Chinese Taipei

WTO remaining candidates for the Director-General position — Questions and Answers from the July 15 and 16 meetings with the General Council

The third round of consultations with WTO Members on which of the two remaining candidates is preferred and hence may be the most likely to obtain consensus to become the next Director-General gets started next Monday, October 19 and ends on October 27.

Both Minister Yoo of Korea and Dr. Okonjo-Iweala of Nigeria are in the process of seeking support from WTO Members and have the full support of their governments which are making calls and sending letters to government officials in many of the WTO Members.

Minister Yoo is back in Europe seeking support in this third round (she and Dr. Okonjo-Iweala both received preferences from the EU in the second round). Press reports indicate that China is believed to be supporting Dr. Okonjo-Iweala, and Japan is understood to have concerns with both candidates. Thus, Minister Yoo is working to bolster support in other regions of the world to supplement what is assumed to be only partial support within Asia.

Dr. Okonjo-Iweala has received the support from Kenya after Kenya’s candidate did not advance to the third round. It is not clear whether she will receive support from all African Members of the WTO, although Kenya’s action is obviously an imortant positive for her.

So the next eleven days will be an active time as each of the remaining candidates seeks support in the final round of consultations from Members in different geographical areas as well as in different categories (developed, developing and least developed countries).

One source of information about the candidates that hasn’t been available to the public but is now available is the questions and answers provided to the General Council meetings with each candidate on July 15 (Dr. Okonjo-Iweala) and July16 (Minister Yoo). While there were three days of meetings with the General Council to accommodate the eight candidates, the two remaining candidates appeared during the first two days. The Minutes of the Meeting of the General Council, 15-17 July 2020 are contained in WT/GC/M/185 (31 August 2020). The procedures for each candidate were reviewed by the General Council Chairman David Walker (New Zealand).

“Each candidate would be invited to make a brief presentation lasting no more than fifteen minutes. That would be followed by a question-and-answer period of no more than one hour and fifteen minutes. During the last five minutes of the question-and-answer period, each candidate would have the opportunity to make a concluding statement if she or he so wished.” (page 1, para. 1.5).

Dr. Ngozi Okonjo-Iweala’s statement, questions asked, answers given and closing statement are in Annex 2 on pages 16-26. Minister Yoo Myung-hee’s statement, questions asked, answers given and closing statement are in Annex 5 on pages 51-60. The statements have previously been reviewed in my posts and are available on the WTO webpage.

Questions are picked randomly from Members who indicated an interest in asking questions. Dr. Okonjo-Iweala received questions during the meeting from nineteen Members with another thirty-nine Members having submitted their names to ask questions of her. Minister Yoo received questions during her meeting from seventeen Members with another forty-four Members having submitted their names to ask questions of her.

Dr. Okonjo-Iweala’s questions came from Afghanistan, Ireland, Kazakhstan, Ukraine, Norway, New Zealand, South Africa, European Union, Paraguay, Estonia, Australia, Latvia, Guatemala, Japan, Mongolia, Brazil, and Malaysia. The questions dealt with a range of issues including the following sample:

  • The negative impact of the COVID-19 pandemic on developing countries, LDCs and small vulnerable economies (SVEs).
  • How to ensure the benefits of open trade are distributed equitably?
  • What steps will you undertake to ensure a multilateral outcome at the next Ministerial?
  • Role of the Director-General (DG) in addressing lack of trust among Members.
  • Role of the DG in facilitating economic recovery and resilience.
  • What is necessary to restore functioning of a binding, two-step dispute settlement system in the WTO?
  • Do transparency and notification obligations need to be strengthened?
  • Focus in the first 100 days.
  • Your initial approach to the reform of the WTO.
  • What kind of approach and efforts would you like to make to advance the subject of e-commerce?
  • Role of plurilaterals in the WTO.
  • How to deal with the different views on special and differential treatment?
  • What are your plans relating to empowering women in the future WTO agenda?

