Austria

U.S. Section 301 investigations on digital services taxes by trading partners — USTR releases additional reports on January 14, 2021

On January 8, 2021, I reviewed in a post the release of the first three of ten reports on investigations under Section 301 of the Trade Act of 1974, as amended, on countries’ digital services taxes (DSTs). See January 8, 2021, U.S. Section 301 investigations on digital service taxes by trading partners – an update, https://currentthoughtsontrade.com/2021/01/08/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-an-update/ (release of reports on India, Italy and Turkey). The release of the three reports was accompanied by a decision to postpone indefinitely the imposition of additional duties on France for its DST to permit a coordinated response on all eleven countries following the completion of all investigations. The Federal Register notices on the India, Italy and Turkey investigations and the postponement of imposition of duties on France for its DST were published on January 12. See 86 FR 2477-78 (Italy); 86 FR 2478-79 (India); 86 FR 249-80 (France); 86 FR 2480 (Turkey).

On January 14, USTR released three additional reports on the DSTs of Austria, Spain and the United Kingdom and released a status report on the remaining four investigations on Brazil, the Czech Republic, the European Union, and Indonesia. See USTR press release, USTR Releases Findings and Updates in DST Investigations,
01/14/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-and-updates-dst-investigations. The press release is embedded below but, similar to the earlier reports, found that “each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing
principles of international taxation, and burden or restricts U.S. commerce.”

USTR-Releases-Findings-and-Updates-in-DST-Investigations-_-United-States-Trade-Representative

The press release notes that “’The taxation of companies that engage in international trade in goods and services is an important issue,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘The best outcome would be for countries to come together to find a solution.’” As noted in the January 8 post, there is an ongoing process through the OECD/G20 Integrated Framework to find a solution by mid-2021.

For the four investigations where USTR has not yet published reports, USTR released a status report yesterday, reflecting the reality that the Trump Administration is in its final week and such unfinished investigations and issuance of reports will await the incoming Biden Administration. See Office of the United States Trade Representative, Section 301 Investigations, Status Update on Digital Services Tax Investigations of Brazil, the Czech Republic, the European Union, and Indonesia, https://ustr.gov/sites/default/files/files/Press/Releases/StatusUpdate301InvestigationsBEUIndCR.pdf. The twenty page status report is embedded below.

StatusUpdate301InvestigationsBEUIndCR

The status update is organized as reviewed in the opening paragraph of the update.

“In this Status Update, USTR reports on the progress of the four investigations, offers brief descriptions of the four jurisdictions’ approach to digital services taxes, and describes our preliminary, high-level concerns. In the sections that follow, we address: the procedural developments in the four investigations (Section I); a description and preliminary analysis of Brazil’s DST proposal (Section II); a description and preliminary analysis of the Czech Republic’s DST proposal (Section III); a description and preliminary analysis of the EU’s
approach to digital services taxes (Section IV); and a description and preliminary analysis of Indonesia’s DST proposal (Section V).”

There is little doubt that when the four pending investigations are completed, there will be similar findings to those in the prior seven completed investigations.

As reviewed in the January 8 post, the OECD was to hold a virtual meeting on January 14-15, 2021 in an effort to obtain public input to refine the draft documents released in October and to help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

For the incoming Biden Administration, it will be facing in the early months of the new Administration critically important negotiations on the OECD/G20 proposals as well as the need to complete the investigations on the four unfinished 301 investigations on DSTs. The outcome and interplay of both will have significant implications for global trade and for fairness in international taxation.

Below are the reports on Austria, Spain and the United Kingdom and the notices sent to the Federal Register on each of the three investigations.

AustriaDSTSection301Report

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SpainDSTSection301Report

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U.S. Section 301 investigations on digital service taxes by trading partners — an update

For all countries the question of tax base erosion and profit shifting during a period of tremendous growth in e-commerce has been important as countries struggle to secure funding sources in a rapidly changing global marketplace. Concerns about tax revenue sources has grown during the COVID-19 pandemic as e-commerce has surged and may countries tax revenues have shrunk which stimulus outlays have soured.

For a number of years the OECD and the G20 have been working with many other countries in what is called an integrated framework to examine how international taxation needs to change to reflect the changed economic environment. The U.S. unhappiness with many trading partners on the question of digital service taxes is the early adoption of taxes on digital services before the completion of international negotiations and, in particular, taxes which appear to the U.S. to discriminate against U.S. companies who often are major global players in e-commerce and digital services.

In a post from early June, I reviewed the actions of the United States in response to actions by trading partners to introduce digital services taxes (DST), including a first investigation under section 301 of the Trade Act of 1974, as amended (“section 301”) on France on their DST and the initiation of investigations under section 301 on nine other countries and the European Union. While USTR had identified additional tariffs of 100% on a variety of French products, the imposition of duties was postponed until January 6, 2021 to give negotiators time to reach an agreement within the OECD. See June 3, 2020:  Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union, https://currentthoughtsontrade.com/2020/06/03/digital-services-taxes-new-u-s-section-301-investigations-on-nine-countries-and-the-european-union/.

Earlier this week, USTR issued three reports on three countries from the 2020 investigations — on India, Italy and Turkey. Parts of the USTR press release are copied below and, similar to the report on France, found the DSTs of the three countries were discriminatory to U.S. companies, contrary to international tax principles and burden or restrict U.S. commerce. See USTR press release, USTR Releases Findings in DST Investigations,
01/06/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-dst-investigations.

“Washington, DC – The U.S. Trade Representative has issued findings in Section 301 investigations of Digital Service Taxes (DSTs) adopted by India, Italy, and Turkey, concluding that each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce.

“The findings on each of the DSTs are supported by comprehensive reports, which are being published today on USTR’s website.

“USTR is not taking any specific actions in connection with the findings at this time but will continue to evaluate all available options.

