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Katherine Tai, USTR designate, on addressing WTO reform including dispute settlement if confirmed; the USTR 2021 Trade Policy Agenda

Terence P. Stewart · March 2, 2021 · Uncategorized · Airbus-Boeing disputes, Appellate Body reform, COVID-19, digital services taxes, e-commerce plurilateral negotiations, Environmental Goods Agreement negotiations, Government Procurement Agreementro, industrial subsidies, state capitalism, WTO Reform · No Comments

President Biden’s nominee for U.S. Trade Representative had a hearing on her nomination before the U.S. Senate Finance Committee on Thursday, February 25, 2021. Written questions to the nominee were due to the Chairman of the Committee on February 26 by 5:00 p.m. Questions with answers were returned to the Committee by the USTR nominee on March 1. Ms. Tai will be one of three nominees who will be voted on by the Senate Finance Committee on March 3 at 10:00 a.m. See Reuters, Senate panel to vote Wednesday on three Biden nominees, including trade pick Tai, March 1 2021, https://www.reuters.com/article/us-usa-biden-nominations/senate-panel-to-vote-wednesday-on-three-biden-nominees-including-trade-pick-tai-idUSKCN2AT3K4?il=0; Inside U.S. Trade’s World Trade Online, Finance Committee to vote on Tai’s nomination on Wednesday, March 1, 2021, https://insidetrade.com/trade/finance-committee-vote-tai%E2%80%99s-nomination-wednesday (includes link to answers to questions from Senate Finance Committee by the nominee).

It is expected that Ms. Tai will receive an affirmative vote and be referred to the full Senate for a confirmation vote in the near future. It is expected that she will be confirmed by the Senate in the coming days.

I had reviewed the February 25th hearing in an earlier post. See February 25, 2021, U.S. Trade Representative nominee Katherine Tai confirmation hearing before the U.S. Senate Finance Committee, https://currentthoughtsontrade.com/2021/02/25/u-s-trade-representative-nominee-katherine-tai-confirmation-hearing-before-the-u-s-senate-finance-committee/. The 95-page compilation of questions for the record and Ms. Tai’s answers contains a little more explanation of her view of the approach of the Biden team on trade issues of importance to the WTO membership. Yesterday was also the day that USTR released the 2021 Trade Policy Agenda and 2020 Annual Report of the President of the United States on the Trade Agreements Program.

While the bulk of questions to Ms. Tai were on the U.S.-China relationship and a wide array of issues flowing from various Chinese practices, there were also a number of questions going to WTO reform and, in particular, on dispute settlement and the Appellate Body. There were also a series of questions on the U.S.-EU WTO disputes on Airbus/Boeing. There were also questions about U.S. actions that are subject to WTO dispute (though the questions didn’t focus on the WTO disputes) — Section 232 tariffs on steel and aluminum; Section 301 tariffs on large parts of imports from China. There were questions on the Environmental Goods Agreement negotiations which stopped in 2016 and whether plurilateral negotiations should be on a non-MFN basis. There were also several questions about the WTO Government Procurement Agreement and U.S. notification of its intent to withdraw coverage from certain medical goods. In addition most of the topics raised in the hearing were covered by specific written questions (e.g., USMCA enforcement, US-EU issues on digital services taxes, negotiations with the U.K., Kenya, CPTPP countries, market access issues with countries like India, Japan and others).

On WTO reform and problems with the WTO dispute settlement system, Ms. Tai’s responses indicate that the Biden Administration will be actively engaged in search for reforms. This is the first affirmative indication that the Biden Administration is likely to move past identifying the myriad problems with the dispute settlement system (something the Trump team identified with great specificity) to engaging in identifying reforms needed. Similarly, Ms. Tai’s response on the WTO disputes on Airbus-Boeing indicates the Biden Administration will be focusing on finding a negotiated solution with the European Union. Similarly, the Biden Administration will focus on enforcement of existing obligations our trading partners have at the WTO or bilaterally or plurilaterally. With China this means the U.S. will seek compliance through the WTO or through bilateral agreements (such as the U.S.-China Phase I Agreement) where there are specific commitments not being complied with, and the U.S. will seek through negotiations new rules where there is a lack of clarity in current agreements or lack of existing rules.

The 2021 Trade Policy Agenda looks at how trade policy can address core Biden Administration priorities — tackling the COVID-19 pandemic and restoring the economy; being worker centric; putting the world on a sustainable environment and climate path; advancing racial equity and supporting underserved communities; addressing China’s coercive and unfair economic trade practices through a comprehensive strategy; partnering with friends and allies; standing up for American farmers, ranchers, food manufacturers and fishers; promoting equitable economic growth around the world; and making the rules count (enforcement). While many of the Administration’s priorities from a trade perspective include areas for potential WTO action, the main discussion of WTO activity is in the partnering with friends and allies section. A three page fact sheet from USTR released yesterday provides a summary on the 2021 trade policy agenda and is embedded below.

fact-sheet-on-2021-Trade-Policy-Agenda-report

Senate Finance Committee Questions and Ms. Tai’s Responses dealing directly with the WTO or the US-EU Airbus-Boeing disputes

I have copied below the questions and responses that deal directly with the WTO or the US-EU Airbus-Boeing disputes. I include the name of the Senator asking the question. Italics (questions) and bold (name of Senator and answers of Ms. Tai) in the materials is from the original text.