Minister Yoo’s questions came from Guatemala, Belgium, United States, India, Germany, El Salvador, Chinese Taipei, Sri Lanka, Spain, Qatar, Lithuania, Gabon, Botswana, China, Barbados, Malaysia, and Zimbabwe. The questions dealt with a range of issues including the following sample:

  • Do you have any proposal on how to overcome the current crisis?
  • How do you plan to include measures to respect sustainable trade in an agenda focused on free trade and trade liberalization?
  • In looking at interim arbitration agreement of EU and other countries, is it appropriate for WTO resources to be used for activities that go beyond what is contemplated by the DSU?
  • How to convince Members that the multilateral trading system is still best way forward over bilateral and plurilateral trading arrangements?
  • Is there a gap in the WTO rulebook with regard to level playing field issues such as subsidies, economic action by the State and competition?
  • Do you have a multilateral solution to issues like e-commerce which are being tackled in the Joint Statement Initiatives that would be of interest to a large number of Members?
  • WTO is lagging behind in pursuing the development dimension; what is the path forward?
  • Role of DG re fighting protectionism and unilateral measures.
  • How to strike a balance between public stockholding and food security and the avoidance of unnecessary trade restrictions?
  • What is your view on the Doha Development Agenda?
  • What role the WTO can play to help drive Africa’s integration agenda?
  • What is the most important issue to achieve results?

Both candidates gave extensive answers to the questions posed while avoiding staking out a position on any issue that is highly controversial within the WTO. The answers are worth reading in their entirety. As a result the minutes of the meeting are embedded below.

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Each candidate in their summing up at the end of her meeting with the General Council circled back to their prepared statement. Their short summing up statements are copied below.

Dr. Ngozi Okonjo-Iweala (page 26):

“The nature of the questions that I have heard and the nature of the discussions give me hope. Members are clearly interested in a WTO that works, in a WTO that is different from what we have now, in a WTO that shows a different face to the world. I can see it and I can feel it. And if ever I am selected as Director-General, that gives me hope that there is a foundation to work on. Before coming in here, I have spoken to several Members, but I did not really know that. From listening to all of you and fielding your questions, I now know that there is a basis to work on. And I want to thank you for it.

“And I really want to end where I began. Trade is very important for a prosperous and a recovered world in the 21st century. The WTO is at the centre of this. A renewed WTO is a mission that we must all undertake, and we need every Member, regardless of economic size, to participate in this. If we want the world to know who we are as the WTO, we have to commit. Having listened to you, I hear the commitment and I want to thank you sincerely for that.”

Minister Yoo Myung-hee (page 60):

“I spent the past few days meeting with Ambassadors and delegates in Geneva. When I listen to your views, together with the questions today, it seems that there are diverse views and priorities of Members – whether it concerns the negotiations, how to pursue development objectives and special and differential treatment, the plurilaterals or restoring the Appellate Body function. So, how can we, a dynamic group of 164 Members with different social and economic environments, come to an agreement? This brings me back to my original message. We need to rebuild trust in the WTO. How? Amid these divergent and different views of Members, I would share the commitment and hope to restoring and revitalizing the WTO.

“This pandemic has forced us to reflect upon what is needed from the multilateral trading system. Despite the current challenges, I have a firm belief in the multilateral trading system and what we can actually achieve in the future if we put our heads together and also our hearts into it. We are embarking on a new journey towards a new chapter for the WTO. Building on the past twenty-five years, when we embark on the new journey for the next twenty-five years, I am ready to provide a new leadership that will harness all the frustrations but most importantly all the hopes from Members to make the WTO more relevant, resilient and responsive for the next twenty-five years and beyond.”

Conclusion

The process that WTO Members agreed on in 2002 to promote a process for finding a candidate for a new Director-General is cumbersome, time consuming and burdensome for candidates brave enough to put their hat in the ring. To date, the 2002 process has resulted in Members agreeing by consensus on a new Director-General (2005 and 2013). The process in 2020 has worked remarkably smoothly as well despite the deep divisions in the membership and the multiple-pronged crisis facing the organization.

