelve COVID-19production facilities set up or in the pipeline across six African countries (see figure). African COVID-19 vaccine manufacturing in the coming year could range from Pfizer-BioNTech and Johnson & Johnson vaccines to Russia’s Sputnik V and China’s Sinovac vaccines. In South Africa, the U.S. International Development Finance Corporation, along with European partners, announced a 600 million euro ($710 million)financing package for Aspen Pharmacare. Aspen’s facility has already produced millions of doses and will ‘fill-and-finish’ (i.e. package imported vaccine substance) around 500 million Johnson & Johnson doses by the end of 2022. South Africa’s Biovac Institute has also agreed to accelerate fill-and-finish Pfizer vaccine manufacturing in Cape Town from 2022. In Senegal, the government—with Pfizer support from the United States and Europe—is building a $200million COVID-19 vaccine manufacturing facility with the Fondation Institut Pasteur de Dakar. This facility would represent the first on the continent to actually manufacture the substance of vaccines in parallel with fill-and-finish. Starting in November 2021, the Egyptian government will
produce Chinese Sinovac at a new Vacsera facility outside Cairo, with a planned capacity of
1 billion vaccines annually. And with two agreements for drug substance manufacturing and fill-and-finish of Russia’s Sputnik V vaccine, Egypt may soon join Senegal in reducing Africa’s dependency on vaccine imports.”)

The BioNTech press release contains eleven quotes from government and business officials, including EC President Ursula von der Leyen, the Presidents of Senegal, Rwanda, Ghana and the African Union, the WHO Director-General, the Chancellor of the Republic of Germany and others. The full press release is attached below.

BioNTech-introduces-first-modular-mRNA-manufacturing-facility-to-promote-scalable-vaccine-production-in-Africa

The announcement by BioNTech is both exciting and important longer term for greater vaccine equity for various purposes. As noted in one of the many news articles on the announcement, Pfizer and BioNTech have also pledged to supply up to two billion COVID-19 vaccine doses to low-income countries during 2022. See Wall Street Journal, BioNTech Unveils Mobile Covid-29 Vaccine Factories for Developing World, February 16, 2022, https://www.wsj.com/articles/biontech-unveils-mobile-covid-19-vaccine-factories-for-developing-world-11645007401; see also Reuters, BioNTech to ship mRNA vaccine factory kits to Africa, February 16, 2022, https://www.reuters.com/business/healthcare-pharmaceuticals/biontech-ship-mrna-vaccine-factory-kits-africa-2022-02-16/; Fortune, Pfizer partner BioNTech unveils container-based COVID vaccine factories that could start manufacturing doses in Africa this year, February 16, 2022, https://fortune.com/2022/02/16/pfizer-biontech-covid-vaccine-biontainers-inequality-africa-afrigen-who/. It is those efforts at getting doses produced in the front half of 2022 to low income and lower-middle income countries that will be most important in meeting the immediate goal of dramatically increasing vaccine rates in Africa and in other countries with current low vaccination rates.

As reviewed in a number of earlier posts, the progress being made in vaccine equity to address COVID-19 in 2022 will not be dependent on the outcome of the ongoing WTO consideration of whether TRIPS obligations should be waived for COVID-19 vaccines. Rather progress is dependent on expanded production, moving product to needed countries, work in countries to ensure the ability to distribute vaccines received and expanded funding of COVAX. See, e.g., January 30, 2022:  Recent National Public Radio story, “Africa may have reached the pandemic’s holy grail,” raises interesting questions on a country’s age distribution and ability to get past the pandemic stage with lower vaccination rates, https://currentthoughtsontrade.com/2022/01/30/recent-national-public-radio-story-africa-may-have-reached-the-pandemics-holy-grail-raises-interesting-questions-on-a-countrys-age-distribution-and-ability-to-get-past-the-pandemic-stage-wit/; January 23, 2022:  COVID-19 Omicron variant – hopeful signs of peaking in the U.S. and Europe; supply disruptions continue from zero tolerance policy in China, https://currentthoughtsontrade.com/2022/01/23/covid-19-omicron-variant-hopeful-signs-of-peaking-in-the-u-s-and-europe-supply-disruptions-continue-from-zero-tolerance-policy-in-china/; January 11, 2022:  WTO efforts to address the COVID-19 pandemic — the January 10, 2022 General Council meeting and some current developments of interest, https://currentthoughtsontrade.com/2022/01/11/wto-efforts-to-address-the-covid-19-pandemic-the-january-10-2022-general-council-meeting-and-some-current-developments-of-interest/.

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

China’s retreat over the last 15 years from reforms to move its economy to a market-based one has led the United States, first under the Trump Administration and now under the Biden Administration, to view some actions outside of the WTO as necessary to deal with the many distortions in trade being experienced by China’s practices. The U.S. position is made clear in today’s (February 16, 2022) report from the U.S. Trade Representative, 2021 Report to Congress on China’s WTO Compliance, https://ustr.gov/sites/default/files/enforcement/WTO/2021%20USTR%20Report%20to%20Congress%20on%20China’s%20WTO%20Compliance.pdf. As stated in the USTR press release on the Report,

“WASHINGTON – The Office of the United States Trade Representative today released its annual “2021 Report to Congress on China’s WTO Compliance,” laying out the Biden Administration’s assessment of China’s membership in the World Trade Organization.

“’China has not moved to embrace the market-oriented principles on which the WTO and its rules are based, despite the representations that it made when it joined 20 years ago,’ said Ambassador Katherine Tai. ‘China has instead retained and expanded its state-led, non-market approach to the economy and trade. It is clear that in pursuing that approach, China’s policies and practices challenge the premise of the WTO’s rules and cause serious harm to workers and businesses around the world, particularly in industries targeted by China’s industrial plans.’

“The Biden Administration is pursuing a multi-faceted approach to address the harm caused by China’s trade and economic policies through both bilateral engagement with China and the use of trade tools to protect American workers and businesses.  The Administration’s strategy also includes enhanced engagement with allies and partners in order to build broad support for solutions to the many unique problems posed by China and defending our shared interests.”

Indeed, as reviewed in prior posts, former Deputy Director-General of the WTO Alan Wolff has articulated that the WTO is premised on economies converging to a market-based structure. Coexistence of fundamentally different economic systems – the path China is insisting on – is simply incompatible with WTO principles. 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/ (and posts cited therein on DDG Wolff’s comments).

The frustrations with the many distortions caused by China’s economic system and the inability of the WTO to effectively address the distortions has led at least one former senior trade official to opine about the desirability of market economies withdrawing from the WTO and establishing a new organization. See 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/.

The challenges also led the Trump Administration to take aggressive action under Section 232 of the Trade Expansion Act of 1962 (steel and aluminum global excess capacity driven largely by China) and Section 301 of the Trade Act of 1974 (various practices of China).

Moreover, part of the U.S. concern about problems with the WTO dispute settlement system was the effect of problems on the U.S. ability to address Chinese market distortions. See, e.g., August 9, 2020:  USTR Lighthizer on WTO dispute settlement – answers to Congressional questions from June 17 hearings, https://currentthoughtsontrade.com/2020/08/09/ustr-lighthizer-on-wto-dispute-settlement-answers-to-congressional-questions-from-june-17-hearings/ (“‘Appellate Body overreaching has unfairly taken away U.S. rights and advantaged China. Through a series of deeply flawed reports, the Appellate Body has eroded the U.S. ability under WTO rules to counteract economic distortions caused by China’s non-market practices that harm our workers and businesses. For example, the Appellate Body’s erroneous interpretation of ‘public body’ threatens the ability of WTO Members to counteract trade-distorting subsidies provided through state-owned enterprises, favoring non-market economies at the expense of market economies.”).

While the Biden Administration has expressed support for the WTO and is pursuing reforms within the WTO with like-minded countries, the consensus system of the WTO basically limits the realistic ability of WTO Members to address the principal concerns flowing from the Chinese economic model,

Thus, the USTR 2021 report released today is not surprising in articulating working within WTO where possible but working outside of the WTO where needed.

Below is the Executive Summary of the Report (pages 2-4).

“In Part One of this report, we provide an assessment of China’s WTO membership, including the unique and very serious challenges that China’s state-led, non-market approach to the economy and trade continue to pose for the multilateral trading system. In Part Two, we review the effectiveness of the various strategies that have been pursued over the years to address the unique problems posed by China. In Part Three, we emphasize the critical need for new and more effective strategies – including taking actions outside the WTO where necessary – to address those problems. Finally, in Part Four, we catalogue the numerous problematic policies and practices that currently stem from China’s state-led, non-market approach to the economy and trade. (emphasis added)

PART ONE

“Part One explains that when China acceded to the WTO, it voluntarily agreed to embrace the WTO’s open, market-oriented approach and to embed it in China’s trading system and institutions. China also agreed to take on the obligations set forth in existing WTO rules, while also making numerous China-specific commitments. As we previously documented, and as remains true today, China’s record of compliance with these terms has been poor.

“After 20 years of WTO membership, China still embraces a state-led, non-market approach to the economy and trade, despite other WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO. In fact, China’s embrace of a state-led, non-market approach to the economy and trade has increased rather than decreased over time, and the mercantilism that it generates has harmed and disadvantaged U.S. companies and workers, often severely.

“China also has a long record of violating, disregarding and evading WTO rules to achieve its industrial policy objectives. In this report, as in our prior reports, we identify and explain numerous unfair, non-market and distortive trade policies and practices used by China in pursuit of its industrial policy objectives. We also describe how China has sought to frustrate WTO oversight mechanisms, such as through its poor record of adhering to its WTO transparency obligations.

PART TWO

“As we explain below in Part Two, for nearly two decades following China’s accession to the WTO, a variety of bilateral and multilateral efforts were pursued by the United States and other WTO members to address the unique challenges presented by China’s WTO membership. However, even though these efforts were persistent, they did not result in meaningful changes in China’s state-led, non-market approach to the economy and trade.

“For many years, the United States pursued a dual track approach in an effort to resolve the many concerns that have arisen in our trade relationship with China. One track involved using high-level bilateral dialogues, and the other track focused on enforcement at the WTO.

“The United States approached its bilateral dialogues with China in good faith and put a great deal of effort into them. These dialogues were intended to push China toward complying with and internalizing WTO rules and norms and making other market-oriented changes. However, they only achieved isolated, incremental progress. At times, the United States did secure broad commitments from China for fundamental shifts in the direction of Chinese policies and practices, but these commitments were unenforceable and China repeatedly failed to follow through on them. Over time, moreover, commitments from China became more difficult to secure.

“Meanwhile, at the WTO, the United States brought 27 cases against China, often in collaboration with like-minded WTO members. We secured victories in every case that was decided. Still, even when China changed the specific practices that we had challenged, it did not typically change the underlying policies, and meaningful reforms by China remained elusive.

“In 2017, the previous Administration launched an investigation into China’s acts, policies and practices relating to technology transfer, intellectual property and innovation under Section 301 of the Trade Act of 1974. The findings made in this investigation led to substantial U.S. tariffs on imports from China as well as corresponding retaliation by China. Against this backdrop of rising tensions, in January 2020, the two sides signed what is commonly referred to as the ‘Phase One Agreement.’ This Agreement included commitments from China to improve market access for the agriculture and financial services sectors, along with commitments relating to intellectual property and technology transfer and a commitment by China to increase its purchases of U.S. goods and services.

“Many of the commitments in the Phase One Agreement reflected changes that China had already been planning or pursuing for its own benefit or that otherwise served China’s interests, such as the changes involving intellectual property protection and the opening up of more financial services sectors. Other commitments to which China agreed reflected a calculation, as it saw them as appeasing U.S. priorities of the prior Administration, as evidenced by the attention paid to the agriculture sector in the Phase One Agreement and the novel commitments relating to China’s purchases of U.S. goods and services ostensibly as a means to reduce the bilateral trade deficit.

