China

COVID-19 Vaccines — Bolivia seeks a compulsory license to produce a vaccine in a third country

Back in February of this year, Bolivia provided notice that it intended to use the special compulsory licensing system as an importing Member under the Amended TRIPS Agreement. See NOTIFICATION UNDER THE AMENDED TRIPS AGREEMENT, NOTIFICATION OF INTENTION TO USE THE SPECIAL COMPULSORY LICENSING SYSTEM
AS AN IMPORTING MEMBER, IP/N/8/BOL/1, 19 February 2021.

On the 10th of May 2021, Bolivia filed a notice with the WTO seeking access to a COVID-19 vaccine through a compulsory license for production in a third country. The notice was posted on the WTO website on November 11 (IP/N/9/BOL/1) and the subject of a WTO news release on the 12th of May. See WTO, Bolivia outlines vaccine import needs in use of WTO flexibilities to tackle pandemic, 12 May 2021, https://www.wto.org/english/news_e/news21_e/dgno_10may21_e.htm. Bolivia’s two notifications are embedded below.

8BOL1

9BOL1

A translation from Google Translate (with a few tweaks) of the May 10 notice is provided below.

NOTIFICATION UNDER THE AMENDED TRIPS AGREEMENT

NOTIFICATION OF THE NEED TO IMPORT PHARMACEUTICAL PRODUCTS UNDER THE SPECIAL COMPULSORY LICENSING SYSTEM

Member(s) who present the notification

Plurinational State of Bolivia

Necessary product(s)

An estimated 15 million doses of COVID-19 vaccines. In particular, it is intended to import the vaccine Ad26.COV2.S, a replication adenovirus type 26 (AD26) vectorized vaccine incompetent that encodes a stabilized variant of protein S of the SARS-Cov-2. The Plurinational State of Bolivia reserves the right to import other vaccines.

Demonstration that the capabilities of manufacturing in the pharmaceutical sector are insufficient or nonexistant

[X] At the moment the Member does not have manufacturing capacity in the pharmaceutical sector.

[ ] The Member has found that its capacity in the pharmaceutical sector to meet the needs regarding the pharmaceutical product needed.

Information about how it has proved the lack of manufacturing capacities (enough) in the pharmaceutical sector

The Plurinational State of Bolivia has verified that it does not have the capacity to manufacture in the pharmaceutical sector vaccines against COVID-19 including the vaccine Ad26.COV2.S.

Is (are) the product(s) necessary (s) protected (s) by patent in the territory?

[ ] No.

[ ] Yes.

[X] To be determined. Insofar as they have been requested or granted patents for the necessary products, the Plurinational State of Bolivia intends to grant compulsory licenses, in accordance with Articles 31 and 31bis of the TRIPS Agreement.

Date of presentation of the notification

10 May 2021

The WTO news release is copied below.

“The government of Bolivia has formally notified the WTO of the country’s need to import COVID-19 vaccines, taking another step towards using flexibilities in WTO intellectual property rules as part of its pandemic response.

“Bolivia notified the WTO it needed to import 15 million doses of a vaccine under the legal system introduced in a
2017 amendment (https://www.wto.org/english/news_e/news17_e/trip_23jan17_e.htm) to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). That amendment, which created Article 31bis of the TRIPS Agreement, provides an additional legal pathway for import-reliant countries to access affordable medicines, vaccines and other pharmaceutical products.

“Bolivia’s submission follows through on its February notification signalling that it intended to exercise the flexibilities under the amendment.

“Bolivia’s notification opens up the possibility of importing the needed vaccines from any one of around 50 WTO members (https://www.wto.org/english/tratop_e/trips_e/par6laws_e.htm) that have put in place domestic laws providing for the production and export of medicines made under compulsory licence through this system.

“’This is an example of a WTO member seeking to make use of available tools under the TRIPS Agreement to respond to the COVID-19 pandemic, even as members seek to expand the range of options through the TRIPS waiver proposal,’ said Antony Taubman, Director of the WTO’s Intellectual Property Division. ‘This step provides one practical component of what could be a wider process of countries signalling urgent and unmet needs and encouraging a combined, coordinated response by international partners.’

“The WTO Secretariat has been encouraged by members in the TRIPS Council to provide any necessary technical assistance to facilitate use of the system to import pharmaceutical products manufactured under compulsory licence.”

The intersection of intellectual property rights and public health has been a topic of great interest and intense feelings at the WTO since its inception and resulted in an amendment to the TRIPS Agreement to address the needs of developing and least developed countries without pharmaceutical manufacturing capacity for certain products during emergencies. As the WTO news release notes, through a long process starting in 2001 and ending with the adoption of Article 31bis to the TRIPS Agreement in 2017, special provisions were added that would permit importing developing or least developed countries to have pharmaceutical products produced under compulsory license in countries adopting procedures to comply with the modified agreement. Today the following countries are on the list of WTO Members willing to produce pharmaceutical products under compulsory license for importing countries where conditions are met:

Albania; Australia; Botswana; Canada; China; Croatia; Cuba; European Union; Hong Kong, China; India; Jordan; Kazakhstan; New Zealand; Norway; Oman; Philippines; Republic of Korea; Singapore; Switzerland; Chinese Taipei; Japan. See Intellectual Property: TRIPS and Health, Members’ laws implementing the ‘Paragraph 6’ system, https://www.wto.org/english/tratop_e/trips_e/par6laws_e.htm.

The Amended TRIPS Agreement at Article 31bis and the Annex and Appendix which lay out requirements for utilization of the compulsory license provisions for importers are copied below. Like other compulsory licensing provisions, compensation to the patent holder is required by the exporter.

Article 31bis

1. The obligations of an exporting Member under Article 31(f) shall not apply with respect to the grant by it of a compulsory licence to the extent necessary for the purposes of production of a pharmaceutical product(s) and its export to an eligible importing Member(s) in accordance with the terms set out in paragraph 2 of the Annex to this Agreement.

2. Where a compulsory licence is granted by an exporting Member under the system set out in this Article and the Annex to this Agreement, adequate remuneration pursuant to Article 31(h) shall be paid in that Member taking into account the economic value to the importing Member of the use that has been authorized in the exporting Member. Where a compulsory licence is granted for the same products in the eligible importing Member, the obligation of that Member under Article 31(h) shall not apply in respect of those products for which remuneration in accordance with the first sentence of this paragraph is paid in the exporting Member.

3. With a view to harnessing economies of scale for the purposes of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products: where a developing or least developed country WTO Member is a party to a regional trade agreement within the meaning of Article XXIV of the GATT 1994 and the Decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (L/4903), at least half of the current membership of which is made up of countries presently on the United Nations list of least developed countries, the obligation of that Member under Article 31(f) shall not apply to the extent necessary to enable a pharmaceutical product produced or imported under a compulsory licence in that Member to be exported to the markets of those other developing or least developed country parties to the regional trade agreement that share the health problem in question. It is understood that this will not prejudice the territorial nature of the patent rights in question.

4. Members shall not challenge any measures taken in conformity with the provisions of this Article and the Annex to this Agreement under subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994.

5. This Article and the Annex to this Agreement are without prejudice to the rights, obligations and flexibilities that Members have under the provisions of this Agreement other than paragraphs (f) and (h) of Article 31, including those reaffirmed by the Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2), and to their interpretation. They are also without prejudice to the extent to which pharmaceutical products produced under a compulsory licence can be exported under the provisions of Article 31(f).

ANNEX TO THE TRIPS AGREEMENT 

1. For the purposes of Article 31bis and this Annex:

(a) “pharmaceutical product” means any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems as recognized in paragraph 1 of the Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2). It is understood that active ingredients necessary for its manufacture and diagnostic kits needed for its use would be included(1);
  

(b) “eligible importing Member” means any least-developed country Member, and any other Member that has made a notification(2) to the Council for TRIPS of its intention to use the system set out in Article 31bis and this Annex (“system”) as an importer, it being understood that a Member may notify at any time that it will use the system in whole or in a limited way, for example only in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. It is noted that some Members will not use the system as importing Members(3) and that some other Members have stated that, if they use the system, it would be in no more than situations of national emergency or other circumstances of extreme urgency;
  

(c) “exporting Member” means a Member using the system to produce pharmaceutical products for, and export them to, an eligible importing Member.

2. The terms referred to in paragraph 1 of Article 31bis are that:

(a) the eligible importing Member(s)(4) has made a notification(2)to the Council for TRIPS, that:
  

(i) specifies the names and expected quantities of the product(s) needed(5);
  

(ii) confirms that the eligible importing Member in question, other than a least developed country Member, has established that it has insufficient or no manufacturing capacities in the pharmaceutical sector for the product(s) in question in one of the ways set out in the Appendix to this Annex; and
  

(iii) confirms that, where a pharmaceutical product is patented in its territory, it has granted or intends to grant a compulsory licence in accordance with Articles 31 and 31bis of this Agreement and the provisions of this Annex(6);
  

(b) the compulsory licence issued by the exporting Member under the system shall contain the following conditions:
  

(i) only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS;
  

(ii) products produced under the licence shall be clearly identified as being produced under the system through specific labelling or marking. Suppliers should distinguish such products through special packaging and/or special colouring/shaping of the products themselves, provided that such distinction is feasible and does not have a significant impact on price; and
  

(iii) before shipment begins, the licensee shall post on a website(7) the following information:
  

— the quantities being supplied to each destination as referred to in indent (i) above; and
  

— the distinguishing features of the product(s) referred to in indent (ii) above;
  

(c) the exporting Member shall notify(8) the Council for TRIPS of the grant of the licence, including the conditions attached to it.(9) The information provided shall include the name and address of the licensee, the product(s) for which the licence has been granted, the quantity(ies) for which it has been granted, the country(ies) to which the product(s) is (are) to be supplied and the duration of the licence. The notification shall also indicate the address of the website referred to in subparagraph (b)(iii) above.

3. In order to ensure that the products imported under the system are used for the public health purposes underlying their importation, eligible importing Members shall take reasonable measures within their means, proportionate to their administrative capacities and to the risk of trade diversion to prevent re-exportation of the products that have actually been imported into their territories under the system. In the event that an eligible importing Member that is a developing country Member or a least-developed country Member experiences difficulty in implementing this provision, developed country Members shall provide, on request and on mutually agreed terms and conditions, technical and financial cooperation in order to facilitate its implementation.

4. Members shall ensure the availability of effective legal means to prevent the importation into, and sale in, their territories of products produced under the system and diverted to their markets inconsistently with its provisions, using the means already required to be available under this Agreement. If any Member considers that such measures are proving insufficient for this purpose, the matter may be reviewed in the Council for TRIPS at the request of that Member.

5. With a view to harnessing economies of scale for the purposes of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products, it is recognized that the development of systems providing for the grant of regional patents to be applicable in the Members described in paragraph 3 of Article 31bis should be promoted. To this end, developed country Members undertake to provide technical cooperation in accordance with Article 67 of this Agreement, including in conjunction with other relevant intergovernmental organizations.

6. Members recognize the desirability of promoting the transfer of technology and capacity building in the pharmaceutical sector in order to overcome the problem faced by Members with insufficient or no manufacturing capacities in the pharmaceutical sector. To this end, eligible importing Members and exporting Members are encouraged to use the system in a way which would promote this objective. Members undertake to cooperate in paying special attention to the transfer of technology and capacity building in the pharmaceutical sector in the work to be undertaken pursuant to Article 66.2 of this Agreement, paragraph 7 of the Declaration on the TRIPS Agreement and Public Health and any other relevant work of the Council for TRIPS.

7. The Council for TRIPS shall review annually the functioning of the system with a view to ensuring its effective operation and shall annually report on its operation to the General Council.

APPENDIX TO THE ANNEX TO THE TRIPS AGREEMENT 

Assessment of Manufacturing Capacities in the Pharmaceutical Sector

Least-developed country Members are deemed to have insufficient or no manufacturing capacities in the pharmaceutical sector.

For other eligible importing Members insufficient or no manufacturing capacities for the product(s) in question may be established in either of the following ways:

(i) the Member in question has established that it has no manufacturing capacity in the pharmaceutical sector;
  

or
  

(ii) where the Member has some manufacturing capacity in this sector, it has examined this capacity and found that, excluding any capacity owned or controlled by the patent owner, it is currently insufficient for the purposes of meeting its needs. When it is established that such capacity has become sufficient to meet the Member’s needs, the system shall no longer apply.


Notes:

  1.  This subparagraph is without prejudice to subparagraph 1(b). 
  2.  It is understood that this notification does not need to be approved by a WTO body in order to use the system.  
  3.  Australia, Canada, the European Communities with, for the purposes of Article 31bis and this Annex, its member States, Iceland, Japan, New Zealand, Norway, Switzerland, and the United States.   
  4.  Joint notifications providing the information required under this subparagraph may be made by the regional organizations referred to in paragraph 3 of Article 31bis on behalf of eligible importing Members using the system that are parties to them, with the agreement of those parties.   
  5.  The notification will be made available publicly by the WTO Secretariat through a page on the WTO website dedicated to the system.   
  6.  This subparagraph is without prejudice to Article 66.1 of this Agreement.   
  7.  The licensee may use for this purpose its own website or, with the assistance of the WTO Secretariat, the page on the WTO website dedicated to the system.  
  8.  It is understood that this notification does not need to be approved by a WTO body in order to use the system.   
  9.  The notification will be made available publicly by the WTO Secretariat through a page on the WTO website dedicated to the system.   

Comments

The COVID-19 vaccine challenge is an interesting one. The WHO, Gavi, CEPI and UNICEF have come together to have a process for both supporting development, procuring and distributing vaccines around the world including to 92 low- and middle-income countries at little or no cost. The COVAX facility is an effort supported by many governments and private sector supporters to improve the equitable access to vaccines. Thus, it is an effort to reduce the need for individual low- and middle-income countries to have to secure supplies on their own. As reviewed in prior posts, while COVAX has been shipping millions of doses to countries (as of May 12, 2021 over 59 million doses to 122 countries), it is far behind its anticipated shipments because of the current challenges in India with the cessation of exports from India in the last several months March to address internal needs. (reduction of some 90 million doses likely)

Bolivia is a recipient of vaccines from COVAX. See Gavi, COVAX vaccine roll-out BOLIVIA, https://www.gavi.org/covax-vaccine-roll-out/bolivia (information from the webpage on 14 May 2021 reports that “First doses received: 22 March 2021Doses received: 228,000 SII-AstraZeneca (COVISHIELD) vaccine*; Doses allocated: 72,000 SII-AstraZeneca (COVISHIELD) vaccine; 92,430 Pfizer-BioNTech (BNT162b2) vaccine.”).

While many countries have arranged for vaccine shipments outside of the COVAX facility process from one or more of the global producers, including some not yet approved by the WHO, and while production levels for many producers have been ramping up month to month and there are a number of additional companies likely to pursue authorization for vaccines in the coming months, access to vaccines is limited for many countries in the first and second quarters of 2021. See Bloomberg, More than 1.38 Billion Shots Given: Covid-19 Tracker, updated May 13, 2021 (6:18 p.m.), https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/. There are four countries or areas with more than 100 million vaccination shots — China (354.3 million), United States (266.6 million), European Union (186.6 million) and India (179.2 million). There are seventeen countries with between 10 million and 56.4 million vaccination shots, 52 countries with more than 1 million and less than 10 million vaccination shots. There are 101 countries that have fewer than one million vaccination shots. Bolivia has administered 972,846 shots, enough for 4.2% of its population.

At the WTO, India and South Africa, now supported by a large number of other countries, have pursued a waiver from most TRIPS Agreement obligations for medical goods needed to address the COVID-19 pandemic largely on the basis that TRIPS Agreement flexibilities don’t work and the pandemic presents special urgency. Developed pharmaceutical producing countries have opposed a waiver as both unlikely to solve the need for more volume of vaccines and as unnecessary in light of TRIPS flexibilities. Last week the United States indicated it would support a waiver and agreed to engage in textual negotiations, though the position taken by the U.S. has not been supported by the European Union and possibly others.

So the Bolivian notification provides a real time opportunity to see if the flexibilities included in the Amended TRIPS Agreement can be used successfully to permit developing and least developed countries to access needed vaccines in a timely fashion. Coupled with expanded capacity and production and possibly additional licensing arrangements and additional approvals of new vaccines, a successful use of Art. 31bis of the Amended TRIPS Agreement may provide sufficient flexibility to address equity concerns at the WTO.

An update on COVID-19 data

Before closing, it is useful to review updated data from the European Centre for Disease Prevention and Control in yesterday’s COVID-19 situation update worldwide, as of week 18, updated 12 May 2021, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases and the data on weekly cases and deaths. The world in week 18 of 2021 saw the number of new recorded infections come down from the peak of the prior week as seen in the ECDC weekly update (chart copied below).

Distribution of COVID-19 cases worldwide, as of week 18 2021

Distribution of COVID-19 cases worldwide, as of week 18 2021
“Distribution of cases of COVID-19 by continent (according to the applied case definition and testing strategies in the affected countries)

“Cases reported in accordance with the applied case definition and testing strategies in the affected countries.

This is true in total and also for India. For the last two weeks, India recorded 5,544,535 new cases — the first time a country has surpassed five million cases in a two week period, although week 18 was slightly lower than week 17 in terms of new cases recorded in India. See ECDC, Data on 14-day notification rate of new COVID-19 cases and deaths, 13 May 2021, https://www.ecdc.europa.eu/en/publications-data/data-national-14-day-notification-rate-covid-19. India accounted for 49.38% of global cases over the last two weeks — the highest percent for a single country during the pandemic — and remains in a state of health care crisis as previously reported, although support from trading partners and lockdowns in a number of the Indian states appear to be reducing the number of cases and helping to some extent address health care needs.

Because of the size of India’s population and despite the recent surge of cases, India’s number of cases and deaths per 100,000 population are lower than many other countries. India has reported infections for 1.64% of its population or 1,642.21 people/100,000 population during the pandemic with 198.33 people/100,000 in the last week. Brazil has reported infections for 7.16% of its population or 7,155.64 people/100,000 population during the pandemic and 202.51 people/100,000 population in the last week. Bolivia has recorded infections in 2.73% of its population or 2,779.45 people/100,000 population and 103.51 people/100,000 population in the last week. The United States has recorded infections for 9.88% of its population or 9,881.43 people/100,000 population during the pandemic with 86.43 people/100,000 population in the last week. And there are many other countries with higher COVID-19 cases than India according to the ECDC data. Similar comparisons can be made on deaths where India has suffered recorded COVID deaths equal to 0.02% of its population during the pandemic compared to 0.20% for Brazil, 0.11% for Bolivia and 0.18% for the United States. Even in the last week, deaths in Brazil per 100,000 were more than three times what was recorded in India (6.87 people vs. 1.968 people). Bolivia was comparable to India during the last week (1.876) while the U.S. death count is declining (1.42 people during the last week per 100,000 population).

All of the above to say, the world’s attention on India is understandable because of the severe challenges the Indian government is facing and the size of its population. However, there are a number of countries experiencing comparable or even greater surges than India. Brazil is one example, but there are others in South America and some in Asia facing alarming increases or levels of infections. Equitable access needs to be tempered by flexibility to address current fires if the global effort is to be successful and reduce global infections and deaths.

World Trade Organization — possible deliverables for the 12th Ministerial Conference to be held in Geneva November 30-December 3, 2021

On May 3, 2021, the WTO held a Trade Negotiations Committee (“TNC”) session combined with an informal session of the Heads of Delegation in Geneva. Because the WTO over time has eliminated the immediate release of statements of the Chair of the TNC and the Chairs of different negotiating groups who provide updates on the status of negotiations, there is very limited public information on the meeting at the present time. The WTO released a news release on the meeting entitled “Members discuss contours of potential MC12 deliverables”. See TNC and Heads of Delegation Meeting, Members discuss contours of potential MC12 deliverables, May 3, 2021, https://www.wto.org/english/news_e/news21_e/hod_03may21_e.htm. A review of WTO documents listed on the WTO website reveals that Director-General Ngozi Okonjo-Iweala provided a seven page Chair’s statement at the meeting, although the document is not publicly available. See JOB/TNC/91. There was at least one other statement made by chairs of negotiating groups, though the statement is not publicly available. See Council for Trade in Services – Special Session – Report by Ambassador Zhanar Altzhanova, Chair of the CTS Special Session, to the informal TNC and HODs meeting – 3 May 2021, JOB/SERV/307, May 4, 2021. One would assume there were reports on the fisheries subsidies negotiations, on agriculture and on various Joint Statement Initiatives though there is no listing of any such statements.

Copied below is the May 3 WTO news release.

“Heads of WTO member delegations today exchanged views about issues on which they can realistically reach agreements in the run-up to the 12th Ministerial Conference (MC12) later this year, and what needs to happen to make such deals possible. Fisheries subsidies, agriculture and the COVID-19 pandemic featured prominently in the discussions, with several members stressing that delivering concrete negotiated results was critical for the WTO’s credibility. The 3 May gathering was both a formal session of the Trade Negotiations Committee and an informal meeting of Heads of Delegation.

“Summing up members’ interventions at the end of the day, WTO Director-General Ngozi Okonjo-Iweala said what she had heard matched what she had been told in her own consultations: ‘Views are coalescing around the most feasible priorities for delivery between now and MC12 — although of course there are gaps on how we get there and on the content of prospective results.’

“She said three concrete deliverables stood out: an agreement to curb harmful fisheries subsidies; outcomes on agriculture, with a focus on food security; and a framework that would better equip the WTO to support efforts against the COVID-19 pandemic and future health crises.

“Looking to the weeks and months ahead, the Director-General expressed hope that by July members would be able to finalize an agreement on fisheries subsidies and achieve clarity about what can be delivered by MC12, scheduled to run from 30 November to 3 December in Geneva.

“On fisheries subsidies, she urged members to exercise the necessary flexibility to overcome the remaining hurdles. With ministerial involvement likely required to finalize an agreement in July, she called on delegations to work with the chair of the negotiations, Ambassador Santiago Wills of Colombia, to prepare a draft negotiating text with a minimal number of outstanding issues for ministers to resolve. ‘We are almost there, we can see the light at the end of the tunnel,’ she said, stressing she stood ready to help members and the chair translate increased flexibility into an agreement.

“Noting that for many members, meaningful outcomes on agriculture were necessary to make MC12 a success, DG Okonjo-Iweala said that the pandemic, and rising hunger around the world, made a strong case for a WTO ‘food security package’. Elements for a prospective package included public stockholding, the proposed exemption from export restrictions of World Food Programme humanitarian purchases, domestic support and transparency, with some delegations also raising cotton and the special safeguard mechanism.

“The Director-General welcomed the view expressed by many delegations that MC12 can deliver concrete responses on trade and health. The WTO’s spotlight on export restrictions and the need to increase vaccine production volumes was gaining attention and engagement from leaders, she said.

“Reporting on a 14 April event where vaccine manufacturers, international organizations, civil society and members looked at how the WTO could contribute to efforts to combat the global scarcity of COVID-19 vaccines, she said it was clear that underused manufacturing capacity existed in several developing countries.

“DG Okonjo-Iweala praised members’ support to India amid the upsurge in COVID-19 cases there, which followed India’s own exports of a large number of vaccines. ‘That is what the WTO membership should be about — working together, supporting each other,’ she said. She asked members to bring the same sense of common purpose to bear on engaging in text-based negotiations on the TRIPS waiver proposal aimed at finding a pragmatic compromise that works for all.

“With regard to dispute settlement, where many members called for resolution to the impasse over the Appellate Body, the Director-General expressed hope that by MC12 members ‘can reach a shared understanding on the types of reforms needed’.

“The General Council chair, Ambassador Dacio Castillo of Honduras, is consulting on proposals about issues specific to least-developed countries such as the G-90 proposals on special and differential treatment as well as on small economies and areas such as the e-commerce Work Programme, she said.

“She noted that groups of members had signalled a desire to move ahead in areas such as services domestic regulation, e-commerce, investment facilitation, women’s economic empowerment, micro, small, and medium-sized enterprises as well as issues related to trade and climate change.

“For issues not in a position to be concluded this year, the Director-General said members had called for post-MC12 work programmes on multilateral issues relating to agriculture, services, and special and differential treatment as well as in joint statement initiatives in areas including plastics pollution and environmental sustainability.

“DG Okonjo-Iweala said that in the coming days, she would intensify her own outreach with heads of delegation, organizing meetings “in various configurations large and small” to support the chairs of negotiating groups in their efforts to broker compromise among members. She reiterated her commitment to ensuring adequate representation and transparency in these meetings ‘Nothing will be done behind closed doors that people don’t know about,’ she emphasised. She indicated that she would work closely with the General Council chair and the chairs of the negotiating bodies as well as MC12 chair Kazakhstan to conduct these meetings.

“Emphasising the tight timeframe for members to resolve their outstanding differences, the Director-General said the ‘path to July’ would involve a large number of intensive meetings aimed at narrowing gaps. ‘Week in, week out, this is what we will do now.’”

It is often the case that the U.S., European Union and China release their statements at events like the May 3 TNC session. Reviewing the webpages for the three Members’ WTO operations shows a statement only for the EU. See EU Statement at the Trade Negotiations Committee/Heads of Delegation meeting, 3 May 2021, Statement delivered by Ambassador João Aguiar Machado, https://eeas.europa.eu/delegations/world-trade-organization-wto/97682/eu-statement-trade-negotiations-committeeheads-delegation-meeting-3-may-2021_en.

The EU seeks a number of specific outcomes for the 12th Ministerial Conference and emphasizes the need to keep the agenda limited to permit success. The EU’s list starts with the conclusion of the fisheries subsidies agreement negotiations and secondly achieving agreement on trade and health including increasing COVID-19 vaccine production.

“Firstly, on fisheries subsidies; the EU supports the Chair’s efforts to move the negotiations forward and the
Director-General’s involvement and intent to achieve an outcome already in July. With this in mind, we need to
consider how best to use the short time ahead. These negotiations are a test case of the ability of the WTO to
deliver on the Sustainable Development Goals, in this case SDG 14.6. We are already late, well passed the
deadline that Heads of State and Government instructed us, here at the WTO, to deliver. We have full
confidence that Ambassador Wills will find the best way forward for these negotiations.

“Secondly, on trade and health, we must work towards a Ministerial Declaration that brings together key
elements of the Ottawa Group proposal on Trade & Health (export restrictions, transparency, trade facilitation)
as well as progress on the expansion of production capacities through voluntary licensing and, where necessary,
supporting the use of the available TRIPs flexibilities.”

Beyond these two deliverables, the EU looks for an agreed work program for reform of the WTO’s three core functions — negotiations, transparency/monitoring, and dispute settlement. Restoring a functioning two-tier dispute settlement system is the top priority in this area followed by improved notification practices.

The EU supports the various Joint Statement Initiatives and intends to propose additional ones on industrial subsidies, state-owned enterprises, and trade and environment topics.

The EU’s proposal on agriculture differs in part from the summary of views presented by DG Okonjo-Iweala as addressing export restraints, particularly for World Food Programme purchases is a priority while other issues including public stockholding (and other forms of domestic support) is viewed as more appropriate for a work program outcome from the 12th Ministerial.