The two finalists bring different backgrounds and skill sets to be considered by Members. Each started strong in the General Council meetings in mid-July as can be seen from their answers to questions posed, and each has continued to impress many Members in the subsequent months. There are political considerations in the selection process of the Director-General (just as in any major leadership position of an international organization). Both candidates are getting active support of their home governments. Fortunately, the membership has two qualified and very interesting candidates to consider. Whoever emerges as the candidate most likely to achieve consensus among the Members will still face the hurdle of whether any Member (or group of Members) will block the consensus. While that seems unlikely at the present time, one never knows.

Whoever becomes the next Director-General will face the daunting challenges of an organization with all three major functions not operating as needed, deep divisions among major players and among major groups. The lack of forward movement and the lack of trust among Members will weigh heavily on the new Director-General with a narrow window before the next Ministerial Conference likely to take place next June. It is remarkable that talented individuals with long histories of accomplishments would be willing to take on the problems the WTO is weighed down with at the present time. Hopefully, the next Director-General will be known in the next three weeks.

The race to become the next WTO Director-General — where the candidates stand on important issues: convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, Background on issues

Background

When China acceded to the World Trade Organization in 2001, it had had a long working party process as WTO Members focused on the wide array of changes to laws, regulations and practices that China would need to undertake to have an economic system and policies that were consistent with WTO norms. China made many changes to its policies ahead of accession. However, the extent of modifications needed to the Chinese system that were still not accomplished by 2001 meant that the Protocol of Accession and the Working Party Report that China and WTO Members agreed to were unprecedented in terms of the number of additional changes that needed to be made for China’s system to be compatible with WTO norms. Indeed, periodic reviews over a decade were included of China’s actions to permit other WTO Members to understand the extent of compliance with the wide ranging modifications still needed. As China was moving from a state-controlled economy towards a market economy, WTO Members insisted on special rules to address some of the likely distortions a large economy like China with significant state controls was anticipated to create. A country-specific safeguard and special recognition of nonmarket economy provisions in trade remedies were included in the Protocol of Accession. While China accepted all three provisions to obtain membership in the WTO, China always expressed its views that these additional provisions were discriminatory and an effort to hold China back in terms of economic growth.

While China continued to make progress in its reform program for a number of years after acceding to the WTO, beginning with the financial crisis of 2008-2009 China reversed direction and increased the importance of state-owned and state-invested enterprises, state planning and state control of a wide array of factors of production. A former Director-General of the WTO and former EC Trade Commissioner reviewed the challenges for market economy countries in dealing with a country with a large share of its economy controlled by the state. See July 27, 2020, Pascal Lamy’s recent comments on the challenges facing the WTO, https://currentthoughtsontrade.com/2020/07/27/pascal-lamys-recent-comments-on-the-challenges-facing-the-wto/.

Many major trading partners have worked with China since its WTO accession to address perceived distortions flowing from its economic system and to help China handle the obligations it had undertaken upon joining the WTO. Many commitments for change were made by China with limited actual forward movement achieved in the views of at least some trading partners. Members like the United States undertake their own annual review of China’s compliance with WTO obligations in an effort to chronicle China’s changing economic system and whether there are distortions of concern to China’s trading partners. See, e.g., U.S. Trade Representative, 2019 Report to Congress on China’s WTO Compliance (March 2020)(embedded below). As stated on page 4:

“Over the past nearly two decades, a variety of bilateral and multilateral efforts were pursued by the United States and other WTO members to address the unique challenges presented by China’s WTO membership. However, even though these efforts were persistent, they did not result in meaningful changes in China’s approach to the economy and trade.

“In our past reports, we identified and explained the numerous policies and practices pursued by China that harm and disadvantage U.S. companies and workers, often severely. We also catalogued the United States’ persistent yet unsuccessful efforts to resolve the many concerns that have arisen in our trade relationship with China. We found that a consistent pattern existed where the United States raised a particular concern, China specifically promised to address that concern, and China’s promise was not fulfilled.