“Given these dynamics, and given China’s interest in a more stable relationship with the United States, China followed through in implementing some provisions of the Phase One Agreement. At the same time, China has not yet implemented some of the more significant commitments that it made in the Phase One Agreement, such as commitments in the area of agricultural biotechnology and the required risk assessment that China is to conduct relating to the use of ractopamine in cattle and swine. China has also fallen far short of implementing its commitments to purchase U.S. goods and services in 2020 and 2021.

“The reality is that this Agreement did not meaningfully address the more fundamental concerns that the United States has with China’s state-led, non-market policies and practices and their harmful impact on the U.S. economy and U.S. workers and businesses. China’s government continues to employ a wide array of interventionist industrial policies and supporting measures, which provide substantial government guidance, massive financial resources and favorable regulatory support to Chinese industries across the economy, often in pursuit of specific targets for capacity and production levels and market shares. In furtherance of its industrial policy objectives, China has also limited market access for imported goods and services and restricted the ability of foreign manufacturers and services suppliers to do business in China. It has also used various, often illicit, means to secure foreign intellectual property and technology to further its industrial policy objectives.

“The principal beneficiaries of these non-market policies and practices are China’s state-owned and state-invested enterprises and numerous nominally private domestic companies that are attempting to move up the economic value chain in industries across the economy. The benefits that Chinese industries receive largely come at the expense of China’s trading partners and their workers and businesses. As a result, markets all over the world are less efficient than they should be, and the playing field is heavily skewed against foreign businesses that seek to compete against Chinese enterprises, whether in China, in the United States or globally.

“The industrial policies that flow from China’s non-market economic system have systematically distorted critical sectors of the global economy such as steel, aluminum, solar and fisheries, devastating markets in the United States and other countries. At the same time, as is their design, China’s industrial policies are increasingly responsible for displacing companies in new, emerging sectors of the global economy, as the Chinese government and the Chinese Communist Party powerfully intervene in these sectors on behalf of Chinese companies. Companies in economies disciplined by the market cannot effectively compete with both Chinese companies and the Chinese state.

PART THREE

“In Part Three, we explain that, in recent years, it became evident to the United States – and to an increasing number of U.S. trading partners − that new strategies were needed to deal with the many problems posed by China’s state-led, non-market approach to the economy and trade, including solutions independent of the WTO. We also emphasize that these strategies needed to be based on a realistic assessment of China’s economic and trade regime and need to be calibrated not only for the near-term but also for the longer term. Accordingly, as explained below, the United States is now pursuing a multi-faceted strategic approach that accounts for the current realities in the U.S.-China trade relationship and the many challenges that China poses for the United States and other trading partners, both now and likely in the future. (Emphasis added)

“The U.S. Trade Representative announced the initial steps of the United States’ strategic approach in October 2021. This approach includes several components, which we have begun to implement.

“First, the United States is continuing to pursue bilateral engagement with China and is seeking to find areas where some progress can be achieved. China is an important trading partner, and every avenue for obtaining real change in its economic and trade regime must be utilized. Currently, we are engaging China on the United States’ most fundamental concerns with China’s state-led, non-market approach to the economy and trade, which includes China’s industrial policies. At the same time, the United States is working to hold China accountable for its existing commitments, including under the Phase One Agreement. If China fully implements the Phase One Agreement, it will help establish a more solid foundation for bilateral engagement on more significant outstanding issues.

“Second, it is clear that domestic trade tools – including updated or new domestic trade tools reflecting today’s realities – will be necessary to secure a more level playing field for U.S. workers and businesses. The United States therefore is exploring how best to use and improve domestic trade tools to achieve that end.

“Finally, it is equally critical for the United States to work more intensely and broadly with allies and like-minded partners in order to build support for solutions to the many significant problems that China’s state-led, non-market approach to the economy and trade has created for the global trading system. This work is taking place in bilateral, regional and multilateral fora, including the WTO.

PART FOUR

“Part Four discusses specific problematic Chinese policies and practices in more detail. These policies and practices are grouped into sections on non-tariff measures, intellectual property rights, agriculture, services and transparency.”

In Part Three of the Report, there is a section on “Changing Global Perspectives” which outlines the U.S. understanding of where trading partners are moving in terms of concerns with the Chinese economic model. The section (pages 20-22) is copied below.

“Over the last few years, as changes have taken place in how the United States and U.S. stakeholders view the United States’ trade relationship with China, it has become apparent that the views of other countries have also been evolving toward the U.S. view. More and more trading partners appear to accept that China’s state-led, non-market approach to the economy and trade has been severely harming their workers and businesses. While each trading partner is impacted differently by China, there is also a growing consensus that this situation will not change unless new strategies are pursued.

“While the WTO remains a strong focus for many of the United States’ trading partners, there is a growing awareness that it may be necessary to pursue some solutions outside the WTO in order to avoid the severe harm that will likely continue to result from China’s state-led, non-market economic and trade regime. For example, some of the United States’ trading partners are now exploring possible new domestic trade tools to address the challenges posed by China’s state-led trade regime. These and other like-minded trading partners have also begun working with the United States ― sometimes confidentially ― in pursuit of new joint strategies to address China’s harmful non-market policies and practices, including China’s increasing use of economic coercion. At the same time, still other trading partners appear to be replicating certain of China’s unfair trade practices, or at least accepting them as a result of China’s tactics to coerce or entice countries to acquiesce to its practices. Consequently, addressing these practices in China could have the additional benefit of dissuading these countries from following China’s example. (emphasis added)

“Meanwhile, many of China’s trading partners are increasingly skeptical of China’s rhetoric. For example, China often touts its strong commitment to win-win outcomes in international trade matters, but its actions plainly belie its words. Through state-led industrial plans like Made in China 2025, which targets 10 strategic emerging sectors, China pursues a zero-sum approach. It first seeks to develop and dominate its domestic markets. Once China develops, acquires or steals new technologies and Chinese enterprises become capable of producing the same quality products in those industries as the foreign competition, the state suppresses the foreign competition domestically and then supports Chinese enterprises as they “go out” and seek dominant positions in global markets. Based on the world’s past experiences with industries like steel, aluminum, solar panels and fisheries, a new wave of severe and persistent non-market excess capacity can be expected in industries like those targeted by Made in China 2025, to the detriment of China’s trading partners.

“It has also not gone unnoticed among China’s trading partners ― particularly the democratic market economies ― that China’s leadership appears confident in its state-led, non-market approach to the economy and trade and feels no need to conform to global norms. China’s leadership demonstrates confidence in its ability to quiet dissenting voices, as if China’s continued rise is inevitable and cannot be held back. Indeed, it has become increasingly evident that China’s leadership is seeking to establish new global norms that better reflect and support China’s interests, providing an attractive alternative for other authoritarian regimes around the world.

“China has also regularly used its economic clout in a coercive way if it perceives that a foreign company or a foreign country has spoken or acted in a way that undermines China’s economic and trade interests. This economic coercion can mute international objections to China’s non-market policies and practices, even when China flouts the WTO’s rules-based international trading system. In recent years, China has increasingly expanded its use of economic coercion to take on foreign governments whose policies or practices are perceived to undermine not only China’s economic and trade interests but also China’s political interests. China’s coercive economic measures have taken a variety of forms, including, for example, import restrictions, export restrictions, restrictions on bilateral investment, regulatory actions, state-led and state-encouraged boycotts, and travel bans. Many countries have been subjected to this economic coercion. One prominent example currently involves Australia, where China has taken formal and informal measures restricting imports of Australian products like meat, barley, wine, coal, cotton, logs and lobster, apparently because of various legitimate actions taken by the Australian government, such as calling for an independent investigation of the origins of the coronavirus pandemic and enacting a law that prohibits political contributions from foreign sources.

“In sum, the reality confronting the United States and other market economies ― especially the democratic market economies ― is not simply that China has a different economic system from ours. China plainly does not hold the same core values that we hold, and its state-led, non-market approach to the economy and trade conflicts in significant and harmful ways with our market-oriented approaches, to the detriment of our workers and businesses.”

Observations

It has been clear for some time that the trading system has been unable to address many of the major distortions caused by the state-led, non-market economy of a major country like China. While WTO reform may address some issues, it is unlikely that WTO reform will be achieved for years. The 20 year effort to complete negotiations on a fisheries subsidy agreement (still not completed) demonstrates just how broken the WTO negotiating function is and how protracted efforts at reform will likely be.

Efforts at plurilateral agreements open to all WTO Members are addressing a number of important issues, though not with regard to major distortions caused by state-led, non-market economies.

Bilateral and plurilateral agreements can be useful for the participants. However, the success of such agreements depends on the willingness of participants to honor commitments undertaken or the effectiveness of enforcement provisions in the agreements. The bilateral Phase I Agreement between the U.S. and China is comparable to China’s accession to the WTO in that many commitments undertaken have not been implemented and to date have proven largely unenforceable.

The road ahead for democratic, market economies is unclear. But the problems with WTO compatibility of the Chinese economic model and the challenges in achieving meaningful WTO reform will likely lead to a much larger role for non-WTO solutions in the future. That will of necessity reduce the relevance of the WTO over time.

Dispute Settlement Reform at the WTO — What Needs to Precede Negotiations?

Many WTO Members seek a restoration of a two-tier dispute settlement process with binding results. Over the last 20+ years, the United States has raised concerns about the dispute settlement system and whether panels and the Appellate Body were abiding by the limitations contained in the Dispute Settlement Understanding. As has been widely reported and reviewed, this led to the blockage by the United States of new appointments to the Appellate Body which led to the effective shut down of the second tier review in early December 2019.

The U.S., during the Trump Administration, went to great lengths at Dispute Settlement Body meetings to lay out the deep concerns the U.S. had with what had happened to dispute settlement, culminating in February 2020 with the release of a report from the U.S. Trade Representative’s Office entitled Report on the Appellate Body of the World Trade Organization (https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf).

With no functioning Appellate Body, some WTO Members agreed to a temporary arbitration approach that looks similar to the Appellate Body. Called the Multi-party interim appeal arbitration arrangement (MPIA), the MPIA in 2021 covered over 50 WTO Members including the EU and its Member States; Australia; Benin; Brazil; Canada; China; Chile; Colombia; Costa Rica; Ecuador; Guatemala; Hong Kong SAR; Iceland; Macao SAR; Mexico; Montenegro; New Zealand; Nicaragua; Norway; Pakistan; Peru; Singapore; Switzerland; Ukraine; and Uruguay. Most WTO Members, including the U.S., Japan, Korea, India, Indonesia, Malaysia, the Russian Federation and many others are not parties to the MPIA.

This has led to various actions being taken after a panel report is released — adopting panel reports as is; pursuing any agreed arbitration process between the parties to the dispute, using the MPIA (where both parties are parties to the MPIA), appealing panel reports despite the current inability of the matter to heard on appeal (delaying a final resolution). As of February 14, 2022, some 24 panel reports have been appealed with no final resolution possible prior to a solution. Other reports have been adopted without further action, some have led to bilateral solutions, etc.

Prior to the Appellate Body becoming inoperable for lack of Appellate Body members, there was much discussion on a possible solution to the impasse including a process headed by Amb. David Walker. For the United States, the problem with the approach of other Members was a failure to address the underlying causes of the system having gone off the tracks in so many disputes. For the United States, restating existing obligations contained in the DSU was an insufficient solution as the Appellate Body had felt at liberty to deviate from existing obligations despite clear directions.