Developments in the last week

The WTO held a two day General Council meeting on May 5-6 with the big news being the United States’ indication that because of the extraordinary circumstances of the global COVID-19 pandemic, the United States would support the proposed waiver of certain TRIPS obligations on medical goods for the duration of the pandemic, more specifically being willing to enter into text negotiations in the TRIPS Council. See May 6, 2021, COVID-19 vaccines — role of WTO and developments at May 5-6, 2021 General Council meeting on TRIPS Waiver, https://currentthoughtsontrade.com/2021/05/06/covid-19-vaccines-role-of-wto-and-developments-at-may-5-6-2021-general-council-on-trips-waiver/.

The major countries within the EU have come out opposing the U.S. change of position on the waiver proposal and have urged the United States to remove export restrictions on vaccines and raw materials and other inputs, See The Hill, EU leaders criticize Biden push to waive COVID-19 vaccine patents: Not a ‘magic bullet’, May 8, 2021, https://thehill.com/policy/international/europe/552459-eu-leaders-criticize-biden-push-to-waive-covid-19-patents-not-a; Euronews, EU leaders urge US to end COVID-19 vaccine export limits amid patents controversy, 8 May 2021, https://www.euronews.com/2021/05/07/european-leaders-urge-u-s-britain-to-match-eu-generosity-on-vaccine-exports. Not surprisingly, the move was also criticized by the pharmaceutical and biotech industries. See, e.g., McDonnell Boehnen Hulbert & Berghoff LLP – JDSupra, BIO & IPO Issue Statements on Biden Administration’s Support for Proposed WTO Waiver, May 7, 2021, https://www.jdsupra.com/legalnews/bio-ipo-issue-statements-on-biden-3271048/.

There have been additional announcements by the WHO on vaccines receiving emergency use authorization (first of two Chinese vaccines was approved on May 7, 2021; a second is pending), additional vaccine producers have reached agreements with COVAX for supplying vaccines once their vaccines are approved by the WHO (Moderna, Novavax), and increased production targets by major COVID-19 producers (e.g., Pfizer raised its target for 2021 to 3 billion doses from 2.5 billion and increased 2022 from 3 billion doses to 4 billion doses; Moderna increases production forecast for 2021 to 800 million to 1 billion and is making investments to increase production in 2022 to 3 billion doses). See, e.g., World Health Organization, WHO lists additional COVID-19 vaccine for emergency use and issues interim policy recommendations, 7 May 2021, https://www.who.int/news/item/07-05-2021-who-lists-additional-covid-19-vaccine-for-emergency-use-and-issues-interim-policy-recommendations; Gavi, Gavi signs agreement with Moderna to secure doses on behalf of COVAX Facility, 3 May 2021, https://www.gavi.org/news/media-room/gavi-signs-agreement-moderna-secure-doses-behalf-covax-facility; Gavi, Gavi signs agreement with Novavax to secure doses on behalf of COVAX Facility, 6 May 2021,https://www.gavi.org/news/media-room/gavi-signs-agreement-novavax-secure-doses-behalf-covax-facility; Wall Street Journal, Pfizer Lifts Covid-19 Vaccine Production Targets for 2021, 2022, May 7, 2021, https://www.wsj.com/articles/pfizer-lifts-covid-19-vaccine-production-targets-for-2021-2022-11620425904; Moderna, Moderna Reports First Quarter Fiscal Year 2021 Financial Results and Provides Business Updates, May 6, 2021, https://investors.modernatx.com/news-releases/news-release-details/moderna-reports-first-quarter-fiscal-year-2021-financial-results

What is clear is that the increased attention that will be paid by WTO Members on the waiver proposal within the TRIPS Council will likely suck a lot of oxygen out of the WTO in the coming months for other negotiating issues, many of which remain controversial in their own right. Any text based agreement on a TRIPS waiver is unlikely until close to the 12th Ministerial (and unlikely then if EU opposition remains or the U.S. is unable to achieve acceptable text). Thus, the remaining months before the 12th Ministerial Conference will present some major challenges to the WTO Members in their efforts to come up with achievements to keep the WTO relevant going forward. The U.S. move also creates a division with European allies and appears to have been taken without consultation with those allies ahead of last week’s announcement — a departure from the Biden Administration’s approach to date.

COVID-19 vaccines — role of WTO and developments at May 5-6, 2021 General Council meeting on TRIPS Waiver

As the COVID-19 pandemic continues to create problems around the world, there has been increased activity in many countries and at multilateral organizations seeking to expand COVID-19 vaccine production and increase access to vaccines for low- and middle-income countries. While a number of vaccines have been approved by one or more countries (usually on an emergency use authorization basis) and a few have been approved the World Health Organization, a number of others are seeking approval or are in final stages of trials.

The European Centre for Disease Prevention and Control now issues a weekly update on the COVID-19 situation worldwide. Today’s release of data for week 17 of 2021 shows global cases since the beginning at 153,220,576 of which the Americas has the largest share with 41.16% (63,068,547 cases; U.S. being 32.4 million; Brazil being 14.8 million; Argentina being 3.0 million; Colombia being 2.9 million and Mexico being 2.3 million). Europe is second with 33.10% of the total cases (50,722,884; France with 5.7 million, Turkey with 4.9 million, Russia with 4.8 million, the U.K. with 4.4 million and Italy with 4.0 million). Asia represents 22.70% of cases (34,785,351 of which India is 19.9 million, Iran is 2.5 million, Indonesia is 1.7 million, Iraq is 1.1 million and the Philippines is 1.1 million). Africa accounts for 2.98% of cases (4,571,789 of which South Africa has reported 1.6 million and no other countries have more than 0.5 million). Oceania accounts for 0.05% of cases (71,300). See European Centre for Disease Prevention and Control, COVID-19 situation update worldwide, as of week 17, updated 6 May 2021, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases.

Deaths are similarly distributed globally with the Americas having 47.79% of global deaths (1,533,740 of 3,209,416); Europe having 33.47% (1,074,175), Asia having 14.89% (477,851), Africa having 3.81% (122,304) and Oceania having 0.04% (1,340). Id.

The world has seen increases in new cases for the last ten weeks in a row and has had the highest number of cases per week in the most recent weeks as the copied graphic from today’s ECDC publication shows.

Distribution of COVID-19 cases worldwide, as of week 17 2021

Distribution of COVID-19 cases worldwide, as of week 17 2021
“Distribution of cases of COVID-19 by continent (according to the applied case definition and testing strategies in the affected countries)

“Cases reported in accordance with the applied case definition and testing strategies in the affected countries.”

As the news accounts make clear, India is facing major challenges and has accounted for a very large part of new cases in recent weeks. For example, over the last 14 days, India reported 4.86 million new cases. This is the first time any country has amassed more than four million cases in a two week period. India has accounted for 42.61% of the world total of new cases in that two week period. Id.

Press accounts have shown a health care system in India struggling to keep up with shortages of everything from ICU units to PPE to medications to oxygen and with a small part of the population totally vaccinated or having received the first of two shots. BBC News, Coronavirus: How India descended into Covid-19 chaos, 5 May 2021, https://www.bbc.com/news/world-asia-india-56977653.

In response to its internal crisis, India has diverted production of COVID-19 vaccines to domestic use, essentially halting exports, complicating the efforts of the COVAX facility to get vaccines to the 91 low- and middle-income countries (other than India which also is supposed to receive vaccines from COVAX). While COVAX has shipped more than 53 million doses to 121 countries as of May 4, as much as 90 million additional vaccine doses were supposed to be supplied by Indian producers to COVAX during April and May that will not make it into the system. See, e.g., Gavi, COVAX vaccine rollout, https://www.gavi.org/covax-facility; Gavi, COVAX updates participants on delivery delays for vaccines from Serum Institute of India (SII) and AstraZeneca, 25 March 2021, https://www.gavi.org/news/media-room/covax-updates-participants-delivery-delays-vaccines-serum-institute-india-sii-az.

Considering the challenges that India is facing, many nations have been providing assistance in an effort to support India as it attempts to cope with the current surge of cases, hospitalizations and deaths. The U.S. assistance is summarized in a fact sheet from the White House which is embedded below.

FACT-SHEET_-Biden-Harris-Administration-Delivers-Emergency-COVID-19-Assistance-for-India-_-The-White-House

A number of countries in South America are also seeing major problems — e.g., Brazil, Argentina, Colombia, Peru — though receiving far less attention than India.

Vaccination development, production and distribution

Efforts have been made over the last decade to develop tools and organizations to develop, produce and distribute vaccines to achieve greater equity in access and affordability of vaccines. The WHO, Gavi, CEPI and UNICEF along with important private sector actors like the Bill and Melinda Gates Foundation have worked hard to both support research of potential vaccines to address the COVID-19 pandemic, worked with companies to arrange purchases of vaccines if approved for use, raised funds from governments and private sector participants to pay for the efforts on research and procurement, and organized distribution to the 92 low- and middle-income countries sufficient to address 20% of the populations as well as for any other countries choosing to work through the COVAX facility.

At the same time, a number of countries have negotiated contracts with companies developing vaccines. Because at the time of contracting, it was not known which vaccines would be effective or achieve approval from which governments, major advanced economies often contracted for quantities far in excess of likely needs (assuming all vaccines were eventually approved).

Because of the unprecedented government funding and industry cooperation, a number of vaccines were developed and approved on at least an emergency use basis and production efforts began in late 2020 and have been ramping up in 2021. This includes vaccines developed in the U.S., the European Union, the United Kingdom, China, India and Russia. While all have not yet been approved by the WHO, all have been approved by at least a number of governments. A number of others are either in the approval process or in final stage trials with vaccine approvals likely in the second half of 2021.

It is expected that capacity to produce more than 10 billion doses of vaccines to fight COVID-19 will be operational by the end of 2021. COVAX contracts and deliveries to economies outside of COVAX have anticipated relatively small volumes in the 1st quarter of 2021, with increases in each of the next three quarters. UNICEF has a “COVID-19 Vaccine Market Dashboard” which it describes as follows (https://www.unicef.org/supply/covid-19-vaccine-market-dashboard):

“The COVID-19 Vaccine Market Dashboard is the go-to public resource for the latest information on the world’s COVID-19 vaccine market and the COVAX Facility’s vaccine deliveries.

“From a global vaccine market perspective, the dashboard gives an overview of:  

“- COVID-19 vaccine development and progress towards vaccine approvals

“- Reported global vaccine production capacity

“- Manufacturing agreements  

“- Vaccines secured and optioned through bilateral and multilateral supply agreements  

“- Reported vaccine prices

“The ‘Delivery’ tab of the dashboard provides daily updates on total COVAX vaccine deliveries, doses allocated, and doses ordered. It also includes country- and economy level data on vaccine deliveries and planned shipments over a seven-day period. This information covers both UNICEF-procured doses and deliveries, as well as other national and institutional buyers participating in the COVAX Facility. It further tracks globally reported vaccine deliveries and vaccine donations outside of COVAX.”

For example, looking at the capacity figures from the dashboard by development stage shows 4 billion dose capacity approved for use in the first half of 2021, growing to 8 billion dose capacity approved for use in the second half of 2021, with 19 billion dose capacity projected for each of 2022 and 2023 as being approved for use.

There have been challenges in ramping up production, including manufacturing issues at individual companies, bottlenecks in supply chains for particular inputs, export restrictions in place for some, etc. In prior posts I have reviewed data pulled together by industry and others on the challenges as well as the enormous level of voluntary licensing, and other arrangements to grow capacity and production. Industry estimates have consistently been that capacity will be at 10-15 billion doses by the end of 2021 — an extraordinary accomplishment considering global capacity for vaccines previously (roughly 5 billion doses for all vaccines). See, e.g., April 18, 2021, WTO’s April 14th virtual meeting to review COVID-19 vaccine availability, https://currentthoughtsontrade.com/2021/04/18/wtos-april-14th-virtual-meeting-to-review-covid-19-vaccine-availability/ (” One of the private sector participants, the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) included its statement on the IFPMA website. See IFPMA, IFPMA statement at WTO event ‘COVID-19 and Vaccine Equity: What can the WTO Contribute’, 14 April 2021, https://www.ifpma.org/resource-centre/ifpma-statement-at-wto-event-covid-19-and-vaccine-equity-what-can-the-wto-contribute/. The IFPMA statement is embedded below but highlights the extraordinary effort of the private sector in ramping up production which is expected to be 10 billion doses by the end of 2021 with some 272 partnerships entered into and 200 technology transfer agreements.” (emphasis added)); April 13, 2021, April 15, 2021 — U.S and Gavi co-host event for additional funding for COVAX amid concerns about two workhorse vaccines for COVAX, ttps://currentthoughtsontrade.com/2021/04/13/april-15-2021-u-s-and-gavi-co-host-event-for-additional-funding-for-covax-amid-concerns-about-two-workhorse-vaccines-for-covax/; April 8, 2021, COVAX delivers COVID-19 vaccines to 100th country; India surge in infections likely to reduce product availability for COVAX through May and likely longer, https://currentthoughtsontrade.com/2021/04/08/covax-delivers-covid-19-vaccines-to-100th-country-india-surge-in-infections-likely-to-reduce-product-availability-for-covax-through-may-and-likely-longer/; April 2, 2021, Global vaccinations against COVID-19; developments and challenges in the roll-out for many countries, https://currentthoughtsontrade.com/2021/04/02/global-vaccinations-against-covid-19-developments-and-challenges-in-the-roll-out-for-many-countries/; March 25, 2021, Global vaccinations for COVID-19 — continued supply chain and production issues and a new wave of infections in many countries delay greater ramp up for some until late in the second quarter of 2021, https://currentthoughtsontrade.com/2021/03/25/global-vaccinations-for-covid-19-continued-supply-chain-and-production-issues-and-a-new-wave-of-infections-in-many-countries-delay-greater-ramp-up-for-some-until-late-in-the-second-quarter-of-2021/; March 12, 2021, COVID-19 vaccines – U.S., Japan, India and Australia agree to one billion doses for Indo-Pacific countries, https://currentthoughtsontrade.com/2021/03/12/covid-19-vaccines-u-s-japan-india-and-australia-agree-to-one-billion-doses-for-indo-pacific-countries/; March 12, 2021, The 8-9 March  “Global C19 Vaccine Supply Chain and Manufacturing Summit” – efforts to ramp-up production, https://currentthoughtsontrade.com/2021/03/12/the-8-9-march-global-c19-vaccine-supply-chain-and-manufacturing-summit-efforts-to-ramp-up-production/; March 5, 2021, COVID-19 vaccines — France supports Italy’s blockage of a shipment to Australia; while Australia has asked the EU to permit the shipment, Australia will have its own production of AstraZeneca product by the end of March, https://currentthoughtsontrade.com/2021/03/05/covid-19-vaccines-france-supports-italys-blockage-of-a-shipment-to-australia-while-australia-has-asked-the-eu-to-permit-the-shipment-australia-will-have-its-own-production-of-astrazeneca-produc/; March 4, 2021, Italy blocks exports of COVID-19 vaccines to Australia, first blockage of export authorization by the EU or its member states, https://currentthoughtsontrade.com/2021/03/04/italy-blocks-exports-of-covid-19-vaccines-to-australia-first-blockage-of-export-authorization-by-the-eu-or-its-member-states/; March 4, 2021, The EU’s response to challenges to its actions on COVID-19 vaccine exports, https://currentthoughtsontrade.com/2021/03/04/the-eus-response-to-challenges-to-its-actions-on-covid-19-vaccine-exports/; March 3, 2021, WTO Director-General opinion piece in the Financial Times and recent actions by the U.S., https://currentthoughtsontrade.com/2021/03/03/wto-director-general-opinion-piece-in-the-financial-times-and-recent-actions-by-the-u-s/; March 1, 2021, WTO Director-General Ngozi Okonjo-Iweala’s opening statement at the March 1 General Council meeting, https://currentthoughtsontrade.com/2021/03/01/wto-director-general-ngozi-okonjo-iwealas-opening-statement-at-the-march-1-general-council-meeting/.

As of May 5, 3032, Bloomberg reports that more than 1.21 billion COVID-19 doses have been administered. The top six areas for vaccinations are China (284.6 million doses administered), the United States (249.6 million), India (162.4 million), the EU (158.6 million), the U.K. (50.7 million) and Brazil (50.2 million). See Bloomberg, More Than 1.21 Billion Shots Given: Covid-19 Tracker, updated May 5, 2021 at 5:38 p.m. EDT, https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/. Not surprisingly, with the exception of China which has one of the lowest rates of infection of any country in the world, vaccinations have been concentrated in countries with high rates of infection — both developed and developing.

Because of the disruption in supplies from India because of their current challenges, far fewer doses have been administered in low-income countries as COVAX is behind its schedule for deliveries. There are, of course, other challenges in a number of low-income countries, where poor health care infrastructure has resulted in many of the vaccine doses that have been received not being used. See NPR, They Desperately Need COVID Vaccines. So Why Are Some Countries Throwing Out Doses?, May 5, 2021, https://www.npr.org/sections/goatsandsoda/2021/05/05/991684096/they-desperately-need-covid-vaccines-so-why-are-some-countries-throwing-out-dose (“It seems incredible: At a time when low-income nations are clamoring for vaccines against COVID-19, at least three countries — Democratic Republic of Congo, Malawi and South Sudan — are either discarding doses or giving them to other countries. What’s going on?”).

The Proposal for a TRIPs Waiver from India and South Africa

Back in October 2020, India and South Africa filed a proposal for a waiver from many TRIPS Agreement obligations for all WTO Members for a period of years on vaccines, therapeutics and other medical goods relevant to handling the COVID-19 pandemic. There has not been agreement within the TRIPS Council on approving the proposed waiver with a number of advanced pharmaceutical producing countries (U.S., EU, U.K., Switzerland) opposing the proposal or disagreeing that a waiver would address the current availability challenges. The issue has been discussed on a number of occasions in the TRIPS Council. See, e.g., WTO press release, TRIPS Council to continue to discuss temporary IP waiver, revised proposal expected in May, 30 April 2021, https://www.wto.org/english/news_e/news21_e/trip_30apr21_e.htm. There have also been efforts to identify challenges to increasing capacity and production faster and addressing concerns over equitable access. Those issues have been addressed in prior posts, listed above.

There has been considerable pressure from NGOs and, in the U.S., from Democratic members of Congress to agree to the waiver despite concerns within the Biden Administration on whether agreeing to a waiver would actually improve production or access. The Biden Administration in late April announced its decision to make 60 million doses of AstraZeneca vaccines available for redistribution in the coming months (including 10 million doses in current inventory once FDA approves release). AstraZeneca has not yet applied for authorization for its vaccine in the United States, and the U.S. believes it has sufficient other supplies to permit sharing the 60 million doses expected to be available through June. See Financial Times, U.S. plans to share 60m doses of AstraZeneca’s Covid vaccine, 26 April 2021, https://www.ft.com/content/db461dd7-b132-4f08-a94e-b23a6764bdb3. And as part of the relief the U.S. is providing to India, the U.S. has directed inputs for 20 million doses of the AstraZeneca vaccine to be sent to India instead of to U.S. facilities.

Leading nations through groupings like the G-7, G-20 and others have been looking at the options for further increasing production in the coming months to give greater coverage, as well as looking at sending doses not needed to COVAX or particular countries in need. See, e.g., Gavi, France makes important vaccine dose donation to COVAX, 23 April 2021, https://www.gavi.org/news/media-room/france-makes-important-vaccine-dose-donation-covax.

On May 5, 2021, the G-7 Foreign Ministers completed a meeting in London and issued a communique which included language about access to vaccines. The G-7 consists of Canada, France, Germany, Italy, Japan, the United States and the United Kingdom with the European Union as an observed. The U.K. as host also invited Australia, South Korea, India, South Africa and Brunei (as Chair for the ASEAN group of countries). The communique from the G-7 and the EU can be found here and the section on access to vaccines is copied below. See G7 Foreign and Development Ministers’ Meeting Communiqué, London, May 5, 2021, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/983631/G7-foreign-and-development-ministers-meeting-communique-london-5-may-2021.pdf.

“Enabling equitable global access to Covid-19 Vaccines, Therapeutics and Diagnostics (VTDs)

“62. We affirm our belief that commitment to an open, transparent and multilateral approach is essential in responding to the global health impacts of Covid-19. A global health emergency on this scale requires co-ordinated action and global solidarity. We reaffirm our support for all existing pillars of Access to Covid-19 Tools Accelerator
(ACT-A), including its COVAX facility. We recognise that equipping the ACTAccelerator with adequate funding is central. We support the strengthening of health systems, and affordable and equitable global access to vaccines, therapeutics and diagnostics, and we will further increase our efforts to support affordable and equitable access for people in need, taking approaches consistent with members’ commitments to incentivise innovation. We recall in this regard the Charter for Equitable Access to Covid-19 Tools. We recognise the importance of effective and well-functioning global
value chains for VTD supply and will work with industry to encourage and support on a voluntary basis and on mutually agreed terms, including licensing, technology and know-how transfers, contract manufacturing , transparency, and data sharing, public private costs and risk sharing.
We recognise the need to enable a sustainable environment for local, regional and global productions, beyond Covid-19 products for long-term impact. We welcome the collective G7 commitments of over $10.7 billion USD to date in funding to these initiatives and encourage all partners to increase their support as the next critical step in controlling the pandemic and strengthening health security. In this context, we look forward to the COVAX Advance Market Commitment (AMC) Summit to be co-hosted by Gavi and Japan following the COVAX AMC One World Protected Event co-hosted by Gavi and US. (Emphasis added)

“63. We commit to the G7 Foreign and Development Ministers’ Equitable Access and Collaboration Statement to help accelerate the end of the acute phase of the Covid19 pandemic. We commit to supporting COVAX financially, including by encouraging pledges to the Facility, including at the COVAX AMC Summit in June, disbursing as soon as possible, providing in-kind contributions, and coordinating with and using COVAX, which is the key mechanism for global sharing of vaccines to supplement its own direct procurement, to enable the rapid equitable deployment of vaccines.

“64. We support the work of G7 Health Ministers and continued G7 efforts to work with partners to improve pandemic preparedness and global health security, with WHO as the leading and co-ordinating authority, to strengthen health systems, develop solutions that embed a One Health approach, tackle antimicrobial resistance, and accelerate progress towards universal health coverage and the health-related Sustainable Development Goals. We welcome the establishment of the One Health High Level Experts Panel supported by WHO, FAO, OIE and UNEP. We are determined to ensure that lessons are learned and applied from the pandemic. We look forward to the forthcoming G20 Global Health Summit in Rome and to its Declaration, and to further close cooperation on strengthening the global health
architecture, including longer-term considerations such as exploring the potential value of a global health treaty, to strengthen global pandemic preparedness and response. We will deploy our foreign and development policies and programmes to build a more resilient world that is better protected against health threats, including encouraging new public health guidance in consultation with national and relevant international organisations on international travel by sea or air, including cruise ships, and supporting an expert-driven, transparent, and independent process for the next
phase of the WHO-convened Covid-19 origins study, and for expeditiously investigating future outbreaks of unknown origin. Together with G7 Health Ministers, we commit to work in partnership with low- and lower-middle income countries by improving coordination of G7 support for, and collaboration with, public health and health security capacities and their regional bodies in Africa, Asia and other regions, building on the G7 commitment to support implementation of and compliance with the International Health Regulations (IHR) in 76 countries, taking into account the recommendations from the IHR Review Committee. We will align with and support national and regional health priorities and leadership to improve public health. We look forward to the publication of the G7 Carbis Bay Progress Report on global health and what we can learn from its conclusions on G7 commitments to strengthening health systems to advance universal health coverage and global health security.

“65. We note the continuing need to support health systems and health security and secure sustainable financing, together with partner countries’ domestic resources, to help accelerate global vaccine development and deployment, recover and then sustain access to essential health and nutrition services and health commodities, including in
humanitarian settings and for sexual and reproductive health and rights, and to bolster the global health architecture for pandemic preparedness, including through stronger rapid response mechanisms. We look forward to working with G7 Finance Ministers to build consensus on practical actions to facilitate access to existing global financing
sources to meet demands for access to Covid-19 vaccines, therapeutics and diagnostics, as well as how best to tackle the ACT-A funding gaps, with the aim of shortening the lifespan of the pandemic and with particular focus on the needs of vulnerable countries. In this regard, we look forward to the outcomes of the Independent Panel for Pandemic Preparedness and Response (IPPPR) initiated by the WHO, and the High Level Independent Panel on financing the global commons for pandemic preparedness and response (HLIP) established by the G20.”

At the same time that G-7 foreign ministers were concluding their work in London, the WTO was holding the first of two days of a General Council meeting. The WTO’s Director-General Ngozi Okonjo-Iweala urged the resolution of addressing equitable access to vaccines. The U.S. Trade Representative issued a statement changing the U.S. position (and contradicting what they had agreed with other G-7 foreign ministers hours before) by indicating that the U.S. would support the waiver of TRIPS rights and obligations during the pandemic and would work on text in the TRIPS Council to see if a consensus could be achieved. The Director-General’s statement from May 5, the USTR statement and the Director-General’s comments on the USTR statement are embedded below.

WTO-_-News-Speech-DG-Ngozi-Okonjo-Iweala-General-Council

Statement-from-Ambassador-Katherine-Tai-on-the-Covid-19-Trips-Waiver-_-United-States-Trade-Representative

WTO-_-2021-News-items-Statement-of-Director-General-Ngozi-Okonjo-Iweala-on-USTR-Tais-statement-on-the-TRIPS-waiver

While the pharmaceutical industry in advanced countries is unquestionably shocked by the shift in U.S. position (and stocks of vaccine producers suffered stock market price declines on May 5), the EU President has indicated a willingness to look at the issue and the French President has indicated his support of the U.S. position. See Financial Times, Pharma industry fears Biden’s patent move sets dangerous precedent, 6 May 2021, https://www.ft.com/content/f54bf71b-87be-4290-9c95-4d110eec7a90; The Guardian, EU ‘ready to discuss’ waiver on Covidvaccine patents, 6 May 2021, https://www.theguardian.com/world/2021/may/06/eu-ready-to-discuss-waiver-on-covid-vaccine-patents (“The head of the European Commission, Ursula von der Leyen , has said the bloc is ‘ready to discuss’ a US-backed proposal for a waiver on the patents for Covid-19 vaccines and the French president, Emmanuel Macron, said he was ‘absolutely in favour’ of the plan as pressure built for a move that could boost their production and distribution around the world.”).

The concerns of industry have been identified in prior posts of mine and are summarized in yesterday’s Financial Times article on what if any benefit there will be should a waiver be agreed to. See Financial Times, Will a suspension of Covid vaccine patents lead to more jabs?, 6 May 2021, https://www.ft.com/content/b0f42409-6fdf-43eb-96c7-d166e090ab99 (“[T]he drug makers’ main argument is that waiving intellectual property is not the solution. Vaccine makers have already pulled out all the stops to supply billions of doses at an unprecedented speed, including signing unusual partnerships with rivals to expand production. Moderna put its patents online last summer but they are not useful alone.”).

