Amb. Dennis Shea

China and the WTO – remarks by Dennis C. Shea to the Coalition for a Prosperous America

On March 26, 2021, the former Deputy USTR in Geneva during the Trump Administration, Amb. Dennis C. Shea, spoke to the Coalition for a Prosperous America. While the remarks were made in his individual capacity, the remarks reviewed the challenges for the World Trade Organization remaining relevant with the current activities of the People’s Republic of China. His remarks, entitled “Three hard truths” can be found on his linkedin page. See Remarks to CPA, 3.26.2021, https://www.linkedin.com/feed/update/urn:li:activity:6781608096750956544/?updateEntityUrn=urn%3Ali%3Afs_feedUpdate%3A%28V2%2Curn%3Ali%3Aactivity%3A6781608096750956544%29.

The three hard truths from his remarks are copied below.

“The first of these hard truths is that China’s economic system – with its unique melding of public, private, and Chinese Communist Party resources, all harnessed to advance industrial policy objectives – is incompatible with the WTO norms of market orientation, transparency, non-discrimination, and reciprocity.”

“The second hard truth is that the WTO has proven itself incapable of restraining the trade disruptive activities of the Chinese non-market economic system.”

“The third hard truth is that China does not want change at the WTO.”

Amb. Shea reviews in some detail the actions of China post-accession to move away from market reforms that trading partners expected from China’s accession to the WTO and why such actions frustrate the proper functioning of the WTO. He also reviews China’s willingness to retaliate against trading partners for their legitimate use of WTO rights and to punish trading partners for comments China views as against their interests. The import bans against Australian products when Australia urged an independent investigation into the source of the COVID-19 virus is one example mentioned. Finally, on the issue of not wanting change at the WTO, Amb. Shea reviews China’s opposition to every reform issue raised by the United States.

Amb. Shea’s remarks are worth a close read. While he doesn’t address a road forward, his well founded concerns about China’s role in the trading system and its incompatible economic system with WTO rules bring to mind a piece by a former EC Director General for Trade, Mogens Peter Carl which I reviewed in an earlier post. 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/ . I reproduce much of that post below.

“Earlier this week (July 20), a former EC Director General for Trade, Peter Carl, penned an opinion piece in Les Echos with the provocative title, “A new WTO is needed without China” (literally A new WTO must see the day without China). https://www.lesechos.fr/idees-debats/cercle/opinion-une-nouvelle-omc-doit-voir-le-jour-sans-la-chine-1224748.

“Mr. Carl indicates in the opinion piece that ‘Europe’s trade policy has stagnated for twenty years. It no longer meets the demands of today’s world and the European public attributes the loss of millions of jobs to China.’ (all quotes from the opinion piece are informal translations by Google Translate ). The opinion is remarkable as it comes from a former senior EC trade official.

“‘Our policy is outdated and based on an outdated ideology that is identical to what it was before the arrival of China on the world state, after its accession to the WTO in 2001. Its centralized economy, its powerful industrial policy in all the key sectors, its enormous state subsidies, combined with a government apparatus and a political repression as powerful as those of the ex-USSR, swept large swathes of European and American industry. However, we act as if we were in the heyday of the 1990s, when our main competitors were other market economies, Japan, Korea, the United States. Our inaction resembles the ostrich policy and unilateral pacifism of the 1930s. We know the results. We must therefore protect our liberal economies and our open societies against adversaries. This requires a fundamental review of the trade policy of the European Union and the WTO.’

“Mr. Carl calls for a complete reform of the WTO with the EU teaming up with the U.S. and other like-minded Members but recognizes that meaningful reform will be blocked by China. ‘The solution: withdraw from the WTO and create a new international trade organization without China. Most countries would follow our example. We would return to an open world economic order between market economy countries sharing the same ideas, on the basis of clear and reinforced principles in favor of the free market.’ Mr. Carl advocates for the adoption of rules that would deal with ‘abuses’ of the China model including improved subsidy disciplines and ‘rules against social, environmental dumping and inaction on climate change.’ Such new rules are needed to permit the EU to green its economy.