“The Section 301 investigations of the DSTs adopted by India, Italy, and Turkey were initiated in June 2020, along with investigations of DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom. USTR expects to announce the progress or completion of additional DST investigations in the near future.”

Similarly, on January 7, 2021, USTR announced that it was postponing introduction of tariffs on French products that were due to kick in on January 6 to provide the agency with the ability to coordinate its actions based on the results of the other ongoing investigations. See USTR press release, Suspension of Tariff Action in France Digital Services Tax Investigation, 01/07/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/suspension-tariff-action-france-digital-services-tax-investigation. The press release is copied below.

“Washington, DC – The U.S. Trade Representative has determined to suspend the tariff action in the Section 301 investigation of France’s Digital Services Tax (DST). The additional tariffs on certain products of France were announced in July 2020, and were scheduled to go into effect on January 6, 2021. The U.S. Trade Representative has decided to suspend the tariffs in light of the ongoing investigation of similar DSTs adopted or under consideration in ten other jurisdictions. Those investigations have significantly progressed, but have not yet reached a determination on possible trade actions. A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations.

“The suspension of the France DST tariffs is set out in a notice sent for publication in the Federal Register.”

The three notices on the India, Italy and Turkey investigations were sent to the Federal Register on January 6 and will appear in the Federal Register next week. The same is true on the postponement of tariffs on France which was forwarded yesterday to the Federal Register and which should appear next week as well.

The three USTR reports released on January 6 and the four notices sent to the Federal Register by USTR on January 6 or 7 are embedded below.

Report-on-Indias-Digital-Services-Tax

Report-on-Italys-Digital-Services-Tax

Report-on-Turkeys-Digital-Services-Tax

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FRN-France-DST-Modification-2021.01.07

The OECD/G20 Integrated Framework talks

The OECD/G20 Integrated Framework negotiations on arriving at tax policies for an increasingly digitalized global economy have been ongoing for a number of years and include 137 countries.

The OECD/G20 Integrated Framework project released a series of reports on policy issues and approaches to address international taxation in the age of digitalisation in early October to address base erosion profit shifting (“BEPS”) and have moved the target date for completion from the end of 2020 to mid-2021. The reports released attempt to address at least some of the U.S. concerns. The OECD has sought public comments, received more than 270 comments and is holding a virtual meeting on January 14-15 in an effort to obtain public input to refine the draft documents and help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

A series of documents released in October that permit a better understanding of the complexities involved in seeking a way forward are listed next. For non-tax readers, the “Top 10 Frequently Asked Questions” is a good primer on the issues and challenges. See OECD/G20 Inclusive Framework on BEPS, Addressing the Tax Challenges Arising from the Digitalisation of the Economy, HIGHLIGHTS, October 2020, https://www.oecd.org/tax/beps/brochure-addressing-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising
from Digitalisation – Report on Pillar One Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint-beba0634-en.htm; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Report on Pillar Two Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-two-blueprint-abb4c3d1-en.htm; OECD/G20 Inclusive Framework on BEPS, PUBLIC CONSULTATION DOCUMENT, Reports on the Pillar One and Pillar Two Blueprints, 12 October 2020 – 14 December 2020, https://www.oecd.org/tax/beps/public-consultation-document-reports-on-pillar-one-and-pillar-two-blueprints-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Economic Impact Assessment, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-economic-impact-assessment-0e3cc2d4-en.htm; OECD, Tax Issues Arising from Digitalisation, Top 10 Frequently Asked Questions, October 2020, https://www.oecd.org/tax/beps/top-10-frequently-asked-questions-tax-challenges-digitalisation.pdf; Public consultation meeting on the Reports on the Pillar One and Pillar Two Blueprints (Date 14-15 January 2021), https://www.oecd.org/tax/beps/public-consultation-meeting-reports-on-the-pillar-one-and-pillar-two-blueprints.htm; 11th meeting of the OECD/G20 Inclusive Framework on BEPS (Date 27-28 January 2021 (Inclusive Framework plenary); 29 January 2021 (Tax and Development briefings)), https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-meeting-january-2021.htm.

To understand some of the concerns of U.S. businesses or business groups with actions of particular trading partners, a review of several comments to the OECD/G20 may be useful. I embed below comments from the American Chamber of Commerce Ireland, Amazon and the Business Roundtable. The Amcham Ireland paper comments on non-discrimination, multilateralism, administrability and certainty, avoiding double taxation, durability, efficiency, scope, safe harbour, segmentation and the interaction with the US’s Global intangible low-taxed income (GILTI). Amazon explores issues in the two pillar blueprints dealing with segmentation, sourcing, user location/IP address, business-to-business sales, reasonable steps/evidence requirements, double tax relief, dispute prevention and resolution, marketing and distribution safe harbour, GILTI Co-existence, framework for implementation, double-tax relief, application of STTR, and additional areas for simplification. The Business Roundtable (BR) has an overview section in which they “affirm certain principles of international income taxation” as being critical to a strong and growing global economy. One of the principles is that taxation should be of net business profits, not gross revenue. BR also provides seven comments on specific aspects of Pillar One and/or Two which are similar to concerns raised by the other U.S. interests. Comment 4 states “An agreement on Pillar One must include repeal of existing unilateral measures and a commitment to refrain from imposing any new unilateral measures aimed at profit reallocation or the digital economy.” It is the unilateral actions of trading partners that are perceived to discriminate against U.S. companies, often base tax on revenue versus profit and deviate from other established international taxation principles that is causing concern in the U.S. business community and resulting in U.S. investigations under Section 301 of the Trade Act of 1974, as amended.