The Road Forward

It is unclear where the process at the WTO goes from here. The WTO TRIPS Council is expecting a revised document from India and South Africa in May that arguably could become the basis for WTO Members, including the U.S. and EU and others who have been opposed to a waiver, to consider and negotiate from. If a consensus emerges around a text, then it would go to the General Council for a vote/approval. But while the formal process is understood, it is unclear what an agreement would actually look like. It is hard to imagine that the U.S., EU, Switzerland, Japan and possibly others would agree to waive the pharmaceutical companies rights within their own territories. So there is a question whether rights could be waived selectively? If so, what possible liability would exist for governments and/or companies exploiting the IP rights of others? It is unclear if there will be a requirement for some/all countries who engage in use of others intellectual property to provide compensation similar to a compulsory license fee. Will countries that have existing voluntary licensing agreements with producers be able to void those agreements or have the same IP rights used by other companies? Will there be limitations on where goods produced can be shipped (e.g., only to low- and middle-income countries)? What will the basis be for getting IP holders to transfer technology where there is no compensation? There are undoubtedly dozens of other issues that the industry and their lawyers have besides the above. If waiver is the direction the world goes, presumably there needs to be transparency and full opportunity for vetting proposals so that all issues are identified, understood and properly addressed.

In my prior posts, I have argued that to date vaccines have largely gone to the countries with large levels of infections and deaths. Those pushing for greater equity in access based on a simple percent of global population approach abandon those concerns when a large developing country runs into a surge and finds itself in serious difficulty, such as is happening with India. I support targeting relief to address fire situations like India. See April 29, 2021, COVID-19 — Efforts to help India during its current surge of cases, hospitalizations and deaths, https://currentthoughtsontrade.com/2021/04/29/covid-19-efforts-to-help-india-during-its-current-surge-of-cases-hospitalizations-and-deaths/. There are equally important fire situations in other countries that deserve the attention and concern of the world as well.

The WTO has been and should be encouraging Members to eliminate export restrictions as quickly as possible. The new Director-General has used the power of convening to probe what are the barriers to increased production and greater distribution to low- and middle-income countries. Many of the barriers are bottlenecks in supply chains, shortages of various inputs as the industry drastically ramps up production of vaccines, lack of trained personnel in some countries where there may be existing vaccine capacity for other vaccines. Governments can and should be working with industry to address bottlenecks on an expedited basis. Encouraging voluntary licensing is useful and there are some 272 agreements around the world already in place with others being worked on. However, as Johnson & Johnson’s experience (where it talked to 100 companies but only found 10 they could work with) shows, the presence of a facility in a country is not the same as a facility with trained personnel who can actually produce a safe vaccine of the types currently approved for use on COVID-19.

The biggest short term availability of more supplies for low- and middle-income countries is not from the waiver but rather from governments redirecting volumes that are not needed for their own populations. The U.S. and EU are each starting that, but more can and should be done. Such actions have real potential.

Similarly, pursuit of new vaccines, such as one being tested in a number of developing countries that is far lower cost than some currently being used to vaccinate against COVID-19 and which apparently can be easily used in many countries in existing vaccine facilities makes a lot of sense. See New York Times, Researchers Are Hatching a Low-Cost Coronavirus Vaccine, A new formulation entering clinical trials in Brazil, Mexico, Thailand and Vietnam could change how the world fights the pandemic, April 5, 2021, updated April 17, 2021, https://www.nytimes.com/2021/04/05/health/hexapro-mclellan-vaccine.html.

While there are lots of groups and individuals arguing there is a moral imperative to wave the IP rights of pharmaceutical companies during the global pandemic, there is little practical evidence that such an approach will get the world to the place presumably everybody wants — the quickest curtailment of the pandemic for the benefit of all.

Time will tell whether an effort to negotiate a waiver is an aid or a hindrance to actually ending the pandemic.

WTO Director-General Ngozi Okonjo-Iweala announces selection of four Deputy Directors-General

A little over two months after assuming the position of Director-General (“DG”) of the World Trade Organization, DG Okonjo-Iweala announced her four Deputy Directors-General (“DDGs”). Two of the four DDGs are women, marking the first time that there is gender balance among the DDGs. The press release from the WTO is embedded below.

WTO-_-2021-News-items-DG-Okonjo-Iweala-announces-her-four-Deputy-Directors-General

DG Okonjo-Iweala’s selections follow past practice of picking DDGs from the four regions other than the region of the DG (Africa). The U.S. and the EU (France this time) continue to hold a DDG slot (Angela Ellard and Amb. Jean-Marie Paugam respectively). The Asian slot goes to China (Amb. Xiangchen Zhang) for the second time in a row (potentially indicating that three of the five slots will be going to the US, EU and China going forward). The Latin slot goes to Anabel Gonzalez of Costa Rica. Three of the four have extensive experience in Geneva with Amb. Xiangchen Zhang having recently concluded his role as China’s Permanent Representative to the WTO, with Amb. Jean-Marie Paugam having been France’s Permanent Representative to the WTO and with Ms. Anabel Gonzalez having had many roles both within the WTO Secretariat and with the Government of Costa Rica including Minister of Foreign Trade. All four have extensive experience with trade issues as the short bios included in the press release review. Ms. Angela Ellard from the U.S. has decades of experience in the interaction between the legislative and executive branches in the U.S. in the trade arena having served in a senior staff capacity for the House Ways and Means Republicans.

Today’s press release did not identify areas of responsibility for each of the four DDGs. That information will presumably be released in the coming days.

In prior posts I have urged the selection of strong individuals for the four DDG slots, people able to help DG Okonjo-Iweala with the myriad challenges facing the organization. See February 13, 2021, Leadership change at the WTO — with Dr. Ngozi Okonjo-Iweala’s arrival next week, what support team and early changes in the role of the Secretariat could help WTO Members move forward?, https://currentthoughtsontrade.com/2021/02/13/leadership-change-at-the-wto-with-dr-ngozi-okonjo-iwealas-arrival-next-week-what-support-team-and-early-changes-in-the-role-of-the-secretariat-could-help-wto-members-move-forward/; March 31, 2021, When will WTO DG Okonjo-Iweala reveal choices for Deputy Directors-General?, https://currentthoughtsontrade.com/2021/03/31/when-will-wto-dg-okonjo-iweala-reveal-choices-for-deputy-directors-general/.  The four individuals who have been selected all appear to be strong individuals with the ability to help the DG in outreach to major Members. They bring a lot of talent and depth of understanding of current challenges to their jobs. Chemistry among the group and with the DG is something that will develop over time and hopefully will have them being a cohesive and highly supportive team for the DG.

With much to accomplish to restore credibility for the WTO and its ability to help move global trade forward in a more sustainable and equitable manner, I join all those wishing the new DDGs success in their new positions.

COVID-19 — Efforts to help India during its current surge of cases, hospitalizations and deaths

India has been setting daily records for new infections almost every day for the last week or so and reported more than two million infections in the last week. See European Centre for Disease Prevention and Control, COVID-19 situation update worldwide, as of week 16, updated 29 April 2021, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases; European Centre for Disease Prevention and Control, Data on 14-day notification rate of new COVID-19 cases and deaths, https://www.ecdc.europa.eu/en/publications-data/data-national-14-day-notification-rate-covid-19 (week 15, 1,534,202 new cases reported; week 16, 2,056,121 new cases reported). Thus, India is the first country to record more than two million cases in a single week and the second to record more than three million in a two week period (the United States exceeded three million during the two weeks 50 and 51 of 2020). With total cases reported by India of 17,118,040, India has the second largest number of cases after the United States (32,125,099) but has a population more than four times that of the United States. However, press reports suggest that information on COVID-19 cases and deaths in India are substantially underreported, perhaps representing only 10-20% of actual cases and deaths. See, e.g., New York Times, As Covid-19 Devastates India, Deaths Go Undercounted, April 24, 2021, https://www.nytimes.com/2021/04/24/world/asia/india-coronavirus-deaths.html.

What is clear is that India is being overwhelmed at the present time with India’s health care system struggling to handle the huge number of people needing assistance, with many hospitals unable to handle the case load, with acute shortages reported on oxygen, ICU beds and much more. See, e.g., The Financial Times, Editorial Board, The tragedy of India’s second wave, April 26, 2021, https://www.ft.com/content/90281790-fb9e-468c-b3fa-c7549bd3bb39 (“The suffering of the Indian people in the country’s second wave of Covid-19 is a human tragedy on a vast scale. It is also a warning, and a danger, for the world. Many nations have been through dark times in the global pandemic; several with smaller populations still have higher death tolls. But with reports of people dying in the streets outside overwhelmed hospitals running short of oxygen, India today perhaps most closely resembles the worst-case scenarios painted when the virus was identified 16 months ago.”); New York Times, ‘This Is a Catastrophe.’ In India, Illness Is Everywhere, April 27, 2021, https://www.nytimes.com/2021/04/27/world/asia/India-delhi-covid-cases.html. The extent of human suffering from people not able to obtain timely care has been described by the Director-General of the World Health Organization as “beyond heartbreaking”. World Health Organization, Director-General’s opening remarks at the media briefing on COVID-19 – 26 April 2021, 26 April 2021, https://www.who.int/director-general/speeches/detail/director-general-s-opening-remarks-at-the-media-briefing-on-covid-19-26-april-2021.

Many countries, the WHO and business organizations and others are scrambling to provide assistance to India. See, e.g., MENAFN, Euronews, EU, UK and US offer support as COVID-19 ‘swallowing’ people in India, 27 April 2021, https://menafn.com/1101987528/EU-UK-and-US-Offer-Support-as-COVID-19-Swallowing-People-in-India; Politico, Von der Leyen: EU preparing ‘rapid’ assistance to COVID-hit India, April 26, 2021, https://www.politico.eu/article/eu-india-coronavirus-crisis-variant-asia-ursula-von-der-leyen/; U.S. Chamber of Commerce Foundation, India COVID Crisis: How Businesses Can Help, April 27, 2021, https://www.uschamberfoundation.org/event/india-covid-crisis-how-businesses-can-help; Reuters, WHO steps up aid to India to stem COVID surge, 27 April 2021, https://www.reuters.com/world/india/rush-hospitals-big-gatherings-worsen-india-covid-crisis-who-2021-04-27/..

In the United States, the Biden Administration has indicated it is providing assistance and yesterday released a fact sheet on actions being taken. See White House Briefing Room, FACT SHEET: Biden-Harris Administration Delivers Emergency COVID-19 Assistance for India, April 28, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/28/fact-sheet-biden-harris-administration-delivers-emergency-covid-19-assistance-for-india/. The fact sheet is copied below.

“Reflecting the United States’ solidarity with India as it battles a new wave of COVID-19 cases, the United States is delivering supplies worth more than $100 million in the coming days to provide urgent relief to our partners in India.  In addition, U.S. state governments, private companies, non-government organizations, and thousands of Americans from across the country have mobilized to deliver vital oxygen, related equipment, and essential supplies for Indian hospitals to support frontline health care workers and the people of India most affected during the current outbreak.  U.S. Government assistance flights will start arriving in India on Thursday, April 29 and will continue into next week.

“Just as India sent assistance to the United States when our hospitals were strained early in the pandemic, the United States is determined to help India in its time of need.

“Immediate U.S. Emergency COVID-19 Assistance

“The United States is providing: 

“- Oxygen Support:  An initial delivery of 1,100 cylinders will remain in India and can be repeatedly refilled at local supply centers, with more planeloads to come.  The U.S. Centers for Disease Control and Prevention has also locally procured oxygen cylinders and will deliver them to support hospital systems in coordination with the Government of India.

“- Oxygen Concentrators: 1700 oxygen concentrators to obtain oxygen from ambient air, these mobile units provide options for flexible patient treatment.

“- Oxygen Generation Units (PSA Systems): Multiple large-scale units to support up to 20 patients each, and additional mobile units will provide an ability to target specific shortages. A team of U.S. experts will support these units, working hand-in-hand on the ground with Indian medical personnel. 

“- Personal Protective Equipment: 15 million N95 masks to protect both patients and Indian health care personnel. 

“- Vaccine-Manufacturing Supplies:  The U.S. has re-directed its own order of Astra Zeneca manufacturing supplies to India.  This will allow India to make over 20 million doses of COVID-19 vaccine.

“- Rapid Diagnostic Tests (RDTs):  1 million rapid diagnostic tests – the same type used by the White House — to provide reliable results in less than 15 minutes to help identify and prevent community spread.     

“- Therapeutics:  The first tranche of a planned 20,000 treatment courses of the antiviral drug remdesivir to help treat hospitalized patients.

“- Public Health Assistance: U.S. CDC experts will work hand-in- hand with India’s experts in the following areas: laboratory, surveillance and epidemiology, bioinformatics for genomic sequencing and modeling, infection prevention and control, vaccine rollout, and risk communication.

“U.S. Support for India from the Outset of the Pandemic 

“The United States and India have closely worked together to respond to the COVID-19 pandemic.  U.S. COVID-19 assistance has reached more than 9.7 million Indians across more than 20 states and union territories, providing life-saving treatments, disseminating public health messages to local communities; strengthening case-finding and surveillance; and mobilizing innovative financing mechanisms to bolster emergency preparedness: 

“- Partnered with more than 1,000 Indian healthcare facilities to strengthen preparedness, including training of over 14,000 people on infection prevention and control.

“- Helped keep more than 213,000 frontline workers safe — including risk mitigation training for doctors, nurses, midwives, community volunteers, sanitation workers, and others who are actively responding to COVID-19 in India.

“- Launched joint public messaging with UNICEF on COVID prevention that has reached more than 84 million people.

“- Provided 200 state-of-the-art ventilators to 29 healthcare facilities in 15 states to care for critically-ill COVID-19 patients.

U.S.-India Health Partnership: Seven Decades Strong

“- For seventy years, U.S. public health experts from across the government, including USAID, HHS, CDC, FDA, and NIH, have worked in partnership with Indian officials to improve the health of India’s most vulnerable communities and the well-being of its people. 

“- Over the last 20 years, U.S. foreign assistance to India has exceeded $2.8 billion, including more than $1.4 billion for health care. 

“- The United States, India, and other partners have worked together to reduce new HIV infections by 37 percent between 2010 and 2019.

“- Since 1998, the United States and India have worked together to combat tuberculosis (TB) through improved patient-centered diagnosis, treatment and prevention, helping treat 15 million people with the disease.

“- In the last five years, the United States has helped 40 million pregnant women receive vital health information and services.

“- The United States, in partnership with the Government of India and World Health Organization, has supported initiatives at the District, State and National level to build frontline disease detection capacity.

“- The United States and India are working together to advance global health security and fight outbreaks before they become pandemics.”

Conclusion

India is a critical part of the global effort to vaccinate the world both with vaccines developed within India and with vaccines (e.g., AstraZeneca and Novavax) that are licensed for production in India with large commitments to supply COVAX for distribution to low- and middle-income countries and with other vaccines licensed from other countries (China and Russia). The immediate challenges in India has shifted the focus of the Indian government and its vaccine producers to supply almost exclusively for the Indian market while India struggles through the current surge in new cases and hospitalizations. The focus of the world on the need to help India is an interesting departure from the discussion of vaccine distribution based on population that has dominated focus through March.

Many parts of the world have been able to keep the COVID-19 pandemic under control to a large extent and hence have relatively few COVID-19 cases. Other countries — the U.S., India, Brazil, the EU countries and UK — have had far less success in controlling the spread of COVID-19 and have recorded very large numbers of cases, hospitalizations and deaths.

In a prior post, I reviewed that if one looks at percent of vaccinations compared to the percent of COVID-19 cases, there has been better matching for many countries (U.S., EU, UK, India) while a few major vaccine producers have much larger vaccinations as a percent of global vaccinations compared to the share of global COVID-19 cases they have. See April 18, 2021, WTO’s April 14th virtual meeting to review COVID-19 vaccine availability, https://currentthoughtsontrade.com/2021/04/18/wtos-april-14th-virtual-meeting-to-review-covid-19-vaccine-availability/.

Looking at current data, China has achieved the largest number of vaccinations — 235,976,000 vaccinations or 21.82% of global totals til April 28, 2021) — but a very low percent of global COVID-19 cases — 102,384 cases or 0.07% of global cases. The U.S. has the largest number of cases and second largest number of vaccinations (21.79% of cases; 21.69% of vaccinations). India has the second largest number of cases and the third largest number of vaccinations (11.61% of cases; 13.86% of vaccinations). The EU (27 countries) has 20.46% of COVID-19 cases (2nd largest if looking at the 27 countries together) and 12.75% of vaccinations. The United Kingdom has 2.99% of cases and 4.39% of vaccinations. Brazil has 9.75% of cases (3rd highest for an individual country) and 4.17% of vaccinations.

Both China and India are major vaccine producers and have comparable populations. But China has had only 0.6% of the COVID-19 cases that India has had, but has 157.45% of the vaccinations that India has accomplished. Vaccination data is from Bloomberg, More than 1.08 Billion Shots Given: Cover-19 Tracker, updated April 28, 2021, https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/.

The problems India is facing are daunting and emphasize the need for the global community to respond to emergencies as they arise while global production of vaccines continue to ratchet up in the coming months. That doesn’t mean that efforts to roll out vaccines to all countries is not an important initiative (COVAX has now shipped more than 48 million doses to 120 countries and various countries are shipping vaccines to ow- and middle-income countries outside of COVAX). But pandemics do not wreak havoc uniformly across the world. Fires need to be addressed urgently while capacities are increased to deal with all needs. The last several weeks have shown India to be suffering such a “fire”. Diverting resources from other parts of the world to India makes sense at the moment. Brazil’s fire continues as well and undoubtedly needs more attention.

While vaccines will help get the world out of the pandemic, all countries need to be vigilant on the non-vaccine tools available to minimize the spread of the pandemic within markets until there is sufficient vaccine capacity to address all needs — capacity that should be here by the end of 2021.

WTO and forced labor in cotton — Commentary by Amb. Dennis Shea, former Deputy U.S. Trade Representative

Ambassador Dennis Shea served as U.S. Permanent Representative to the World Trade Organization during the Trump Administration. He is now an Adjunct Fellow (Non-resident), Scholl Chair in International Business at the Center for Strategic & International Studies (CSIS). Today a commentary of Amb. Shea was posted by CSIS. See CSIS Commentary, Dennis Shea,The WTO Can Help Shine a Spotlight on Forced-Labor Practices in Xinjiang’s Cotton Industry, https://www.csis.org/analysis/wto-can-help-shine-spotlight-forced-labor-practices-xinjiangs-cotton-industry.

Amb. Shea notes that there is an upcoming “dedicated discussion” on trade developments on cotton at the WTO on May 28. His commentary states that

“For next month’s dedicated discussion to have credibility, it must examine the trade impact of the use of forced labor to pick cotton in China’s Xinjiang province. In light of what we have learned about forced-labor practices in Xinjiang, it is inconceivable that the WTO would convene a meeting on cotton and trade and not include these practices as a topic worthy of review. Simply put, ignoring what is happening in Xinjiang would be tantamount to the WTO holding a meeting on global public health and trade without mentioning the Covid-19 pandemic.”

I have in prior posts looked at the issue of forced labor and child labor both broadly and with special focus on cotton. See March 24, 2021, When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang, https://currentthoughtsontrade.com/2021/03/24/when-human-rights-violations-create-trade-distortions-the-case-of-chinas-treatment-of-the-uyghurs-in-xinjiang/; January 25, 2021, Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, https://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/; January 24, 2021, Forced labor and child labor – a continued major distortion in international trade for some products, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/.

As Amb. Shea points out, WTO Members should present information relevant to trade in cotton including potential subsidies (such as government provision of labor at little or no compensation (forced labor)). His commentary urges the U.S. to bring forward any information it may have on the cotton industry in Xinjiang. He notes that

“The United States should bring the issue of forced labor in Xinjiang directly to the WTO by placing it on the agenda of the upcoming dedicated discussion on cotton and trade. Whatever information the U.S. government has developed about forced labor in the cotton fields of Xinjiang and its impact on trade should be shared with other WTO members. Doing so would be consistent with President Biden’s trade agenda, which makes combating forced labor a priority. It is also consistent with the views of U.S. Trade Representative Katherine Tai, who said during her confirmation hearing that forced labor is ‘the crudest example of the race to the bottom in global trade.’”

While the Director-General of the WTO has been quoted as indicating that China does not respond well to being singled out, the cotton initiative at the WTO is looking at all trade practices that affect trade in cotton. Labor subsidies for a region that produces 85% of China’s cotton and 20% of the world’s is obviously fair game. See RT, Stop targeting China if you want it to support global trade reforms, WTO head tells world powers, April 26, 2021, https://www.rt.com/news/522151-wto-chief-stop-targeting-china-cooperation/ (“World Trade Organization (WTO) chief Ngozi Okonjo-Iweala has called on countries to stop targeting China if they want cooperation on global reforms, claiming that putting pressure on Beijing will only get ‘resistance.’ * * * Speaking to a conference held by the European Commission, Okonjo-Iweala suggested targeting China only alienates it further. He urged nations to just ‘put the facts on the table,’ claiming Beijing is ‘willing’ to consider proposals when they are presented without ‘negative spillovers.’”). While China challenges the claim that it uses forced labor for cotton or any other products, it makes sense for WTO Members to marshall the information available so that the matter can be considered as part of the semiannual dedicated session.

Amb. Shea’s commentary is a useful note on seeing to what extent the WTO’s existing process can address significant trade distortions of China or any other cotton producer. Hopefully, a robust process will occur next month in Geneva.

I

The U.S.-China Phase 1 Trade Agreement — Purchases of goods and services by China continue to lag dramatically behind commitments

The U.S. and China are now in the second year of the Phase I Agreement that took effect in mid-February 2020. As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement addressing specific non tariff barriers and intellectual property issues, although the level of actual implementation remains unclear. However, commitments China made to significantly increase imports of goods and services from the United States have generally not been fulfilled as reviewed month by month in prior posts. As China’s economy actually grew in 2020 and is experience very rapid growth in 2021, the failure of the purchase commitments can’t be attributed to any significant extent on China’s economic performance.

Prior posts on the U.S.-China Phase 1 Agreement can be found here: March 20, 2021, The U.S.-China Phase 1 Trade Agreement under the Biden Administration, https://currentthoughtsontrade.com/2021/03/20/the-u-s-china-phase-1-trade-agreement-under-the-biden-administration/; February 6, 2021, U.S.-China Phase I Trade Agreement – data through December 2020; China has increased purchases of agricultural and energy products above 2017 levels but did not reach first year agreed purchases in 2020 and won’t reached the agreed level even if measured from March 2020-February 2021, https://currentthoughtsontrade.com/2021/02/06/u-s-china-phase-1-trade-agreement-data-through-december-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-did-not-reach-first-year-agreed-purchases-in/; January 9, 2021, U.S.-China Phase 1 Trade Agreement — Data through November 2020; China has increased purchases of agricultural and energy products above 2017 levels but will not reach first year agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2021/01/09/u-s-china-phase-1-trade-agreement-data-through-november-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-will-not-reach-first-year-agreed-purchases-in/; December 10, 2020, U.S.-China Phase I Trade Agreement – data through October 2020; while China has increased purchases of agricultural and some other products, China remains far behind on the agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2020/12/10/u-s-china-phase-1-trade-agreement-data-through-october-2020-while-china-has-increased-purchases-of-agricultural-and-some-other-products-china-remains-far-behind-on-the-agreed-purchases-in-2020-w/; November 13, 2020, U.S.-China Phase 1 trade agreement – Data through September 2020; USDA and USTR report on agriculture portion, https://currentthoughtsontrade.com/2020/11/13/u-s-china-phase-1-trade-agreement-data-through-september-2020-usda-and-ustr-report-on-agriculture-portion/; October 10, 2020,  U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of U.S. Domestic Exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

This post looks at U.S. export data for January-February 2021 and also looks at U.S. exports to China during the twelve months March 2020-February 2021.

Purchase Commitments

Annex 6.1 of the Phase I Agreement contains commitments for “additional U.S. exports to China on Top of 2017 baseline” for two years, 2020 and 2021. Article 6.3 of the Agreement states that “The Parties project that the trajectory of increases in the amounts of manufactured goods, agricultural goods, energy products, and services purchased and imported into China from the United States will continue in calendar years 2022 through 2025.”

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

Article 6.2 of the Agreement defines the time period for the purchase commitments as being January 1, 2020 through December 31, 2021. So the first year by agreement was calendar year 2020. Calendar year 2021 is the second year of the agreement. The level of increases in U.S. exports to China for 2021 is as follows: manufactured goods $44.8 billion on top of 2017 base line of $58.4 billion (2021 total of $103.2 billion or an increase of 76.81% over 2017 actual); agriculture (including seafood) $19.5 billion on top of 2017 base line of $20.85 billion (2021 total of $40.35 billion or an increase of 93.51% over 2017 actual); energy $33.9 billion on top of 2017 base line of $7.6 billion (2021 total of $41.5 billion or an increase of 447.95% over 2017 actual); services $25.1 billion on top of 2017 base line for the selected services of $53.033 billion (2021 total of $78.133 billion or an increase of 47.33% over 2017 actual).

Increases from 2017 for the calendar year 2020 agreed levels were lower than for 2021 (increases over 2017 of $32.9 billion, $12.5 billion, $18.5 billion and $12.8 billion respectively for manufactured goods, agriculture, energy and services).

The breakout of services exports is not available for 2020 or the first two months of 2021. However, U.S. exports of all services to China for 2020 were $37.921 billion vs. $54.981 billion in 2017, a decline of 31% for all services, thus, U.S. services exports covered by the Phase I Agreement declined in 2020. See U.S. Census Bureau and the U.S. Bureau of Economic Analysis, MONTHLY U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES, February 2021, April 7, 2021, page 28, Exhibit 20b, https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf. While the BEA data don’t show exports of services in January or February by country, January-February 2021 total services exports are down from January-February 2020 (before the pandemic resulted in significant closures) with the largest reductions in travel followed by transport and by maintenance and repair services. Id at Exhibit 3.

In 2017, the selected goods covered by Annex 6.1 were $86.795 billion of total U.S. domestic exports to China of $120.109 billion, meaning non-covered U.S. exports in 2017 were $33.314 billion. On services, the selected services covered by Annex 6.1 were $53.033 billion of total services exports to China of $54.981. So non-covered services were $1.948 billion. For goods, there were sharp declines in 2020 of U.S. exports to China of non-covered products from the levels achieved in 2017 (a decline of $6.6 billion). Non-covered products are also down up in January-February 2021 versus January-February 2017 ($4.378 billion vs. $5.135 billion). While the services break out for 2020 is not yet available by country by type of service, total services exports to China (as reviewed above) were down 31% . The non-covered services are relatively small (just 3.5% of total services exports).

Since the Agreement took effect in mid-February, my analysis in prior posts has focused on the period since the agreement went into effect (for statistics, from March 1, 2020). This is consistent with the position that USTR and USDA took in the Trump Administration in an interim report released on October 23 looking at China’s compliance with its purchase commitments in agriculture. “It is worth noting that the Phase One Agreement did not go into effect until February 14, 2020, and March is the first full month of its effect. That means that we have seen seven months of agreement sales.” U.S. Trade Representative’s Office and U.S. Department of Agriculture, Interim Report on the Economic and Trade Agreement between the United States of America and the People’s Republic of China, AGRICULTURAL TRADE, October 23, 2020, Page 1. Since today’s post covers U.S. exports through February (12 months, if the starting month is March 2020), I include that analysis below. In future posts, I will limit my analysis to calendar 2021 vs. calendar 2017.