“Mr. Carl, addressing concerns that his proposal represents a turn to managed trade, says simply that ‘This is what we already have, although only China manages it, and we are suffering the consequences.’

“That Mr. Carl felt the need to publish such a strongly worded opinion shows the underlying and growing tensions felt by major trading partners from a major economic power with a fundamentally different economic system than that pursued by the historic major players in world trade.

“For WTO Members and their businesses and workers, the rising discontent by many with the functioning of the WTO and its ability to achieve meaningful reform should be a wake-up call. The WTO to be relevant must have rules that address the world in the 21st century. The WTO must also be able to have Members assume increased responsibilities as their stage of economic development evolves. Similarly, the WTO must confront whether existing rules can be modified to generate greater coverage of practices by different types of economic systems. If not, the WTO must consider whether it can survive where all Members don’t follow similar economic systems.

“Unfortunately, there appears little likelihood that many of these critical reforms will be addressed in the coming years. China has objected to WTO Members trying to modify existing agreements to address distortions caused by China’s economic system. China has also objected to the U.S. effort to have Members consider whether WTO rules require Members to operate market-economy based systems. China and others have objected to U.S. efforts to define ‘developing country’ and effectively have Members take on obligations commensurate to their stage of economic development. Stated differently, China is working hard to defend the status quo and prevent consideration of reforms that would achieve greater balance among all WTO Members.

“While USTR Lighthizer and others have said that if the WTO didn’t exist, it would have to be created, Mr. Carl’s opinion suggests that one option that may take on greater appeal is the withdrawal from the WTO and the creation of a new international trade regime among countries with similar economic systems. Such a move away from the WTO would certainly involve enormous economic upheaval and political tensions. The more desirable course of action is to achieve timely reform of the WTO so that all Members feel the system achieves reasonable reciprocity.

“Time will tell whether WTO Members find a path forward or whether the WTO becomes less and less relevant and even ceases to function. In a Member driven organization, the answer lies with the membership.”

The WTO now has a new Director-General who is working to see if Members can achieve breakthroughs on the existing fisheries subsidies, make significant progress on Joint Statement Initiatives, while encouraging Members to limit export restraints on medical goods needed to address the COVID-19 pandemic, promote rapid return to trade growth post pandemic, and work on WTO reform.

The Biden Administration has a desire to work with trading partners in multilateral organizations like the WTO and has articulated the need of allies to work together to address problems caused by non-market economies like China. While the Biden Administration will certainly pursue WTO reform, Amb. Shea’s final paragraph of his remarks is on point.

“The Biden Administration has made working with friends and allies a hallmark of its diplomatic approach, particularly when it comes to China. When the Administration brings this approach to the WTO, I sincerely hope our friends and allies will appreciate the gravity of the moment and what’s at stake.”

Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?

In yesterday’s post (January 24), I reviewed the continued widespread human rights issue of child labor and forced labor in the production of a wide range of products (agricultural, manufactured, mined products) in many countries around the world. Such actions raise trade concerns by distorting the costs of production of products made with such labor and hence potentially skewing trade flows towards producers “benefitting” from the use of such labor. See 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/. In the United States, imports of products made with such labor are supposed to be banned. I had concluded by arguing that the WTO should develop information that would help Members understand the quantity of products that are made with child or forced labor and permit Members to then decide what actions were needed to eliminate or offset such practices.

I received a comment on yesterday’s post from Amb. Dennis Shea, the Former Deputy United States Trade Representative and Chief of Mission on international trade issues in Geneva and the Permanent Representative of the U.S. to the WTO (2017-January 2021). Amb. Shea’s comment focused on cotton. He said, “The WTO’s Committee on Agriculture in Special Session (COA-SS) and its Cotton Subcommittee are charged with examining all trade-distorting policies affecting the cotton sector in order to discharge its mandate properly. It seems to me that the COA-SS and Cotton Subcommittee should examine recent reports of widespread forced labor in the picking of cotton in the Xinjiang Province of China. It is my understanding that Xinjiang accounts for nearly 20 percent of global cotton exports, so it’s probably not a stretch to say that forced labor practices there (horrific from a human rights standpoint) are also distorting global cotton prices.”