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Amazon

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Conclusion

With the Trump Administration in its last twelve days, it is unknown if USTR will be able to complete the remaining seven 301 investigations on Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom to accompany the three reports released on the 6th of January dealing with India, Italy, and Turkey and the earlier report and proposed action on France. My guess is that this will be a primary focus of USTR in the next week and a half so that a full set of reports is available and possibly a recommendation for action on all eleven reports. Whether the remaining investigations are completed by January 20 or not, the Biden Administration will be confronted with the ongoing OECD/G20 process with a target completion in the front half of 2021 and a host of governments implementing DSTs unilaterally ahead of any agreement among the Integrated Framework members. Action under 301 is an option should trading partners pursue approaches to DSTs that in fact discriminate against U.S. companies or deviate from what the OECD/G20 process is likely to generate as a final package.

World COVID-19 pandemic peaks on November 26 and starts to slowly recede

The most recent surge in COVID-19 cases (up from 3.57 million cases over a fourteen day period in early August to over 5 million for fourteen days on October 22 to over 8 million new cases for fourteen days on November 17), seems to have peaked on November 26 with 8,296,264 new cases over fourteen days and has been slowly receding for the last three days, down to 8,142,629 new cases during the period November 16-29. Total cases since the end of December 2019 now stand at 62,271,031 as of November 29 according to the European Centre for Disease Prevention and Control (ECDC) publication “COVID-19 situation update worldwide, as of 29 November 2020”.

The World Health Organization puts out a publication that tracks cases and deaths on a weekly basis. COVID-19 Weekly Epidemiological Update (data as of 22 November). While it breaks countries and territories into different configuarations that the ECDC, the publication shows new cases in the period November 16-22 declining 6% in Europe and in South East Asia while increasing 11% in the Americas, 5% in the Eastern Mediterranean, 15% in Africa and 9% in the Western Pacific. Because of the large spike in cases in the September – November period in many parts of the world, deaths in the November 16-22 period increased in all regions — up 10% in Europe, 15% in the Americas, 4% in South-East Asia, 10% in the Eastern Mediterranean, 30% in Africa and 1% in the Western Pacific. The latest report is embedded below.

20201124_Weekly_Epi_Update_15

The graphs in the WHO publication show by region the trajectory of new cases and deaths over time. The chart showing aggregate data show a flattening of total new cases in the last weeks of November while the number of deaths globally are sharply increasing.

The WHO Africa region peaked in the summer and has declined until the last few weeks when there has been some increase in both cases and deaths.

The Americas saw a peak in both new cases and deaths in the July period with some declines in new cases until the second half of September when the current surge started and accelerated in November. Deaths declined until early October before starting to grow again.

The Eastern Mediterranean peaked in May-June for both cases and deaths, declined through August/September and have surged to new heights with continued upward trajectory as of November 22.

The WTO European Region had an early surge of cases and deaths in the March-April period. Deaths receded sharply through August. While new cases have increased since summer, there was a massive increase in the September – end of October period in new cases and rising deaths through November.

The WHO South-East Asia region saw a huge increase in cases and deaths in the May-August period, peaking in early September and declining since then. Much of the data for the region reflect activity in India.

The Western Pacific Region has had several peaks in terms of deaths and in new cases, though the numbers are the lowest of any WHO region. The latest peak in new cases was in early August with some increase in the October-November period. Deaths last peaked in early September and have declined through November.

The United States

Turning back to the ECDC data, the United States continues to have more confirmed cases (13,246,651) than any other nation and more confirmed deaths from COVID-19 (266,063) than any other nation. The United States is also still experiencing a surge in new cases and rising deaths. October 31 was the first day that ECDC data show the U.S. recording 100,000 new cases in a single day. Since November 5, the U.S. has had more than 100,000 new cases every day up to November 29. It is the only country to record one million new cases in a week and the only country to record two million new cases in fourteen days. For the last fourteen days, the U.S. recorded 2,341,760 new cases. The U.S., which accounts for 4.3% of the global population, accounts for 21.27% of all COVID-19 cases that have been reported since December 2019 and accounted for 28.76% of new cases in the last two weeks. The rate of increase remains high for the United States — up 31.67% from the 1,778,530 new cases in the two weeks ending November 15. There are concerns that the number of new cases will continue to increase into the new year based on the high rate of infections in many parts of the country, major potential spreading events around holidays in November (Thanksgiving) and December, and limited compliance with basic requirements for limiting the spread of the virus.

The number of deaths from COVID-19 that the U.S. accounts for has declined from roughly 20% to 18.30% as of November 29. In the last two week, while the U.S. has the largest number of deaths in the two weeks, the percent of total deaths accounted for by the U.S. in the November 16-29 period was 14.65%. However, many cities, communities and even states are at or nearing the limits of the health care capacity with hospitalizations now about 90,000, limits on health care professionals with the surging cases and some challenges on personal protective equipment. Thus, models used by the government projects a continued rise in the number of deaths in the coming months.

While the first vaccine could receive emergency approval for distribution in the U.S. as early as December 10, and the U.S. could have two or three vaccines in distribution in early 2021, the United States will unfortunately likely be a major part of the continued high rate of infections and deaths well into 2021.

Europe

While Europe had faced early challenges in a number of western European countries in February-April and very high death rates in a number of countries, the second wave of cases following the relaxation of restrictions in time for summer vacations accounted for the vast majority of the incrase in new cases during the October and early November time period. In earlier posts, I showed that Europe and the U.S. accounted for nearly all of the increase from 5 million new cases in the two weeks ending October 22 to the more than 8 million new cases in the two weeks ending November 17. See November 17, 2020, New COVID-19 cases over a fourteen day period continue to soar past eight million, up from five million on October 22, https://currentthoughtsontrade.com/2020/11/17/new-covid-19-cases-over-a-fourteen-day-period-continue-to-soar-past-eight-million-up-from-five-million-on-october-22/

While some of the major countries, including France, Italy, Spain, the United Kingdom and others have seen significant reductions in the number of new cases in recent weeks from the extraordinary figures recorded in late October, early November, numbers remain very high for a number of countries including Poland, Portugal, Serbia, Croatia, Hungary, Lithuania and Luxembourg — all of whom had new cases/100,000 population in the last fourteen days that were higher than the United States.