March 2020-February 2021 data compared to 2017; January-February 2021 compared to January-February 2017

For purposes of this post, I will look at the March 2020 – February 2021 data compared to calendar year 2017 data, but I will also look at the first two months of 2021 compared to the first two months of 2017. In my post in February, I had reviewed calendar 2020 data compared to 2017 data. Looking at the March 2020-February 2021 period vs. calendar year 2020 results in U.S. domestic exports for Phase I products being $6.4 billion higher, being slightly higher than 2017 (vs. 2020 being slightly lower) but missing the commitment levels of purchases by China by $60.4 billion vs. $66.8 billion for the 2020 calendar year. The data analyzed is limited to goods since the services data is more limited and has been summarized above.

Looking at U.S. domestic exports for the March 2020 – February 2021 period shows China meeting 92.43% of first year agriculture commitments, and U.S. agricultural exports being 47.85% above 2017 actual levels. U.S. domestic exports to China of all Phase 1 products are only 59.91% of first year commitments with manufactured goods at 53.01% and energy at 42.45%. While agriculture products covered by the Phase I commitments exported to China in the March 2020-February 2021 period exceeded 2017 actual by $10 billion and energy exceeded 2017 by $3.5 billion, manufactured goods were $10 billion smaller than 2017 actual. Compared to first year purchase commitments, total U.S. Phase I goods exports were $60.4 billion short of the agreed first year level.

If looking at a calendar year 2021, the data for January-February show increases for agriculture (+39.34%) and energy (+51.21%) but a decline for manufactured goods (-3.81%) compared to January-February 2017 but each category trails the level of increase needed to meet 2021 purchase commitments. Manufactured goods have a commitment level that is 76.81% higher than 2017 actual. Similarly, on agricultural products covered by the Phase I commitments, U.S. exports require a 93.51% increase above 2017 actual levels. On energy, U.S. exports to China need to be 477.93% above 2017 actual. For all Phase I goods, U.S. exports in January-February are up 14.73% but the annual increase to meet the Phase I commitment is 113.14%.

Looking at total U.S. domestic exports of goods to China for the period March 2020 – February 2021., U.S. exports were $117.589 billion ($9.799 billion/month) compared to $120.109 billion in 2017 ($10.009 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For January-February 2021, total U.S. domestic exports to China were $19.530 billion compared to $18.360 billion in January-February 2017.

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017. For the period March 2020 – February 2021, non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.01%, and total exports to China are down 2.10%. Looking at January-February 2021, other U.S. domestic exports (i.e., not covered by the Phase I Agreement) were down 15.04% from comparable levels in January-February 2017.

Thus, using the March 2020-February 2021 period since the U.S.-China Phase 1 Agreement went into effect, U.S. domestic exports of the Annex 6 goods were $90.274 billion; non-covered products were $27.315 billion, for total U.S. domestic exports to China of $117.589 billion. This figure is below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $177.421 billion with noncovered products at March 2020 – February 2021 levels) . The U.S. domestic exports to China were, however, higher than the $109.72 billion in 2018 and the depressed figure of $94.100 billion in 2019.

If one looks at January-February 2021, U.S. domestic exports to China of Annex 6 goods were $15.152 billion, other exports were $4.378 billion, for total domestic exports in January 2021 of $19.530 billion, ahead of January-February 2017 but far behind the level of exports needed to meet the second year purchase commitments by China (Phase I products are up 14.73% vs. full year increase needed of 113.14%).

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for 2017, March 2020 – February 2021 and rate of growth as well as the dollar shortfall by major category compared to 1st year purchase commitments by China.:

Product category2017March 2020 – February 2021% change 12 mos. 2017 vs. 2020/2021$ shortfall from 1st year commitments
manufactured goods
1. industrial machinery $10,949      
$ 12,464

+13.83%
2. electrical equipment and machinery $4,311
$4,788
+11.07%
3. pharmaceutical products $2,089 $3,264
+56.25%
4. aircraft (orders and deliveries) $15,712 $3,922 -75.04%
5. vehicles $10,093
$6,079
-39.77%
6. optical and medical instruments $3,135
$3,575
+14.04%
7. iron and steel
$1,176
$478
-59.31%
8. other manufactured goods $10,904 $13,807 +26.62%
Total for mfg goods
$58,369
$48,378
-17.12%
$42,892
Agriculture
9. oilseeds $12,225 $16,476 +34.77%
10. meat $559 $3,230 +478.32%
11. cereals $1,358 $3,876 +185.51%
12. cotton $973 $2,009 +106.45%
13. other agricultural commodities $4,504
$4,546
+0.93%
14. seafood $1,234 $691 -43.95%
Total for agriculture $20,852 $30,828 +47.85% $2,523
Energy
15. liquefied natural gas $424 $1,635 +285.87%
16. crude oil $4,304 $7,245 +68.34%
17. refined products $2,443
$1,814
-25.73%
18. coal $403 $373 -7.42%
Total for energy $7,574 $11,069 +46.14% $15,005
Total for 1-18 $86,795 $90,274 +4.01% $60,421

Conclusion

As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun. USTR Tai has indicated that the Biden Administration will monitor compliance by China with the terms of the Phase I Agreement.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement and some significant improvements in exports of U.S. agricultural goods, there has been very little forward movement in expanding total U.S. exports of goods to China in fact and a sharp decline in U.S. exports of services to China.

The differences in economic systems between China and the United States made reliance on WTO rules less relevant to the Trump Administration as those rules presume market-based economies and presently don’t address the myriad distortions that flow from the Chinese state capital system. Thus, the Phase I Agreement was an effort to move the needle in trade relations with China to achieve greater reciprocity. It has had some limited success to date. While the Biden Administration is doing a full review of the challenges posed by China’s trade policies, there remains a lot of work to see that the Phase I Agreement is fulfilled.

WTO’s April 14th virtual meeting to review COVID-19 vaccine availability

WTO’s Director-General Ngozi Okonjo-Iweala had indicated when she took office that she would be gathering industry, multilateral groups, and some governments to look at how vaccine production could be expanded and the role the WTO could play in that effort. At the same time, with the proposal from India and South Africa for waiver from most TRIPS obligations on medical products relevant to addressing the COVID-19 pandemic still under consideration in the TRIPS Council, with opposition from a number of important Members, DG Okonjo-Iweala has been seeking an approach that in fact expands production in developing and least developed countries and greater distribution to low- and middle-income countries. without needing an all or nothing resolution to the proposed waiver.

I have previously reviewed the issue of vaccine availability and prior DG Okonjo-Iweala statements in a number of posts. See, e.g., April 13, 2021, April 15, 2021 — U.S and Gavi co-host event for additional funding for COVAX amid concerns about two workhorse vaccines for COVAX, ttps://currentthoughtsontrade.com/2021/04/13/april-15-2021-u-s-and-gavi-co-host-event-for-additional-funding-for-covax-amid-concerns-about-two-workhorse-vaccines-for-covax/; April 8, 2021, COVAX delivers COVID-19 vaccines to 100th country; India surge in infections likely to reduce product availability for COVAX through May and likely longer, https://currentthoughtsontrade.com/2021/04/08/covax-delivers-covid-19-vaccines-to-100th-country-india-surge-in-infections-likely-to-reduce-product-availability-for-covax-through-may-and-likely-longer/; April 2, 2021, Global vaccinations against COVID-19; developments and challenges in the roll-out for many countries, https://currentthoughtsontrade.com/2021/04/02/global-vaccinations-against-covid-19-developments-and-challenges-in-the-roll-out-for-many-countries/; March 25, 2021, Global vaccinations for COVID-19 — continued supply chain and production issues and a new wave of infections in many countries delay greater ramp up for some until late in the second quarter of 2021, https://currentthoughtsontrade.com/2021/03/25/global-vaccinations-for-covid-19-continued-supply-chain-and-production-issues-and-a-new-wave-of-infections-in-many-countries-delay-greater-ramp-up-for-some-until-late-in-the-second-quarter-of-2021/; March 12, 2021, COVID-19 vaccines – U.S., Japan, India and Australia agree to one billion doses for Indo-Pacific countries, https://currentthoughtsontrade.com/2021/03/12/covid-19-vaccines-u-s-japan-india-and-australia-agree-to-one-billion-doses-for-indo-pacific-countries/; March 12, 2021, The 8-9 March  “Global C19 Vaccine Supply Chain and Manufacturing Summit” – efforts to ramp-up production, https://currentthoughtsontrade.com/2021/03/12/the-8-9-march-global-c19-vaccine-supply-chain-and-manufacturing-summit-efforts-to-ramp-up-production/; March 5, 2021, COVID-19 vaccines — France supports Italy’s blockage of a shipment to Australia; while Australia has asked the EU to permit the shipment, Australia will have its own production of AstraZeneca product by the end of March, https://currentthoughtsontrade.com/2021/03/05/covid-19-vaccines-france-supports-italys-blockage-of-a-shipment-to-australia-while-australia-has-asked-the-eu-to-permit-the-shipment-australia-will-have-its-own-production-of-astrazeneca-produc/; March 4, 2021, Italy blocks exports of COVID-19 vaccines to Australia, first blockage of export authorization by the EU or its member states, https://currentthoughtsontrade.com/2021/03/04/italy-blocks-exports-of-covid-19-vaccines-to-australia-first-blockage-of-export-authorization-by-the-eu-or-its-member-states/; March 4, 2021, The EU’s response to challenges to its actions on COVID-19 vaccine exports, https://currentthoughtsontrade.com/2021/03/04/the-eus-response-to-challenges-to-its-actions-on-covid-19-vaccine-exports/; March 3, 2021, WTO Director-General opinion piece in the Financial Times and recent actions by the U.S., https://currentthoughtsontrade.com/2021/03/03/wto-director-general-opinion-piece-in-the-financial-times-and-recent-actions-by-the-u-s/; March 1, 2021, WTO Director-General Ngozi Okonjo-Iweala’s opening statement at the March 1 General Council meeting, https://currentthoughtsontrade.com/2021/03/01/wto-director-general-ngozi-okonjo-iwealas-opening-statement-at-the-march-1-general-council-meeting/.

“COVID-19 and Vaccine Equity: What Can the WTO Contribute?”

While the virtual meeting convened by DG Okonjo-Iweala was conducted under Chatham House rules, a number of participants made their prepared comments public and there was some press coverage.

DG Okonjo-Iweala provided a wrap-up at the end of the session which was posted on the WTO website. See WTO news, DG Okonjo-Iweala calls for follow-up action after WTO vaccine equity event, April 14, 2021, https://www.wto.org/english/news_e/news21_e/dgno_14apr21_e.htm (“Director-General Ngozi Okonjo-Iweala today (14 April) called on WTO members, vaccine manufacturers and international organizations to act to address trade-related obstacles to the scale-up of COVID-19 vaccine production to save lives, hasten the end of the pandemic and accelerate the global economic recovery.”). DG Okonjo-Iweala’s summary comments are copied below. See WTO speeches, Chair Summary following “COVID-19 and Vaccine Equity: What Can the WTO Contribute?”, April 14, 2021, https://www.wto.org/english/news_e/spno_e/spno7_e.htm.

“One thing that came out of today’s discussions is that it was only through working together across borders that scientists developed safe and effective vaccines in record time. And it is only by working together, across borders, that we’ll be able to solve the problems [of vaccine scarcity and equitable access] discussed today. This is a problem of the global commons, and we have to solve it together.

“Our purpose today was to contribute to efforts to increase vaccine production and broaden access, starting with the immediate term.

“Specifically we had three goals:

“The first was to pinpoint the obstacles, particularly the trade-related obstacles, to ramping up production, and to equitably distributing and administering vaccines — and we looked at how the WTO could contribute to these solutions.

“The second was to bring together people who are able to increase and to scale up manufacturing, people in a position to share technology and knowhow, and people willing to finance additional manufacturing capacity.

“And third, to think about the road ahead, including on the TRIPS waiver and incentives for research and development, so that we get the medical technologies we need, and no country is left at the back of the line waiting. If there is one refrain we heard continuously from everyone today it is that no one is safe until everyone is safe.

“We heard first-hand from governments and vaccine manufacturers from developed, developing, and least developed countries, as well as a wide range of other stakeholders from international organizations, civil society and development finance institutions.

“And we heard good news: that supplies are ramping up and companies are learning by doing, that there have been major gains in productivity, and that there is still capacity. We also heard that there is a willingness to finance investment in vaccine manufacturing both in the short- and long-term, and there are ideas and energy to do things differently.

“However, we heard from many that we need to do more. It hasn’t really been business as usual, so we may need to move on to ‘business unusual’ to solve the problems before us.

“In the discussions today we heard a great deal of agreement. We agree that it’s not acceptable for people and countries to have to wait indefinitely for vaccines. We do not want to repeat experiences of the past.

“We heard a consensus on the urgent need to scale up production and vaccinate everyone, because every day the shortage continues, scope for dangerous new variants will increase, and the number of prevent preventable deaths will grow. The economic impact of these delays can and has been quantified by many institutions, including the IMF, the World Bank, and the WTO.

“It was agreed that production capacity needs to be expanded, particularly in developing and least developed countries and emerging markets. And that vaccine distribution needs to be more effective and more equitable.

“We heard that open cross-border trade in raw materials, and other inputs, was essential for maintaining and scaling up production, and that supply chains in these inputs must be maintained.

“Also widely shared was the view that innovation, research and development will be vital for dealing with COVID-19 variants and in other health crises.

“We had useful exchanges on issues where some perspectives were different, such as on the future shape of vaccine supply chains, on the appropriate role for intellectual property protections, on issues of vaccine contract transparency — which was pointed to by many as an important factor in appropriate pricing and distribution and a critical part of access and equity.

“Concerns expressed by some about cross-border supply chain operations, including export restrictions and shortages of skilled personnel reinforced my view, and hopefully that of members, that the WTO must and can play a central part in the response to this crisis.

“Various perspectives about the TRIPS Agreement, and whether the existing flexibilities are enough to address developing country needs were put on the table. These echoed the discussions on the waiver proposal going on in the TRIPS Council, and I want to reiterate that today is a way of contributing to that discussion.

“I agree with the view that the WTO is a logical forum for finding a way forward on these issues, and I hope that the ideas raised here will contribute to convergence in the TRIPS Council on meaningful results that can contribute to the goals that we have.

“I hope that the discussion today, listening to each other, seeing that we all share a common goal, and that we may not be so far apart, will lead to the willingness to come to the middle,  and work out something that will be acceptable to all.

“Participants were generally of the view that ramping up vaccine manufacturing capacity is a complex process. It requires large, long-term investment and sustainable business models. It relies on open international supply lines for ingredients and equipment. We heard how shortages of even a single piece of equipment, filters, can halt operations at a production facility. Vaccine manufacturing necessitates collaboration, and the movement of skilled labour, to facilitate transfer of technology and knowhow.

“Safety is a paramount consideration, and quality is the other part of safety. This demands effective regulatory capacity and stringent compliance, down to the factory floor. Indeed we heard this is a big risk companies factor in when making decisions as to where to produce, and how to produce. I hope that they’ve heard sufficient encouragement today, to enable us to move towards leveraging the existing capacities in emerging markets and developing countries mentioned repeatedly today, which could actually help to take care of the shortages talked about.

“Turning capacity around to produce COVID-19 vaccines is not only about the physical space alone. We heard repeatedly that it requires transfer of technology and knowhow, together with investment and support for quality assurance.

“We also learned about how existing licensing arrangements have operated — including an example of how skills transfer was carried out in a few as six months. We also heard calls for support to build human capital, and to help build regulatory cooperation.

“Some participants suggested more active matchmaking to connect companies that have the investment capacity with those that have potential for expanding production capacity, even in the short term.

“We also heard about ongoing efforts to build new manufacturing capacity, and the lessons that can be learned from that.

“We also began to see the aspects of the collaboration we need to make things happen. We had many international organizations show they are willing to work together to bring to fruition things like putting in place technical expertise, helping with capacity building and quality control, and investing directly in production.

“I believe that today’s exchanges have advanced our understanding of the challenges we face for scaling up vaccine production, and that working together is the only way ahead.

“In the coming weeks and months, we expect concrete follow-up action. These issues are not easy, but the political will and engagement from the private sector displayed today, suggests it is possible.

“As we move forward, I expect:

“- From WTO members:

“- Action to further reduce export restrictions and supply chain barriers, and to work with other organizations to facilitate logistics and customs procedures.  We are monitoring this as part of our regular work, and we’ll continue doing so to increase supplies and maintain robust supply chains. Trade has been underlined as a critical factor in production; it is incumbent upon WTO members to act.

‘- Advance negotiations in the TRIPS Council on the waiver proposal and incentives for research and innovation. I hope that the ideas and the open dialogue heard will move us closer to agreement. 

‘- For vaccine manufacturers:

‘- Concrete moves to scale up vaccine manufacturing, both short-term turnaround of existing capacities, milking whatever productivity gains we can from current facilities, and taking steps to invest.

“- Increased technology and knowhow transfer, which many participants stressed would be necessary to make additional production work.

“- We need transparency in contract agreements and product pricing. We hope to continue this dialogue and to help monitoring steps in that direction.

“- For international organisations and financial institutions:

“- We noted your willingness to finance, both existing and new capacity, your willingness to work on capacity building for regulatory issues, not just for vaccines, but also for therapeutics and diagnostics, which are equally important.

“I trust that we have found a good basis to deliver concrete action, and to continue this discussion that we’ve had today.

“This should not be a one-off, we should continue to talk to each other, and make sure that we can deliver.

“I hope that besides concrete action to increase capacity, this discussion has given us elements of a framework on trade and health that we can put together at the WTO, and that can be put before ministers at the 12th Ministerial Conference in mid-December. Such a framework should provide for trade-related preparedness to handle this pandemic, and the next one.”

Press accounts indicate that the United States, European Union, India and South Africa participated. Statements from USTR Katherine Tai and Executive Vice President Dombrovskis are available from government websites. See USTR press release, Ambassador Katherine Tai’s remarks at a WTO virtual conference on Covid-19 vaccine equity, April 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/april/ambassador-katherine-tais-remarks-wto-virtual-conference-covid-19-vaccine-equity; European Commission press release, Speech by Executive Vice-President Valdis Dombrovskis at the WTO Webinar “Covid and Vaccine Equity,” 14 April 2021, https://ec.europa.eu/commission/commissioners/2019-2024/dombrovskis/announcements/speech-executive-vice-president-valdis-dombrovskis-wto-webinar-covid-and-vaccine-equity_en.

The Biden Administration has been meeting with various interest groups on the TRIPS wavier proposal (both pro and con) and is receiving pressure from some Members of Congress and prior government officials to agree to a waiver. Ambassador Tai’s statement stresses the need for equity in vaccine availability. “These losses have been disproportionately borne by vulnerable and economically disadvantaged communities within our countries. And the significant inequities we are seeing in access to vaccines between developed and developing countries are completely unacceptable. Extraordinary times require extraordinary leadership, communication, and creativity. Extraordinary crises challenge all of us to break out of our comfortable molds, our in-the-box thinking, our instinctive habits. This is not just a challenge for governments. This challenge applies equally to the industry responsible for developing and manufacturing the vaccines. The desperate needs that our people face in the current pandemic provide these companies with an opportunity to be the heroes they claim to be – and can be. As governments and leaders of international institutions, the highest standards of courage and sacrifice are demanded of us in times of crisis. The same needs to be demanded of industry.”

The EU statement is consistent with their views that equity is necessary and that the EU has been working to contribute to that result through production ramp up and large exports in fact, including to the COVAX facility. The EU summed up what the WTO should be doing. “To sum up, the WTO can support vaccine equity through five sets of actions:
Promoting best practices in terms of trade facilitation and regulatory cooperation to maintain open supply chains; Facilitating cooperation with the private sector, both to ramp up production in the short term, and to enhance manufacturing in global regions with under-capacity, focusing in particular on Africa; Supporting Members’ use of the available TRIPs flexibilities; Continuing to seek joint approaches with the World Health Organisation and the World
Intellectual Property Organisation; and Ensuring transparency and effective monitoring of any temporary export restriction, as proposed by the Ottawa Group.”

I have not found statements from either India or South Africa but at least one publication indicated they stressed the need for a TRIPS waiver for all Members. See Washington Trade Daily, WTO’s Role in Vaccine Equity, April 15, 2021, https://files.constantcontact.com/ef5f8ffe501/63ac7508-8034-44b3-8c3c-045c1bedec43.pdf.

The World Health Organization also participated and the Director-General’s statement is available from the WHO website. See WHO press release, COVID-19 and vaccine equity panel: what can the World Trade Organization contribute?, 14 April 2021, https://www.who.int/director-general/speeches/detail/covid-19-and-vaccine-equity-panel-what-can-the-world-trade-organization-contribute (“COVAX was created, as you know, almost a year ago to avoid the same thing happening again. And although COVAX has distributed almost 40 million doses of vaccine to 110 countries and economies, vaccine nationalism, vaccine diplomacy and severe supply constraints have so far prevented COVAX from realizing its full potential. Global manufacturing capacity and supply chains have not been sufficient to deliver vaccines quickly and equitably where they are needed most.  More funding is needed, but that’s only part of the solution. Money doesn’t help if there are no vaccines to buy. We need to dramatically scale up the number of vaccines being produced. To address this challenge, WHO and our partners have established a COVAX manufacturing task force, to increase supply in the short term, but also to build a platform for sustainable vaccine manufacturing to support regional health security. We need to go beyond the traditional modus operandi to provide sustainable and effective solutions to address this extraordinary crisis. Some manufacturers have begun sharing the know-how and technologies to produce more vaccines, but only under restrictive conditions, on a very limited basis. The current company-controlled production sharing agreements are not coming close to meeting the overwhelming public health and socio-economic needs for effective, affordable and equitable access to vaccines, as well as therapeutics and other critical health technologies.  This is an unprecedented emergency that demands unprecedented measures.”).

One of the private sector participants, the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) included its statement on the IFPMA website. See IFPMA, IFPMA statement at WTO event “COVID-19 and Vaccine Equity: What can the WTO Contribute”, 14 April 2021, https://www.ifpma.org/resource-centre/ifpma-statement-at-wto-event-covid-19-and-vaccine-equity-what-can-the-wto-contribute/. The IFPMA statement is embedded below but highlights the extraordinary effort of the private sector in ramping up production which is expected to be 10 billion doses by the end of 2021 with some 272 partnerships entered into and 200 technology transfer agreements.

IFPMA_WTO_Event_COVID-19_and_Vaccine_Equity_Statement_15April2021

Rising Infections; dramatically ramped up production

Last Thursday’s summary from the European Centre for Disease Prevention and Control (ECDC) shows the world going through a massive ramp up of new infections such that week 14 of 2021 is the second highest week during the pandemic of new infections with the vast majority of the cases and increase in Asia, the Americas and Europe. See ECDC, COVID-19 situation update worldwide, as of week 14, updated 15April 2021, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases.

Distribution of COVID-19 cases worldwide, as of week 14 2021

Distribution of COVID-19 cases worldwide, as of week 14 2021
“Distribution of cases of COVID-19 by continent (according to the applied case definition and testing strategies in the affected countries)

“Cases reported in accordance with the applied case definition and testing strategies in the affected countries.”

The ECDC data show Africa as accounting for 3.18% of total infections during the pandemic, Asia accounting for 19.50% (India is 9.91%; China is 0.07%), the Americas for 43.18% (United States 22.91% and Brazil 9.90%), Europe 34.08% (the Eu is 20.79%, the UK is 3.20%, Russia is 3.4%), and Oceania 0.05%.

At the same time as new infections are ramping up, vaccinations are also increasing sharply. Bloomberg data through April 17, 2021 shows a global total of 884 million vaccinations having been given globally. See Bloomberg, More Than 884 Million Shots Given: Covid-19 Tracker, updated April 17, 2021, https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/.

While there are countries who have fewer or more vaccinations as a percent of the global total than their share of infections, considering distribution equity from that vantage point has some surprising results.

Country Percent of infections Percent of vaccinations

United States 22.91% 23.16%

European Union 20.79% 12.36%

United Kingdom 3.20% 4.76%

Japan 0.37% 0.21%

Republic of Korea 0.08% 0.17%

India 9.91% 13.85%

China 0.07% 21.18%

South Africa 1.14% 0.33%

Brazil 9.90% 3.92%

The pharmaceutical industry is projecting that 10 billion doses of COVID-19 vaccine will ship in 2021. That means that in the next eight and a half months, some nine billion doses will ship. If 10 billion doses are shipped in 2021, that is sufficient to fully vaccinate 5-6 billion people in 2021 (depending on number of doses that are for single shot vaccines). That is sufficient doses to vaccinate 63.3-75.9% of the current estimate of the global population (7.9 billion). See Worldometer, Current World Population, https://www.worldometers.info/world-population/#:~:text=The%20current%20world%20population%20is,currently%20living)%20of%20the%20world./ With the continued efforts to expand production and approve additional vaccines, 10 billion doses may be exceeded in fact by the end of the year.

This suggests, just as the COVAX and UNICEF distribution plans indicate, that low- and middle-income countries will see a large increase in supplies in the second half of 2021, just as will be true for the rest of the world.

The U.S.-Gavi event on April 15 talked about increasing funding for COVAX to go from 20% to 30% of populations the COVAX facility is serving. See U.S. Department of State, Video Remarks of Secretary of State Antony Blinken, Launch of GAVI’s COVAX Commitment, April 15, 2021, https://www.state.gov/launch-of-gavis-covax-commitment/. Moreover, the World Bank is committing billions to increases purchases of vaccines for low- and middle-income countries. And many countries are executing their own contracts with vaccine producers.

If there are issues besides assistance in resolving bottlenecks that would appear to be important to speeding up distribution and ensuring access by all, it would be to ensure that all countries with vaccine supplies greater than their internal needs, work to get those vaccines distributed to other countries later this year as their internal needs clarify.

Moreover, there are very exciting developments on the vaccine front with the start up of trials in a number of developing countries of a new vaccine where the potential exists for low costs with a vaccine that can be produced locally by many countries based on technology similar to what is already used for other vaccines. See New York Times, Researchers Are Hatching a Low-Cost Coronavirus Vaccine, A new formulation entering clinical trials in Brazil, Mexico, Thailand and Vietnam could change how the world fights the pandemic, April 5, 2021, updated April 17, 2021, https://www.nytimes.com/2021/04/05/health/hexapro-mclellan-vaccine.html.

All to say, there is considerable reason for optimism with the current efforts and progress. Efforts by governments, multilateral institutions, industry and others are helping identify challenges both to production and distribution but also to the needs for a speedy recovery once the pandemic is brought under control. While everyone needs to continue to focus on resolving bottlenecks, securing cooperation to ensure all are reached, and addressing developments as they arise, 2021 is not a repeat of the HIV situation.