While cotton is but one of many products believed to be produced by child and/or forced labor, it is an important product globally. The fact that there may be an existing WTO mechanism for developing the relevant information is potentially important.

In yesterday’s post, I had referenced an upcoming WITA virtual webinar, The U.S. Moves Against Forced Labor in Xinjiang, being held this Wednesday, January 27. One of the speakers at the event is Dr. Adrian Zenz, Senior Fellow in China Studies, Victims of Communism Memorial Foundation, Washington, D.C. One of the papers referenced in a recent WITA note is by Dr. Zenz for the Center for Global Policy entitled “Coercive Labor in Xinjiang: Labor Transfer and the Mobilization of Ethnic Minorities to Pick Cotton” (December 2020), https://cgpolicy.org/wp-content/uploads/2020/12/20201214-PB-China-Zenz-1-3.pdf. The paper confirms that Xinjiang produces 20% of global cotton and nearly 84.9% of all cotton produced in China. Id. at 3. The Executive Summary of the paper states in part (page 3) —

“The evidence shows that in 2018, three Uyghur regions alone mobilized at least 570,000 persons into cotton-picking operations through the government’s coercive labor training and transfer scheme. Xinjiang’s total labor transfer of ethnic minorities into cotton picking likely exceeds that figure by several hundred thousand.

“Despite increased mechanization, cotton picking in Xinjiang continues to rely strongly on manual labor. In 2019, about 70 percent of the region’s cotton fields had to be picked by hand – especially the high-quality
long-staple cotton predominantly grown in southern Xinjiang’s Uyghur regions, where mechanized picking shares are low. State policies have greatly increased the numbers of local ethnic minority pickers, reducing
reliance on outside Han Chinese migrant laborers. The intensive two- to three-month period of cotton picking represents a strategic opportunity to boost rural incomes, and therefore plays a key role in achieving the state’s poverty alleviation targets. These targets are mainly achieved through coercive labor transfers.

“Cotton picking is grueling and typically poorly paid work. Labor transfers involve coercive mobilization
through local work teams, transfers of pickers in tightly supervised groups, and intrusive on-site surveillance by government officials and (in at least some cases) police officers. Government supervision teams monitor pickers, checking that they have a “stable” state of mind, and administer political indoctrination sessions. Some regions put Uyghur children and elderly persons into centralized care while working-age adults
are away on state-assigned cotton-picking work assignments. While not directly related to the campaign of mass internment, these labor transfers can include persons who have been released from internment camps.

“The data presented in this report provides strong evidence that the production of the majority of Xinjiang’s cotton involves a coercive, state-run program targeting ethnic minority groups.”

China is not the only country where the U.S. Department of Labor has identified production of cotton is likely done with child labor, forced labor or child labor and forced labor. See USDOL, 2020 List of Goods Produced by Child Labor or Forced Labor, September 2020, https://www.dol.gov/sites/dolgov/files/ILAB/child_labor_reports/tda2019/2020_TVPRA_List_Online_Final.pdf. Indeed many of the world’s largest cotton producers are listed in the report as likely producing cotton with child labor, forced labor or both child labor and forced labor:

Child labor: Argentina, Azerbaizan, Brazil, Egypt, India, Kyrgyz Republic, Mali, Turkey, Zambia.

Forced labor: Pakistan, Uzbekistan

Child labor and forced labor: China, India (cottonseed), Turkmenistan.

In the past there has been one WTO dispute on subsidies to cotton producers in the United States. See UNITED STATES – SUBSIDIES ON UPLAND COTTON, WT/DS267 (case brought by Brazil). I have been unable to find information on the WTO webpage that indicates the question of child or forced labor as a subsidy or other form of nontariff barrier has ever been examined at the WTO whether on cotton or more broadly.

For the last seventeen years, there has been concern about distortions to the cotton trade and the harm to countries for which cotton is a major export product. The breakout of cotton occurred at the request of the so-called Cotton Four — Benin, Burkina Faso, Chad and Mali. See Cotton, https://www.wto.org/english/tratop_e/agric_e/cotton_e.htm.