As noted, the Biden Administration (still without a Deputy USTR in Geneva because of Senate inaction) has continued the blockage of new appointments to the Appellate Body. USTR Katherine Tai has spoken some on dispute settlement. Her words suggest an alignment with prior Administrations that the system is in need of reform. The question for WTO Members is what approach is needed to address underlying U.S. concerns and ensure that the dispute settlement system moving forward is limited to the parameters established by the Members and supports the negotiation function of the WTO instead of supplanting it.

The Trump Administration had argued consistently that WTO Members needed to engage in an examination of why the system had deviated from the DSU as a necessary prelude to any examination of possible solutions. While many Members talk about being willing to address U.S. concerns, there has been little apparent interest among Members in engaging in the type of review of why the AB deviated so significantly from its limited role, why Members accepted this deviation and many other questions that need to be addressed to have Members reach a common understanding on what needs to be done to have a system of dispute settlement that comports to the limits agreed to by Members.

Last week, the Centre for Trade and Investment Law (CTIL), the Indian Institute of Foreign Trade (IIFT), New Delhi, the Centre for Alternative Dispute Resolution (CADR), Rajiv and the Gandhi National University of Law (RGNUL), Punjab organized a conference on February 10 and 11 entitled “Conference on
‘Dispute Settlement in International Trade Agreements: Prospective Pathways”. One of the last speakers on the second day was Ambassador Dennis Shea, the Trump Administration’s Deputy U.S. Trade Representative and Permanent Representative to the WTO. Amb. Shea provided his recap of the problems with the WTO’s dispute settlement system and identified a series of questions WTO Members need to address if there is to be hope of a resolution to the current impasse at the WTO on dispute settlement. His comments can be found on his Linkedin page, https://www.linkedin.com/feed/update/urn:li:activity:6897931614924414976/, and are copied below.

“Good evening, everyone. Let me begin by thanking Professor Nedumpara, the Centre for Trade and
Investment Law, and the Rajiv Gandhi National University of Law for this opportunity to share some
thoughts about the World Trade Organization and WTO dispute settlement.

“When the Professor reached out to see if I would be available to be with you this evening, albeit virtually, I jumped at the opportunity. I suppose you can say I began my WTO journey in India. On one of my earliest days as the newly-minted US Ambassador to the WTO, I found myself in New Delhi, a participant in a WTO mini-Ministerial conference hosted by the Indian government. As you can imagine, there was great interest among the assembled to see and meet the person whom the Trump Administration was sending to Geneva. It was also something of a ‘hot seat’ experience as I was peppered with questions about the U.S. position blocking new appointments to the WTO’s Appellate Body. In retrospect, I suppose it was a good warm-up for my subsequent service in Geneva.

“Before I venture any further, I want to acknowledge the cordial relationship that I enjoyed with my Indian counterparts – most notably Ambassador Deepak and Ambassador Navnit – during my service at the WTO. Although we did not see eye-to-eye on many issues, we always maintained a friendly and open relationship, recognizing the strong bonds between our two countries. I would also like to extend my best wishes to Ambassador Bhatia, whom I understand will be speaking shortly. I suspect he may disagree with some of what I may say.

“I thought I’d spend my time highlighting the key elements of the U.S. critique of the Appellate Body and
offer some thoughts on the way forward. I use the term ‘U.S. critique’ intentionally. While in Geneva, I tried to convey to my colleagues that concerns about Appellate Body overreach were shared broadly
across the political spectrum in the United States and were not just Trump Administration or Republican
Party complaints. In all honesty, I don’t think this point registered fully.

“With the Biden Administration continuing to block Appellate Body appointments for more than a year, it
should now be crystal clear that this U.S. critique is deep-seated, broad-based, and bipartisan. In fact, during my service as WTO Ambassador, I never once received a telephone call, email, text, WhatsApp, or
other communication from anyone in the U.S. Congress, Democrat or Republican, complaining about the
positions I was taking vis-à-vis the Appellate Body on behalf of the United States. On the contrary, I was
often encouraged to keep it up.

“Let me also put all my cards on the table and say that I don’t believe the Appellate Body is ever coming
back, in current or modified form. There is simply no political energy in the United States for doing so, and of course, that matters in a consensus organization like the WTO. As the current U.S. Trade Representative Katherine Tai recently stated: ‘Reforming dispute settlement is not restoring the
Appellate Body for its own sake, or going back to the way it used to be. It is about revitalizing the agency
of Members to secure acceptable resolutions.’

“Of course, the WTO membership could conclude that, going forward, a bifurcated system of appellate
review is acceptable – with some members participating in the recently-created Multi-Party Interim
Appeal Arbitration Arrangement and others, like the United States and India, operating outside of it.
But, if the goal is a reformed dispute settlement system in which all members participate, then
understanding the U.S. critique of the Appellate Body is essential.

“Let me add that, as part of any re-examination of the WTO dispute settlement system, everything
should be on the table – both the appellate stage, if there is to be one, and the panel stage which has
received much less attention but merits scrutiny, particularly in light of the growing length of panel
proceedings. While engaged in this re-examination, there should be no red lines, just open minds. The
first step should be a discussion, not a negotiation.

“Was the Appellate Body designed to be an international court charged with creating a global common
law of trade? This question is at the heart of the U.S. critique and, from the U.S. perspective at least, the
answer is clearly and unambiguously ‘no.’

“The Appellate Body is not called a ‘court’ in the Dispute Settlement Understanding nor are its members
described as ‘judges.’ The DSU envisions Appellate Body members as part-time employees, not
necessarily based in Geneva, who would be reimbursed travel and per diem expenses when called upon
to hear an appeal from a panel report. Their function was straightforward and limited: to correct
egregious errors of law made by dispute settlement panels. The DSU explicitly prohibits the Appellate
Body from engaging in fact-finding – that’s the job of the panels – and from adding to or diminishing the
rights and obligations provided in the WTO agreements. The WTO membership created the dispute
settlement system – of which the Appellate Body was just a part – to help resolve disputes, not to create
a body of jurisprudence or impose new rules. The responsibility for issuing authoritative interpretations
of the WTO Agreement has always belonged to the WTO members themselves, acting through the
General Council or the Ministerial Conference.

“Because of the limited role of the Appellate Body, the DSU requires it to act quickly, completing work
within 60 days as a general rule but never beyond a 90-day deadline.

“Unfortunately, the Appellate Body – with the encouragement of some key WTO members and individual
Appellate Body members – soon morphed into something completely different.

“It began to regularly engage in fact-finding, adding unnecessary complexity and time to its work. It
began to insist that its reports were entitled to be treated as binding precedent and must be followed by
panels, absent ‘cogent reasons,’ a standard that appears in no WTO agreement. It routinely rendered
advisory opinions on issues not necessary to assist the Dispute Settlement Body in resolving a dispute. It
unilaterally declared that it had the authority to allow individuals formerly serving on the Appellate
Body, whose terms had expired, to continue to participate in and decide appeals, a practice that India
first objected to in 1996.

“And beginning in 2011, the Appellate Body routinely violated the 90-day rule for completing its reports,
and in many cases, did so without even consulting the parties to an appeal. In fact, some appeals took
more than one year to complete.

“For more than 20 years, across multiple Administrations, the United States – joined by other similarly concerned WTO members – repeatedly complained about these and other deviations from the clear text
of the DSU. We were obviously unsuccessful in effectuating change. During my tenure in Geneva, when I
asked my colleagues ‘why’ the Appellate Body felt free to break the rules – the famous ‘why’ question
as characterized by the media – I was usually greeted with silence.

“This silence is not surprising. It became clear to me that some WTO members saw the Appellate Body as
an independent international court and its members as judges who inherently have more authority to
make rules and create jurisprudence. The same members envisaged the body as the centerpiece – the
‘crown jewel’ – of the dispute settlement system, not just one component of that system.

“Some Appellate Body members also viewed themselves as ‘appellate judges’ serving on a ‘World Trade
Court’ and commissioned with broad authority to develop ‘a coherent and predictable body of
jurisprudence.’ We know all this because they said so.

“In an important 2020 speech at Washington, DC’s Georgetown University, former Appellate Body
member Tom Graham described the prevailing ethos of the Appellate Body characterized by three
specific attributes:

“First, an orthodoxy of viewpoint, about the role of the Appellate Body as a self-anointed
international court, with much broader authority to over-reach the rules and create judge-made
law than permitted by the WTO agreements, or intended by the negotiators who created them;

“Second, a mindset that declined to re-examine the premises by which the Appellate Body
expanded its role; and

“Third, a group-think that de-legitimized serious systemic criticisms, and those who espoused
them.

“In his Georgetown speech, Mr. Graham also described the high degree of control exercised by Appellate
Body staff leadership; an over-emphasis on ‘collegiality’ that shaded into peer pressure to conform; an
excessive striving for consensus decisions coupled with a discouragement of dissents that led to
excessively long and unclear compromise reports; a sense of infallibility; and an undue adherence to
precedent – not only with respect to outcomes but also to reasoning, definitions, and obiter dicta that
had the effect of ‘baking in mistakes.’

“As far as I know, none of these critical Appellate Body ‘inside-the-tent’ operational issues has ever
seriously been discussed at the WTO’s Dispute Settlement Body, the General Council, or even among
informal groupings of WTO members.

“The effect of Appellate Body overreach and its accretion of power has been the diminution of the WTO’s
negotiating function. Why negotiate when you can achieve a desired outcome through litigation? Not
surprisingly, the last successful multilateral negotiation was the Trade Facilitation Agreement,
completed in 2013, and there have been no successful rounds of tariff negotiations since the WTO’s
creation.

“While in Geneva, I was often asked ‘what does the U.S. want?’ What the U.S. wanted was a deeper
discussion of why the Appellate Body felt free to depart from what WTO Members agreed to and why
the WTO membership allowed it to happen. It seems the current U.S. Administration is seeking the same
kind of deep-dive discussion, recognizing as we did that simply papering over the differences among
WTO members with a few word tweaks to the DSU or with a General Council decision that simply
repeats the words already in the DSU just won’t work as a durable solution.

“Going forward, there must be a shared understanding of the proper structure and role of the WTO
dispute settlement system and what we all want to get out of it.

“So how would we start such a discussion? Beyond engaging on the substantial critique that I just
outlined and what it might mean for any future system, let me suggest several questions. Some of these
questions may sound quite basic but are still essential to consider nonetheless:

“What is the purpose of dispute settlement at the WTO? What objectives are we trying to achieve? What
benefits do WTO Members hope to derive?

“Do we agree that dispute settlement should support the WTO’s negotiating and monitoring functions
and not act to undermine them?

“What attributes do we want WTO arbitrators to possess?

“Is the timeliness of decision-making important? If so, how can we expedite decision-making without
compromising fairness and quality?

“Do we even need a second-tier or appellate review at the WTO? If so, why? Has it been the shared
experience of WTO members over the past 25 years that the Appellate Body has demonstrated greater
expertise and competence than panel members?

“If a second tier is considered important, should a losing party at the panel level have an automatic right
to appeal? Or should the lane for these appeals be narrower – perhaps through a mechanism that
allows the WTO membership to set aside erroneous panel opinions in exceptional cases, as suggested by
former U.S. Trade Representative Bob Lighthizer?

“What other alternative appellate review structures are possible? For example, does it make sense to
expand the roster of first-tier panelists and enlist some of them for ‘appellate duty’ when the need
arises? Do we need a permanent and dedicated staff to assist the appellate reviewers or did that type
of structure contribute to the Appellate Body exceeding its intended role?

“And what is the appropriate relationship between the WTO membership, acting through the Dispute
Settlement Body, and the WTO arbitrators?

“Beyond these questions, there must be a shared understanding of the fundamental norms that underpin
the rules-based international trading system. After all, these norms – and the rules they inform and
buttress – are what the dispute settlement system is designed to protect.

“For the U.S., the fundamental norms of the WTO include openness, transparency, non-discrimination,
and market orientation grounded in the rule of law. It’s this last one – market orientation – that seems
to be now in dispute.