The WTO has an important role in monitoring trade restrictions and looking forward to what actions Members are willing to take to advance trade and health needs and help ensure a next pandemic is handled more quickly than the COVID-19 has been. The effort to obtain a waiver from TRIPS obligations is, in this writer’s view, missing where the challenges are and seeking an outcome that will not advance improved vaccinations in 2021. While it is common for countries to continue to fight yesterday’s problems instead of addressing the current challenges, such an approach will not secure equitable and affordable access to vaccines in 2021-2022.

U.S. Department of the Treasury Semi-Annual Report on Trading Partner Currency Practices — a change from the December 2020 Report

Today (April 16, 2021), the U.S. Department of the Treasury released its semi-annual report on trading partner currency practices. See U.S. Department of the Treasury Office of International Affairs, Report to Congress, Macroeconomic and
Foreign Exchange Policies of Major Trading Partners of the United States, April 2021, https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.

The press release from Treasury found three countries/territories to have problematic currency practices — Switzerland, Vietnam and Taiwan — but didn’t find any them to be currency manipulators. This constituted a change of position on Switzerland and Vietnam which had been found to be currency manipulators in the December 2020 report. All three countries are subject to increased scrutiny and interface with Treasury. A number of other countries remain on the monitoring list for currency practices with Mexico and Ireland being added to that list in this report. China was separately identified for transparency concerns. See U.S. Department of the Treasury Press Release, Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 16, 2021, https://home.treasury.gov/news/press-releases/jy0131. The press release is copied below and the April 2021 Report is embedded after that.

“WASHINGTON – The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters through December 2020.

“The Report concluded that both Vietnam and Switzerland continue to meet all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review.  Additionally, the report finds that Taiwan met all three of the 2015 Act criteria for the period under review.  Treasury has conducted enhanced analysis of Vietnam, Switzerland, and Taiwan’s macroeconomic and foreign exchange policies, as reflected in the Report.  Treasury will continue its enhanced engagement with Vietnam and Switzerland, and Treasury will commence enhanced engagement with Taiwan.  This engagement includes urging the development of a plan with specific actions to address the underlying causes of currency undervaluation and external imbalances.

“Under the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Act), Treasury has determined that there is insufficient evidence to make a finding that Vietnam, Switzerland, or Taiwan manipulates its exchange rate for either of the purposes referenced in the 1988 Act.  Nevertheless, consistent with the 1988 Act, Treasury considers that its continued enhanced engagements with Switzerland and Vietnam, as well as a more thorough assessment of developments in the global economy as a result of the COVID-19 pandemic, will enable Treasury to better determine whether either of these economies intervened in currency markets in 2020 to prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade.  For Taiwan, Treasury will initiate enhanced engagement in accordance with the 2015 Act and expects that engagement will help Treasury to make the determination required under the 1988 Act for the period of review. 

“No other major U.S. trading partner met the relevant 1988 or 2015 legislative criteria for currency manipulation or enhanced analysis during the review period.  Treasury urged China to improve transparency regarding its foreign exchange intervention activities, the policy objectives of its exchange rate management regime, the relationship between the central bank and foreign exchange activities of the state-owned banks, and its activities in the offshore RMB market. 

“’Treasury is working tirelessly to address efforts by foreign economies to artificially manipulate their currency values that put American workers at an unfair disadvantage,’ Secretary of the Treasury Janet L. Yellen said today.

“Treasury found that eleven economies warrant placement on Treasury’s ‘Monitoring List’ of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and Mexico.  All except Ireland and Mexico were included in the December 2020 Report.

“Today’s Report is submitted to Congress pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22 U.S.C. § 5305, and Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, 19 U.S.C. § 4421.”

April_2021_FX_Report_FINAL

In prior posts, I have reviewed how Vietnam’s currency practices had resulted in a 301 investigation initiated by USTR (one of two, the other dealing with using illegally harvested timber) with a report issued in mid-January 2021, in the Commerce Department preliminarily finding currency practices of Vietnam were countervailable and in the December 2020 Treasury finding that Vietnam was manipulating its currency. See October 12, 2020, U.S. commences two investigations into Vietnam under Sec. 301 of the Trade Act of 1974, as amended – on currency and on use of illegally harvested timber, https://currentthoughtsontrade.com/2020/10/12/u-s-commences-two-investigations-into-vietnam-under-sec-301-of-the-trade-act-of-1974-as-amended-on-currency-and-on-use-of-illegally-harvested-timber/; December 21, 2020, Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report, https://currentthoughtsontrade.com/2020/12/21/vietnam-and-switzerland-found-to-be-currency-manipulators-in-latest-u-s-treasury-semiannual-report/; January 15, 2021, USTR releases report from Section 301 investigation on Vietnam’s currency valuation, https://currentthoughtsontrade.com/2021/01/15/ustr-releases-report-from-section-301-investigation-on-vietnams-currency-valuation/.

The current Treasury report (pages 3-4) flags the elements examined and what is different in this report versus the prior one for Switzerland and Vietnam.

“In this Report, Treasury has reviewed 20 major U.S. trading partners with bilateral goods trade with the United States of at least $40 billion annually against the thresholds Treasury has established for the three criteria in the 2015 Act:

“(1) Persistent, one-sided intervention in the foreign exchange market occurs when net purchases of foreign currency are conducted repeatedly, in at least 6 out of 12 months, and these net purchases total at least 2% of an economy’s gross domestic product (GDP) over a 12-month period.2

“(2) A material current account surplus is one that is at least 2% of GDP over a 12-month period.

“(3) A significant bilateral trade surplus with the United States is one that is at least $20 billion over a 12-month period.3

“In accordance with the 1988 Act, Treasury has also evaluated in this Report whether trading partners have manipulated the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.

“Because the standards and criteria in the 1988 Act and the 2015 Act are distinct, a trading partner could be found to meet the standards identified in one of the statutes without necessarily being found to meet the standards identified in the other. Section 2 provides further discussion of the distinctions between the 1988 Act and the 2015 Act.

Treasury Conclusions Related to the 2015 Act

“Vietnam again exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has updated its enhanced analysis of Vietnam in this Report. In early 2021, Treasury commenced enhanced bilateral engagement with Vietnam and is working with the Vietnamese authorities to develop a plan with specific actions to address the underlying causes of Vietnam’s currency undervaluation.
Switzerland again exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has updated its enhanced analysis of Switzerland in this report. In early 2021, Treasury commenced enhanced bilateral engagement with Switzerland and is discussing with the Swiss authorities options to address the underlying causes of Switzerland’s external imbalances.

“Taiwan exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has conducted enhanced analysis of Taiwan in this Report and will also commence enhanced bilateral engagement with Taiwan in accordance with the 2015 Act. The bilateral engagement will include urging the development of a plan with specific actions to address the underlying causes of Taiwan’s currency undervaluation.

“Taiwan has maintained a tightly managed floating exchange rate regime since the late 1970s. Although Taiwan has liberalized capital controls in recent decades, the central bank continues to actively intervene in the foreign exchange market. Over many years, these practices have resulted in a structurally undervalued exchange rate that has failed to adjust in the face of Taiwan’s persistently large current account surpluses. Although the New Taiwan Dollar (TWD) has appreciated modestly in nominal and real effective exchange rate terms over the past decade, the authorities’ foreign exchange purchases and other, less formal exchange rate management practices have slowed the pace and scale of external adjustment, preventing the TWD from fully reflecting macroeconomic fundamentals.

Treasury Conclusions Related to the 1988 Act

“The 1988 Act requires Treasury to consider whether any economy manipulates the rate of exchange between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade. In the December 2020 Report, Treasury found that Switzerland and Vietnam each met the standards for currency manipulation for the four quarters through June 2020. For the four quarters ending in 2020, based on initial enhanced engagements with Vietnam and Switzerland under the 2015 Act, further analysis, and data, Treasury has determined that there is insufficient evidence to make a finding that either economy (or any other economy covered in the Report) manipulates its exchange rate for either of the purposes referenced in the 1988 Act. Nevertheless, consistent with the 1988 Act, Treasury considers that its continued enhanced engagements with Switzerland and Vietnam, as well as a more thorough assessment of developments in the global economy as a result of the COVID-19 pandemic, will enable Treasury to better determine whether either of these economies intervened in currency markets in 2020 to prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade. For Taiwan, Treasury will initiate enhanced engagement in accordance with the 2015 Act and expects that engagement will help Treasury to make the determination required under the 1988 Act for the period of review. Meaningful actions to address policy distortions and increase data transparency will be critical for making progress under these engagements. Treasury will also continue to consider whether economies that do not trigger enhanced engagement manipulate their currencies for the purposes referenced in the 1988 Act

“2 The Report covers data from the 12-month period ending in December 2020. These quantitative thresholds for the scale and persistence of intervention are considered sufficient on their own to meet this criterion. Other patterns of intervention, with lesser amounts or less frequent interventions, might also meet this criterion depending on the circumstances of the intervention.

“3 Treasury focuses in this Report on trade in goods only, as it has done in past Reports. The United States has a surplus in services trade with many economies in this Report, including China, Japan, Korea, Singapore, and Switzerland, and to a lesser extent, Taiwan and Vietnam. Taking into account services trade would reduce the bilateral trade surplus of these economies with the United States.”

The Trump Administration did not impose tariffs on Vietnam following the release of the Section 301 report in January leaving the decision on what action to take to the Biden Administration. President Biden’s U.S. Trade Representative, Ambassador Katherine Tai, met virtually with Vietnam Minister of Industry and Trade Tran Tuan Anh on April 1, 2021 and reviewed concerns re China’s currency practice as reviewed in the 301 investigation as well as illegal logging and other issues. See USTR Press Release, Readout of Ambassador Katherine Tai’s virtual meeting with Vietnam Minister of Industry and Trade Tran Tuan Anh. April 1, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/april/readout-ambassador-katherine-tais-virtual-meeting-vietnam-minister-industry-and-trade-tran-tuan-anh (“Ambassador Tai highlighted the Biden Administration’s concerns about currency practices covered in the ongoing Section 301 investigation.  The ministers also discussed U.S. concerns on illegal timber practices, digital trade and agriculture.”). Thus, it is likely that the U.S. and Vietnam will work out bilaterally U.S. concerns on Vietnam’s currency versus imposing additional duties following the Section 301 report, at least at this time.

The first Department of Commerce investigation to look at currency as a countervailable subsidy for Vietnam made a preliminary affirmative determination. The final determination is not due until late May. See Department of Commerce, International Trade Administration, C–552–829, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 FR 71,607 (Nov. 10, 2020); Department of Commerce, International Trade Administration, A–552–828, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Determination of Sales at Less Than Fair Value, Postponement of Final Determination, and Extension of Provisional Measures, 86 FR 504 (January 6, 2021)(final due within 135 days of the preliminary Federal Register). It is unclear what, if any, modification will be made to the countervailability of Vietnam’s currency in the context of the ongoing investigation based on the change in view of Vietnam by Treasury.

Conclusion

Currency misalignment whether intentional or not can have significant effects on trade flows. The U.S. has historically been quite concerned about misaligned currencies although Treasury historically preferred to work with other countries than label them currency manipulators. Early signals from the Biden Administration are that Treasury is reverting to a preference to work bilaterally with countries who actively intervene in currency markets and have an undervalued currency and large trade surplus in goods with the U.S. If so, Treasury will, as it did in the current report, find “insufficient evidence” for countries who satisfy the factual criteria under U.S. law to conclude such actions were for the purpose “of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” While trading partners will undoubtedly prefer the Biden Administration’s apparent approach, the approach will be problematic for many U.S. industries and their workers and remove leverage to get correction of foreign government practices.

USTR 2021 National Trade Estimate Report on Foreign Trade Barriers — areas of concern with a focus on China

Every year for the last 36 years, USTR releases a National Trade Estimate Report on Foreign Trade Barriers. This year’s forward provides a little background on the report. See USTR, 2021 National Trade Estimate Report on Foreign Trade Barriers, page 1, https://ustr.gov/sites/default/files/files/reports/2021/2021NTE.pdf.

“The 2021 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 36th in an annual series that highlights significant foreign barriers to U.S. exports, U.S. foreign direct investment, and U.S. electronic commerce. This document is a companion piece to the President’s 2021 Trade Policy Agenda and 2020 Annual Report, published by the Office of the United States Trade Representative (USTR) in March.

“In accordance with section 181 of the Trade Act of 1974, as amended by section 303 of the Trade and Tariff Act of 1984 and amended by section 1304 of the Omnibus Trade and Competitiveness Act of 1988, section 311 of the Uruguay Round Trade Agreements Act, and section 1202 of the Internet Tax Freedom Act, USTR is required to submit to the President, the Senate Finance Committee, and appropriate committees in the House of Representatives, an annual report on significant foreign trade barriers. The statute requires an inventory of the most important foreign barriers affecting U.S. exports of goods and services, including agricultural commodities and U.S. intellectual property; foreign direct investment by U.S. persons, especially if such investment has implications for trade in goods or services; and U.S. electronic commerce. Such an inventory enhances awareness of these trade restrictions, facilitates U.S. negotiations aimed at reducing or eliminating these barriers, and is a valuable tool in enforcing U.S. trade laws and strengthening the rules-based system.”

This year’s report covers 65 countries or country groups, so not all trading partners are covered by the annual report. China has the largest section of the report for an individual country (36 pages) while the European Union (covering 27 countries) has the largest section overall (52 pages). Other important trading partners with significant sections in the report include India (24 pages), Russian Federation (20 pages), Japan (18 pages), Indonesia (16 pages), Republic of Korea (14 pages), Brazil (14 pages), Vietnam (14 pages). the USMCA partners had smaller sections — Canada (8 pages) and Mexico (12 pages). the countries covered account for nearly 100 percent of U.S. trade in goods and nearly 90% of U.S. services trade.

The USTR press release from March 31, 2021 (majority of release copied below) provides an outline of some of the major areas of concern. See USTR, Ambassador Tai releases 2021 National Trade Estimate Report, March 31, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/ambassador-tai-releases-2021-national-trade-estimate-report.

Significant Barriers to U.S. Exports in 65 Trading Partners Detailed

“WASHINGTON – United States Trade Representative Katherine Tai today released the 2021 National Trade Estimate (NTE) Report, providing a detailed inventory of significant foreign barriers to U.S. exports of goods and services, investment, and electronic commerce.

“’The President’s Trade Agenda released earlier this month outlined a clear vision for supporting America’s working families by promoting a fair international trading system that boosts inclusive economic growth,’” said Ambassador Tai. ‘The 2021 NTE Report identifies a range of important challenges and priorities to guide the Biden Administration’s effort to craft trade policy that reflects America’s values and builds back better.’

“Published annually since 1985, the NTE Report is a comprehensive review of significant foreign trade barriers affecting U.S. exports of goods and services. The 570-page report examines 65 trading partners and country groups, including the U.S.’ largest trading partners, all 20 U.S. FTA partners, and other economies and country groupings of interest such as the Arab League, the United Kingdom (included as a separate entity for the first time in this report), and the European Union. Together, these economies account for 99 percent of U.S. goods trade and 87 percent of U.S. services trade. 

“The NTE Report covers significant trade barriers in 11 areas, including (1) import policies such as tariffs, import licensing and customs barriers; (2) technical barriers to trade; (3) sanitary and phytosanitary measures; (4) subsidies; (5) government procurement; (6) intellectual property protection; (7) services barriers; (8) barriers to digital trade and electronic commerce; (9) investment barriers; (10) competition; and (11) other barriers. 

“Taken as a whole, the NTE Report highlights significant barriers that present major policy challenges with implications for future U.S. growth opportunities, and the fairness of the global economy. Examples of these significant obstacles include: 

Agricultural Trade Barriers:  The NTE Report details an array of tariff and nontariff barriers to U.S. agricultural exports across trading partners and regions, ranging from non-science-based regulatory measures, opaque approval processes for products of agricultural biotechnology, burdensome import licensing and certification requirements, and restrictions on the ability of U.S. producers to use the common names of the products that they produce and export. USTR will continue to engage foreign governments on barriers that hamper the ability of U.S. farmers, ranchers and food processors to access markets worldwide. 

Digital Trade:  The 2021 NTE Report details restrictive data policies in India, China, Korea, Vietnam, and Turkey, among other countries; local software pre-installation requirements in Russia, Indonesian tariffs on digital products, and existing or proposed local content requirements for online streaming services in Australia, Brazil, Canada, China, EU, Mexico, Ukraine, and Vietnam; and discriminatory tax measures in Austria, India, Italy, Spain, Turkey, and the UK. USTR will continue to engage foreign governments on digital policies that threaten the regulatory landscape for U.S. exporters of digital products and services and undermine U.S. manufacturers’ and service suppliers’ ability to move data across borders. 

Excess Capacity:  China’s state-led approach to the economy and trade makes it the world’s leading offender in creating non-economic capacity, as evidenced by the severe and persistent excess capacity situations in several industries, including steel, aluminum, and solar, among others. China also is well on its way to creating severe excess capacity in other industries through its pursuit of industrial plans such as Made in China 2025, pursuant to which the Chinese government is doling out hundreds of billions of dollars to support Chinese companies and requiring them to achieve preset targets for domestic market share–at the expense of imports–and global market share in several advanced manufacturing industries. USTR will continue its bilateral and multilateral efforts to address these harmful trade practices.

Technical Barriers to Trade:   Technical regulations or conformity assessment procedures that unnecessarily restrict trade or curb the movement of innovative products risk lost opportunities to capitalize on America’s leadership in science and high-tech manufacturing, services, and agriculture. The NTE Report’s many examples of this challenge range from non-transparent European Union chemical regulations to Chinese Information Technology cybersecurity and encryption standards, to Indian and Brazilian testing and certification rules for telecommunications equipment, to technology. 

“The United States is taking steps to address these issues, and encourage flexible regulatory approaches and transparent, open processes, with these and many other partners. Within APEC, for example, the United States is engaged in projects on cybersecurity and blockchain to identify key public policy issues, and has projects in development on aerial drones and 3D printing. Another key example is USTR’s bilateral and multilateral work on standards and regulations related to electric cars, to ensure that vehicles from different manufacturers can all be charged reliably.

“The NTE Report details thousands of individual barriers to specific manufactured goods, farm products, and services. Each can reduce U.S. opportunities to export, invent, support jobs, and raise wages and incomes. These range from Argentina’s imposition of quota limits on imported books in September 2020 to India’s 38.8 percent average tariff on agricultural goods; the anomalous technical standards Saudi Arabia applies to shoes and electronic equipment; Ecuador’s mandatory and cumbersome process for allocating import licenses for agriculture products such as meats and dairy products; Indonesian local content requirements across a broad range of sectors; and Russian bans on imported food.”

What the NTE has to say about China 

The United States has for many years raised multiple concerns with China’s practices which the U.S. views as distorting trade flows and impeding market access to China. While the U.S. and China have engaged bilaterally extensively since China’s WTO accession and the U.S. has pursued several dozen disputes against Chinese practices that were clearly contrary to WTO obligations of China, little overall progress has been made in resolving the wide array of Chinese government distortions created and maintained over the years. These distortions contribute to the extraordinary trade deficit the United States has with China. See, e.g., U.S. Department of Commerce, Bureau of Economic Analysis, MONTHLY U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES, FEBRUARY 2021, April 7, 2021, https://www.bea.gov/news/2021/us-international-trade-goods-and-services-february-2021 (U.S. trade deficit in 2020 in goods with China was $310.2 billion; U.S. trade surplus in services was $22.1 billion; U.S. deficit in goods with China increased to $50.9 billion in the January – February 2021 period versus $42.1 billion in the first two months of 2020).

The Trump Administration pursued a 301 investigation on a number of intellectual property concerns with China, conducted Section 232 national security investigations on steel and aluminum — two sectors where Chinese actions have created massive global excess capacity — and negotiated with China the U.S.-China Phase I Agreement which took effect in mid-February 2020. The Agreement both addressed a number of problems in agriculture, intellectual property and services and committed China to expanded purchases of goods and services from the United States in 2021-2022 (and going forward). The NTE reviews where Chinese commitments under the Phase I Agreement apply and what progress is being seen. On the purchase commitments, China has not come close to meeting the commitments in 2021 though there were increased imports from the U.S. of agricultural products and energy products. See, e.g., March 20, 2021, The U.S.-China Phase 1 Trade Agreement under the Biden Administration, https://currentthoughtsontrade.com/2021/03/20/the-u-s-china-phase-1-trade-agreement-under-the-biden-administration/. The U.S. has a long history of China promising reforms that are either not carried out or are undermined by additional restrictions. The list of areas of concern making it into the annual NTE is not exhaustive but illustrative of the challenges to obtaining conditions of fair trade with the world’s most populous nation and second largest economy.

Areas of concern for the United States with China shown in the 2021 NTE include:

Tariffs (there are some high agricultural tariffs, and the large tariffs imposed in retaliation to U.S. Section 232 actions on steel and aluminum and U.S. Section 301 actions for Chinese practices reviewed in the investigation).

Non-tariff barriers include

  • Industrial Policies (such as “Made in China 2025” and described generally as follows, “China continues to pursue a wide array of industrial policies that seek to limit market access for imported goods, foreign manufacturers, and foreign services suppliers, while offering substantial government guidance, resources, and regulatory support to Chinese industries. The beneficiaries of these constantly evolving policies are not only state-owned enterprises (SOEs) but also other domestic companies attempting to move up the economic value chain.),
  • State-Owned Enterprises (a number of concerns are raised including “China has also previously indicated that it would consider adopting the principle of ‘competitive neutrality’ for SOEs. However, China has continued to pursue policies that further enshrine the dominant role of the state and its industrial plans when it comes to the operation of state-owned and state-invested enterprises.”),
  • Industrial Subsidies (massive subsidies to industries creating excess capacity and causing harm to U.S. producers globally; U.S. is working with the EU and Japan on possible amendments to Subsidies Agreement to address certain aspects not effectively handled under existing rules)
  • Fisheries Subsidies (size of subsidies by China to its industry),
  • Excess Capacity (problem created in many sectors including steel, aluminum, solar panels and others through state programs, subsidies, etc.),
  • Indigenous Innovation (including preferences for IP developed in China),
  • Technology Transfer (301 investigation looked at “(1) the use of a variety of tools to require or pressure the transfer of technologies and IP to Chinese companies; (2) depriving U.S. companies of the ability to set market based terms in technology licensing negotiations with Chinese companies; (3) intervention in markets by directing or unfairly facilitating the acquisition of U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and IP; and, (4) conducting or supporting cyber-enabled theft and unauthorized intrusions into U.S. commercial computer networks for commercial gains.”)
  • Investment Restrictions (different systems for domestic and foreign investment; discriminatory treatment),
  • Administrative Licensing (problems continue to be experienced in a wide array of licensing situations)
  • Standards (ability of foreign companies to participate in establishing; development of Chinese standards regardless of international standards),
  • Secure and Controllable ICT Policies (cybersecurity law used to discriminate against foreign ICT prducts),
  • Encryption (“Onerous requirements on the use of encryption, including intrusive approval processes and, in many cases, mandatory use of indigenous encryption algorithms (e.g., for WiFi and 4G cellular products), continue to be cited by stakeholders as a significant trade barrier.”),
  • Competition Policy (“Many U.S. companies have cited selective enforcement of the Anti-monopoly Law against foreign companies seeking to do business in China as a major concern, and they have highlighted the limited enforcement of this law against SOEs.” “Instead, these remedies seem to be designed to further industrial policy goals. Another concern relates to the procedural fairness of Anti-monopoly Law investigations of foreign companies. U.S. industry has expressed concern about insufficient predictability, fairness, and transparency in Antimonopoly Law investigative processes.”),
  • Pharmaceuticals (some long standing issues addressed in U.S.-China Phase I Agreement; others to be addressed in the future),
  • Medical devices (China’s “pricing and tendering procedures for medical devices and its discriminatory treatment of imported medical devices”),
  • Cosmetics (“concerns with China’s regulation of cosmetics.” “Despite years of United States engagement with China via the JCCT, the International Cooperation on Cosmetics Regulation, and other fora to share views and expertise regarding the regulation of cosmetics, as of March 2021 China has not yet addressed key U.S. trade concerns, including basic concerns such as the need to use international standards to facilitate cosmetics conformity assessment, nor has it provided assurances that U.S. intellectual property will be protected.”),
  • Export restraints (need to bring multiple cases at WTO on inputs where violate Protocol of Accession),
  • Value-added Tax Rebates and Related Policies (modifications of rates to change trade flows),
  • Import Ban on Remanufactured Products
  • Import Ban on Recyclable Materials
  • Trade Remedies (problems in transparency and procedural fairness; problems also in apparent use of trade remedies to go after trading partners who use WTO rights against Chinese products),
  • Government Procurement (failure to join the WTO GPA yet),
  • Corporate Social Credit System (“Foreign companies are concerned that the corporate social credit system will also be used by the Chinese Government to pressure them to act in accordance with relevant Chinese industrial policies or otherwise to make investments or conduct their business operations in ways that run counter to market principles or their own business strategies. Foreign companies are also concerned about the opaque nature of the corporate social credit system.”),
  • Other Non-Tariff Measures (“Key areas include China’s labor laws, laws governing land use in China, commercial dispute resolution and the treatment of non-governmental organizations. Corruption among Chinese Government officials, enabled in part by China’s incomplete adoption of the rule of law, is also a key concern.”).

Intellectual Property Protection (many issues were included in the U.S.-China Phase I Agreement, some progress on issues raised).

  • Trade Secrets (major area of concern and theft, some believed from government-supported entities; some improvements from U.S.-China Phase I Agreement),
  • Bad Faith Trademark Registration (a continuing major concern; some progress in U.S.-China Phase I Agreement),
  • Online Infringement (“Online piracy continues on a large scale in China, affecting a wide range of industries, including those involved in distributing legitimate music, motion pictures, books and journals, software, and video games.” Some progress made in the U.S.-China Phase I Agreement),
  • Counterfeit Goods (a major problem. “The Phase One Agreement requires China to take effective enforcement action against counterfeit pharmaceuticals and related products, including active pharmaceutical ingredients, and to significantly increase actions to stop the manufacture and distribution of counterfeits with significant health or safety risks. The Phase One Agreement also requires China to provide that its judicial authorities shall order the forfeiture and destruction of pirated and counterfeit goods, along with the materials and implements predominantly used in their manufacture. In addition, the Agreement requires China to significantly increase the number of enforcement actions at physical markets in China and against goods that are exported or in transit. It further requires China to ensure, through third party audits, that government agencies and SOEs only use licensed software.”).

Agriculture (“China remains a difficult and unpredictable market for U.S. agricultural exporters, largely because of
inconsistent enforcement of regulations and selective intervention in the market by China’s regulatory authorities. The failure of China’s regulators to routinely follow science-based, international standards, and guidelines further complicates and impedes agricultural trade. The Phase One Agreement addresses structural barriers to trade and aims to support a dramatic expansion of U.S. food, agriculture, and seafood product exports, which will increase U.S. farm and fishery income, generate more rural economic activity, and promote job growth. The Phase One Agreement addresses a multitude of non-tariff barriers to U.S. agriculture and seafood products, including for meat and meat
products, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agricultural biotechnology. The Agreement also includes enforceable commitments requiring China to purchase and import on average at least $40 billion of U.S. agricultural and seafood products per year in 2021 and 2022, representing an average annual increase of at least $16 billion over 2017 levels. China also agreed that it will strive to purchase and import an additional $5 billion of U.S. agricultural and seafood products each year.”).