Because deaths lag new cases by a number of weeks, it is perhaps less surprising that much of Europe had deaths/100,000 population in the last fourteen days that were higher than the United States, most at rates that were two-three times the U.S. rate. The rate for the world in total was 1.82 deaths per 100,000 population for the November 16-29 period. The U.S. was 3.38 times the global average at 6.22 deaths per 100,000 population in that two week period. The following 25 European countries exceeded the U.S. rate: France (11.76 deaths/100,000 population); Italy (16.04); Spain (8.31); United Kingdom (9.40); Armenia (12.81); Austria (13.47); Belgium (18.84); Moldova (6.50); Poland (16.65); Portugal (10.30); Romania (11.50); Serbia (7.11); Switzerland (14.98); Bulgaria (23.69); Croatia (15.92); Czechia (18.74); Greece (11.08); Hungary (16.12); Lithuania (8.12); Luxembourg (13.19); Malta (6.79); Slovenia (19.85); Bosnia and Herzegovina (20.75); Georgia (13.19); and North Macedonia (20.12).

With new restrictions in recent weeks bringing new cases down in a number of European countries, death rates should start to decline as well in the coming weeks. Challenges in terms of superspreader events in Europe include holiday travel and events and winter holidays and sports. Germany has proposed placing restrictions on the ski season to try to minimize increased cases from a sport popular across much of Europe. See DW, 26 November 2020, Coronavirus: Germany seeks EU-wide ban on ski trips, https://www.dw.com/en/coronavirus-germany-seeks-eu-wide-ban-on-ski-trips/a-55732273.

The EU has contracts with at least six pharmaceutical companies or groups for vaccines if approved. The EU and United Kingdom will start to see vaccine dosages within weeks assuming approval in their jurisdictions.

Other countries

While much of the rest of the world has not seen great increases in the number of cases that is not true for all countries. For example, Iran which had 136,753 new cases in the November 2-15 period showed 186,274 new cases in the November 16-29 period (+36.21%). Jordan, which has a total number of cases of 210,709 since the end of December has recorded 65.54% of that total in the last four weeks (68,698 new cases during November 2-15; 69,404 new cases during November 16-29). Similarly, Morocco which has a total of 349,688 cases since December 2019 has more than 37% recorded in the last four weeks (69,127 during November 2-15; 61,477 during November 16-29).

In the Americas the following countries in addition to the United States have two week totals to November 29 greater than 100,000 new cases: Argentina (108,531); Brazil (441,313); Colombia (108,609). The following countries besides the United States have more than one million cases since late December 2019: Argentina (1,413,362); Brazil (6,290,272); Colombia (1,299,613), Mexico (1,100,683). Eleven other countries have more than 100,000 cases (with Peru having 960,368). Other than the U.S., countries are facing different trend lines, many down, some showing increases (e.g., Brazil, Canada, Dominican Republic, Paraguay).

In Asia, while India continues to see declines in the number of new cases, Indonesia, Israel, Japan, Kazakhstan, Malaysia, Pakistan, Palestine, South Korea, showed increased in the most recent two weeks, some quite large. This is in addition to Iran reviewed previously.

In Africa, South Africa has the most cases and saw an increase from 23,730 new cases during November 2-15 to 35,967 during November 16-29. Morocco was reviewed above. Most other major countries in Africa saw declines in recent weeks.

Conclusion

The world in the first eleven months of 2020 has struggled to get the COVID-19 pandemic under control with several major surge periods. The global number of new cases seems to have plateaued over the last week or so at extraordinarily high levels and the death rates has been climbing after a long period where deaths appeared to be declining. It is likely that the death rate will continue to increase for the rest of 2020.

After a period during the summer and early fall where restrictions in a number of countries were being relaxed, many countries in the norther hemisphere are reimposing various restrictions in an effort to dampen the spread of the coronavirus. While trade has significantly rebounded from the sharp decline in the second quarter of 2020, services trade remains more than 30% off of 2019 levels driven by the complete collapse of international travel and tourism. Many WTO members have put forward communications on actions that could be considered to speed economic recovery. The most recent was the Ottawa Group’s communication about a possible Trade and Health Initiative. 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/.

The WTO TRIPS Council has a request for a waiver from most TRIPS obligations for all WTO Members on medical goods and medicines relevant to COVID-19 on which a recommendation is supposed to be forwarded to the General Council by the end of 2020 though it is opposed by a number of major Members with pharmaceutical industries. See November 2, 2020, India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

With vaccines very close to approval in major markets like the United States and the European Union, there will be increased focus on efforts to ensure availability of vaccines and therapeutics and diagnostics globally on equitable and affordable terms. GAVI, CEPI and the WHO have been leading this initiative with the support of many governments and private sector players. Pharmaceutical companies also have global distribution plans being pursued in addition to the above efforts.

So there hopefully is light at the end of the tunnel that the COVID-19 pandemic has imposed on the world. But vaccines without vaccinations won’t solve the pandemic’s grip. So communication and outreach globally will be critical to seeing that available vaccines are properly used. And all peoples need to be able to access the vaccines, some of which will be less available simply because of the infrastructure needs to handle the vaccines.

Trade policy options to minimize trade restrictions coupled with global cooperation and coordination should result in the world being able to rebuild in 2021 and beyond as more and more of the world is vaccinated.