“As one of the main architects of the multilateral trading system, the United States has always believed
that adherence to market-based policies among trading parties was essential if the system is to work
effectively and fairly. We certainly held this belief when we joined the GATT and later when we signed
the Marrakesh Declaration with its commitment to ‘open, market-based policies.’ And the U.S. has
insisted in literally dozens of WTO accessions that the acceding party undertake domestic reforms to
reduce the role of the state in the economy and increase market orientation.

“As former WTO Deputy Director General Alan Wolff has explained: ‘The WTO is not simply about
coexistence; differences among members affecting trade which deviate from the principles governing
the WTO, its core values, are to be progressively overcome.’

“Not surprisingly, the People’s Republic of China does not believe that market orientation is a core value
of the WTO, arguing instead that market and non-market economies both belong in the organization on
an equal footing. But in 2001, when China acceded to the WTO, there was an expectation that its economy would further open up, liberalize, and embrace market principles.

“Regrettably, this future has not materialized. In fact, we have witnessed significant retrenchment, a
process that has been ongoing for well over a decade.

“Today, it’s as if one team is playing rugby and the rest of us are playing cricket.

“As I said in my final remarks at the WTO in 2020, China’s ‘state-led, non-market economic system is
incompatible with the WTO and its norms. To believe the WTO can manage this system’s trade disruptive
impact under current rules and through the dispute settlement process is fantasy.’

“In my mind, this is the most pressing issue facing the WTO – how to manage this fundamental
incompatibility. And to be completely candid, I’m not sure the WTO is equipped to do so.

“What I do know is that, at least from a U.S. perspective, reform of the WTO’s dispute settlement system
can only succeed if the market-orientation norm of the WTO is significantly reinforced, not only through
changes to the rules that effectively discipline non-market practices both also through a widespread
recognition throughout the membership that market orientation is a foundational principle or norm of
the international trading system.

“Thank you for listening. It’s been a privilege to have this opportunity to speak with you today.”

Observations

The EU and many other WTO Members are looking for reform efforts to include the restoration of a two-tier dispute settlement system. The objectives these Members have focus on timing and speed of process. One does not see from these Members a focus on the need for Member discussion of the types of questions that Amb. Shea has outlined above. If, as seems likely, the Biden Administration is supportive of reexamining the dispute settlement system to address the types of concerns Administrations of both parties have raised over the last two decades, pursuing negotiations before a full discussion of the core questions listed above will almost certainly lead to failure.

Similarly, resolving the dispute settlement challenge will not occur in isolation. There is the issue of correcting erroneous decisions of the past as well as the critical need to address the incompatibility of the market economy systems that have typified the GATT and now the WTO and the state controlled economic systems typified by China and others. Convergence of Member economic systems must be agreed and enforced. Coexistence plainly is not working. There are too many aspects of state-controlled economies which are not adequately addressed by the existing multilateral rules. It is not likely that mere modification of the rules or adoption of new rules will solve the incompatibility.

The challenge for the WTO is whether its diversity of Members and need for consensus makes any forward movement on these critical issues possible in the coming months and years. Let’s hope that Amb. Shea’s concern that the WTO may not be capable of meeting the challenge is not correct.

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

My last post from February 11th on forced labor and U.S. law to stop imports from such labor did not include reference to a report released by the International Labor Organization on February 10, 2022 and the U.S. Department of State media note on the note. See 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/

The ILO press release on the report can be found here. ILO releases the 2022 report of the Committee of Experts on the Application of Conventions and Recommendations, Press release, 10 February 2022, https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_836668/lang–en/index.htm

The State Department media note can be found here (U.S. Department of State, media note, On the Release of the International Labor Organization’s Committee of Experts Report, February 10, 2022, https://www.state.gov/on-the-release-of-the-international-labor-organizations-committee-of-experts-report/) and is copied below.

“The Department of State welcomes the issuance today of a report by a committee of the International Labor Organization (ILO) calling on the government of the People’s Republic of China (PRC) to review, repeal, and revise its laws and practices of employment discrimination against racial and religious minorities in Xinjiang.

“This report, produced by the ILO’s Committee of Experts on the Application of Conventions and Recommendations, expresses deep concern regarding the PRC’s policies and calls on the PRC government to take specific steps toward eliminating racial and religious discrimination in employment and occupation, and to amend national and regional policies utilizing vocational training and rehabilitation centers for ‘political re-education’ based on administrative detention.

“China joined the ILO in 1919 as one of the founding member states. The United States calls on the PRC to take the steps requested by the Committee of Experts.  We also reiterate our call for the PRC to end its genocide and crimes against humanity perpetrated against the predominantly Muslim Uyghurs and members of other ethnic and religious minority groups in Xinjiang, as well as its use of these groups for forced labor in Xinjiang and beyond. The State Department is committed to working with our international partners and allies to end forced labor and strengthen international action against the ongoing genocide and crimes against humanity in Xinjiang.

“The Committee’s report can be found here – https://www.ilo.org/wcmsp5/groups/public/—ed_norm/—relconf/documents/meetingdocument/wcms_836653.pdf .

“For more information on forced labor in the PRC’s Xinjiang Region, please see the linked July 2021 Fact Sheet on the topic: https://www.state.gov/forced-labor-in-chinas-xinjiang-region/“.

The full title of the ILO report is International Labour Organization, Application of International
Labour Standards 2022, Report III (Part A), Report of the Committee of Experts on the Application of Conventions and Recommendations, International Labour Conference, 110th Session, 2022, https://www.ilo.org/wcmsp5/groups/public/—ed_norm/—relconf/documents/meetingdocument/wcms_836653.pdf. The volume is 870 pages in length and reviews compliance with various standards by individual countries. There are discussions on China at pages 431-433 (Minimum Age Convention, 1973 (No. 138) (ratification: 1999)); 433-434 (Worst Forms of Child Labour Convention, 1999 (No. 182) (ratification: 2002)); 514-521 (Discrimination (Employment and Occupation) Convention, 1958 (No. 111)(ratification: 2006)); and 683-689 (Employment Policy Convention, 1964 (No. 122) (ratification: 1997). It is the latter two sections that talk at length about claims made by the International Trade Union Confederation (ITUC) on practices against the Uyghurs in Xinjiang Autonomous Region, the government of China’s response to the claims, and the concerns of the Committee of Experts with requested actions. For example, looking just at the last section, pages 683-685 outlines the claims by the ITUC on employment practices.

“In its observations of 2020 and 2021, the ITUC alleges that the Government of China has been engaging in a widespread and systematic programme involving the extensive use of forced labour of the Uyghur and other Turkic and/or Muslim minorities for agriculture and industrial activities throughout the Xinjiang Uyghur Autonomous Region (Xinjiang), in violation of the right to freely chosen employment set out in Article 1(2) of the Convention. The ITUC maintains that some 13 million members of the ethnic and religious minorities in Xinjiang are targeted on the basis of their ethnicity and religion 684 Report of the Committee of Experts on the Application of Conventions and Recommendations Employment policy and promotion with a goal of social control and assimilation of their culture and identity. According to the ITUC, the Government refers to the programme in a context of ‘poverty alleviation’, ‘vocational training’, ‘reeducation through labour’ and ‘de-extremification’.

“The ITUC submits that a key feature of the programme is the use of forced or compulsory labour in or around ‘internment’ or ‘re-education’ camps housing some 1.8 million Uyghur and other Turkic and/or Muslim peoples in the region, as well as in or around prisons and workplaces across Xinjiang and other parts of the country.

“The ITUC indicates that, beginning in 2017, the Government has expanded its internment programme significantly, with some 39 internment camps having almost tripled in size. The ITUC submits that, in 2018, Government officials began referring to the camps as ‘vocational education and training centres’ and that in March 2019, the Governor of the Xinjiang Uyghur Autonomous Region described them as ‘boarding schools that provide job skills to trainees who are voluntarily admitted and allowed to leave the camps’. The ITUC indicates that life in ‘re-education centres’ or camps is characterized by extraordinary hardship, lack of freedom of movement, physical and psychological torture, compulsory vocational training and actual forced labour.

“The ITUC also refers to ‘centralized training centres’ that are no re-education camps but have
similar security features (e.g. high fences, security watchtowers and barbed wire) and provide similar
education programmes (legal regulations, Mandarin language courses, work discipline and military
drills). The ITUC adds that the re-education camps are central to an indoctrination programme focused
on separating and ‘cleansing’ ethnic and religious minorities from their culture, beliefs, and religion.
Reasons for internment may include persons having travelled abroad, applied for a passport,
communicated with people abroad or prayed regularly.

“The ITUC also alleges prison labour, mainly in cotton harvesting and the manufacture of textiles, apparel and footwear. It refers to research according to which, starting in 2017, the prison population of Uyghurs and other Muslim minorities increased dramatically, accounting for 21 per cent of all arrests in China in 2017. Charges typically included ‘terrorism’, ‘separatism’ and ‘religious extremism’.

“Finally, the ITUC alleges that at least 80,000 Uyghurs and other ethnic minorities workers were transferred from Xinjiang to factories in Eastern and Central China as part of a ‘labour transfer’ scheme
under the name ‘Xinjiang Aid’. This scheme would allow companies to: (1) open a satellite factory in
Xinjiang or (2) hire Uyghur workers for their factories located outside this region. The ITUC alleges that
the workers who are forced to leave the Uyghur Region are given no choice and, if they refuse, are
threatened with detention or the detention of their family. Outside Xinjiang, these workers live and work
in segregation, are required to attend Mandarin classes and are prevented from practicing their culture
or religion. According to the ITUC, state security officials ensure continuous physical and virtual
surveillance. Workers lack of freedom of movement, remaining confined to dormitories and required to
use supervised transport to and from the factory. They are subject to impossible production
expectations and long working hours. The ITUC adds that, where wages are paid, they are often subject
to deductions that reduce the salary to almost nothing. ITUC further adds that, without these coercively
arranged transfers, Uyghurs would not find jobs outside Xinjiang, as their physical appearance would
trigger police investigations.

“According to the ITUC’s allegations, to facilitate the implementation of these schemes, the Government offers incentives and tax exemptions to enterprises that train and employ detainees; subsidies are granted to encourage Chinese-owned companies to invest in and build factories near or within the internment camps; and compensation is provided to companies that facilitate the transfer and employment of Uyghur workers outside the Uyghur Region.

“In its 2021 observations, the ITUC supplements these observations with information, including testimonies from the Xinjiang Victims Database, a publicly accessible database which as of 3 September
2021 had allegedly recorded the experience of some 35,236 ethnic minority members forcibly interned
by the Government since 2017.”

The Government of China provides its views that the claims are false in each case and provides a review of what its actions are intended to accomplish (pages 685-687). However, the Committee of Experts expresses major concerns and seeks additional action/information from China (687-689 copied below).

“The Committee takes due note of the ITUC allegations, the response and additional information provided by the Government and the various employment and vocational training policies as articulated
in various recent ‘white papers’ referred to by the Government in its report and other legal and policy
documents referred to by United Nations human rights experts.

“The Committee recalls that the Convention’s objective of promoting full employment does not require ratifying States to guarantee work for all who are available for and seeking work, nor does it imply that everyone must be in employment at all times (2020 General Survey on promoting employment and decent work in a changing landscape, paragraph 54). The Convention does, however, require ratifying States to promote freedom to choose one’s employment and occupation, as well as equal access to opportunities for training and general education to prepare for jobs, without discrimination on the basis of race, colour, national origin, religion or other grounds of discrimination covered under Convention No. 111 or other international labour standards such as the Vocational Rehabilitation and Employment (Disabled Persons) Convention, (No. 159).