  • Agricultural Domestic Support (China exceeds the limits allowed it; WTO dispute confirms China in violation of WTO obligations; U.S. seeking authorization to retaliate),
  • Tariff-rate Quota Administration (U.S. challenged China’s administration of TRQs on various products and won WTO dispute; U.S.-China Phase I Agreement requires China to comply on the products of concern),
  • Agricultural Biotechnology Approvals (China’s system has been a major problem for U.S. producers. U.S>-China Phase I Agreement includes commitments by China to address the major concerns of the U.S. in this area),
  • Food Safety Law (China’s actions have been quite burdensome and have failed to provide notices to the WTO in many cases. U.S>-China Phase I Agreement addresses the main concerns),
  • Poultry (China restricted U.S. exports after avian influenza in the U.S. and maintained restrictions despite actions by the U.S. that complied with World Organization for Animal Health (OIE) guidelines. U.S.-China Phase I Agreement has China committing to follow OIE guidelines and limiting restrictions to the region where there is a problem in future outbreaks),
  • Beef (“In the Phase One Agreement, China agreed to expand the scope of U.S. beef products allowed to be imported, to eliminate age restrictions on cattle slaughtered for export to China, and to recognize the U.S. beef and beef products’ traceability system. China also agreed to establish MRLs for three synthetic hormones legally used for decades in the United States consistent with Codex standards and guidelines. Where Codex standards and guidelines do not yet exist, China agreed to use MRLs established by other countries that have performed science-based risk assessments.”),
  • Pork (“China bans the use of certain veterinary drugs and growth promotants instead of accepting the MRLs set by Codex.” Some progress on opening the China market to U.S. pork products was made in the U.S.-China Phase I Agreement),
  • Horticultural Products (market access barriers for many U.S. products. U.S.-China Phase I Agreement obtains access for a number of products — fresh potatoes for processing, blueberries, nectarines and avocados from California, and barley, timothy hay and some other products.),
  • Value-added Tax Rebates and Related Policies (practice of varying rates on agricultural commodities).

Services (“In 2020, numerous challenges persisted in a number of services sectors. As in past years, Chinese regulators
continued to use discriminatory regulatory processes, informal bans on entry and expansion, case-by-case approvals in some services sectors, overly burdensome licensing and operating requirements, and other means to frustrate the efforts of U.S. suppliers of services to achieve their full market potential in China. These policies and practices affect U.S. service suppliers across a wide range of sectors, including express delivery, cloud computing, telecommunications, film production and distribution, online video and entertainment software, and legal services. In addition, China’s Cybersecurity Law and related draft and final implementing measures include mandates to purchase domestic ICT products and services, restrictions on cross-border data flows, and requirements to store and process data locally. China’s draft Personal Information Protection Law also includes restrictions on cross-border data flows and requirements to store and process data locally. These types of data restrictions undermine U.S. services suppliers’ ability to take advantage of market access opportunities in China. China also had failed to fully address U.S. concerns in
areas that have been the subject of WTO dispute settlement, including electronic payment services and theatrical film importation and distribution. The Phase One Agreement addresses a number of longstanding trade and investment barriers to U.S. providers of a wide range of financial services, including banking, insurance, securities, asset management, credit rating, and electronic payment services, among others. The barriers addressed in that Agreement
include joint venture requirements, foreign equity limitations, and various discriminatory regulatory requirements. Removal of these barriers should allow U.S. financial service providers to compete on a more level playing field and expand their services export offerings in the China market.”)

  • Banking Services (U.S.-China Phase I Agreement addresses some concerns re access including bank branches and supplying securities investment fund custody services),
  • Securities, Asset Management, and Futures Services (U.S.-China Phase I Agreement resulted in China eliminating limits on equity ownership and commits to nondiscrimination for U.S. suppliers of these services),
  • Insurance Services (despite commitments by China as part of the U.S.-China Phase I Agreement, U.S. participation in China’s insurance market remains very limited),
  • Electronic Payment Services (China has restricted access to foreign electronic payment services providers. U.S. won a WTO dispute and included provisions in U.S.-China Phase I Agreement. So far just one foreign electronic payment services provider has been licensed in China),
  • Internet-enabled Payment Services (major problems for foreign companies to obtain license to provide such services),
  • Telecommunications Services (range of barriers have limited foreign suppliers access to both basic telecom services and to value added services),
  • Internet Regulatory Regime (“China’s Internet regulatory regime is restrictive and non-transparent, affecting a broad range of commercial services activities conducted via the Internet, and is overseen by multiple agencies without clear lines of jurisdiction. China’s Internet economy had boomed over the past decade and is second in size only to that of the United States. Growth in China has been marked in service sectors similar to those found in the United States, including retail websites, search engines, online education, travel, advertising, audio-visual and computer gaming services, electronic mail and text, online job searches, Internet consulting, mapping services, applications, web domain registration, and electronic trading. However, in the Chinese market, Chinese companies dominate due in large part to restrictions imposed on foreign companies by the Chinese Government. At the same time, foreign companies continue to encounter major difficulties in attempting to offer these and other Internet-based services on a cross-border basis. China continues to engage in extensive blocking of legitimate websites and apps, imposing significant costs on both suppliers and users of web-based services and products. According to the latest data, China currently blocks a significant portion of the largest global sites. U.S. industry research has calculated that more than 10,000 foreign sites are blocked, affecting billions of dollars in business, including communications, networking, app stores, news, and other sites. Even when sites are not permanently blocked, the often arbitrary implementation of blocking, and the performance-degrading effect of filtering all traffic into and outside of China, significantly impair the supply of many cross-border services, often to the point of making them unviable.”),
  • Voice-over-Internet Protocol Services (“China’s regulatory authorities have restricted the ability to offer VOIP services interconnected to the public switched telecommunications network (i.e., to call a traditional phone number) to basic telecommunications service licensees.”),
  • Cloud Computing Services (foreign service providers can only operate in China by using a Chinese company and turning over brand, IP and other aspects; serious concern for U.S.),
  • Audio-visual and Related Services (“China prohibits retransmission of foreign TV channels, prohibits foreign investment in TV production, prohibits foreign investment in TV stations and channels in China, and imposes quotas on the amount of foreign programming that can be shown on a Chinese TV channel each day.”),
  • Theatrical Films (despite a WTO dispute and a resulting MOU where China agreed to expand number of U.S. films, China has not fulfilled its commitments)
  • Online Video and Entertainment Software Services (foreign suppliers are severely restricted),
  • Legal Services (very limited ability for foreign firms or foreign lawyers to practice in China)
  • Express Delivery Services (foreign service providers are banned from document delivery and face discriminatory and burdensome actions on package participation),
  • Data Restrictions (activities in China are likely to result in local storage requirements and limits on cross-border transfer; major concern to U.S. and many other countries).

Transparency (much work needed by China to meet obligations)

  • Publication of Trade-related Measures (WTO obligation to publish in one journal; spotty performance and many types of measures not published in the journal),
  • Notice-and-comment Procedures (little progress at sub-central government level; some progress at central government; U.S.-China Phase I Agreement commits China to provide 45 days notice and comment period for matters relating to the Agreement),
  • Translations (WTO commitment to provide translations in one of the three official WTO languages. “China does not publish translations of trade-related laws and administrative regulations in a timely manner (i.e., before implementation), nor does it publish any translations of trade-related measures issued by sub-central governments at all.”).

Conclusion

While the U.S. was the first country to produce a national trade estimate, a number of countries do so today. All trading partners have some practices which concern other trading partners, including the United States.

The length of the entry in the NTE for a give country is a reasonable indication both of the importance of the trade relationship and of the breadth of issues of concern. For the United States, the National Trade Estimate is a useful compilation of many of the major concerns raised by industries about problems in access to markets abroad or distortions created by practices of trading partners. Typically items found in the NTE will be part of USTR’s focus during the year in interactions with particular trading partners.

China is the country with the longest entry in the NTE and has been for many years. Considering the array of distortions and other problems identified in this year’s NTE, the focus on China is not surprising.

Some of the problems identified in this year’s NTE with China could be addressed through WTO reform, though China has indicated opposition to such an approach. On some of the issues, the U.S. has received repeated promises from China to address but without meaningful results to date.

What is clear is that U.S. trade relations with China are not balanced and haven’t been for the entire time of WTO membership for China. The challenge for the U.S. and the world is how to restore balance and save the global trading system. There are no obvious answers.

Biden Administration continues treatment of Hong Kong as no longer autonomous from China, inter alia, for purposes of marking of products

The U.S. Department of State released on March 31, 2021 the 2021 Hong Kong Policy Act Report. See U.S. Department of State, Hong Kong Policy Act Report, Press Statement, March 31, 2021, https://www.state.gov/hong-kong-policy-act-report/; U.S. Department of State, 2021 Hong Kong Policy Act Report, REPORT, Bureau of East Asian and Pacific Affairs, March 31 2021, https://www.state.gov/2021-hong-kong-policy-act-report/.

The Press statement is copied below (emphasis added).

“Over the past year, the People’s Republic of China (PRC) has continued to dismantle Hong Kong’s high degree of autonomy, in violation of its obligations under the Sino-British Joint Declaration and Hong Kong’s Basic Law.  In particular, the PRC government’s adoption and the Hong Kong government’s implementation of the National Security Law (NSL) have severely undermined the rights and freedoms of people in Hong Kong.

“Each year, the Department of State submits to Congress the Hong Kong Policy Act Report and accompanying certification.  In conjunction with this year’s report, I have certified to Congress that Hong Kong does not warrant differential treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.

“This report documents many of the actions the PRC and Hong Kong governments have taken against Hong Kong’s promised high degree of autonomy, freedoms, and democratic institutions.  These include the arbitrary arrests and politically-motivated prosecutions of opposition politicians, activists, and peaceful protesters under the NSL and other legislation; the postponement of Legislative Council elections; pressure on judicial independence and academic and press freedoms; and a de facto ban on public demonstrations.

“I am committed to continuing to work with Congress and our allies and partners around the world to stand with people in Hong Kong against the PRC’s egregious policies and actions.  As demonstrated by the March 16 Hong Kong Autonomy Act update, which listed 24 PRC and Hong Kong officials whose actions reduced Hong Kong’s autonomy, we will impose consequences for these actions.  We will continue to call on the PRC to abide by its international obligations and commitments; to cease its dismantlement of Hong Kong’s democratic institutions, autonomy, and rule of law; to release immediately and drop all charges against individuals unjustly detained in Hong Kong; and to respect the human rights of all individuals in Hong Kong.”

The Report covers a range of issues including discussion of:

  • national security law,
  • impact on rule of law,
  • arrests, bail, and investigations proceedings,
  • impact on democratic institutions,
  • progress towards universal suffrage and impact on the legislature,
  • impact on the judiciary,
  • Impact on Freedom of Assembly,
  • Impact on Freedoms of Speech and Association,
  • Impact on Freedom of the Press,
  • Disinformation/Malign Political Influence Activities,
  • Impact on Internet Freedoms,
  • Impact on Freedom of Movement,
  • Impact on Freedom of Religion or Belief,
  • Impact on U.S. Citizens,
  • Impact on Academics and Exchanges,
  • Areas of Remaining Autonomy,
  • U.S.-Hong Kong Cooperation and Agreements,
  • Export Controls,
  • Sanctions Implementation,
  • U.S. Sanctions
  • Hong Kong Policy Act Findings

The summary of the report is copied below.

“Consistent with sections 205 and 301 of the United States-Hong Kong Policy Act of 1992 (the “Act”) (22 U.S.C. 5725 and 5731) and section 7043(f)(3)(C) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2021 (Div. K, P.L. 116-260), the Department submits this report and the enclosed certification on conditions in Hong Kong from June 2020 through February 2021 (“covered period”).

“Summary

“The Department of State assesses during the covered period, the central government of the People’s Republic of China (PRC) took new actions directly threatening U.S. interests in Hong Kong and inconsistent with the Basic Law and the PRC’s obligation pursuant to the Sino-British Joint Declaration of 1984 to allow Hong Kong to enjoy a high degree of autonomy. In the Certification of Hong Kong’s Treatment under United States Laws, the Secretary of State certified Hong Kong does not warrant treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.

“By unilaterally imposing on Hong Kong the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (NSL), the PRC dramatically undermined rights and freedoms in Hong Kong, including freedoms protected under the Basic Law and the Sino-British Joint Declaration. Since the imposition of the NSL in June 2020, Hong Kong police arrested at least 99 opposition politicians, activists, and protesters on NSL-related charges including secession, subversion, terrorism, and collusion with a foreign country or external elements. These include 55 people arrested in January for organizing or running in pan-democratic primary elections in July 2020, 47 of whom were formally charged with subversion on February 28. Additionally, the Hong Kong government used COVID-19-related public health restrictions to deny authorizations for public demonstrations and postponed Hong Kong’s Legislative Council (LegCo) elections for at least one year.”

Ongoing WTO dispute filed by Hong Kong

Hong Kong has filed a request for consultations and a request for a panel at the WTO to contest actions during the Trump Administration which resulted in a requirement that goods from Hong Kong exported to the United States be labeled as manufactured in China because of prior actions by China that limited Hong Kong autonomy. A panel has been established but not yet composed. See WTO, DS597: United States — Origin Marking Requirement, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds597_e.htm. I have reviewed the dispute in prior posts. See February 23, 2021, WTO Dispute Settlement Body meeting of February 22, 2021 — panels authorized in two matters; impasse on the Appellate Body remains, https://currentthoughtsontrade.com/2021/02/23/wto-dispute-settlement-body-meeting-of-february-22-2021-panels-authorized-in-two-matters-impasse-on-appellate-body-remains/; January 16, 2020, Request for the establishment of a WTO panel by Hong Kong, China contesting the U.S. origin marking requirement, https://currentthoughtsontrade.com/2021/01/16/request-for-the-establishment-of-a-wto-panel-by-hong-kong-china-contesting-the-u-s-origin-marking-requirement/.

What is clear from yesterday’s Hong Kong Policy Act Report is that the concerns in the United States on the actions by China to restrict Hong Kong’s autonomy have not gone away with the Biden Administration but have increased with the escalating actions by the Chinese government. While Hong Kong will pursue its challenge, one shouldn’t expect a change in U.S. position nor should one expect a resolution in the WTO in the next several years.

“Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system

The Global Business Dialogue (GBD) publishes periodically “THE TTALK QUOTES”. On March 30, 2021, GBD posted a TTALK Quotes on “CHINA, THE TRADING SYSTEM, AND THE ALTERNATIVES” with a quote from Clyde Prestowitz, ‘[There is] only one alternative – “blowing up the system” or, more politely, creating a new or alternative system.”

The quote is from a Washington Monthly article by Mr. Prestowitz from March 24, 2021 entitled, “Blow Up the Global Trading System, Yes, really. U.S. and international efforts to stop Beijing’s economic onslaught haven’t worked. It’s time for President Biden to go big,” https://washingtonmonthly.com/2021/03/24/blow-up-the-global-trading-system/. Mr. Prestowitz has a new book out, The World Turned Upside Down (Yale University Press, 2021) and some of the recommendations in the Washington Monthly article reflect his thinking from his new book.

While the title is provocative, the concerns expressed are similar to the ones reviewed in Amb. Dennis Shea’s remarks to the Coalition for a Prosperous America and those expressed last year by Mogens Peter Carl that China’s economic system isn’t consistent with the WTO rules and China has no intention of modifying its approach to global trade. See March 29, 2021:  China and the WTO – remarks by Dennis C. Shea to the Coalition for a Prosperous America, https://currentthoughtsontrade.com/2021/03/29/china-and-the-wto-remarks-by-dennis-c-shea-to-the-coalition-for-a-prosperous-america/.

Unlike Mr. Carl’s call for market economy countries to withdraw from the WTO and start a new organization, Mr. Prestowitz proposes in the Washington Monthly article “Reinventing the Globalization System” which involves seven action steps.

The first is for the United States “to impose a Market Adjustment Charge (MAC) on all non-direct investment (not in new means of production) into the United States.” The MAC is explained in his new book (pages 276-277) but is a charge that would vary based on the size and trend of the U.S. trade deficit.

The second step “would be for the International Monetary Fund (IMF) to adopt Keynes’ Bretton Woods proposal that all countries should have balanced trade in the medium to long term.” To achieve this result, a duty would be applied on imports from countries that run persistent trade surpluses.

The third step would be for the United States to seek strong enforcement within the IMF and by the U.S. Department of the Treasury.

The fourth step would be forming a supersized FTA including USMCA, CPTPP and the EU, and open to other market economies. Prestowitz calls this grouping the “Free World Free Trade Agreement”.

The firth step addresses the need for market economies to improve their competitiveness against the state directed and massively subsidized world of China. The step calls for the creation of “a free world high technology leadership project”

The sixth step calls on the U.S. to reorganize government and concentrate resources to support the technology leadership initiative.

The final step involves actions the U.S. can take to spur domestic manufacturing (use of Defense Production Act, curbing corporate lobbying, and review corporate overseas investment plans.

In his book, Mr. Prestowitz has a chapter on actions the U.S. should take to regain its leadership position. It starts with a Market Access Charge, calls for the imposition of a value added tax and a host of actions to ensure the U.S. is “the world’s most competitive economy.” Page 278.

U.S. actions are aimed at improving U.S. competitiveness

A number of the actions Mr. Prestowitz calls for on U.S. competitiveness are similar to actions being introduced today in part 1 of President Biden’s American Jobs Plan (est. cost of $2.5 trillion). See White House Briefing Room, FACT SHEET: The American Jobs Plan, March 31, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/. Excerpts are copied below. The full fact sheet is then embedded.

“While the American Rescue Plan is changing the course of the pandemic and delivering relief for working families, this is no time to build back to the way things were. This is the moment to reimagine and rebuild a new economy. The American Jobs Plan is an investment in America that will create millions of good jobs, rebuild our country’s infrastructure, and position the United States to out-compete China. Public domestic investment as a share of the economy has fallen by more than 40 percent since the 1960s. The American Jobs Plan will invest in America in a way we have not invested since we built the interstate highways and won the Space Race.

“The United States of America is the wealthiest country in the world, yet we rank 13th when it comes to the overall quality of our infrastructure. After decades of disinvestment, our roads, bridges, and water systems are crumbling. Our electric grid is vulnerable to catastrophic outages. Too many lack access to affordable, high-speed Internet and to quality housing. The past year has led to job losses and threatened economic security, eroding more than 30 years of progress in women’s labor force participation. It has unmasked the fragility of our caregiving infrastructure. And, our nation is falling behind its biggest competitors on research and development (R&D), manufacturing, and training. It has never been more important for us to invest in strengthening our infrastructure and competitiveness, and in creating the good-paying, union jobs of the future.

“Like great projects of the past, the President’s plan will unify and mobilize the country to meet the great challenges of our time: the climate crisis and the ambitions of an autocratic China. It will invest in Americans and deliver the jobs and opportunities they deserve. But unlike past major investments, the plan prioritizes addressing long-standing and persistent racial injustice. The plan targets 40 percent of the benefits of climate and clean infrastructure investments to disadvantaged communities. And, the plan invests in rural communities and communities impacted by the market-based transition to clean energy.”

FACT-SHEET_-The-American-Jobs-Plan-_-The-White-House

Reform of the WTO or a different approach?

The U.S. is looking to push WTO reform and work with trading partners to address challenges posed by China’s economic model. The EU and Japan are similarly looking at WTO reform as a way forward. See, e.g., February 18, 2021, The European Commission’s 18 February 2021 Trade Policy Review paper and Annex — WTO reform and much more proposed, https://currentthoughtsontrade.com/2021/02/18/the-european-commissions-18-february-2021-trade-policy-review-paper-wto-reform-and-much-more-proposed/.

The G7 trade ministers are meeting today. See Reuters, UK trade minister tells G7: We must stop fragmentation of global trade, March 31, 2021, https://www.reuters.com/article/britain-trade-truss-idUSS8N2L708T. The seven G7 countries are Canada, France, Germany, Italy, Japan, the UK and the US (EU participates as a guest). WTO reform is one of the topics being discussed today. The U.S., EU and Japan have been working on potential reforms to the Subsidies Agreement to address the massive industrial subsidies provided by China as well as looking at potential disciplines on state-owned/invested enterprises and forced technology transfer. However, in a consensus system like the WTO, it is hard to imagine meaningful reforms that will address Chinese distortions achieving results within the WTO.

The U.S. is not presently considering a “Free World Free Trade Agreement” as proposed by Mr. Prestowitz. The U.S. is also not proposing pulling out of the WTO as suggested last year by Mogens Peter Carl and entering into a new organization that is limited to market economies. Each of the U.S. and the EU have the ability to act unilaterally if necessary but obviously that is a less desirable approach to global governance.

So it is likely that the U.S., EU, Japan and other leading market economies will continue to seek reform within the WTO but with likely limited results putting pressure on free trade agreements or on plurilateral arrangements to achieve a trade regime acceptable to the major market economies.

Mr. Prestowitz’s article and recent book are well done and raise some interesting ideas for addressing U.S. trade concerns with China. Some of his ideas have been advocated for by others before and have significant potential whether they have much political possibility for adoption. But in a changing global trade environment, his writings are a useful contribution and worth reading by those in trade policy positions.

For the Biden Administration, new trade agreements do not appear to be a short-term objective. Getting control of the pandemic through vaccinations and building back better through the jobs bill are the two major priorities. Trade can contribute to both, but a push for Free World Free Trade Agreement is not likely in the Biden years.

Still China’s economic system and incompatibility with the WTO are major concerns for many countries including the United States. Reform of the WTO would obviously be the best outcome for addressing China’s distortions. While hope spring eternal, the Ministerial Conference in late November 2021 in Geneva will give an idea of whether meaningful WTO reform is likely in the cards in the coming years. Such reform is highly unlikely to happen during the 2020s, if ever.

Mr. Carl’s suggestion of mass withdrawal from the WTO and creation of a new entity of market economies is interesting in addressing the blocking capacity of China but seems improbable because of China’s size and importance. With no major economy having suggested any interest in the idea, it seems implausible in the 2020s, if ever.

Mr. Prestowitz’s idea for a super-FTA of market economies is doable within the WTO and simply depends on majors like the U.S., EU, Japan and others being willing to put in the effort. But the U.S. and EU have not been able to make meaningful progress on an FTA or even harmonization of regulations over recent decades. If past is prologue, it is unlikely that such an undertaking will occur in the 2020s either, if ever.

 As British trade minister Liz Truss is reported to have said to her G7 fellow trade ministers, “We need to reverse the fragmentation of global trade and get the global system and WTO working again, otherwise we risk big countries going their own way and operating outside an agreed set of rules, which always spells trouble.” Reuters, UK trade minister tells G7: We must stop fragmentation of global trade, March 31, 2021, https://www.reuters.com/article/britain-trade-truss-idUSS8N2L708T. China has effectively been going its own way even after joining the WTO at the end of 2001. Actions by the U.S., EU and others in recent years have occasionally been outside of the agreed set of rules as well. So a fourth option is that of the collapse of the global trading system (actually or practically) with a law of the jungle reasserting itself.

Time will tell which direction global trade will take.

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.”

When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang

Earlier this week, the EU added a series of individuals and companies to its sanctions list including Chinese officials and entities involved in the alleged extreme human rights abuses of Uyghurs in Xinjiang, as well as others in Russia, Libya and the Democratic People’s Republic of Korea. See European Council, EU imposes further sanctions over serious violations of human rights around the world, 22 March 2021, https://www.consilium.europa.eu/en/press/press-releases/2021/03/22/eu-imposes-further-sanctions-over-serious-violations-of-human-rights-around-the-world/; Official Journal of the European Union, L 99 I, Council Implementing Regulation (EU) 2021/478 of 22 March 2021 implementing Regulation (EU) 2020/1998 concerning restrictive measures against serious human rights violations and abuses, Vol. 64, pages 1-12, 22 March 2021, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2021:099I:FULL&from=EN. The Official Journal regulation has as one of the bases of concern for a number of countries where individuals or entities are included on the sanctions list the following, “The Union remains deeply concerned about serious human rights violations and abuses in different parts of the world, such as torture, extrajudicial killings, enforced disappearances or systematic use of forced labour committed by individuals and entities in China, the Democratic People’s Republic of Korea (DPRK), Libya, Eritrea, South Sudan and Russia.” The regulation includes a page per person/entity being added. Some of the description of why WANG Junzheng has been added to the list is copied below.

“As Party Secretary and Political commissar of the XPCC since 2020, Wang Junzheng is involved in overseeing all policies implemented by the XPCC. In this position, he is responsible for serious human rights violations in China, in particular large-scale arbitrary detentions and degrading treatment inflicted upon Uyghurs and people from other Muslim ethnic minorities, as well as systematic violations of their freedom of religion or belief, linked, inter alia, to the XPCC’s implementation of a large-scale surveillance, detention and indoctrination programme targeting Uyghurs and people from other Muslim ethnic minorities.

“He is also responsible for the XPCC’s systematic use of Uyghurs and people from other Muslim ethnic minorities as a forced workforce, in particular in cotton fields. As Deputy Secretary of the Party Committee of the XUAR since 2020, Wang Junzheng is involved in overseeing all the security policies implemented in Xinjiang, including the aforementioned programme targeting Uyghurs and people from other Muslim ethnic minorities. As Secretary of the Political and Legal Affairs Committee of the XUAR (February 2019 to September 2020), Wang Junzheng was responsible for maintaining internal security and law enforcement in the XUAR. As such, he held a key political position in charge of overseeing and implementing the aforementioned programme.”

On the same day, the United States, United Kingdom and Canada issued a joint statement announcing sanctions on individuals and/or an entity in China involved with the alleged human rights abuses of Uyghurs in Xinjiang. See U.S. Department of State press release, Joint Statement on Xinjiang, March 22, 2021, https://www.state.gov/joint-statement-on-xinjiang/. The body of the joint message is copied below.

“We, the Foreign Ministers of Canada and the United Kingdom, and the United States Secretary of State, are united in our deep and ongoing concern regarding China’s human rights violations and abuses in Xinjiang. The evidence, including from the Chinese Government’s own documents, satellite imagery, and eyewitness testimony is overwhelming. China’s extensive program of repression includes severe restrictions on religious freedoms, the use of forced labour, mass detention in internment camps, forced sterilisations, and the concerted destruction of Uyghur heritage.

“Today, we have taken coordinated action on measures, in parallel to measures by the European Union, that send a clear message about the human rights violations and abuses in Xinjiang. We are united in calling for China to end its repressive practices against Uyghur Muslims and members of other ethnic and religious minority groups in Xinjiang, and to release those arbitrarily detained.

“We underline the importance of transparency and accountability and call on China to grant the international community, including independent investigators from the United Nations, journalists, and foreign diplomats, unhindered access to Xinjiang.