“The costs associated with China’s unfair and distortive policies and practices have been substantial. For example, China’s non-market economic system and the industrial policies that flow from it have systematically distorted critical sectors of the global economy such as steel and aluminum, devastating markets in the United States and other industrialized countries. China also continues to block valuable sectors of its economy from foreign competition, particularly services sectors. At the same time, China’s industrial policies are increasingly responsible for displacing companies in new, emerging sectors of the global economy, as the Chinese government and the Chinese Communist Party powerfully intervene on behalf of China’s domestic industries. Companies in economies disciplined by the market cannot effectively compete with both Chinese companies and the Chinese state.”

2019_Report_on_Chinas_WTO_Compliance

The 11th Ministerial Conference and a Joint Statement by EU, Japan and the United States

The challenges of China’s economic system have been felt in many global industries in a number of ways. There has been massive excess capacity created by China’s policies (and those of some other countries). Efforts to address excess capacity in steel proved unsuccessful. But literally dozens of industries faced excess capacity in China which has resulted in flooded global markets and harm to competing producers in other countries.

At the same time there have been major concerns about forced technology transfers for companies wanting to operate in China, a myriad and changing set of barriers (formal and informal) discriminating against imports and foreign owned enterprises in certain sectors.

By the 11th WTO Ministerial Conference, the United States, European Union and Japan had decided more formal action was needed to address the ongoing distortions being created by China and other countries emulating the Chinese model of economic system. At the end of the Conference, the three WTO Members issued a joint statement which stated in large part,

“We shared the view that severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, unfair competitive conditions caused by large market-distorting subsidies and state owned enterprises, forced technology transfer, and local content requirements and preferences are serious concerns for the proper functioning of international trade, the creation of innovative technologies and the sustainable growth of the global economy.

“We, to address this critical concern, agreed to enhance trilateral cooperation in the WTO and in other forums, as appropriate, to eliminate these and other unfair market distorting and protectionist practices by third countries.”

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/december/joint-statement-united-states

There have been a series of meetings of the three trade ministers since then providing an update on their joint efforts. A joint statement in January 2020 outlined the types of industrial subsidies where the three major WTO Members believed greater disciplines were needed and outlined other areas where joint efforts were underway. The 2018, 2019 and 2020 joint statements can be found here, with the 2020 statement embedded after the links. See Joint Statement on Trilateral Meeting of the Trade Ministers of the United States, Japan, and the European Union, 09/25/2018, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/august/statement-meetings-between-united; Joint Statement of the Trilateral Meeting of the Trade Ministers of the United States, European Union, and Japan, 05/23/2019, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/may/joint-statement-trilateral-meeting; Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States, and the European Union, 01/14/2020, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/january/joint-statement-trilateral-meeting-trade-ministers-japan-united-states-and-european-union.

1-14-2020-Joint-Statement-of-the-Trilateral-Meeting-of-the-Trade-Ministers-of-Japan-the-United-States-and-the-European-Union-_-United-States-Trade-Representative

U.S. Section 301 Investigation of Certain Chinese Policies, U.S. imposition of tariffs and Chinese retaliation

In August 2017, the U.S. Trade Representative initiated an investigation on certain of China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation. 82 Fed. Reg. 40,213-40,215 (Aug. 24, 2017). The investigation resulted in a determination by USTR on March 22, 2018 that various Chinese acts, policies and practices violated Section 301 of the Trade Act of 194, as amended. The President authorized the imposition of additional duties to encourage China to address the problems raised. China retaliated and through a series of further escalations, the U.S. has imposed additional duties on some $350 billion of imports from China and China has imposed additional duties on the vast majority of U.S. exports to China. The 301 report and supplement are embedded below.

Section-301-FINAL

301-Report-Update

The United States viewed the Section 301 investigation as necessary to address practices of China not addressed by WTO rules or not adequately addressed. China viewed the investigation as not permitted under WTO rules. The trade conflict and efforts to find a solution, resulted in a Phase 1 Agreement between the United States and China with most additional duties remaining in place, some substantive changes made on some issues of concern to the United States and a Phase 2 negotiation to resolve outstanding issues which has not begun as of mid-August 2020.