“In this context, the Committee notes that training facilities that house the Uyghur population and other Turkic and Muslim minorities separate them from the mainstream educational and vocational training, vocational guidance and placement services available to all other groups in the region throughout the country at large. Such separation may lead to active labour market policies in China being designed and implemented in a manner that generates coercion in the choice of employment and has a discriminatory effect on ethnic and religious minorities. Photographs of the facilities, equipped with guard towers and tall surrounding walls topped with barbed wire further reinforce the observation of segregation. The Committee has observed before that some workers from ethnic minorities face challenges in seeking to engage in the occupation of their choice because of indirect discrimination. For example, biased approaches towards the traditional occupations engaged in by certain ethnic groups, which are often perceived as outdated, unproductive or environmentally harmful, continue to pose serious challenges to the enjoyment of equality of opportunity and treatment in respect of occupation (general observation on Convention No. 111, 2019). The Committee addresses other aspects of the particular system for vocational training and education aimed at the deradicalization of ethnic and religious minorities in its comment on the application of the Discrimination (Employment and Occupation) Convention, 1958 (No. 111).

“The Committee recalls that, while the Convention requires ratifying States to declare and pursue as a major goal an active policy designed to promote full, productive and freely chosen employment with the objective of stimulating economic growth and development and meeting manpower requirements, employment policy must also promote free choice of employment by enabling each worker to train for employment which can subsequently be freely chosen, in accordance with Article 1(2)(c) of the Convention.

“Article 1(2)(c) provides that the national employment policy shall aim to ensure that ‘there is freedom of choice of employment and the fullest possible opportunity for each worker to qualify for, and to use his skills and endowments in, a job for which he or she is well suited, irrespective of race, colour, sex, religion, political opinion, national extraction or social origin’. In its 2020 General Survey on promoting employment and decent work in a changing landscape, paragraphs 68–69, the Committee noted that ‘the objective of freely chosen employment consists of two elements. First, no person shall be compelled or forced to undertake work that has not been freely chosen or accepted or prevented from leaving work if he or she so wishes’. Second, all persons should have the opportunity to acquire qualifications and to use their skills and endowments free from any discrimination. Moreover, the Committee recalls that the prevention and prohibition of compulsory labour is a condition sine qua non of freedom of choice of employment (2020 General Survey, paragraph 70).

“The Committee notes the Government’s statement that the ITUC observations are based on individual statements and are unsubstantiated; however, it notes that the ITUC observations also append additional sources containing statistical data; references to first-hand testimonies, testimonies of eyewitnesses, family and relatives; research papers; and photographs of vocational training and education centres.

“The Committee also notes that, on 29 March 2021, a number of United Nations human rights experts (including Special Rapporteurs and thematic working groups mandated by the UN Human Rights Council) expressed serious concern with regard to the alleged detention and forced labour of Uyghur and other Turkic and/or Muslim minorities in Xinjiang. The UN experts indicate that Uyghur workers have been held in ‘re-education’ facilities, with many also forcibly transferred to work in factories in Xinjiang. They further indicate that Uyghur workers have allegedly been forcibly employed in low-skilled, labour-intensive industries, such as agribusiness, textile and garment, automotive and technological sectors.

“The Committee recognizes and welcomes the strong commitment of the Government to the eradication of poverty. However, it is the Committee’s firm view that poverty eradication and the realization of the right to work to that end encompasses not only job placement and job retention but also the conditions under which the Government executes such placement and retention. The Convention does not only require the Government to pursue full employment but also to ensure that its employment policies do not entail any direct or indirect discriminatory effect in relation to recruitment, conditions of work, opportunities for training and advancement, termination, or any other employment-related conditions, including discrimination in choice of occupation.

“The Committee is of the view that at the heart of the sustainable reduction of poverty lies the active enhancement of individual and collective capabilities, autonomy and agency that find their expression in the full recognition of the identity of ethnic minorities and their capability to freely and without any threat or fear choose rural or urban livelihoods and employment. The obligation under the Convention is not to guarantee job placement and retention for all individuals by any means available but to create the framework conditions for decent job creation and sustainable enterprises.

“The Committee takes due note of the view expressed in the Government’s report that ‘some forces recklessly sensationalize the so-called ‘forced labour’ issue in Xinjiang on various occasions’, adding that this is ‘nothing but a downright lie, a dirty trick with ulterior motives’. The Committee is bound to observe, however, that the employment situation of Uyghurs and other Muslim minorities in China provides numerous indications of coercive measures many of which arise from regulatory and policy documents.
The Government’s references to significant numbers of ‘surplus rural labour’ being ‘relocated’ to industrial and agricultural employment sites located inside and outside Xinjiang under ‘structured Employment policy and promotion conditions’ of ‘labour management’ in combination with a vocational training policy targeting deradicalization of ethnic and religious minorities and at least in part carried out in high-security and high-surveillance settings raise serious concerns as to the ability of ethnic and religious minorities to exercise freely chosen employment without discrimination. Various indicators suggest the presence of a ‘labour transfer policy’ using measures severely restricting the free choice of employment. These include government-led mobilization of rural households with local townships organizing transfers in accordance with labour export quotas; the relocation or transfer of workers under security escort; onsite management and retention of workers under strict surveillance; the threat of internment in vocational education and training centres if workers do not accept ‘government administration’; and
the inability of placed workers to freely change employers.

The Committee urges the Government to provide detailed updated information on the measures taken or envisaged to ensure that its national employment policy effectively promotes both productive and freely chosen employment, including free choice of occupation, and effectively prevents all forms of forced or compulsory labour. In addition, the Committee requests the Government to take immediate measures to ensure that the vocational training and education programmes that form part of its poverty alleviation activities focused in the Uyghur Autonomous Region are mainstreamed and delivered in publicly accessible institutions, so that all segments of the population may benefit from these services on an equal basis, with a view to enhancing their access to full, productive and freely chosen employment and decent work. Recalling that, under the Employment Promotion Law (2007) and the Vocational Education law (1996), workers have ‘the right to equal employment and to choose a job of their own initiative’ and to access vocational education and training, respectively, the Committee asks the Government to provide detailed information on the manner in which this right is effectively ensured, particularly for those belonging to the Uyghur minority and other Turkic and/or Muslim minorities. The Government is also requested to provide detailed information, including disaggregated statistical data, on the nature of the different vocational education and training courses offered, the types of courses in which Uyghur minorities have participated, and the numbers of participants in each course, as well as the impact of the education and training on their access to freely chosen and sustainable employment.

“Article 3 of the Convention. Consultation. The Committee requests the Government to indicate
the manner in which representatives of workers and employers organizations were consulted with
respect to the design, development, implementation, monitoring and review of the active labour
market measures being taken in the Uyghur Autonomous Region. In addition, and given the focus of
the active labour market measures on the Uyghur and other Turkic/Muslim minorities, the Committee
requests the Government to indicate the manner in which the representatives of these groups have
been consulted, as required under Article 3.

“The Committee is raising other matters in a request addressed directly to the Government.”

The ILO Report references a report from the UN Committee on the Elimination of Racial Discrimination. See United Nations, International Convention on the Elimination of All Forms of Racial Discrimination, Committee on the Elimination of Racial Discrimination, Concluding observations on the combined fourteenth to seventeenth periodic reports of China (including Hong Kong, China and Macao, China), CERD/C/CHN/CO/14-17, 19 September 2018, pages 7-8 (paras.40-42, copied below), https://tbinternet.ohchr.org/_layouts/15/treatybodyexternal/Download.aspx?symbolno=CERD/C/CHN/CO/14-17&Lang=En.

Xinjiang Uighur Autonomous Region

“40. The Committee notes the statements delivered by the State party delegation concerning the non-discriminatory enjoyment of freedoms and rights in the Xinjiang Uighur Autonomous Region. The Committee is, however, alarmed by:

“(a) Numerous reports of the detention of large numbers of ethnic Uighurs and other Muslim minorities, held incommunicado and often for long periods, without being charged or tried, under the pretext of countering religious extremism. The Committee regrets the lack of official data on how many people are in long-term detention or who have been forced to spend varying periods in political “re-education camps” for even non-threatening expressions of Muslim ethno-religious culture, such as a daily greeting. Estimates of the number of people detained range from tens of thousands to over a million. The Committee also notes that the delegation stated that vocational training centres exist for people who have committed minor offences without qualifying what that means;

“(b) Reports of mass surveillance disproportionately targeting ethnic Uighurs, such as frequent baseless police stops and the scanning of mobile phones at police checkpoint stations; additional reports have been received of the mandatory collection of extensive biometric data in the Xinjiang Uighur Autonomous Region, including DNA samples and iris scans, of large groups of Uighur residents;

“(c) Reports that all residents of the Xinjiang Uighur Autonomous Region are required to hand over their travel documents to police and apply for permission to leave the country, and that permission may not come for years. This restriction particularly affects those who wish to travel for religious purposes;

“(d) Reports that many Uighurs who had left China have allegedly been returned to the country against their will. There are fears for the current safety of those returned to China against their will.

“While acknowledging the State party’s denials, the Committee takes note of reports that Uighur language education has been banned in schools in the Hotan (Hetian) prefecture in the Xinjiang Uighur Autonomous Region (arts. 2 and 5).

“42. The Committee recommends that the State party:

(a) Halt the practice of detaining individuals who have not been lawfully charged, tried and convicted for a criminal offence in any extralegal detention facility;

(b) Immediately release individuals currently detained under these circumstances, and allow those wrongfully held to seek redress;

(c) Undertake prompt, thorough and impartial investigations into all allegations of racial, ethnic and ethno-religious profiling, holding those responsible accountable and providing effective remedies, including compensation and guarantees of non-repetition;

(d) Implement mandatory collection and analysis of data on the ethnicity of all individuals stopped by law enforcement, the reasons for and outcome of those stops, report publicly on the information collected at regular intervals and include it in its follow-up report;

(e) Ensure that all collection, retention and use of biometric data is regulated in law and in practice, is narrow in scope, transparent, necessary and proportionate to meeting a legitimate security goal, and is not based on any distinction, exclusion, restriction or preference based on race, colour, descent or national or ethnic origin;

(f) Eliminate travel restrictions that disproportionately affect members of ethnic minorities;

(g) Disclose the current location and status of Uighur students, refugees and asylum seekers who returned to China pursuant to a demand made by the State party in the past five years;

(h) Provide the number of persons held against their will in all extralegal detention facilities in the Xinjiang Uighur Autonomous Region in the past five years, together with the duration of their detention, the grounds for detention, the humanitarian conditions in the centres, the content of any training or political curriculum and activities, the rights that detainees have to challenge the illegality of their detention or appeal the detention, and any measures taken to ensure that their families are promptly notified of their detention.”

As China seems intent on pursuing its policies described above and in the other sections of the ILO Report against the Uyghurs and other minorities, there will remain increased global tensions including trade actions to address what others view as unacceptable actions towards the minorities.

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

In prior posts, I have reviewed the challenges to international trade from forced labor practices in a number of countries and actions by the United States in 2021 to increase the focus on forced labor in China’s Xinjiang Uyghur Autonomous Region. See 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/; April 27, 2021:  WTO and forced labor in cotton — Commentary by Amb. Dennis Shea, former Deputy U.S. Trade Representative, https://currentthoughtsontrade.com/2021/04/27/wto-and-forced-labor-in-cotton-commentary-by-amb-dennis-shea-former-deputy-u-s-trade-representative/; March 24, 2021:  When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang, https://currentthoughtsontrade.com/2021/03/24/when-human-rights-violations-create-trade-distortions-the-case-of-chinas-treatment-of-the-uyghurs-in-xinjiang/; 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/.