“We will continue to stand together to shine a spotlight on China’s human rights violations. We stand united and call for justice for those suffering in Xinjiang.”

Australia and New Zealand, while not imposing sanctions themselves, added their voices of concern over the alleged human rights abuses in Xinjiang of the Uyghurs. See Minister of Foreign Affairs Australia, Joint statement on Human Rights Abuses in Xinjiang, 23 March 2021, https://www.foreignminister.gov.au/minister/marise-payne/media-release/joint-statement-human-rights-abuses-xinjiang. The Joint Statement is copied below.

“The Australian and New Zealand Governments today reiterate their grave concerns about the growing number of credible reports of severe human rights abuses against ethnic Uighurs and other Muslim minorities in Xinjiang.

“In particular, there is clear evidence of severe human rights abuses that include restrictions on freedom of religion, mass surveillance, large-scale extra-judicial detentions, as well as forced labour and forced birth control, including sterilisation.

“Australia and New Zealand welcome the measures announced overnight by Canada, the European Union, the United Kingdom and the United States. We share these countries’ deep concerns, which are held across the Australian and New Zealand communities.

“Since 2018, when reports began to emerge about the detention camps in Xinjiang, Australia and New Zealand have consistently called on China in the United Nations to respect the human rights of the Uighur people, and other religious and ethnic minorities.

“Today, we underscore the importance of transparency and accountability, and reiterate our call on China to grant meaningful and unfettered access to Xinjiang for United Nations experts, and other independent observers.”

While China argues that their treatment of the Uyghurs is an internal matter, the allegations of serious human rights abuses have raised widespread international condemnation and increasing use of sanctions. The sanctions, however, typically are limited to freezing assets (if any) of individuals or entities in the sanctioning country, banning travel to the country imposing the sanctioning, etc.

Trade Implications

While allegations of human rights violations do not necessarily carry trade distortion implications, the case of the forced labor of Uighurs in Xinjiang clearly does. Xinjiang produces some 80% of the cotton grown in China, much of it produced by forced labor according to reports. As China is a major producer of textile and apparel products and a major exporter of the same, the distortions in trade flows should be obvious. Foreign cotton will have trouble competing in China with cotton produced with forced labor. Garment producers who don’t use the Chinese cotton will face distortions as competing against garments where a significant input has been obtained at artificially low prices. Some countries (e.g., the United States and Canada) have laws which permit them to prevent imports of products made with forced labor, although the breadth of the actions taken to date are typically quite limited.

In prior posts, I looked at the large number of products produced around the world with forced labor or with child labor and also looked specifically at the Chinese treatment of the Uyghurs reviewing a number of publications and reports. See Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, January 25, 2021, ttps://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/ ; Forced labor and child labor — a continued major distortion in international trade for some products, January 24, 2021, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/.

To ramp up pressure on China to reform its treatment of the Uyghurs, the United States, European Union, United Kingdom, Canada, Australia, New Zealand and all other countries concerned about the human rights should coordinate a broad-based denial of imports from China or from other countries where cotton from Xinjiang is part of the product until such time as the treatment of the Uyghurs has been corrected.

Seafood obtained from illegal, unreported, and unregulated fishing — U.S. International Trade Commission report on estimated imports into the U.S.

For twenty years, Members of the World Trade Organization have been negotiating disciplines on fisheries subsidies to help curb illegal, unreported and unregulated fishing (IUU fishing). Achieving an agreement is critical to meeting the United Nations Sustainable Development Goal 14.6. See, e.g., WTO, WTO members hold February cluster of meetings for fisheries subsidies negotiations, 24 February 2021, https://www.wto.org/english/news_e/news21_e/fish_24feb21_e.htm. The WTO Members had hoped to conclude negotiations in 2020 and are working to conclude the negotiations by the 12th Ministerial Conference, now scheduled for the week of November 29, 2021 in Geneva. See WTO, Twelfth Ministerial Conference to take place in Geneva in late 2021, 1 March 2021, https://www.wto.org/english/news_e/news21_e/minis_01mar21_e.htm.

On December 19, 2019, the Chairman of the U.S. House of Representatives Committee on Ways and Means and the Chairman of the Trade Subcommittee of Ways and Means submitted a letter to the U.S. International Trade Commission requesting an investigation into IUU fishing and its effects on the U.S. industry. The text of the request is copied below.

“We are writing today to request that the U.S. International Trade Commission (USITC) conduct an investigation of the potential economic effects on U.S. fishermen of competition with illegal, unreported, and unregulated (IUU) seafood imports. IUU seafood includes products obtained in contravention of fisheries management regulations or in violation of labor laws. Trade in IUU seafood products includes not only IUU catch that is sent directly to end markets, but also IUU raw material inputs that are further processed into aquaculture feed or seafood products for human consumption.

“Up to 31 percent of the global catch of fish reportedly comes from IUU fishing, at an estimated value of more than $23 billion per year. IUU fishing contributes to the overexploitation of fish stocks, threatens the livelihoods of coastal communities, jeopardizes food security, and harms marine ecosystems. IUU fishing also creates unfair competition for U.S. fishermen as imports account for 90 percent of U.S. seafood consumption. China plays an enormous role in the global production and trade of seafood and is the largest seafood trade partner of the United States. China also has been ranked as worst among 152 coastal countries based on the prevalence of IUU fishing and the country’s response to it.

“To better understand the size, scope, supply chains, pricing pressures, and potential economic effects of this problem, we request that the US ITC conduct an investigation, and prepare a report, pursuant to section 332(g) of the Tariff Act of 1930. Based on available information, we request that the Commission’s report provide, to the extent practicable:

“• A review of the existing data and literature on the prevalence of IUU products in the U.S. import market, and an overview of international mechanisms for monitoring and enforcement to address IUU fishing;

“• A description of the size and structure of the U.S. commercial fishing industry;

“A description of major global producers of IUU products, including but not limited to China, and country practices related to IUU production and exports.

“• An analysis of the extent to which IUU product is imported into the United States, as well as major U.S. import sources and global supply chains of such products; and

“• A quantitative analysis of the economic impact of IUU imports on U.S. commercial fishermen and U.S. commercial fishing production, trade, and prices.

“We request that the Commission deliver the report by 12 months from the date of this letter. As we intend to make the report available to the public, we request that confidential business information not be included in the report. Your assistance in this matter is greatly appreciated.

“Sincerely,

“Richard E. Neal, Chairman
“Earl Blumenauer, Chairman, Trade Subcommittee”

The U.S. International Trade Commission released its report,which is dated February 2021, last week. See USITC, Seafood Obtained via Illegal, Unreported, and Unregulated Fishing: U.S. Imports and Economic Impact on U.S. Commercial Fisheries, Inv. 332-575, Publ. 5168 (February 2021). The request letter is included in the report at Annex A.

On March 18, 2021 Chairmen Neal and Blumenauer released a statement including statements from Oceana and from the World Wide Fund for Nature (WWF). See U.S. House of Representatives Committee on Ways and Means, NEAL, BLUMENAUER STATEMENT ON THE U.S. INTERNATIONAL TRADE COMMISSION’S REPORT “SEAFOOD OBTAINED VIA ILLEGAL, UNREPORTED, AND UNREGULATED FISHING: U.S. IMPORTS AND ECONOMIC IMPACT ON U.S. COMMERCIAL FISHERIES”, March 18, 2021, https://waysandmeans.house.gov/media-center/press-releases/neal-blumenauer-statement-us-international-trade-commission-s-report. The press release is copied below.

WASHINGTON, DC—Today, the U.S. International Trade Commission released their findings pursuant to a Tariff Act of 1930 section 332 investigation requested by Chairman Richard E. Neal (D-MA) and Trade Subcommittee Chairman Earl Blumenauer (D-OR) on the economic impact of illegal, unreported, and unregulated (IUU) seafood, including the use of forced labor, on the U.S. fishing industry.  The report found that the U.S. imported $2.4 billion worth of illegal seafood in 2019 and that addressing the illegal imports would create U.S. jobs, protect U.S. consumers and benefit U.S. fishers by an estimated $60.8 million.

“’Far too much illegal seafood is making its way onto our dinner plates and more must be done,’ said Chairman Neal. ‘By building on what we fought to include in USMCA, enhancing the tracing of our seafood supply chains, and cracking down on IUU fishing practices, we can better protect our oceans and ultimately give Americans the peace of mind that they are eating safe, legal seafood.’

“’When people go to the grocery store, they want to know that the seafood is safe and legally caught, responsibly sourced, and honestly labeled. Unfortunately, too much illegal seafood is currently making its way into the country, undermining our hardworking U.S. fishing industry and putting consumers at risk,’ Blumenauer said. ‘It’s clear that we need stronger enforcement standards to protect individuals, workers, and fishing habitats.’

“Chairman Neal and Trade Subcommittee Chairman Blumenauer are joined by Oceana and WWF in recognizing the study.

“’Illegal, unreported and unregulated fishing not only wreaks havoc on fisheries and ocean wildlife, but also undermines domestic fishers and seafood consumers. The United States has advanced programs to combat IUU fishing and seafood fraud, but it’s clear that more needs to be done. The U.S. must expand Seafood Import Monitoring Program to all seafood, trace fish from boat to plate and expand transparency of fishing to help stop IUU products from entering the U.S. and competing with legally sourced seafood,’ said Beth Lowell, Deputy Vice President of U.S. Campaigns at Oceana.

Michele Kuruc, Vice President of Ocean Policy at WWF noted that, ‘this report reminds us that the ramifications of illegal fishing go far beyond the health of our oceans. It depletes our oceans, fuels labor and human rights abuses, and leaves our domestic producers at an economic disadvantage. People are harmed, economies are hurt, and our oceans and planet are in peril.   Eradicating illegal fishing requires a whole of government approach, as our current definitions, processes and efforts have far-reaching limitations. The good news is we have the tools, but they need to be strengthened to get the job done.  The U.S. needs to expand the species covered by our current monitoring program. We need to track all imported species, not just a small group, to truly tackle this issue and protect our oceans, foster economic growth and empower people who rely on oceans for food and income.’”

Thus, the U.S., despite having some provisions to address IUU fishing, still accounts via imports for an estimated 10% of global IUU fishing ($2.4 billion of an estimated $23 billion global total).

The USITC Report

The U.S. International Trade Commission report is 468 pages including Annexes. The report is embedded below.

ITC-report-on-illegal-fishing

While many countries have some part of their marine capture or imports from other countries that are IUU, the USITC report focuses on certain countries and identifies the types of practices that are considered to result in marine capture being considered IUU.

“There are many fishing practices that can constitute an IUU violation. Often, a vessel may fish in an area where it is not authorized. Vessels may also fish during seasons in which particular fishing grounds are closed. IUU fishing also includes harvesting in excess of quotas set by fishery management authorities or misreporting the volume of landings to those authorities. Fishing with disallowed gear types or methods, or in violation of environmental restrictions such as those concerning bycatch, also constitute IUU fishing. Labor violations that have been widely documented in segments of the fishing industry include forced labor, human trafficking, child labor, and physical abuse of workers on board fishing vessels.” USITC Publ. 5168 at 11-12.

Below are some tables from the report which show the estimated volume of IUU imports from major sources of seafood imports into the United States and then some detail on the basis of IUU fishing from a subset of those countries. The tables are taken from pages 114, 115, 463, 14 and 15 of the USITC report respectively.

The USITC report covers a lot of ground and reviews existing literature and studies and provides its methodology for both estimating the share of imports that are IUU as well as the modeling used to estimate economic effects on domestic industry. It is clear that many countries contribute to the IUU problem. Some countries including the U.S. and the EU have tools available to deal with IUU imports and that such tools are viewed as helpful but not totally fit for purpose based on limited scope, at least in the United States.

Interest in the issue from the U.S. Congress and a focus of the Biden Administration on addressing both environmental- and labor- related issues implies that the U.S. will likely be looking for ways to beef up enforcement of the import monitoring program on seafood.

While the report doesn’t address fisheries subsidies, the report should nonetheless be helpful to WTO Members engaged in the fisheries subsidies negotiations. The report adds dimension to the importance of WTO Members reaching an ambitious agreement on fisheries subsidies as the challenges of IUU fishing are not only environmental in nature but also go to fairness in competition.

The U.S.-China Phase 1 Trade Agreement under the Biden Administration

The Biden Administration’s U.S. Trade Representative Katherine Tai during her confirmation hearing before the U.S. Senate Finance Committee and in written answers to questions from Senators was asked many questions about the China trade relationship and the myriad problems U.S. companies have faced in dealing with China or with Chinese imports into the U.S.. Ms. Tai noted in many answers that the “Biden-Harris Administration is engaged in a review of the policies in place to respond to China’s coercive and unfair trade practices * * *. I understand that a comprehensive strategy to confront the China challenge will be formulated based on that review.” Answer to Question 15 from Ranking Member Crapo (page 8).

Among the dozens of questions she received on China, Ms. Tai received a number that involved the U.S.-China Phase One Trade Agreement. For example, in response to a question from Senator Thune, Ms. Tai indicated that she would “assess China’s compliance with the Phase One deal to ensure it is living up to its commitments.” See Senate Finance Committee, Hearing to Consider the Nomination of Katherine C. Tai, of the District of Columbia, to be United States Trade Representative, with the rank of Ambassador Extraordinary and Plenipotentiary, Hearing Date: February 25, 2021, Questions for the Record, page 41, Senator Thune, Question 2, answer, https://www.finance.senate.gov/imo/media/doc/Katherine%20Tai%20Senate%20Finance%20Committee%20QFRs%202.28.2021.pdf. The full question and answer are copied below.

“Question 2:

“As a result of the U.S.-China Phase One trade deal, the U.S. has seen export gains to China across many agricultural sectors including soybeans, corn, beef, and pork.

If confirmed, how would you ensure that China follows through on its Phase One commitments, particularly for U.S. agriculture? What steps would you take to build upon these successes and ensure that U.S. farm and ranch exports to China are not unfairly restricted by tariff and nontariff barriers?

Answer: The Biden-Harris Administration is engaged in a review of the policies in place to respond to China’s coercive and unfair trade practices, including with respect to agricultural products. I understand that a comprehensive strategy to confront the China challenge will be formulated based on that review. If confirmed, as part of that comprehensive review, I will assess China’s compliance with the Phase One deal to ensure it is living up to its commitments.

Thus, one can expect that USTR under Amb. Tai will be continuing to monitor China’s implementation and enforcement of a wide range of changes to regulations an d practices intended to remove non-tariff barriers as well as tracking Chinese purchases of U.S. goods against the Annex 6.1 commitments made by China in the Phase I Agreement.

As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, although the level of actual implementation remains unclear.

Prior posts on the U.S.-China Phase 1 Agreement can be found here: February 6, 2021, U.S.-China Phase I Trade Agreement – data through December 2020; China has increased purchases of agricultural and energy products above 2017 levels but did not reach first year agreed purchases in 2020 and won’t reached the agreed level even if measured from March 2020-February 2021, https://currentthoughtsontrade.com/2021/02/06/u-s-china-phase-1-trade-agreement-data-through-december-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-did-not-reach-first-year-agreed-purchases-in/; January 9, 2021, U.S.-China Phase 1 Trade Agreement — Data through November 2020; China has increased purchases of agricultural and energy products above 2017 levels but will not reach first year agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2021/01/09/u-s-china-phase-1-trade-agreement-data-through-november-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-will-not-reach-first-year-agreed-purchases-in/; December 10, 2020, U.S.-China Phase I Trade Agreement – data through October 2020; while China has increased purchases of agricultural and some other products, China remains far behind on the agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2020/12/10/u-s-china-phase-1-trade-agreement-data-through-october-2020-while-china-has-increased-purchases-of-agricultural-and-some-other-products-china-remains-far-behind-on-the-agreed-purchases-in-2020-w/; November 13, 2020, U.S.-China Phase 1 trade agreement – Data through September 2020; USDA and USTR report on agriculture portion, https://currentthoughtsontrade.com/2020/11/13/u-s-china-phase-1-trade-agreement-data-through-september-2020-usda-and-ustr-report-on-agriculture-portion/; October 10, 2020,  U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of U.S. Domestic Exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

This post looks at U.S. export data for January 2021, a month whose data reflects basically business in the last month of the Trump Administration.

Purchase Commitments

Annex 6.1 of the Phase I Agreement contains commitments for “additional U.S. exports to China on Top of 2017 baseline” for two years, 2020 and 2021. Article 6.3 of the Agreement states that “The Parties project that the trajectory of increases in the amounts of manufactured goods, agricultural goods, energy products, and services purchased and imported into China from the United States will continue in calendar years 2022 through 2025.

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

Article 6.2 of the Agreement defines the time period for the purchase commitments as being January 1, 2020 through December 31, 2021. So the first year by agreement was calendar year 2020. Calendar year 2021 is the second year of the agreement. The level of increases in U.S. exports to China for 2021 is as follows: manufactured goods $44.8 billion on top of 2017 base line of $58.4 billion (2021 total of $103.2 billion or an increase of 76.81% over 2017 actual); agriculture (including seafood) $19.5 billion on top of 2017 base line of $20.85 billion (2021 total of $40.35 billion or an increase of 93.51% over 2017 actual); energy $33.9 billion on top of 2017 base line of $7.6 billion (2021 total of $41.5 billion or an increase of 447.95% over 2017 actual); services $25.1 billion on top of 2017 base line for the selected services of $53.033 billion (2021 total of $78.133 billion or an increase of 47.33% over 2017 actual). Increases from 2017 for the calendar year 2020 agreed levels were lower than for 2021 (increases over 2017 of $32.9 billion, $12.5 billion, $18.5 billion and $12.8 billion respectively for manufactured goods, agriculture, energy and services). The breakout of services exports is not available for 2020 or January 2021. However, U.S. exports of all services to China for 2020 were $37.921 billion vs. $54.981 billion in 2017, a decline of 31% for all services, thus, U.S. services exports covered by the Phase I Agreement declined in 2020. See U.S. Census Bureau and the U.S. Bureau of Economic Analysis, MONTHLY U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES, JANUARY 2021, March 5, 2021, page 28, Exhibit 20b, https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf. While the BEA data don’t show exports of services in January by country, January 2021 total services exports are down from January 2020 (before the pandemic resulted in significant closures) with the largest reductions in travel followed by transport and by maintenance and repair services.

In 2017, the selected goods covered by Annex 6.1 were $86.795 billion of total U.S. domestic exports to China of $120.109 billion, meaning non-covered U.S. exports in 2017 were $33.314 billion. On services, the selected services covered by Annex 6.1 were $53.033 billion of total services exports to China of $54.981. So non-covered services were $1.948 billion. For goods, there were sharp declines in 2020 of U.S. exports to China of non-covered products from the levels achieved in 2017 (roughly $6.6 billion). Non-covered products are slightly up in January 2021 versus January 2017. While the services break out for 2020 is not yet available by country by type of service, total services exports to China (as reviewed above) were down 31% . The non-covered services are relatively small (just 3.5% of total services exports).

Since the Agreement took effect in mid-February, my analysis in prior posts has focused on the period since the agreement went into effect (for statistics, from March 1, 2020). This is consistent with the position that USTR and USDA took in the Trump Administration in an interim report released on October 23 looking at China’s compliance with its purchase commitments in agriculture. “It is worth noting that the Phase One Agreement did not go into effect until February 14, 2020, and March is the first full month of its effect. That means that we have seen seven months of agreement sales.” U.S. Trade Representative’s Office and U.S. Department of Agriculture, Interim Report on the Economic and Trade Agreement between the United States of America and the People’s Republic of China, AGRICULTURAL TRADE, October 23, 2020, Page 1.

March 2020-January 2021 data compared to 2017 (other than February); January 2021 compared to January 2017

For purposes of this post, I will look at the March 2020 – January 2021 data compared to January and March-December 2017 data, but I will also look at the first month of 2021 compared to January 2017. In my last post in February, I had reviewed calendar 2020 data compared to 2017 data. The data analyzed is limited to goods since the services data is more limited and has been summarized above.

Looking at U.S. domestic exports for the March 2020 – January 2021 period and projecting for a full twelve months (March 2020-February 2021) shows China meeting 94.64% of first year agriculture commitments, and 51.06% above 2017 actual levels for all months other than February. Total Phase 1 products are projected at only 61.01% of first year commitments with manufactured goods at 52.78% and energy at 44.47%. While agriculture products are projected to exceed 2017 actual by $10.7 billion and energy is projected to exceed 2017 by $4.0 billion, manufactured goods are projected to be $10.2 billion smaller than 2017 actual. Compared to first year purchase commitments, total U.S. Phase I goods exports are projected to be $59.4 billion short of the agreed first year level.

If looking at a calendar year 2021, the data for January show increases for each of the three goods categories over January 201 but each category trails the level of increase needed to meet 2021 purchase commitments. Manufactured goods are up 4.39%, but the commitment levels are 76.81% higher than 2017 actual. Similarly, on agricultural products covered by the Phase I commitments, U.S. exports are up 58.51% from 2017 compared to the 2021 increase of 98.51% over 2017 needed to meet the commitments for 2021. On energy, U.S. exports are up 150.56% over January 2017 but far below the 447.99% increase needed to meet the Phase I commitments for 2021. For all Phase I goods, U.S. exports in January are up 33.34% but the annual increase to meet the Phase I commitment is 113.14%.

To meet first year commitments on a March 2020-February 2021 basis , China would have to import monthly 7.71 times the product from the United States as was done in the first eleven months in the next month (February). On a calendar basis, U.S. domestic exports in January 2021 missed the agreed level on goods by $5.375 billion (or an amount equal to 59.49% of January 2021 actual).

Looking at total U.S. domestic exports of goods to China for the period March 2020 – January 2021., U.S. exports were $109.313 billion ($9.938 billion/month) compared to $111.099 billion in 2017 for the eleven months (all other than February)($10.100 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For January 2021, total U.S. domestic exports to China were $11.254 billion compared to $9.350 billion in January 2017.

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year) and $30.806 billion for 2017 excluding February. For the period March 2020 – January 2021, non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.86%, and total exports to China are down 1.61%. Looking at January 2021, other U.S. domestic exports (i.e., not covered by the Phase I Agreement) were down 13.05% from comparable levels in January 2017.

Thus, the first eleven months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $91.334 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $26.845 billion, for total U.S. domestic exports to China of $118.179 billion. This figure would be below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $176.938 billion with noncovered products at estimated March 2020 – February 2021 levels) . The projected U.S. domestic exports to China would, however, be higher than the $109.72 billion in 2018 and the depressed figure of $94.100 billion in 2019.

If one looks at January 2021, U.S. domestic exports to China of Annex 6 goods were $8.981 billion, other exports of $2.274 billion, for total domestic exports in January 2021 of $11.254 billion, ahead of January 2017 but $5.375 billion behind the 2021 rate of increase over 2017 of 113.14%.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for January, March-December 2017, March 2020 – January 2021 and rate of growth for the first year of the Agreement (figures in $ million):

Product categoryJanuary, March-December 2017March 2020 -January 2021% change 11 mos. 2017 2020/2021$ Value needed in next month to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery $10,013.7          
$11,612.1

+15.96%
2. electrical equipment and machinery $3,966.0
$4,460.9
+12.48%
3. pharma- ceutical products $1,939.6 $3,017.0
+55.54%
4. aircraft (orders and deliveries) $15,212.8 $3,682.4 -75.79%
5. vehicles $9,132.1
$5,659.5
-38.03%
6. optical and medical instruments $2,901.3
$3,317.9
+14.36%
7. iron and steel
$1,093.3
$454.4
-58.44%
8. other manufactured goods $10,092.7 $12,654.8 +25.39%
Total for mfg goods
$54,351.7
$44,858.9
-17.47%
$43,094.5
Agriculture
9. oilseeds $11,171.5 $15,785.7 +41.30%
10. meat $511.7 $2,968.5 +480.16%
11. cereals $1,276.5 $3,384.2 +165.13%
12. cotton $828.1 $1,855.8 +124.11%
13. other agricultural commodities $4,148.3
$4,219.4
+1.71%
14. seafood $1,173.6 $653.7 -44.30%
Total for agriculture $19,109.7 $28,867.4 +51.06% $1,788.7
Energy
15. liquefied natural gas $365.8 $1,597.2 +336.6%
16. crude oil $3,865.3 $6,881.4 +78.03%
17. refined products $2,197.4
$1,655.9
-24.64%
18. coal $403.4 $242.3 -39.94%
Total for energy $6,831.9 $10,376.9 +51.89% $14,477.9
Total for 1-18 $80,293.3 $84,103.2 +4.75% $59,361.0

Conclusion

As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun. USTR Tai has indicated that the Biden Administration will monitor compliance by China with the terms of the Phase I Agreement.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement and some significant improvements in exports of U.S. agricultural goods, there has been very little forward movement in expanding total U.S. exports of goods to China in fact and a sharp decline in U.S. exports of services to China.

The differences in economic systems between China and the United States have made reliance on WTO rules less relevant to the Trump Administration as those rules presume market-based economies and presently don’t address the myriad distortions that flow from the Chinese state capital system. Thus, the Phase I Agreement was an effort to move the needle in trade relations with China to achieve greater reciprocity. It has had some limited success to date. While the Biden Administration is doing a full review of the challenges posed by China’s trade policies, it is good news that they will be working to see that the Phase I Agreement is fulfilled.

WTO reform — trade and environment issues to be examined should include addressing ocean/sea trawling effects on carbon capture/release

While the WTO has had a Trade and Environment Committee since 1995 and interest on the intersection between trade and environment predates the formation of the WTO (i.e., back in the GATT), there has been renewed calls by many Members for increased activity in the WTO on trade and environment issue as part of the future agenda. The WTO provides a short history of WTO involvement in the area. See WTO, Trade and Environment, https://www.wto.org/english/tratop_e/envir_e/envir_e.htm.

Ongoing talks on fisheries subsidies are aimed at helping make fishing sustainable and meeting one of the UN Sustainable Development Goals (SDG 14.6). See, e.g., WTO, Civil society call for fishing subsidies deal welcomed by Dr Ngozi and negotiations chair, 3 March 2021, https://www.wto.org/english/news_e/news21_e/fish_01mar21_e.htm. There is interest in addressing plastics in the oceans (circular economy issues) and for some, an interest in restarting the Environmental Goods Agreement negotiations. See WTO, Role of trade in promoting circular economy highlighted at WTO Environment Week, 27 November 2019, https://www.wto.org/english/news_e/news19_e/envir_03dec19_e.htm; WTO, Plastic waste, ‘blue economy’ among issues taken up at trade and environment committee, 28 November 2018, https://www.wto.org/english/news_e/news18_e/envir_30nov18_e.htm.