Multilateral efforts to help the poorest countries deal with debt, make available trade finance and other actions continue to be a pressing need. Better plans and preparation for pandemics of the future are clearly needed. Reports suggest that many of the poorest countries have experienced loss of a decade or more of economic advancement during the pandemic. Building back greener and in a sustainable manner is critical for all.

The efforts of developed country governments and others to provide the stimulus domestically to reduce the downward spiral of the individual national economies and the global economy has been critical to limiting the damage at home and abroad. But the assumption of large amounts of debt will also pose significant challenges moving forward because of the greatly heightened national debt/GDP ratios that have developed and may restrict options for individual governments moving forward.

What is certain is that 2020 will be remembered as a year in which a virus inflicted enormous damage to the global health and to the global economy. Collectively, the level of spread has been far greater than should have been possible. Many nations were not prepared. Some, like the United States, exacerbated the problems through a lack of national government planning and messaging. Others like many in Europe, having done a good job of controlling the spread in the early months, made major mistakes as they opened up for summer vacations and didn’t deal with the problems that resulted from the reopening and experienced breathtaking surges which roughly doubled the global daily rate of new cases in five-six weeks and have led to the reimposition of a series of restrictions to try to tame the pandemic a second time. We collectively are better than the results achieved to date. The number of deaths in advanced countries is simply disgraceful.

2021 offers the opportunity for the world to come together and put COVID-19 behind us. Whether we will come to the end of 2021 and feel that this global nightmare is behind us and that there are national and global game plans to rebuild in a greener and more sustainable manner with greater opportunities for all is the question. Hopefully, the answer will be yes.

New COVID-19 cases over a fourteen day period continue to soar past eight million, up from five million on October 22

The COVID-19 pandemic continues to see an upward spiral in terms of the number of new infections although there has been a recent slowdown in new cases in Europe. Europe and the United States continue to constitute the bulk of the increase over the last 26 days as the following graph taken from the European Centre for Disease Prevention and Control’s COVID-19 situation update world wide, as of 17 November 2020 shows.

Distribution of COVID-19 cases worldwide, as of 17 November 2020

Distribution of COVID-19 cases worldwide, as of 17 November 2020


More specifically, in the last twenty-six days, the number of new COVID-19 cases globally over the last fourteen days has shot from five million to over eight million — a near sixty percent increase in a little over three and a half weeks. The total new cases identified since late December 2019 globally are now 55.15 million as of November 17.

On October 22, the European Centre for Disease Prevention and Control (ECDC) recorded the first day where the number of new COVID-19 cases over a fourteen day period globally surpassed five million (5,042,415). In just eight days, on October 30, the ECDC reports the fourteen day total shooting past six million new cases (6,093,987), an increase of 1,051,572 or 20.85% in eight days. The report for November 7 shows the total new cases in the last fourteen days crossing the seven million mark — 7,044,267 — or 15.59% over October 30 and 39.70% over October 22. And today, November 17, the ECDC report shows new cases in the last fourteen days as passing eight million (8,031,073) — 14.01% above November 7, 31.79% above October 30 and 59.27% above October 22. As reviewed in three prior posts (October 22 and October 30), the U.S. and Europe were major factors in hitting five million, six million and seven million daily cases and today’s data show them to continue to be the major causes of the continued rapid escalation in global cases. See October 22, 2020, COVID-19 new cases over last 14 days pass 5,000,000 for first time on October 22, https://currentthoughtsontrade.com/2020/10/22/covid-19-new-cases-over-last-14-days-pass-5000000-for-first-time-on-october-22/; October 30, 2020,  In last eight days, the number of global new COVID-19 cases over past fourteen days has grown from five to six million, https://currentthoughtsontrade.com/2020/10/30/in-last-eight-days-the-number-of-global-new-covid-19-cases-over-past-fourteen-days-has-grown-from-five-to-six-million/; November 7, 2020:  New COVID-19 cases over a fourteen day period continue to soar from five million on October 22 to six million on October 30 to seven million on November 7, https://currentthoughtsontrade.com/2020/11/07/new-covid-19-cases-over-a-fourteen-day-period-continue-to-soar-from-five-million-on-october-22-to-six-million-on-october-30-to-seven-million-on-november-7/

The table below shows the fourteen day totals for selected countries as of October 22, October 30, November 7 and November 17, and the change in new cases from October 22 – November 17. These twenty countries show an increase in the twenty-six days from October 22 – November 17 of 2,772,211 additional new cases while the increase from all countries was 2,988,658. So the 20 countries account for 92.76% of the total growth. In the prior periods (October 30 and November 7), the 20 countries had accounted for more than 100% of the increase in new cases. The 20 countries accounted for 2,558,802 new cases for the fourteen days ending October 22 or 50.75% of the global total at that time. For the fourteen days ending October 30, the 20 countries accounted for 3,584,674 new cases or 58.82% of the global total. For the fourteen days ending November 7, the 20 countries accounted for 4,568,491 new cases or 64.85% of the global total. And for the fourteen days ending November 17, the 20 countries accounted for 5,331,013 new cases or 66.38% of new cases. The table below shows that eight European countries — France, Spain, Belgium, Czechia, the Netherlands, Switzerland, Slovakia and Slovenia — showed significant new case reductions in the November 17 period compared to the November 7 period.