U.S. legislation was signed into law on December 23, 2021, Pub. L 117-78, “To ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China do not enter the United States market, and for other purposes”. The legislation includes working with USMCA partners (Canada and Mexico) and developing a strategy for addressing imports with priority sectors including cotton, tomatoes and polysilicon. As reviewed in a Peterson Institute for International Economics policy paper,

“The Xinjiang economy is still peripheral, accounting for only 1.4 percent of China’s gross domestic product. However, it is a major producer of two products, cotton and polysilicon, that are key parts of global supply chains. Xinjiang accounts for nearly 20 percent of global cotton production, with
annual production greater than that of the entire United States.9 Its position in polysilicon—the material from which solar panels are built—is even more dominant, accounting for nearly half of global production.10 Its position in polysilicon stems not from a dominant position in the raw material (silicon
being among the most abundant minerals on Earth) but from the massive amounts of energy used in the refining process and Xinjiang’s low, albeit carbon intensive, energy costs.

“9 See the International Cotton Advisory Committee, https://icac.org/DataPortal/DataPortal?Year=2019/20%20for (accessed on May 21, 2021).

“10 Dan Murtaugh, “Why It’s So Hard for the Solar Industry to Quit Xinjiang,” Bloomberg Green,
February 10, 2021, http://www.bloomberg.com/news/articles/2021-02-10/why-it-s-so-hard-for-thesolar-
industry-to-quit-xinjiang.”

PIIE Policy Brief, Cullen S. Hendrix and Marcus Noland, 21-14 Assessing Potential Economic Policy Responses to Genocide in Xinjiang at 5 (June 2021), https://www.piie.com/publications/policy-briefs/assessing-potential-economic-policy-responses-genocide-xinjiang.

The complicating factor for U.S., Canadian, Mexican and other authorities attempting to prohibit imports of products made in part or in whole from forced labor is that multiple countries are involved in many value chains. Thus, while 85% of China’s cotton production comes from the Xinjiang Autonomous Region, China not only uses the cotton internally for producing products (clothing, towels, etc.) but also exports cotton and textile products to many countries for further manufacture and consumption or export.

For example, cotton is covered by Chapter 52 of the Harmonized System of tariff classifications. In 2020, according to data from the UN COMTRADE data base, China exported cotton products classified under HS Chapter 52 to Bangladesh ($1.69 billion), Vietnam ($1.5 billion), Philippines ($846 million), Nigeria ($815 million), Cambodia ($430 million), Hong Kong ($420 million), Pakistan ($369 million) and Indonesia ($298 million) among other countries. See Trend Economy, Annual International Trade Statistics by Country , China, Cotton, https://trendeconomy.com/data/h2/China/52. These countries, as well as China, utilize the cotton products covered by Chapter 52 for producing other interim and finished products covered by other HS Chapters. The products produced are consumed in country or exported. Looking at just one such chapter, Chapter 61, covering some clothing products, and looking at imports in 2021 into the United States of items listed as containing cotton in that Chapter, shows the following dollar values potentially involved (in large part for China and for some parts for other countries).

China$ 3,651,051,704
Vietnam$ 4,311,944,342
Bangladesh$ 1,880,676,205
Cambodia$ 1,536, 029,654
Indonesia$ 1,436,846,321
Pakistan$ 1,164,854,604
Philippines$ 193,641,125
Hong Kong$ 35,811,289
Nigeria$ 77,091
Subtotal$14,210,932,335 (57.74% of total)
All Countries$24,613,797,890

The individual 10-digit HTS categories covered above are shown in the enclosed data from the USITC data we for China for the years 2016-2021.

cotton-Ch-61-imports-from-China.xlsx

The same problems exist for polysilicon and solar products made from polysilicon. Indeed, actions were taken last summer in the U.S. banning such products from a particular company in China. See, e.g., New York Times, U.S. Bans Imports of Some Chinese Solar Materials Tied to Forced Labor, June 24, 2021 updated August 2, 2021, https://www.nytimes.com/2021/06/24/business/economy/china-forced-labor-solar.html (“The White House announced steps on Thursday to crack down on forced labor in the supply chain for solar panels in the Chinese region of Xinjiang, including a ban on imports from a silicon producer there.”).

For both product groups, banning imports will present administrative challenges and will also pose challenges for purchasers looking for alternative sources of supply. It is critical for there to be adequate resources to implement the ban as well focus by purchasers on identifying alterative sources of supply.

The U.S.’s and other countries’ concerns with the Chinese practices involving the Uyghurs and other minorities in Xinjiang Autonomous Region are serious as the claims of genocide make clear. The increased use of Section 307 of the Tariff Act of 1930 by the U.S. Administration and efforts at coordination with trading partners are important steps to accompany increased diplomatic engagement to address the human rights challenges in China that have now been well documented.

While human rights violations don’t always carry with them trade implications, that is not the case where forced labor is the issue and the labor is engaged in producing products or services. While China’s actions against the Uyghurs and other minorities are the focus of the recent legislation, forced labor is a much broader trade problem in fact as recognized in the U.S., in Europe and elsewhere.

The WTO Panel Report, UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS, WT/DS546/R (8 February 2022)

On February 8th, a WTO panel report was released to the public on a U.S. safeguard case on imports of large residential washers. A challenge to the U.S. action was filed at the WTO by Korea on May 18, 2018 after safeguard relief was provided by the U.S. beginning February 7, 2018. The panel process was complicated by COVID restrictions on in person meetings. The challenge was to the U.S. International Trade Commission’s affirmative serious injury determination and remedy recommendation from December 2017 and the President’s issuance of import relief in late January 2018. See USITC, Large Residential Washers, Inv. No. TA 201 076, USITC Pub. 4745 (December 2017); Presidential Documents, Proclamation 9694 of January 23, 2018 – To Facilitate Positive Adjustment to Competition from Imports of Large Residential Washers, 83 FR 3553 (25 January 2018). As noted in footnote 11 to the Panel Report, “We note that in its comments to the Descriptive Part of the Panel Report, Korea noted that the safeguard measure at issue was extended on 14 January 2021 for two additional years, through 7 February 2023. (Korea’s comments to the Descriptive Part of the Panel Report (referring to US notification to the WTO, G/SG/N/10/USA/8/Suppl.7)).” WT/DS546/R at 10 fn. 11.

The panel found a number of aspects of the USITC determination and Presidential action to be contrary to U.S. obligations. The violations by and large raise important questions about needed reforms to GATT 1994 Art. XIX and the Agreement on Safeguards to ensure a functioning safeguard remedy as well as the proper role of dispute settlement in such cases. At the same time, a large number of challenges by Korea were rejected by the panel through the correct application of burden of proof and standard of review of administrative findings. Thus, the U.S. will have to decide if it will appeal the panel report, agree to its adoption or seek some other form of resolution with Korea.

GATT Art. XIX:1(a)

The first “violation” of obligations found by the panel reflects prior Appellate Body findings that provisions of Article XIX permit safeguard actions only where there are unforeseen developments and the problems are from the effects of obligations incurred by Members. The panel, following earlier decisions, found that these factors had to be explained and justified in the USITC determination and not raised after the fact during the dispute. WT/DS546/R at part 7.2, page 13-19. The concluding paragraph states, “7.35. In light of the above, we find that the USITC acted inconsistently with Article XIX:1(a) of the GATT 1994 and Article 3.1 of the Agreement on Safeguards because its report does not contain a reasoned and adequate explanation on ‘unforeseen developments’ and the ‘obligations incurred’ by the United States, within the meaning of Article XIX:1(a) of the GATT 1994.”

In the USTR report on the Appellate Body of the World Trade Organization from February 2020, USTR flagged six particularly eggregious decision areas of the Appellate Body that reflected the range of problems of concern to the United States. The fifth area was “The Appellate Body’s Non-Text-Based Interpretation of Article XIX of the GATT 1994 and the Safeguards Agreement Undermines the Ability of WTO Members to Use Safeguards Measures”. Report at 110-114, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf. The segment from the USTR Report is copied below.

E. The Appellate Body’s Non-Text-Based Interpretation of Article XIX of the GATT 1994 and the Safeguards Agreement Undermines the Ability of WTO Members to Use Safeguards Measures

“• WTO Members specifically reserved for themselves the right to impose safeguard measures to protect their industries from import surges that cause or threaten to cause serious injury.

“• The Appellate Body has diminished this right by inventing additional requirements for the imposition of safeguards that Members never agreed to.

“• For example, the Appellate Body has found that prior to taking a safeguard action, a Member’s competent authority must include in its report a demonstration of the existence of ‘unforeseen developments,’ despite the absence of any such requirement in the GATT 1994 or the Safeguards Agreement.

“• The Appellate Body has also departed from the WTO agreements in creating a high threshold for serious injury determinations under the Safeguards Agreement.

“• Through the imposition of new obligations, the Appellate Body has rendered legitimate
safeguard measures significantly more difficult to defend.

“Safeguard measures provide a crucial means for WTO Members to protect their industries from import surges (including surges that would destroy domestic industry). WTO Members specifically reserved for themselves the right to impose such measures and established rules for the application of such measures in the WTO Agreement on Safeguards (‘Safeguards Agreement’).

1.The GATT and the Safeguards Agreement Reflect the Agreed Rules for Safeguard Measures

“Article XIX:1(a) of the GATT 1947 provides as follows:

“If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

“As with most obligations in GATT 1947, panels evaluated compliance with Article XIX by examining, after the fact, whether the conditions justified a contracting party’s decision to suspend an obligation or withdraw or modify a concession. Parties to the proceeding could rely on information and findings from their domestic proceedings, or introduce new evidence and make new arguments to defend their actions.

“The WTO Agreement incorporated Article XIX of the GATT 1947 substantively unchanged into the GATT 1994, but added the Safeguards Agreement to ‘establish[] rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT 1994.”260 The Safeguards Agreement set out standards for determining when serious injury existed. The Safeguards Agreement also set forth a requirement that a Member apply a safeguard measure only after an investigation by the competent authorities of that Member ‘to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry under terms of the Agreement.’261 Article 3.1 provides that ‘[t]he competent authorities shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.’ The Safeguards Agreement does not mention ‘unforeseen developments’ or require the competent authorities to evaluate whether serious injury is ‘as a result of unforeseen developments’ for purposes of Article XIX of the GATT 1994.

2. The Appellate Body Has Created Additional Obligations for Imposing Safeguard Measures

“In 2001, in US – Lamb Meat, the Appellate Body proclaimed (1) that the WTO Member taking safeguard action must publicly demonstrate unforeseen developments as a matter of fact before applying a safeguard measure and (2) that the demonstration must have appeared in the report of the competent authorities.262 Neither of these determinations is based on the text of Article XIX. Indeed, the Appellate Body admitted that ‘Article XIX provides no express guidance’ on the issue of ‘when, where or how this demonstration should occur.’263 Undaunted, the Appellate Body based its new determination on ‘instructive guidance’ that it drew from its own findings in earlier safeguard disputes. The Appellate Body’s approach was erroneous. The Appellate Body took a statement from one of its earlier reports, that unforeseen developments are circumstances that ‘must be demonstrated as a matter of fact,’ and used this phrase in a different context to create an entirely new and additional obligation that is not in Article XIX or the Safeguards Agreement.

“The lack of ‘guidance’ on this issue in Article XIX and the absence of any reference to “unforeseen developments” in the Safeguards Agreement demonstrates that WTO Members have not consented to be bound by any particular approach. The United States and other Members have given the Appellate Body no authority to to use its own prior reports to create obligations that do not appear in the text that Members agreed to.