China’s effort to be treated as a market economy under trade remedies

China has long felt that nonmarket economy methodology employed by trading partners discriminated against China and was unjustified. On December 12 2016, the day after certain language in China’s Protocol of Accession became ineffective, China filed requests for consultations with each of the European Union (WT/DS/516) and the United States (WT/DS/515). China has not actively pursued the action against the United States. On the action against the European Union, after the matter was fully briefed at the panel stage and it was understood that an interim panel report was released to the parties, China requested on 7 May 2019 the panel to suspend its proceedings in accordance with Article 12.12 of the DSU. The panel proceeding was suspended on 14 June 2019. On 15 June 2020, the Secretariat released a note indicating that the panel’s authority in the dispute had lapsed since China had not requested the resumption of work within one year.

Thus, China remains subject to nonmarket economy methodologies by certain of its trading partners.

Proposed General Council decision submitted by the United States

The United States has raised an issue for WTO Member consideration in the form of a proposed General Council decision. The issue goes to whether the WTO is predicated on market-oriented economic principles and rests on the concern that some large WTO Members (including China) have economic systems that are characterized as non-market and that create various distortions in the global marketplace including creating massive excess capacity and other issues. While the issue has been raised by the United States for the last several years within the WTO, the U.S. permanent representative to the WTO made a strong case at the General Council meeting (Dec. 9, 2019), raised the matter again along with the draft General Council decision at the March 3, 2020 General Council meeting and raised it again at the July 22-23, 2020 General Council meeting. The proposal was opposed by China at each General Council meeting. Many Members provided comments either supporting, opposing, raising questions with the proposal or indicating the matter was being considered in capital (minutes for the July General Council meeting are not yet available). Members besides the U.S. and China who spoke include the European Union, Japan, Canada, Australia, United Kingdom, Switzerland, Norway, Mexico, Brazil, Colombia, Chinese Taipei, Uruguay, Indonesia, Nigeria, South Africa, India, Pakistan, Russian Federation, and Sri Lanka. See, e.g., Minutes of General Council Meeting, 9-10 December, 2019, WT/GC/M/181 at 59-64 (24 February 2020); The Importance of Market-Oriented Conditions to the World Trading System, Draft General Council Decision, Communication from the United States, WT/GC/W/796 (20 February 2020)(embedded below); Minutes of General Council Meeting, 3 March 2020, WT/GC/M/182 at 35-44 (16 April 2020); General Council Meeting of 22-23 July 2020, Proposed Agenda, WT/GC/W/802 (item 11)(20 July 2020).

WTGCW796

Conclusion

The crisis at the WTO has many elements but a central concern of many is whether the current WTO can be effective in ensure competitive markets when one or more major Members have an economic system largely at odds with that of most Members. The tensions created by the distortions caused by different systems has led both to increasing use of trade remedies, efforts to identify changes or additions to rules needed if convergence is not required of Members, and actions outside of the WTO where long term discussions have not resulted in the level of changes needed by countries working from market-oriented economies.

While the U.S. has reviewed provisions of the WTO that indicate the system is premised on market economy principles, a number of Members disagree that the WTO can address different economic systems. One of the Deputy-Directors General has identified core principles of the WTO and opined that the system supports convergence not coexistence. See Remarks before the Korean International Trade Association. 27 May 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_27may20_e.htm back to text

It is against this complex background that candidates for the Director-General post of the WTO will be evaluated by many Members. In the next post, I turn to how the eight candidates have addressed these complex issues in terms of their prepared statements to the General Council, press conference after the General Council meeting and in the WITA webinars.

Stay tuned.

APEC Trade Ministers’ Virtual Meeting on July 25 — Declaration on Facilitating the Movement of Essential Goods during COVID-19

The Asia-Pacific Economic Cooperation (APEC) has twenty-one members whose territories borders the Pacific Ocean. The twenty-one members include Australia; Brunei Darussalem; Canada; Chile; China; Hong Kong, China; Indonesia; Japan; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; the Philippines; Republic of Korea; Russia; Singapore; Chinese Taipei; Thailand; United States; and Viet Nam. According to a 2019 USTR note on U.S.-APEC Trade Facts, APEC countries account for 38% of the world’s population, 60% of the world’s GDP and 47% of world trade. See https://ustr.gov/trade-agreements/other-initiatives/asia-pacific-economic-cooperation-apec/us-apec-trade-facts#:~:text=APEC%20has%2021%20members%2C%20referred,percent%20of%20the%20world’s%20trade.