Country10-22-202010-30-202011-7-202011-17-2020Change
United States786,488966,2691,245,8761,914,2411,127,753
France303,912473,085620,778524,800220,888
United Kingdom244,954291,718315,486336,817 91,863
Spain169,394238,709282,700256,167 86,773
Italy115,708234,993377,812474,293358,585
Russia198,716227,530252,794315,975117,259
Belgium100,119171,522152,663 72,643 -27,476
Poland95,260169,302265,447338,308243,048
Czechia113,555161,058165,174114,627 1,072
Germany81,905151,137224,483255,367173,462
Netherlands103,024126,543125,163 84,442 -18,582
Ukraine76,48989,178109,792143,495 67,006
Switzerland35,26173,418107,837 93,395 58,134
Romania48,53260,55086,030114,508 65,976
Hungary18,16628,38848,845 65,890 47,724
Austria19,38735,43661,823 93,528 74,141
Bulgaria10,59220,64335,665 45,274 34,682
Slovakia18,91327,50333,177 25,447 6,534
Slovenia8,85920,02123,345 19,338 10,479
Sweden9,56817,67133,601 42,458 32,890
Total2,558,8023,584,6744,568,4915,331,0132,772,211

While the United States has the largest absolute increase in the last twenty-five days for a single country and accounted for 40.68% of the increase recorded by the twenty countries for the October 22-November 17 period, the U.S. accounted for 87.65% of the increase of the twenty countries for the November 7-November 17 period. While Europe has been the largest part of the increase in October and November, the rate of increase has slowed or declined for many European countries in the last fourteen days.

Europe led the U.S. in the dramatic increase in new cases in October and in the reintroduction of restrictions in many countries to attempt to bring the coronavirus back under control. Actions in Europe appear to be working at least in a large number of countries as the number of new cases is declining in some countries as can be seen in the table above. The United States is continuing with huge increases in new cases, in hospitalizations and is seeing a growing number of deaths. Many U.S. states are putting in place at least some restrictions to try to slow the growth of new cases and reduce the strain on the health care system. The next week or two will help understand whether the actions being taken in the U.S. are sufficient to reduce the growth in new cases.

Other parts of the world are not experiencing a second wave to the same extent as Europe or the United States, although much of the Americas remain at very high levels of new cases. Some major countries who have been seriously hit in recent months are seeing substantial reductions in new cases. India is one example — on October 22, the last 14 days showed 871,291 new cases; on October 30, for the last 14 days new cases were down to 718,383; on November 7 were down to 647,398 for the 14 days ; and for the fourteen days ending on November 1, India’s new cases were down to 606,667.

The EU and the US face problems on additional aid packages

The EU has at least a temporary crisis as Hungary and Poland have blocked adoption of the aid package that had been agreed to. See, e.g., Euronews, 16 November 2020, Hungary and Poland block EU’s COVID-19 recovery package over new rule of law drive, https://www.euronews.com/2020/11/16/hungary-and-poland-threaten-coronavirus-recovery-package.

The U.S. Congress and Administration have been unable to agree to additional stimulus funds to help the U.S. economy and citizens deal with the continued COVID-19 pandemic. The U.S. has more than 22 million Americans still out of work and with government assistance having terminated or to terminate shortly. Aid for small businesses and for sectors particularly hard hit by the pandemic is desperately needed as is funding for state and local governments and much more. While President Trump has urged Congress to pass an additional stimulus package, it is unlikely that action will be taken before the next Congress convenes and the new Administration is sworn in on January 20.

Progress on vaccine development

Two vaccines have completed phase 3 testing — one from Pfizer/BioNTech and one from Moderna — and information from the companies suggests efficacy rates of 90-94.5%. Thus, it is possible that these two vaccines will be approved for use in the coming weeks and will see large scale availability in the first half of 2021. Many other vaccines are in various phases of testing. So 2021 will hopefully see the roll out of various vaccines with significant availability around the world due to efforts of the companies and the efforts of the WHO/GAVI/CEPI to ensure availability to developing and least developed countries as well.

Conclusion

The top priority for many countries around the world remains getting the COVID-19 pandemic under control. The costs in terms of human life and serious health problems are enormous. So too the costs to the global economy from taking the steps necessary to address the pandemic are enormous.

How to address the pandemic and how to work internationally to secure a return to normalcy and a return to sustainable economic growth are the challenges for all governments and international organizations.

The fact that the number of new cases is continuing to surge globally ten and a half months after the start of global surveillance is obviously troubling and delays the return to normalcy. While some individual countries have gained control of the pandemic and others are making significant strides to reduce the number of new cases, “no one is safe until all are safe”. We have a long road to travel, and the western developed world is currently the major hot spot, struggling with the current extraordinary surge, although there are positive signs in Europe that at least many countries are slowing the spread after a very challenging September and October. We still are not in sight of a global peak although the rate of growth is slowing for the world as a whole though not for countries like the United States.

There is obviously some light at the end of the tunnel as vaccines and therapeutics get closer to public release. With more than 55 million infections recorded to date around the world and with more than 1.3 million deaths globally, the pressing question is how much worse will the situation become before the world gets back to normal with the pandemic controlled. The world is in for a challenging time til at least next summer and more realistically to the end of 2021 and the start of 2022.

New COVID-19 cases over a fourteen day period continue to soar from five million on October 22 to six million on October 30 to seven million on November 7

The COVID-19 pandemic continues to spiral out of control with the vast majority of the new cases in Europe and the United States as the following graph taken from the European Centre for Disease Prevention and Control’s COVID-19 situation update world wide, as of 7 November 2020 shows.

Distribution of COVID-19 cases worldwide, as of 7 November 2020

Distribution of COVID-19 cases worldwide, as of 7 November 2020

More specifically, in the last sixteen days, the number of new COVID-19 cases globally over the last fourteen days has shot from five million to over seven million — a near forty percent increase in a little over two weeks. The total new cases identified since late December 2019 globally are just under 50 million (49.37 million) as of November 7.