“First, Article XIX does not require a ‘demonstration.’ As with other trade remedies covered by the GATT 1994, Article XIX merely specifies the conditions that justify an action. Thus, a need to ‘demonstrate’ that the conditions exist could arise only if and when another WTO Member challenges the action’s consistency with the relevant condition in Article XIX. By requiring a ‘demonstration’ before application of a safeguard measure, the Appellate Body’s approach appears to reverse the normal burden of proof in dispute settlement proceedings – that the complaining WTO Member bears the burden to show that serious injury was not ‘a result of unforeseen developments.’ The Appellate Body ignored this, and instead required that the WTO Member maintaining a safeguard measure bear the burden of demonstrating the existence of unforeseen developments before another WTO Member even challenged the safeguard measure.

“Second, the Appellate Body states that the ‘demonstration’ must be made by a WTO Member’s competent authorities, and in their published report, and not by any other official of the WTO Member or in any other manner. But Article XIX makes reference neither to competent authorities nor to published reports, two concepts that originate in the Safeguards Agreement, not in Article XIX. And, the Safeguards Agreement charges the competent authorities with the investigation of serious injury – not the other elements of Article XIX. For example, in Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, the Appellate Body correctly found that there is no obligation for the competent authorities to make findings justifying the type and extent of a safeguard measure. There is simply no textual basis for the Appellate Body’s conclusion in US – Lamb Meat that Article XIX requires the competent authorities to make any finding on unforeseen developments in their report.

“The Appellate Body supports its interpretation by claiming that any other approach would leave the means for complying with Article XIX ‘vague and uncertain’. This is simply not true. WTO Members take most measures without providing an advance demonstration of consistency with the WTO. A WTO Member challenging a safeguard measure must prove that a measure fails to meet one of the relevant requirements, and the Member applying that measure needs to demonstrate consistency only to the extent that the complaining WTO Member has proven its case. The same approach should apply to those elements of Article XIX, like unforeseen developments, that the Safeguards Agreement requires to be subject to the investigation and determination of the competent authorities. In any event, it is outside the mandate of the Appellate Body to elaborate on the text to satisfy the Appellate Body’s own sense of what is ‘clear’ or ‘certain.’ That is a task that WTO members reserved for themselves. Article 3.2 of the DSU is quite clear on this point.

“Other Members also have criticized the Appellate Body’s reasoning as well. As Korea explained in statements to the General Council, the Appellate Body’s reasoning left Members with ‘an ambiguous requirement to demonstrate the existence of ‘unforeseen developments’ [that was] not in line with the drafters’ intention.’ Korea also noted that the drafting history of the Safeguards Agreement demonstrated that ‘it would be unreasonable to conclude that the negotiators had left an essential requirement in Article XIX of GATT 1994 and had not included it in the new Agreement, which was meant to be the final embodiment of the rules on safeguards.’264

“The Appellate Body also strayed from the text of Article XIX and the Safeguards Agreement in US – Wheat Gluten in 2000, and US – Line Pipe in 2002. In these proceedings, the Appellate Body imposed a heightened threshold on the serious injury determinations by the competent authorities.

“Article 4.2(a) of the Safeguards Agreement provides for the competent authorities to conduct ‘an investigation to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry under the terms of this Agreement.’ It instructs them to ‘evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry,’ and lists several of these. Article 4.2(b) of the Safeguards Agreement then provides:

‘The determination referred to in subparagraph (a) shall not be made unless this investigation demonstrates, on the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to
increased imports.

“Relying on a negative obligation not to attribute injury from other causes to imports, the Appellate Body fashioned an affirmative requirement to analyze not only the nature of other factors, but to identify their ‘extent’ and then ‘separate and distinguish’ the effects of other factors from the effects of increased imports. The Appellate Body could even be understood to have suggested that the extent of injury from other factors should be mathematically ascertained so as to precisely separate and distinguish the injury.265 None of these additional requirements appear in the treaty text. The Appellate Body’s erroneous approach could also be understood to prevent an investigating authority from evaluating the injury caused by other factors and then examining whether that injury attenuates the causal link between the increased imports and serious injury. This would diminish the rights of WTO Members to take safeguard action in the circumstances set out in GATT 1994 Article XIX and the Safeguards Agreement.

3. The Appellate Body Has Made It All But Impossible for WTO Members to Impose Safeguard Measures

“A number of safeguard measures have been challenged at the WTO and, with one exception, all have been found to be WTO-inconsistent. 266 This is not surprising given the Appellate Body’s erroneous interpretations. The additional requirements invented by the Appellate Body raise the threshold for an affirmative finding that increased imports cause serious injury to a height that makes it all but impossible to impose safeguards. Under the Appellate Body’s erroneous approach, even if the imports are the most important cause of serious injury, a WTO Member may not apply a safeguard measure if its authorities did not mathematically determine and isolate the effects of other factors. These invented requirements seriously detract from WTO Members’ ability to protect themselves from unforeseen surges in imports, a right clearly reserved to them in Article XIX and the Safeguards Agreement.

“260 Agreement on Safeguards, Article 1.

“261 Agreement on Safeguards, Articles 3.1 and 4.2(a).

“262 US – Lamb (AB), para. 72 (2001).

“263 Id.

“264 Dispute Settlement Body, Minutes of the Meeting Held on January 12, 2000), WT/DSB/M/73 (4 February 2000); accord T. Raychaudhuri, The Unforeseen Developments Clause in Safeguards under the WTO: Confusions in Compliance, 11 Estey Ctr. J. Int’l Law and Trade Pol’y 302, 314 (‘The addition of such a requirement does not appear to be at all consistent with the intent of the negotiators in the Uruguay Round. In fact, a perusal of the negotiating history reveals that the draft version of the AS did contain the unforeseen developments clause. By mid1990, however, the clause was omitted from the draft, while other conditions of Article XIX were repeated almost verbatim.’).

“265 See US – Lamb (AB) (2001), para. 130 (‘[t]he words ‘factors of an objective and quantifiable nature’ imply, therefore, an evaluation of objective data which enables the measurement and quantification of these factors.’).”

While it is perhaps not surprising that the panel would follow the prior Appellate Body decisions on the issue of GATT 1994 Article XIX:1(as), the problem flagged by the U.S. and others remains present in the current decision. Moreover, the lack of inclusion of the requirement in the Agreement on Safeguards may simply reflect the reality experienced by the United States between 1962 and 1974 that the Art. XIX language was not administrable, and hence represent the desire of Members to have the Agreement on Safeguards be operational in fact.

Look for the U.S. to need a resolution of this issue (among others) before the Dispute Settlement problems are resolved. Resolution could occur through a revision to GATT 1994 Art. XIX or the Safeguard Agreement and/or meaningful reform of the dispute settlement system including panel reports.

Likeness of domestically produced parts and imported parts of LRWs

The domestic industry was defined by the USITC as consisting of washing machines and certain parts. Korea made various challenges to the domestic like product including challenging whether domestic parts were like imported parts since such parts were designed for particular models and hence not interchangeable. The panel viewed the Commission’s determination as violative of U.S. obligations under Art. 4.1(c) of the Safeguards Agreement since the Commission indicated the products didn’t compete and the Commission didn’t provide an adequate explanation for why the products were nonetheless “like”. See Panel Report at 23-27. Paras. 7.66 and 7.67 provided the summary of the panel’s finding.

“7.66. In the underlying investigation, the USITC specifically found that imported and domestically produced parts did not compete. We note that the United States alludes to different ways in which conditions of competition could manifest in the market, including situations where imports of LRW parts that do not directly compete with either domestic parts or finished products may nevertheless have an indirect impact on domestic producers of parts and finished products if they are assembled into finished products in domestic screwdriver operations that do not change the fundamental character of the parts. However, the USITC did not undertake any such analysis alluded by the United States as part of its likeness analysis.112

“7.67. Based on the foregoing, we find that the USITC did not find imported covered parts to be like domestically produced covered parts in a manner consistent with Article 4.1(c) of the Agreement on Safeguards in defining the domestic industry. Having reached this finding, we do not consider it necessary to make additional findings under Article 2.1 of the Agreement on Safeguards.

“112 See e.g. United States’ response to Panel question No. 67(a), paras. 1-2. The United States clarified that the USITC did not undertake an analysis of any indirect competition between domestically produced and imported parts as part of its likeness analysis because LG and Samsung, the two Korean producers, had not yet commenced production of LRWs at their planned US LRW production facilities as of the date of the USITC’s vote on injury. The United States explains that the USITC reasonably considered the likelihood of indirect competition from imports of covered parts in recommending safeguard remedy be imposed on parts. We also note that the United States suggests that the USITC found that domestic and imported covered parts competed as they “offer[ed] alternative ways of satisfying the same consumer demand in the marketplace”. (United States’ comments on Korea’s response to question No. 67, fn 12 (referring to USITC report, (Exhibit KOR-1), p. 17)). However, we recall that the USITC stated that covered parts did not compete. Moreover, at the cited section of the USITC report, the USITC stated that “[d]omestically produced and imported covered parts share the same general functionality when installed in LRWs” (emphasis added). This statement does not imply that covered parts competed in the market. As the USITC noted, covered parts may only be installed in specific LRW models. (USITC report, (Exhibit KOR-1), p. 16).”

While the finding can be viewed as a narrow one and one perhaps readily addressable by the USITC in future investigations, the finding of violation is questionable at best. Imported parts were used for repairs and potentially for downstream assembly. Domestically produced parts were used both in original equipment and for sale as repairs. The fact that the parts weren’t interchangeable for a given model doesn’t mean there wasn’t competition. The panel report mentions elsewhere serious price depression found by the Commission for LRWs. The same was likely the case for parts in the aftermarket. It is not uncommon for merchants to promote the total cost of equipment including costs of repairs if needed. Lower replacement costs for an imported part would likely put pressure on domestic replacement part prices. The USITC questionnaires that went to producers and importers may have captured some information on shipments/sales of parts. In any event, for panelists to construe the ITC description of a lack of competition in terms of use within a given model as undermining the appropriateness of parts being found to be like products ignores commercial reality. See also Panel Report at 26 fn. 110 (“We note that in its third-party statement, the European Union argued that because LRW parts are used to repair the respective LRW units, the market for LRW parts may constitute an ‘aftermarket’, while the market for LRW units would be the ‘primary market’. The European Union considered that it is possible that the interaction between the primary market (LRW units) and the aftermarket (LRW parts) form one ‘system market’, so that competition would take place between LRW systems. In its view, if one single domestic market exists for LRW units and parts, within that market, imported and domestic LRW parts would be ‘directly competitive’ with each other because competition would follow from the competition at the system level. (European Union’s third-party submission, paras. 34-40). We note that the USITC did not take such “system market” approach in the underlying investigation. Therefore, whether such approach would be consistent with Article 4.1(c) is not an issue in the matter before us.”).

As part of its attack on the U.S. like product findings, Korea separately argued that the USITC had included parts pursuant to its product line approach to analysis. The panel agreed with Korea (Panel Report at 27-30), but that issue would be irrelevant if a proper analysis had been performed on the like product issue on parts.

Other issues

The panel faulted the USITC for not explaining why it had excluded one domestic producer from profit and loss data and why the remaining data were sufficient. It also faulted the U.S. for not giving Korea sufficient time to consult on the safeguard remedy once the Administration had decided to include product from Korea in the relief. Regardless of the merits of the panel’s findings on these issues, neither should pose significant challenges to the U.S. in future cases.

Conclusion

Because the panel report contains several significant errors, including at least one of longstanding concern to the United States as reflected in the USTR Report on the Appellate Body of the World Trade Organization, it is possible that the United States will choose to file an appeal at the WTO and hence join the 24 other disputes where appeals have been filed where resolution is helpdup by the lack of a functioning Appellate Body (including a case where Korea has appealed (22 January 2021:  Notification of Appeal by Korea in DS553: Korea — Sunset Review of Anti-Dumping Duties on Stainless Steel Bars (WT/DS553/6)).