“Cotton is discussed at the WTO on two tracks: 1) the trade reforms needed to address subsidies and high trade barriers for cotton, and 2) the assistance provided to the cotton sector in developing countries.

“The trade aspects of cotton are handled by the Committee on Agriculture in Special Session including through dedicated discussions on trade in cotton. The development assistance aspects of cotton are discussed in the meetings of the ‘Director-General’s Consultative Framework Mechanism on Cotton’.

“These various tracks of discussion have been developed over the years as a response to a series of proposals to address the sector tabled by four African countries — Benin, Burkina Faso, Chad and Mali — known as the Cotton Four or C4.”

While WTO Members are supposed to be reporting information on various categories of data (including domestic support) on cotton and on non-tariff barriers affecting trade in cotton, the latest WTO Secretariat compilation of information does not indicate that Members were asked about or provided information on the benefits to domestic cotton production from child labor and/or forced labor. See COTTON — BACKGROUND PAPER BY THE SECRETARIAT, TN/AG/GEN/34/Rev.13, TN/AG/SCC/GEN/13/Rev.13, 2 November 2020 (and Add.1 and Add.2); COTTON — MINISTERIAL DECISION OF 7 DECEMBER 2013, WT/MIN(13)/41, WT/L/916, 11 December 2013 (“3. In this context, we therefore undertake to enhance transparency and monitoring in relation to the trade-related aspects of cotton. To this end, we agree to hold a dedicated discussion on a biannual basis in the context of the Committee on Agriculture in Special Session to examine relevant trade-related developments across the three pillars of Market Access, Domestic Support and Export Competition in relation to cotton. 4. The dedicated discussions shall be undertaken on the basis of factual information and data compiled by the WTO Secretariat from Members’ notifications, complemented, as appropriate, by relevant information provided by Members to the WTO Secretariat. 5. The dedicated discussions shall in particular consider all forms of export subsidies for cotton and all export measures with equivalent effect, domestic support for cotton and tariff measures and non-tariff measures applied to cotton exports from LDCs in markets of interest to them.”); COTTON — MINISTERIAL DECISION OF 19 DECEMBER 2015, WT/MIN(15)/46, WT/L/981, 21 December 2015. The background paper (without addenda) is embedded below.

TNAGGEN34R13

Thus, there is an existing forum for developing information on all distortions to the cotton market. Yet, to date, the WTO subcommittee on Cotton is not examining the widespread issue of child labor and forced labor as part of its information gathering. This is unfortunate but could be addressed if there is a will to in fact flag all distortions.

There can be arguments pro and con on whether all child labor and forced labor constitutes actionable subsidies under the Agreement on Subsidies and Countervailing Measures. While I believe that the practices identified as being used in Xinjiang constitute actionable subsidies (government action which provides inputs (labor) at rates lower than market), there can be no doubt that the failure of governments to eliminate child labor and forced labor distorts competition between those obtaining products through the use of such labor and others who are not using such labor. The use of child labor and forced labor are universally condemned and supposed to be eliminated by 2025 (child labor) or 2030 (forced labor) pursuant to the UN Sustainable Development Goals.

The WTO can and should develop the factual basis for an understanding of the trade distortions flowing from child labor and forced labor. The existence of a current program at the WTO on cotton to develop information on all forms of subsidies and all forms of non-tariff barriers is a good place to start the exercise. My thanks to Amb. Shea for flagging the potential existing vehicles within the WTO to address at least cotton.

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

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

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

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

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

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

W813

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

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

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

223

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

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

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

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

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

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

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

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

“Therefore we invite Members to proceed in two steps.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

China did not provide an intervention on agenda item 8.

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

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

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

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

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

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

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

W803R1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Agenda Item 10: Market-Oriented Conditions

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

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

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

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

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

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

“Thank you.”

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

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

jsec_18dec20_e

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

December 18 Dispute Settlement Body meeting

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

W609R19

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

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

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

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

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

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

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

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

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

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

“• But of course, many questions remain.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

Comment

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

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

Fish stocks and subsidies

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

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

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

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

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

.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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