On October 22, the European Centre for Disease Prevention and Control (ECDC) recorded the first day where the number of new COVID-19 cases over a fourteen day period globally surpassed five million (5,042,415). In just eight days, on October 30, the ECDC reports the fourteen day total shooting past six million new cases (6,093,987), an increase of 1,051,572 or 20.85% in eight days. Today’s report (November 7) shows the total new cases in the last fourteen days crossing the seven million mark — 7,044,267 — or 15.59% over October 30 and 39.70% over October 22. As reviewed in two prior posts (October 22 and October 30), the U.S. and Europe were major factors in hitting five million and six daily cases and today’s data show them to continue to be the major causes of the continued rapid escalation in global cases. See October 22, 2020, COVID-19 new cases over last 14 days pass 5,000,000 for first time on October 22, https://currentthoughtsontrade.com/2020/10/22/covid-19-new-cases-over-last-14-days-pass-5000000-for-first-time-on-october-22/; October 30, 2020,  In last eight days, the number of global new COVID-19 cases over past fourteen days has grown from five to six million, https://currentthoughtsontrade.com/2020/10/30/in-last-eight-days-the-number-of-global-new-covid-19-cases-over-past-fourteen-days-has-grown-from-five-to-six-million/.

The table below shows the fourteen day totals for selected countries as of October 22, October 30 and November 7 and the change in new cases from October 22 – November 7. These twenty countries show an increase in sixteen days of 2,009,689 new cases over the fourteen day periods examined or more than the global total increase of 2,001,852 new cases over the same sixteen days The 20 countries accounted for 2,558,802 new cases for the fourteen days ending October 22 or 50.75% of the global total at that time. For the fourteen days ending October 30, the 20 countries accounted for 3,584,674 new cases or 58.82% of the global total. Finally, for the fourteen days ending November 7, the 20 countries accounted for 4,568,491 new cases or 64.85% of the global total.

Country10-22-202010-30-202011-7-2020Change
United States786,488966,2691,245,876459,388
France303,912473,085620,778316,866
United Kingdom244,954291,718315,48670,532
Spain169,394238,709282,700113,306
Italy115,708234,993377,812262,104
Russia198,716227,530252,79454,078
Belgium100,119171,522152,66352,544
Poland95,260169,302265,447170,187
Czechia113,555161,058165,17451,619
Germany81,905151,137224,483142,578
Netherlands103,024126,543125,16322,139
Ukraine76,48989,178109,79233,303
Switzerland35,26173,418107,83772,576
Romania48,53260,55086,03037,498
Hungary18,16628,38848,84530,679
Austria19,38735,43661,82342,436
Bulgaria10,59220,64335,66525,073
Slovakia18,91327,50333,17714,264
Slovenia8,85920,02123,34514,486
Sweden9,56817,67133,60124,033
Total2,558,8023,584,6744,568,4912,009,689

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

It is little wonder, then, that the EU, the UK and Switzerland, with dramatic growth in the number of new cases, are imposing renewed restrictions at least in many countries and facing backlash from citizens suffering COVID-19 exhaustion. See, e.g., Politico, November 1, 2020, Europe is living a coronavirus flashback plus a backlash, https://www.politico.eu/article/europe-is-living-a-coronavirus-flashback-plus-a-backlash/. While health care is handled by the individual countries within the the EU, the EU has been advocating better coordination and maintaining trade flows within the Community as countries come to grips with the current wave. See, e.g., Politico, October 30, 2020, EU leaders link arms for long fight against virus, https://www.politico.eu/article/eu-leaders-link-arms-for-long-fight-against-virus/.

In the United States, the number of new cases is spiking again, with new cases now more than 100,000/day in recent days and the fourteen day total new cases of 1,245,876 is more than 20% higher than was recorded on November 1 — the first day where a fourteen day total of new cases in teh U.S. topped one million. See November 1, 2020, United States becomes second country to have more than 1,000,000 new COVID-19 cases in fourteen days, https://currentthoughtsontrade.com/2020/11/01/united-states-becomes-second-country-to-have-more-than-1000000-new-covid-19-cases-in-fourteen-days/. With most attention in the U.S. focused on the election results, the COVID-19 situation is receiving relatively limited press attention and no change in federal government response.

Other parts of the world are not experiencing a second wave to the same extent, although much of the Americas remain at very high levels of new cases. Some major countries who have been seriously hit in recent months are seeing substantial reductions in new cases. India is the leading example — on October 22, the last 14 days showed 871,291 new cases; on October 30, for the last 14 days new cases were down to 718,383, and were down to 647,398 for the 14 days ending on November 7.

Conclusion

The top priority for many countries around the world is getting the COVID-19 pandemic under control. The costs in terms of human life and serious health problems are enormous. So too the costs to the global economy from taking the steps necessary to address the pandemic are enormous. For example, the European Union recently reduced its projected economic growth in 2021 because of the second wave of COVID-19 cases. See Politico, November 5, 2020, EU cuts economic forecast due to coronavirus wave, https://www.politico.eu/article/eu-cuts-economic-forecast-due-to-coronavirus-wave/ (2021 forecast cut from 6.1% growth to 4.2% growth).

How to address the pandemic and how to work internationally to secure a return to normalcy and a return to sustainable economic growth are the challenges for all governments and international organizations, including the WTO, WHO, IMF, World Bank and many others. Recent IMF regional economic outlooks show varied projections for economic growth for different parts of the world and major challenges for areas like Sub-Saharan Africa. See, e.g., IMF Press Release, October 22, 2020, Regional Economic Outlook, Sub-Saharan Africa, a difficult road to recovery, https://www.imf.org/en/News/Articles/2020/10/21/pr20319-sub-saharan-africa-a-difficult-road-to-recovery.

The fact that the number of new cases is continuing to surge globally ten months after the start of global surveillance is obviously troubling and delays the return to normalcy. While some individual countries have gained control of the pandemic and others are making significant strides to reduce the number of new cases, “no one is safe until all are safe”. We have a long road to travel, and the western developed world is currently the major hot spot, struggling with the current extraordinary surge. We still are not in sight of a global peak and the rest of 2020 is likely to continue to stress global capabilities.