However, relief under the U.S. safeguard action is due to expire on February 7, 2023. Moreover, on many issues raised by Korea, the panel found no violation of obligation by the United States. In such circumstances, it is possible that the U.S. will agree to resolve the dispute by terminating the 201 relief sometime in the Spring.

My bet would be on the resolution option.

The WTO’s efforts to address the COVID-19 pandemic — will Members reach agreement by the end of February?

Throughout the current pandemic, the WTO has generated large amounts of information to help Members examine the response to the pandemic that would minimize disruptions and maximize availability of medical goods. See, e.g., WTO webpage and series of reports generated by the Secretariat (WTO, COVID-19 and world trade, https://www.wto.org/index.htm; https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. The WTO Secretariat provides periodic updates on reports as well as tracking import and export restrictions on medical goods and inputs. See, e.g., WTO news, WTO Secretariat updates members on COVID-19 reports and new tools, 28 January 2022, https://www.wto.org/english/news_e/news22_e/nama_28jan22_e.htm.

With support from WTO Members, the WTO has worked with other multilateral organizations to promote a coordinated response. See, e.g., WTO press release, WHO, WIPO, WTO heads chart future cooperation on pandemic response, 1 February 2022, https://www.wto.org/english/news_e/news22_e/igo_01feb22_e.htm; WTO press release, International organizations discuss how to improve access to COVID vaccines, countermeasures, 22 December 2021, https://www.wto.org/english/news_e/news21_e/covid_22dec21_e.htm (IMF, World Bank, WHO, WTO); WTO-IMF COVID-19 Vaccine Trade Tracker, Last updated: 17 January 2022, https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm.

Most WTO Members view agreeing on a multilateral response to the pandemic as of critical importance. This includes both addressing a host of non intellectual property issues [“These include issues relating to trade facilitation, export restrictions, regulatory coherence, transparency and monitoring, scaling-up of production and distribution on essential goods, services and crisis preparedness and resiliency, and coordination with relevant stakeholders, including international organizations and the private sector.”] and resolving whether there should be a waiver from some TRIPS obligations as requested by India, South Africa and supported by others. The WTO Secretariat put out a briefing note on the issue of trade and health looking at the state of play as of 6 January 2022. See Trade and health: WTO response to the COVID-19 pandemic, 6 January 2022 (above quote is from the briefing note), https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bftrade_and_health_e.htm.

As I have reviewed in prior posts, the waiver of TRIPS obligations proposal from India and South Africa has been challenging for a number of Members to accept. See, e.g., WTO efforts to address the COVID-19 pandemic — the January 10, 2022 General Council meeting and some current developments of interest, https://currentthoughtsontrade.com/2022/01/11/wto-efforts-to-address-the-covid-19-pandemic-the-january-10-2022-general-council-meeting-and-some-current-developments-of-interest/. The briefing note provides a good summary of the TRIPS waiver proposal and is copied below.

“TRIPS Council

“In parallel to the process facilitated by Ambassador Walker, members have been seeking convergence on how best to use the global intellectual property (IP) system to tackle COVID-19 in the context of the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS).

“Waiver request

“Over the past year, members have engaged in discussions based on various texts. On 15-16 October 2020, India and South Africa introduced at the TRIPS Council document IP/C/W/669 requesting a waiver from certain provisions of the TRIPS Agreement for the prevention, containment and treatment of COVID-19. The proposal has since been co-sponsored by the delegations of Kenya, Eswatini, Mozambique, Pakistan, Bolivia, Venezuela, Mongolia, Zimbabwe, Egypt, the African Group, the LDC Group, the Maldives, Fiji, Namibia, Vanuatu, Indonesia and Jordan.

“Since the introduction of the document, discussions have taken place in various formal and informal TRIPS Council meetings. Delegations have exchanged views, asked questions, sought clarifications and provided replies, clarifications, and information on the waiver request. On 21 May 2021, the co-sponsors issued a revised proposal which was circulated in document IP/C/W/669/Rev.1 and on 29 September 2021 they circulated a summary of their interventions in document IP/C/W/684.

“In the course of discussions on the revised waiver proposal, delegations have held focused discussions on the topics of scope, both from the perspective of products and of IP rights, on duration, implementation and the protection of undisclosed information.

“All delegations remain committed to the common goal of providing timely and secure access to high-quality, safe, efficacious and affordable vaccines and medicines for all, but discussions have shown that disagreement persists on the fundamental question of whether a waiver is the appropriate and most effective way to address the shortage and inequitable distribution of and access to vaccines and other COVID-related products.

“EU proposal

“In addition, a proposal (IP/C/W/681) for a draft General Council declaration on the TRIPS Agreement and Public Health in the circumstances of a pandemic, issued by the European Union, has also been discussed in meetings since its circulation on 21 June 2021.

“The European Union proposal, which is backed by other developed country members, calls for limiting export restrictions, supporting the expansion of production, and facilitating the use of current compulsory licensing provisions in the TRIPS Agreement, particularly by clarifying that the requirement to negotiate with the right holder of the vaccine patent does not apply in urgent situations such as a pandemic, among other issues.

“While recognizing that intellectual property rights (IPRs) should not stand in the way of deploying and creating capacity, or of ensuring equitable access to vaccines and therapeutics, several developed and developing members have cautioned that this can be attained while maintaining IP as the basis for incentivizing investment in innovation, and for licensing technology transfer, so that members can effectively fight new strains of COVID-19 and any future diseases and pandemics. Some are particularly concerned that waiving IP rights might undermine the existing efforts and arrangements for large scale production of vaccines that rely, in part, on the IP system.  

“State of play

“Since the General Council held on 7 October 2021,  members have held intense contacts in various configurations. Some members have noted encouraging exchanges at small group discussions and bilateral meetings which have helped to identify points of convergence on how to provide a common IP response to COVID-19. Others have said that further conversations that move the TRIPS Council towards evidence-based and pragmatic solutions should guide their discussions at this critical juncture.

“At a meeting of the TRIPS Council on 18 November, members formally adopted an oral status report for the General Council on 22-23 November indicating that the TRIPS Council has not yet completed its consideration of the revised waiver request. The TRIPS Council will therefore continue its consideration, including through small-group consultations and informal open-ended meetings, and report back to the 12th Ministerial Conference (MC12) as stipulated in Article IX:3 of the Marrakesh Agreement. In addition, the TRIPS Council will also continue in the same manner its consideration of the other related proposals by members.

“This means the TRIPS Council remains in session so that it  can continue to provide a forum for delegations to provide transparency on their ongoing talks, and to adopt any elements or solutions they may have found.”

Despite the postponement of the 12th Ministerial Conference due to the increase in COVID cases from the omicron variant, WTO Members have indicated a desire to push ahead to resolve some matters, including the multilateral response to the pandemic. Last month, Director-General Ngozi Okonjo-Iweala urged WTO Members to push forward and seek a resolution on the WTO’s response to the pandemic by the end of February this year. See WTO press release, Members discuss way forward in dedicated meeting on WTO pandemic response, 27 January 2022,https://www.wto.org/english/news_e/news22_e/gc_27jan22_e.htm (“WTO members met on 27 January to discuss the WTO response to the COVID-19 pandemic. The informal meeting convened by the Chair of the General Council, Ambassador Dacio Castillo of Honduras, looked at issues related to cross-border trade flows and the proposal to waive certain intellectual property protections related to COVID-19 countermeasures. Director-General Ngozi Okonjo-Iweala called on members to move swiftly to try and reach a comprehensive outcome by the end of February.).

One week later according to press reports, Amb. Castillo called for a “strategic pause” in the formal negotiations on a WTO response to permit WTO Members to discuss their differences with each other outside of the full group format. See Inside U.S. Trade’s World Trade Online, General Council chair: WTO pandemic package talks need ‘strategic pause’, February 4, 2022, https://insidetrade.com/daily-news/general-council-chair-wto-pandemic-package-talks-need-%E2%80%98strategic-pause%E2%80%99.

Observations

The chances of a final resolution on a pandemic response package by the end of February seem remote if not nonexistent at the present time. The United States is reportedly not actively engaged and has raised some concerns with the export restraint portion of the package. There seems little likelihood that the EU and others supporting an approach other than TRIPS waiver will agree to a waiver, while those supporting a waiver don’t seem inclined to accept an alternative approach.

There are a number of reasons why a waiver is unlikely to be accepted. First, vaccine equity in 2021 had more to do with India’s failure to export the volumes of vaccines contracted with COVAX than any other single cause although slowness in shifting supplies from countries with surplus product was also an issue. In 2022, there will be sufficient supplies of vaccines for the entire world, and there have been major commitments by major countries to supply large volumes of doses to countries in need. UNICEF tracks capacity to produce COVID vaccines and shipments of vaccines. Around 11 billion doses were shipped globally (including in-country) in 2021 and projections for shipments in 2022 range from 16.8-20.9 billion doses. See COVID-19 Vaccine Market Dashboard, 5 February 2022, doses delivered collectively, 11.771 billion, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard; forecasted COVID-19 vaccine supply availability, 2022 (low estimate 16.8 billion doses; base estimate, 18.7 billion doses; high estimate 20.9 billion doses) (under capacity tab), A waiver of TRIPS obligations would be unlikely to change the quantity of vaccines available for shipment in 2022, so seems unnecessary to address vaccinating the world’s population in 2022.

Second, multilateral efforts and efforts of some pharmaceutical companies has resulted in a rapid expansion of production capacity around the world as the above figures confirm. Even where pharmaceutical companies have not licensed their vaccine technologies, there have been independent breakthroughs including on mRNA vaccines. See, e.g., Reuters, In world first, South Africa’s Afrigen makes mRNA COVID vaccine using Moderna data, February 4, 2022, https://www.reuters.com/world/africa/world-first-safricas-afrigen-makes-mrna-covid-vaccine-using-moderna-data-2022-02-03/ (“CAPE TOWN, Feb 3 (Reuters) – South Africa’s Afrigen Biologics has used the publicly available sequence of Moderna Inc’s (MRNA.O) mRNA COVID-19 vaccine to make its own version of the shot, which could be tested in humans before the end of this year, Afrigen’s top executive said on Thursday. The vaccine candidate would be the first to be made based on a widely used vaccine without the assistance and approval of the developer. It is also the first mRNA vaccine designed, developed and produced at lab scale on the African continent.”).

Third, recent press articles indicate that some countries with very low vaccination rates have nonetheless developed significant antibodies in their populations due to prior waves of infections of COVID-19. With lower average age of populations, COVID-19 has had less severe consequences on their populations, such that there is a belief they are moving to an endemic situation with COVID-19. See my recent post, January 30, 2022:  Recent National Public Radio story, “Africa may have reached the pandemic’s holy grail,” raises interesting questions on a country’s age distribution and ability to get past the pandemic stage with lower vaccination rates, https://currentthoughtsontrade.com/2022/01/30/recent-national-public-radio-story-africa-may-have-reached-the-pandemics-holy-grail-raises-interesting-questions-on-a-countrys-age-distribution-and-ability-to-get-past-the-pandemic-stage-wit/.

All of the above suggests that the case for a waiver, at least at this time, is not strong, which will likely keep opposition of the EU and others strong.

The WTO has served as a depository for information on the types of restrictions and has permitted Members to encourage limiting restrictions on access to critical medicines and inputs. It has also developed reports helpful to Members to understand existing barriers or restrictions as well as to do outreach to the private sector for a better understanding of bottlenecks in production and distribution ramp-ups. The WTO in conjunction with other multilateral organizations has helped generate information to better inform the needs of countries for assistance and develop more coordinated efforts at support.

The WTO Members may yet be able to reach agreement on a response to the pandemic that will not only help with the current pandemic but establish a common frame of reference of dealing with future pandemics in a more effective manner that promotes greater equity. It is just unlikely to happen in the next 23 days.