In a New York Times article from Wednesday, there is interesting information on the effects of fish trawling on carbon release. See New York Times, Trawling for Fish May Unleash as Much Carbon as Air Travel, Study Says, March 1, 2021, https://www.nytimes.com/2021/03/17/climate/climate-change-oceans.html. The opening sentences of the article reads, “For the first time, scientists have calculated how much planet-warming carbon dioxide is released into the ocean by bottom trawling, the practice of dragging enormous nets along the ocean floor to catch shrimp, whiting, cod and other fish. The answer: As much as global aviation releases into the air.” The study referenced is an article that was published online by Nature on 17 March 2021 by 26 authors entitled “Protecting the global ocean for biodiversity, food and climate.” https://www.nature.com/articles/s41586-021-03371-z. The New York Times article notes that the study estimated that 1.9 million square miles of the sea floor is scraped every year which can release the carbon that is stored in the sea floor and that would remain captured for thousands of years if left undisturbed. The NYT article continues, “The carbon released from the sea floor leads to more acidified water, threatening marine life, and reduces the oceans’ capacity to absorb atmospheric carbon dioxide. China, Russia, Italy, the United Kingdom and Denmark lead the world in such trawling emissions.”

While carbon release from fish trawling is not presently part of the ongoing negotiations on fisheries subsidies nor a topic being discussed within the Committee on Trade and Environment (at least that I have seen), it would seem to be a topic that could meaningfully be examined within the WTO in an effort to have trade be sustainable and contribute to reducing carbon emissions. Some possible approaches within the WTO or by individual WTO Members could include identifying less environmentally damaging approaches (sharing experiences, best practices), potential negotiations to terminate or phase out such practices, review of such practices in trade policy reviews, inclusion within any carbon border adjustment plan adopted by Members.

Addressing the topic would appear to be an important opportunity to promote sustainable development as the world deals with and comes out of the pandemic. Let’s hope Members take an ambitious approach to the role the WTO can play on sustainable development.

Climate change and a border tax — will the U.S. and EU have a unified position at the WTO in 2021?

The European Union has been working on reducing its carbon footprint consistent with the Paris Agreement commitments and its updated 2030 reduction levels. Part of its effort has been to impose costs on carbon content of certain high energy-consuming industries. To avoid carbon leakage, the EU has been looking at the possibility of imposing a carbon border adjustment mechanism. The European Commission’s work program has the EC presenting a draft proposal of such a mechanism in the second quarter of 2021. See EU Green Deal (carbon border adjustment mechanism), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12228-Carbon-Border-Adjustment-Mechanism. The Inception impact assessment released by the European Commission is embedded below.

090166e5ccbe6acd-2

The EU has indicated that whatever action it takes in its carbon border adjustment mechanism will be consistent with WTO obligations.

The Biden Administration, in the President’s 2021 Trade Policy Agenda, has indicated an openness to considering a carbon border adjustment. See 2021 Trade Policy Agenda and 2020 Annual Report of the President of the United States on the Trade Agreements Program, March 2021, page 3, https://ustr.gov/sites/default/files/files/reports/2021/2021%20Trade%20Agenda/Online%20PDF%202021%20Trade%20Policy%20Agenda%20and%202020%20Annual%20Report.pdf. The section on “Putting the World on a Sustainable Environment and Climate Path” is copied below (emphasis added).

“The United States and the global community face a profound climate crisis, and the Biden Administration is committed to pursuing action at home and abroad to avoid the increasingly disruptive and potentially catastrophic impact of climate change. The United States will work with other countries, both bilaterally and multilaterally, toward environmental sustainability.

“As part of this whole-of-government effort, the trade agenda will include the negotiation and implementation of strong environmental standards that are also critical to a sustainable climate pathway. These standards will include promoting sustainable stewardship of natural resources, such as sustainable fisheries management, and preventing harmful environmental practices, such as illegal logging and wildlife trafficking. This comprehensive approach may also entail leveraging our strong bilateral and multilateral trade relationships to raise global climate ambition.

“The Biden Administration will work with allies and partners that are committed to fighting climate change. This will include exploring and developing market and regulatory approaches to address greenhouse gas emissions in the global trading system. As appropriate, and consistent with domestic approaches to reduce U.S. greenhouse gas emissions, this includes consideration of carbon border adjustments. Additionally, the Biden Administration will work with allies as they develop their own approaches and act against trading partners that fail to meet their environmental obligations under existing trade agreements.

“The trade agenda will support the Biden Administration’s comprehensive vision of reducing greenhouse gas emissions and achieving net-zero global emissions by 2050, or before, by fostering U.S. innovation and production of climate-related technology and promoting resilient renewable energy supply chains.”

President Biden’s Special Envoy on Climate traveled to the United Kingdom and to the European Union the week of March 8. See U.S. Department of State, Special Presidential Envoy for Climate John Kerry Engages European Allies on Climate Ambition, March 6, 2021, https://www.state.gov/special-presidential-envoy-for-climate-john-kerry-engages-european-allies-on-climate-ambition/ (traveling to London, Brussels and Paris March 8-10). A Financial Times article indicated that Special Envoy Kerry was pushing the European Commission to hold up any announcement on a carbon border adjustment mechanism until after the November 2021 meeting of parties to the Paris Agreement in Glasgow (COP26) to see if sufficient commitments were made to make such a mechanism unnecessary. The article indicated that a draft proposal was expected from the EC in June. See Financial Times, John Kerry warns EU against carbon border tax, March 12, 2021, https://www.ft.com/content/3d00d3c8-202d-4765-b0ae-e2b212bbca98 (“The former secretary of state told the Financial Times he was ‘concerned’ about Brussels’ forthcoming plans for a carbon border adjustment mechanism and urged the EU to wait until after the COP26 climate change conference in Glasgow to move forward.”).

Obviously, Special Envoy Kerry’s comments prioritize diplomacy over development of a mechanism to deal with countries who are slow to address the pressing climate challenges. The EU system, of course, has a process for approving proposals like the carbon border adjustment mechanism which if followed as presently planned presumably would not result in adoption in 2021. It is not clear from the press article if the U.S. concern is with the planned June proposal or with ensuring that no adoption happens until after the Glasgow meeting in November. If the latter, there should be little problem for the EU to ensure no adoption in 2021, and the EC proposal could include language about the COP 26 meeting. If the former, postponing action by the EC would push back adoption by at least six months which may or may not be acceptable to the EU.

With USTR nominee Katherine Tai expected to be confirmed by the U.S. Senate later this week, it is unclear based on the press article of the meeting between the EC and Special Envoy Kerry if USTR would hold up efforts to find common ground with the EU on the trade approach on climate change, including on what a carbon border adjustment mechanism would look like so that there is a united front between the U.S. and the EU whenever the mechanism is presented (or at least adopted).

With China, the largest emitter, having announced that it will continue to increase it emissions until 2030, the efforts of the EU and U.S. to speed up the global reductions in emissions will face insurmountable obstacles if there isn’t greater efforts by all, including China. See Politico, US and EU search for a China climate doctrine that works, The first European trip by US climate envoy John Kerry sparks a joint effort to get China to cut its emissions, March 9, 2021, https://www.politico.eu/article/u-s-and-eu-search-for-a-china-climate-strategy-after-snub/.

There is little doubt that if all major emitters are not in solidarity on the need to increase the depth of carbon reductions quickly, there will be carbon border adjustment mechanisms put in place by the EU and likely by the U.S. to ensure actions taken in countries working hard toward major reductions in emissions by 2030 are not undermined by less ambitious objectives. A joint effort by the U.S. and EU would be more effective than the EU going it alone. Let’s hope common ground is found on how to proceed.

Today’s webinar hosted by Georgetown Law’s Institute for International Economic Law “Rethinking the WTO: Opportunity for Transatlantic Cooperation” — many areas for likely cooperation; some important challenges

On March 10, 2021 Georgetown Law’s Institute for International Economic Law (IIEL) held the second in a series of events on “Rethinking the WTO”, this time on “Opportunity for Transatlantic Cooperation”. See Georgetown Law, Rethinking the WTO: Opportunity for Transatlantic Cooperation, March 8, 2021, https://www.law.georgetown.edu/news/rethinking-the-wto-opportunities-for-transatlantic-cooperation/. The program was introduced by David Kleimann, Senior Visiting Research Fellow, IIEL. The program was moderated by Joost Pauwelyn, Murase Visiting Professor of Law, Georgetown Law and also a professor at the Graduate Institute of Geneva. The four panelists included Sabine Weyand, Director General, Directorate General for External Trade, European Commission; Jennifer Hillman, Professor from Practice, Georgetown Law, Senior Fellow, Council on Foreign Relations and a former member of the WTO Appellate Body; Thomas Graham, partner at Cassidy Levy Kent and former member and Chair of the WTO Appellate Body; and Henry Gao, Associate Professor of Law, Singapore Management University, Dongfang Scholar Chair Professor, Shanghai Institute of Foreign Trade and Advisory Board Member of the WTO Chairs Program.

Ms. Weyand provided an overview of the European Commission’s revised trade policy paper, focusing on the Annex dealing with WTO reform. I had reviewed the revised policy paper in a prior post. See February 18, 2021, The European Commission’s 18 February 2021 Trade Policy Review paper and Annex — WTO reform and much more proposed, https://currentthoughtsontrade.com/2021/02/18/the-european-commissions-18-february-2021-trade-policy-review-paper-wto-reform-and-much-more-proposed/. Ms. Weyand’s comments expressed hope that early statements by the Biden Administration meant that there were many areas for possible cooperation, although she started with reviving the Appellate Body — an area where cooperation is more challenging. She articulated that the EU was looking for an early commitment by the Biden team that the U.S. supported a two-tiered, binding, independent dispute settlement system — that which was promised in the Dispute Settlement Understanding. She acknowledged that the U.S. had valid concerns including on overreach on some cases.

Ms. Weyand reviewed areas where collaboration had occurred during the Trump Administration — the joint consultations on subsidies, SOEs, forced technology transfer — and opined that the process should be taken back up. She also mentioned new areas where rules were needed, including Joint Statement Initiatives (electronic commerce where the U.S. is active and others where the U.S. is not) where there should be opportunities for collaboration. She viewed that open plurilaterals were the likely necessary option for reform with benefits limited to those participating. She acknowledged that WTO Members need to address how to make folding plurilaterals into the WTO easier to do. The EU supports the U.S. view that the Special and Differential Treatment provisions and approach don’t make sense in 2021 though the revised policy.

Jennifer Hillman, after the disclaimer that she is not part of the Biden Administration and hence doesn’t speak for them, agreed that the early pronouncements by the Biden team showed significant areas of likely cooperation on WTO reform between the U.S. and the EU based on its revised trade policy paper. She believed that the period of time for getting collaboration started and showing early results was short and that many of the topics for collaboration would require time, hence raising concerns about the ability to actually see forward movement. During her direct comments, Ms. Hillman focused on areas other than dispute settlement. She noted that the concept of sustainable development appeared to have different meanings depending on whom one was talking to. For Europe, it seemed to focus on environment whereas for the Biden Administration there is a heavier focus on labor rights whereas for many WTO Members (developing and least developed countries), the focus would be development. She viewed it as important for the EU to realize focus on labor by U.S. in seeking and obtaining collaboration on sustainable development. She agreed on areas of cooperation on gender equality and empowerment of women and girls, on having the WTO contribute to addressing climate change, including on border taxes that are WTO consistent, on plurilaterals and the need for change to how Special and Differential Treatment is addressed, and on the need for new (e-commerce) or revised rules (industrial subsidies).

Thomas Graham, as a former Appelate Body who had left after eight years at the end of 2019 (his and a colleague’s departure reduced the number of Appellate Body Member below the number needed to hear an appeal), believed that the problems with the dispute settlement system could not be easily addressed and would take significant time to resolve in a way that would address the underlying problems. He urged greater accountability by Appellate Body members. He noted in particular the tension between the second and third sentences of DSU 3.2 (as referenced as well in 19.2) where the bar to creating rights and obligations (important to the U.S.) was neutered by actions of the Appellate Body in clarifying existing provisions (historically the focus of the EU). Mr. Graham did not see an easy resolution to this problem without changing the language itself. He also reviewed the Appellate Body’s elimination in effect of Art. 17.6(ii) of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Antidumping Agreement or ADA), a provision intended to grant discretion to administering authorities in interpreting provisions of the Agreement which were capable of more than one interpretation. Mr. Graham noted that members of the Appellate Body viewed there being either no or very few situations where the Antidumping Agreement provisions would be capable of more than one interpretation. He also raised the question of how Members would deal with past decisions made by and principles adopted by the Appellate Body. He referenced a commentary by Amb. Dennis Shea (the Trump Administration Deputy U.S. Trade Representative in Geneva) posted on the CSIS website on March 9, 2021, “No Quick Fixes for WTO Dispute Settlement Reform” and indicated the questions raised in the paper needed to be addressed. See Center for Strategic & International Studies, No Quick Fixes for WTO Dispute Settlement Reform, March 9, 2021, https://www.csis.org/analysis/no-quick-fixes-wto-dispute-settlement-reform (article includes eight questions Amb. Shea believes the EU needs to answer as it thinks about WTO Dispute Settlement reform).

Mr. Gao provided his perspective on how the types of reform issues identified in the EC revised trade policy paper would be viewed by China, among others. Mr. Gao indicated that China has been unwilling to consider reforms which it views as discriminating against China. Thus, initiatives like the EU’s to start a plurilateral on competitive neutrality (SOEs, heavy subsidization, etc.) is viewed by China as aimed at them and hence will never be supported by China. China’s response has been to assert that there should be ownership neutrality (no special rules for SOEs or for differences in economic systems). China has participated in Joint Statement Initiatives where it does not view itself as targeted including e-commerce, domestic services regulation, investment for development, SMSEs, etc. China is supportive of restoration of the Appellate Body. On S&DT, China does not agree to a change in classification of Members but has agreed to take on responsibilities that it views as consistent with its level of development.

Observations

The above review is undoubtedly incomplete and doesn’t include the discussion during the question and answer portion., but hopefully provides enough of a summary to show large areas of agreement and some of caution between the U.S. and the EU. Both the EU and the US (under the Biden Administration) are putting a lot of focus on recovery from the COVID-19 pandemic and both are interested in supporting global distribution of vaccines, therapeutics and diagnostics through COVAX, though there are short term issues in terms of supplies for national needs for both the U.S. and EU.

In general, the two U.S. panelists agreed with Ms. Weyand that there are areas where cooperation between the U.S. and the EU is possible and viewed the revised EC trade policy paper as helpful, particularly in terms of perceived movement by the EU on dispute settlement. Mr. Gao’s comments show that any reform will not likely be easy or quick because of the large differences in views of existing Members and the challenges posed by China’s economic system to global commerce since consensus decision making permits China to effectively derail multilateral solutions and it can opt not to participate in plurilaterals that it views as not in its interests.

While the U.S. and EU have each articulated the need to have unilateral response capabilities if solutions can’t be found through the WTO or bilaterally, the EU position (and likely Biden Administration position) is that cooperation should be sought between the U.S., EU and possibly others before unilateral actions are taken to permit coordination.

Much of the forward movement at the WTO on new rules is likely to be through plurilateral deals. The JSIs are generating most of the energy at the moment. India and South Africa have submitted a paper arguing that such plurilaterals area not proper under the WTO or require consensus (which doesn’t exist) to be included within the WTO. See February 20, 2021, Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/. Ms. Weyand’s position was that the WTO will need to find ways to incorporate the plurilaterals into the WTO or action will happen outside of the WTO which cannot be beneficial to the WTO. In a post in recent days, I have argued that the U.S. should joint the JSIs that it is not a party to. See March 9, 2021, The Biden Administration should join the Joint Statement Initiatives that it is not presently party to, https://currentthoughtsontrade.com/2021/03/09/biden-administration-should-join-the-joint-statement-initiatives-that-it-is-not-presently-part-to/. The new Director-General has also put significant emphasis for obtaining forward movement in the JSIs. So despite the current importance of the JSIs, there are challenges to how much the U.S. and EU can achieve through plurilaterals within the WTO without changes to the Marrakesh Agreement Establishing the WTO, and Members will be divided on having WTO plurilaterals where benefits are limited to the parties vs. all Members (i.e., non-MFN, but open for later membership of non-participants).

On Dispute Settlement, the EU has stated that it understands the long-standing U.S. concerns that are bipartisan and reflected both in the Biden Administration and in Congress. While Ms. Weyand’s view is that the U.S. must signal that it accepts a two-tier, binding, independent dispute settlement system early for negotiations to move forward, the comments of Thomas Graham and the paper by Amb. Shea suggest that such an early commitment may be inappropriate. This would be true if the underlying problems laid out over the last years by the U.S. cannot be rectified satisfactorily under such a system — currently unknown as negotiations haven’t taken place.

Since the problems for the U.S. and others with the Appellate Body flow in part from an ineffective mechanism for Members to correct Appellate Body errors (i.e., the negotiating a clarification and/or Ministerial Conference/General Council adoption of an interpretation (Marrakesh Agreement Establishing the WTO Art. IX:2)), reform of the dispute settlement will likely exceed review of the Dispute Settlement Understanding and procedures.

Ms. Hillman has suggested and Mr. Graham has supported Ms. Hillman’s proposal for a separate process for trade remedy or trade defense cases in light of the large number of cases in the area where there has been longstanding disagreement on Appellate Body decisions and because of the failure of the Appellate Body to respect Art. 17.6(ii) of the Antidumping Agreement.

In earlier posts, I had suggested some modifications to Amb. Walker’s 2019 draft General Council Decision that (1) would interpret both DSU Art. 3.2 and 19.2 and possibly deal with the tension Mr. Graham reviewed in his comment and that have led to much of the overreach problem; (2) would address ADA Art. 17.6(ii); and (3) would deal with past erroneous decisions. See July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/ (relevant section copied below; modifications are in bold and underlined).

‘Overreach’

As provided in Articles 3.2 and 19.2 of the DSU, findings and recommendations of Panels and the Appellate Body and recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.   In a large number of Panel and Appellate Body reports, one or more parties and/or third parties have raised concerns about the Panel or Appellate Body adding to or diminishing the rights and obligations contrary to Articles 3.2 or 19.2 of the DSU.

To clarify situations where rights and obligations are being added to or diminished, Panels and the Appellate Body will not fill gaps in agreements, construe silence to indicate obligations or construe ambiguities in language of existing agreements to require a particular construction.  Any such actions by a Panel or by the Appellate Body is inconsistent with Articles 3.2 and 19.2 of the DSU.

Any party to an Appellate Body report that raised at the DSB meeting considering adoption of the Appellate Body report concerns about the creation of rights or obligations inconsistent with Articles 3.2 or 19.2, will have 90 days from the adoption of this General Council decision to request a review of the Appellate Body decision.  Such request will be for the limited purpose of having the Appellate Body determine whether on the specific issues raised where the party complained of creating rights or obligations the clarification of meaning provided in this General Council decision would result in a changed decision on the particular issue.  The Appellate Body will render decisions on all such requests within 90 days and will accept no additional briefing or argument from parties.  Where the report would have been different on one or more particular issues, it is sufficient for the Appellate Body to so indicate.  Where the same decision on an issue would have been made, the Appellate Body shall provide a detailed explanation.      

Panels and the Appellate Body shall interpret provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“antidumping agreement”) in accordance with Article 17.6(ii) of that Agreement.  Any party to an Appellate Body report that raised at the DSB meeting considering adoption of the Appellate Body report that Article 17.6(ii) was not applied in interpreting the antidumping agreement, will have 90 days from the adoption of this General Council decision to request a review of the Appellate Body decision.  Such a request will be for the limited purpose of having the Appellate Body determine whether a different outcome on one or more issues would have resulted had the Appellate Body applied Article 17.6(ii)  of the antidumping agreement.  The Appellate Body will render decisions on all such requests within 90 days and will accept no additional briefing or argument from parties.  Where the report would have been different on one or more particular issues, it is sufficient for the Appellate Body to so indicate.  Where the same decision on an issue would have been made, the Appellate Body shall provide a detailed explanation.       

There presumably are many other ways (and perhaps better ways) to deal with these issues, but the above suggests that solutions could be found that would support a two-tiered system. Perhaps, the EU proposal for what it needs from the U.S. early should be supplemented by an understanding that any such commitment assumes ability to address U.S. concerns meaningfully with a two-tier, binding, independent dispute settlement system.

Conclusion

Ms. Weyand’s statement was that cooperation between the U.S. and the EU was a necessary but not sufficient condition to a successful effort at WTO reform. The European Commission in its revised trade policy paper demonstrated some movement from prior positions that had made resolution of matters such as the impasse on the Appellate Body unlikely. Similarly, the Biden Administration has been indicating on a range of issues including environmental sustainability movement that makes a united front between the U.S. and EU more likely. Actions reported in the press in recent weeks show movement by both the U.S. and the EU to improve bilateral relations in the trade sphere. All are very promising signals.

But the path forward is complicated by a lack of common objectives with many third countries, including China. Hence, the correctness of the observation that U.S.-EU cooperation is necessary but not sufficient.

Programs like today’s IIEL program provide a useful opportunity for large numbers of members of the public to gain a better understanding of the possible road forward and challenges to be faced. All of the panelists (and moderator) did an excellent job. It will be interesting to see how the WTO responds in the coming months if the U.S. and EU can in fact mount a united front on reform.

Biden Administration should join the Joint Statement Initiatives that it is not presently party to

President Biden has made it clear that his Administration will work within multilateral organizations to the extent possible to move the U.S. agenda forward. During the Trump Administration, the U.S. participated actively in the World Trade Organization but was active in only one of the Joint Statement Initiatives that were initiated at the end of the Buenos Aires Ministerial Conference in late 2017.

Thus, the United States is an active participant in the ongoing negotiations following the Joint Statement on Electronic Commerce (WT/MIN(17)/60, 13 December 2017), but is not a party to the other Joint Statement Initiatives. See Joint Ministerial Statement on Services Domestic Regulation (WT/MIN(17)/61, 13 December 2017); Joint Ministerial Statement on Investment Facilitation for Development (WT/MIN(17)/59, 13 December 2017); Joint Ministerial Statement, Declaration on the Establishment of a WTO Informal Work Programme for MSMEs (WT/MIN(17)/58, 13 December 2017); Joint Declaration on Trade and Women’s Economic Empowerment on the Occasion of the WTO Ministerial Conference in Buenos Aires in December 2017.

While India and South Africa have challenged the legitimacy of the Joint Statement Initiatives (JSIs), a great deal of the energy in the WTO in the last several years has been put into the JSIs. See, e.g., February 20, 2021, Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/; WTO, Coordinators of joint initiatives cite substantial progress in discussions, 18 December 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.htm. The WTO press release is copied below.

“The coordinators of the joint initiatives on e-commerce, investment facilitation, services domestic regulation and micro, small and medium-sized enterprises (MSMEs) said on 18 December that substantial progress has been achieved in their respective discussions and that they are on track to deliver concrete results or additional progress at the WTO’s 12th Ministerial Conference (MC12) scheduled for next year.

“In their communication, the coordinators noted that they have delivered summary statements to WTO members outlining how far the four initiatives have advanced since they were launched three years ago, where they stand today, and what their next steps in the discussions will be.

“’What these statements clearly show is the substantial progress [of the initiatives] in a short period of time, that they are on track to delivering concrete results or progress at MC12, and that they are contributing to building a more responsive, relevant and modern WTO — which will be critical to restoring global trade and economic growth in the wake of the COVID-19 crisis.’

“’These initiatives have grown into an increasingly important part of the agenda of the WTO, with an expanding number of participants from both the developed and developing worlds that account for a significant part of the WTO’s membership, and based on the principles of openness, transparency and inclusiveness,’ the coordinators added.

“The new joint initiatives were launched at the WTO’s 11th Ministerial Conference in Buenos Aires in December 2017 with the aim of commencing negotiations or discussions on issues of increasing relevance to the world trading system.

“The joint initiative coordinators are Ambassador José Luis Cancela Gómez (Uruguay) for the Informal Working Group on MSMEs; Ambassadors George Mina (Australia), Yamazaki Kazuyuki (Japan) and Tan Hung Seng (Singapore) for the Joint Statement Initiative on E-Commerce; Deputy Permanent Representative Jaime Coghi Arias (Costa Rica) for the Joint Statement Initiative on Services Domestic Regulation; and Ambassador-designate Mathias Francke (Chile) for the Structured Discussions on Investment Facilitation for Development.

“The coordinators noted that the consolidated negotiating text on e-commerce will provide a foundation for intensified negotiations in 2021. They highlighted that the negotiations on services domestic regulation are at a ‘mature stage’, with a genuine potential for an outcome by MC12.

“The coordinators also said that substantive provisions of an investment facilitation agreement are being negotiated by the participating members in this initiative. In addition, they noted the recent announcement by the Informal Working Group on MSMEs of a package of declarations and recommendations to help small business trade internationally.

“The coordinators underscored that the shared and ultimate goal of these initiatives is to strengthen and reinforce the multilateral trading system, that they are open to all WTO members, and that they seek the participation of as many members as possible.

“The coordinators stated: ‘The initiatives on e-commerce, investment facilitation, services domestic regulation, and MSMEs clearly demonstrate that the WTO can respond to new economic and technological challenges in a flexible, pragmatic, and timely way. These initiatives — and their innovative approach to cooperation and negotiation — can provide a valuable illustration of WTO reform in action.’”

While the Joint Declaration Trade and Women’s Economic Empowerment on the Occasion of the WTO Ministerial Conference in Buenos Aires in December 2017 is not treated as a JSI, it does have many Members supporting the Declaration and engaging in the informal work programme.

Some of the other countries participating in all of the JSIs and Joint Declaration

While the number of WTO Members participating in the JSIs and supporting the Joint Declaration vary, the following is a partial list of Members who are signatories to all of the JSIs and the Joint Declaration. Other than the Electronic Commerce initiative, the U.S. is presently not a signatory or participant in any of the other JSIs or Joint Declaration.

Argentina, Australia, Brazil, Canada, Chile, China, Colombia, European Union, Japan, Korea, Mexico, New Zealand, Russian Federation, Switzerland are participants in all of the JSIs and supportive of the Joint Declaration. Dozens of other Members are participating in some or many of the JSI’s that the U.S. is not presently supporting or active in.

Conclusion

While the United States has a large agenda of issues it wishes to address at the WTO (including trade and the environment, WTO reform, industrial subsidies), it makes no sense that the United States would not actively participate in work programs where most of the major economies are active and where new rules will be relevant to areas of significance for the United States as well as for trading partners. While the work program on women and trade is in an informal working group, President Biden has made empowerment of women an important priority for his Administration as a range of actions during International Women’s Day made clear. See, e.g., March 8, 2011, March 8, 2021, International Women’s Day — statements of UN Women Executive Director,  heads of WTO, UNCTAD and International Trade Centre, and U.S. Executive Orders and Statement by President Biden, https://currentthoughtsontrade.com/2021/03/08/march-8-2021-international-womens-day-statements-of-un-women-executive-director-heads-of-wto-unctad-and-international-trade-centre-and-u-s-executive-orders-and-statement-by-president-biden/. Similarly, MSMEs are an important part of the U.S. economy and a major driver of economic growth. The U.S. has a very strong services sector which has an interest in domestic regulatory issues both in the U.S. and as addressed overseas. Finally, the U.S. is both a major investor in foreign countries and a recipient of large amounts of foreign investment and has a significant interest in helping the global community address issues involved in investment in developing and least developed countries on a more predictable basis.

Hopefully, the Biden Administration when its USTR nominee is confirmed in the coming days, will opt to engage in all of the JSIs. It is time.