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

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

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

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

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

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

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

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

Conclusion

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

Third Round of Consultations in Selecting new WTO Director-General – eight days to go, political outreach continues at high level

The last WTO Director-General, Roberto Azevedo, departed at the end of August. The existing four Deputy Directors-General are overseeing WTO operations awaiting the outcome of the selection process for a new Director-General. While eight candidates were put forward by early July and had two months to “become known” to WTO Members, the process of winnowing down the candidates started in September and has gone through two rounds where the candidate pool went from eight to five to two. Which brings the WTO to the third and final round of consultations by the troika of Chairs of the General Council, Dispute Settlement Body and Trade Policy Review Body with the WTO Membership to find the one candidate with the broadest support both geographically but also by type of Member (developed, developing, least developed).

The third round started on October 19 and will continue through October 27. While the process is confidential, with each Member meeting individually with the troika and providing the Member’s preference, Members can, of course, release information on the candidate of their preference if they so choose.

The two candidates who remain in contention are Minister Yoo Myung-hee of the Republic of Korea and Dr. Ngozi Okonjo-Iweala of Nigeria. While all eight of the candidates who were put forward in June and July were well qualified, Minister Yoo and Dr. Okonjo-Iweala have received high marks from WTO Members from the very beginning. While Minister Yoo has the advantage in terms of trade background, Dr. Okonjo-Iweala has an impressive background as a former finance minister, 25 years at the World Bank and her current role as Chair of GAVI.

The procedures for selecting a new Director-General which were agreed to in late 2002 by the General Council put a primary focus on qualifications as one would assume. However, where there are equally well qualified candidates then geographical diversity is specifically identified as a a relevant criteria. There has never been a Director-General from Africa and there has only been one Director-General from Asia (although there was also a Director-General from the Pacific area outside of Asia). With the UN Sustainable Development Goals including one on gender equality (SDG #5), many Members have also been interesting in seeing a Director-General picked from the women candidates. Since both of the two remaining candidates are women, geographical diversity will likely have an outsized role in the third round .

Both remaining candidates are receiving strong support from their home governments in terms of outreach to foreign leaders seeking support for their candidate. The candidates, of course, are also extremely busy with ongoing outreach.

Thus, Minister Yoo traveled back to Europe last week and had a meeting with the EC Trade Commissioner Dombrovskis on October 13, among other meetings. See https://ec.europa.eu/commission/presscorner/detail/en/cldr_20_1935; Yonhap News Agency, Seoul’s top trade official to visit Europe to drum up support her WTO chief race, October 12, 2020, https://en.yna.co.kr/view/AEN20201012003300320?section=business/industry;

Similarly, the Korean President Moon Jae-in, Prime Minister Chung Sye-kyun and the ruling Democratic Party (DP) Chairman Lee Nak-yon are engaged in outreach for Minister Yoo’s candidacy. Korea JoongAng Daily, October 12, 2020, Moon, allies intensify campaign for Yoo Myung-hee to head WTO, https://koreajoongangdaily.joins.com/2020/10/12/national/politics/Yoo-Myunghee-WTO-Moon-Jaein/20201012172600409.html. Contacts have been made with heads of state or senior officials in Malaysia, Germany, Brazil, Colombia, Sri Lanka, Guatemala, Japan and the U.S. among others. See The Korea Times, October 20, 2020, Government goes all out for Yoo’s WTO election Government goes all out for Yoo’s WTO election, https://www.koreatimes.co.kr/www/nation/2020/10/120_297887.html. President Moon has also raised the issue of support with new ambassadors to Korea — including the German, Vietnamese, Austrian, Chilean, Pakistani and Omani ambassadors. Yonhap News Agency, October 16, 2020, Moon requests support for S. Korea’s WTO chief bid in meeting with foreign envoys, https://en.yna.co.kr/view/AEN20201016008600315.

Minister Yoo is reported to be having problems in solidifying support from some major Asian Members — including China and Japan — for reasons at least partially separate from her qualifications and is facing what appears to be block support by African WTO Members for Dr. Okonjo-Iweala. Thus, broad outreach in Asia, the Americas and in Europe will be important for Minister Yoo if she is to be the last candidate standing on October 28-29.

Dr. Okonjo-Iweala is similarly receiving strong support from her government where President Muhammadu Buhari indicated full support by the Nigerian government. See The Tide News Online, Ocotber 14, 2020, Buhari Backs Okonjo-Iweala For WTO Job, http://www.thetidenewsonline.com/2020/10/14/buhari-backs-okonjo-iweala-for-wto-job/. Press accounts report that Dr. Okonjo-Iweala has the full backing of the African Union as well as support in both the Americas and Asia. See RTL Today, October 19, 2020, ‘I feel the wind behind my back’: Nigerian WTO candidate, https://today.rtl.lu/news/business-and-tech/a/1596831.html. Many have felt that Dr. Okonjo-Iweala is the candidate to beat, and she is certainly helped by the support of the African Union WTO Members but will also need broad support in the other regions of the world to be the one remaining candidate.

With just eight days to go to the conclusion of the third round of consultations, the remaining two candidates and their governments are turning over every stone in their effort to generate the support needed to come out of the third round as the sole candidate left.

While the candidate announced on October 29 as the remaining candidate still has to be put forward to the General Council for consensus adoption as the new Director-General, it seems unlikely at the moment that either candidate, should she emerge as the preference of the WTO membership, would be blocked by a Member from becoming the next Director-General. While such blockage is always a possibility, the 2002 agreed procedures have prevented such blockage and hopefully will result in a clean conclusion this year as well.

It is certain to be an interesting end of October.

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

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

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

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

USTR FR notice 301 investigation on digital services

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

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

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

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

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

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

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

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

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

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

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

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

Report_On_France’s_Digital_Services_Tax

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

Conclusion

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

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

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