In May 2019, APEC Ministers Responsible for Trade (“MRTs”) issued a statement on COVID-19 recognizing both the centrality for all members in halting the spread of the pandemic and the need for members to also focus on remedying the economic challenges flowing from the pandemic. Like the G20 and other groups, APEC MRTs recognized the importance of keeping markets open, of limiting emergency restrictive measures and ensuring such measures are “targeted, proportionate, transparent, temporary and should not create unnecessary barriers to trade, and are consistent with WTO rules.” APEC MRTs encouraged cooperation and the sharing of information and more. See Statement on COVID-19 by APEC Ministers Responsible for Trade, 5 May 2020, WT/GC/213. The May 2019 statement is embedded below.

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At the July 25, 2020 virtual meeting of MRTs, the ministers issued a joint statement and included as Annex A the Declaration on Facilitating the Movement of Essential Goods. See MRTs joint statement, https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT; Annex A,https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT/Annex-A. Both are embedded below.

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The joint statement reiterates the May 2019 key points and incorporates the Declaration on Facilitating the Movement of Essential Goods “which is a clear indication of the region’s continued support for WTO work.” The MRTs “recognize the need for discussions to reduce non-tariff barriers which restrict trade in essential goods.” There are other supportive statements about the importance of WTO work. “We encourage continued constructive engagement on WTO issues, including in the lead-up to the 12th WTO Ministerial Conference.” At the same time, the MRTs are looking to the development of a “post-2020 Vision” which they are hopeful leaders can launch at the end of 2020. Presumably, such a vision will include trade- related components which may include reforms at the WTO or simply be regional cooperation on certain important topics (supply chain issues on adequacy of supplies, e-commerce, movement of people as region recovers from COVID-19, etc.).

The Declaration on Facilitating the Movement of Essential Goods has ten specific actions that are declared.

The first two deal with export restrictions and prohibitions. The first is that each APEC member will ensure that any emergency trade measures introduced to address COVID-19 are consistent with WTO rules. The second commits APEC members to notify all such measures in accordance with WTO obligations.

The third declared action addresses non-tariff barriers. Specifically APEC members “are encouraged to work together to identify and resolve any unnecessary barriers to trade in essential goods.”

The next five declared actions pertain to trade facilitation — to expedite and facilitate the flow and transit of essential goods; to enhance coordination, efficiency and transparency of border clearance of essential goods; expediting the release of essential goods upon arrival; facilitating the entry, transit and departure of air cargo dealing with essential medical goods; abiding by the International Health Regulations of 2005.

The ninth declared action deals with tariffs and while not committing APEC members to liberalize tariffs for essential medical supplies, notes that some economies have taken such liberalizing actions and notes that the business community supports such action.

The last statement deals with reviewing progress on the APEC initiatives annually until COVID-19 is no longer a public health emergency.

Conclusion

Many countries and customs territories around the world have expressed objectives which are generally not significantly different than those put forward by APEC members.

With the large share of global trade accounted for by APEC members and with similar-type commitments by the G20 (which includes major members of the EU and has the EU participating), one would think it should be possible to obtain WTO commitments along similar lines to the APEC Declaration. The Declaration would need to have added some of the developing country and least developed country needs that have been already presented to the WTO so that the concerns of all are addressed.

While the WTO is doing an excellent job of providing information about the pandemic and trade measures taken by Members (at least those notified), the WTO Members have yet to get behind a set of principles that all Members can sign off on. Perhaps the APEC MRT joint statement and Declaration on Facilitating the Movement of Essential Goods provides a good starting point for the full WTO membership. While some WTO Members have not wanted to address COVID-19 issues during the pandemic, obviously collective action during the pandemic would be most effective. The post-pandemic needs also should be addressed but can await individual and group developments of views.