“Chairman Wyden

“Question 2 – Boeing/Airbus Dispute:

“As a longtime trade professional, you’re well aware of the history of the Boeing/Airbus dispute, a case that has spanned well over a decade. At the end of the WTO process, American businesses continue to be in an untenable position. The Europeans are continuing to subsidize Airbus to the detriment of U.S. competitors, while small American businesses—already suffering from COVID-related challenges—are facing extra tariffs on a variety of European products.

“The Boeing/Airbus dispute is just one “trade irritant” between the United States and Europe. There are numerous others—including digital services taxes, biotech authorization processes that aren’t based on science, and protectionist policies in standards development.

“What’s going to change under the Biden Administration – and a USTR Tai – to ensure that Washington and Brussels can bring this dispute to a meaningful and timely conclusion? And ultimately, what would a positive outcome look like?

“Answer: The Boeing/Airbus WTO litigation has been ongoing for more than 15 years. If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field.

“Question 3 – WTO Reform:

“It was not always clear that the previous administration saw the value in the WTO. In contrast, the Biden Administration has pledged to work with our allies and re-engage in multilateral institutions like the WTO.

“That said, there has been bipartisan agreement that the WTO is in need of reform. There are numerous issues with the institution—from the lack of meaningful negotiations, to failure to comply with notification and transparency requirements, to ongoing concerns regarding the Appellate Body.

“Where do you recommend the United States start in restoring the WTO to a functioning and useful institution?

“Answer: If confirmed, I will work to re-engage with like-minded partners who similarly recognize the importance and necessity of WTO reform. Since the founding of the General Agreement on Tariffs and Trade (GATT) in 1947, U.S. leadership has been critical at every juncture when the global trade system has required a major update. This will be difficult work that may take some time, but I remain hopeful that with proper U.S. leadership, we can achieve the necessary reforms.

“How can the United States support the incoming Director General, Dr. Okonjo-Iweala, in building consensus and ultimately ensuring that the WTO makes the needed reforms?

“Answer: If confirmed, I will work closely with Dr. Okonjo-Iweala, following her own historic appointment, to tackle these challenges in a practical and constructive manner. Dr. Okonjo-Iweala brings a wealth of knowledge from her 25 years of experience at the World Bank and her two terms as Nigeria’s Finance Minister. She is widely respected for her leadership and management skills. The U.S. stands ready to assist her in building the consensus required to achieve the much-needed reforms.

“Ranking Member Crapo

“Question 4:

“I have concerns about the power of technology companies. However, I am concerned that the EU is using such concerns as fig-leaf for discriminatory measures against U.S. businesses, including unreasonable digital services taxes or through measures that appear to target American companies in particular, like the Digital Services Act.

“Are you willing to aggressively challenge these types of measures whether through use of Section 301 or through WTO dispute settlement?

“Answer: The previous Administration started Section 301 investigations in response to the digital service taxes introduced by a number of countries, but it then suspended the introduction or implementation of specific remedies to allow time for negotiations. If confirmed, I will review the status of those actions and will work with my colleagues at the Treasury Department to address digital services taxes as part of the multilateral effort to address base erosion and profit shifting through the OECD/G20 process.

“Question 10:

“WTO reform is of great interest to many Members of this Committee. In particular, there are bipartisan concerns about overreach by the WTO Appellate Body. While I see some utility in second-level review, we need to ensure reforms that stop activism by the Appellate Body, including through rulings that have undercut our trade remedy laws and environmental conservation measures.

“What are some concrete reforms that you think are necessary to ensure the Appellate Body operates as intended?

“Answer: Over the years, the Appellate Body has overstepped its authority and erred in interpreting WTO agreements in a number of cases, to the detriment of the United States and other WTO members. In addition, the Appellate Body has failed to follow existing rules created to ensure that disputes are resolved in a timely manner. Reforms are needed to ensure that the underlying causes of such problems do not resurface and that the Appellate Body does not diminish the rights and obligations of WTO members.

“Question 12:

“I am deeply concerned about data localization requirements. The European Union attempts to be invoking privacy concerns in the WTO E-commerce negotiations as an excuse to allow it to engage in protectionist practices with respect to data.

“Do you agree that that United States should not accept the EU’s proposed exception to allow countries to engage in data localization?

“Answer: To participate in today’s global economy, U.S. companies need the ability to access networks, transfer data and use secure data centers of their choice. If confirmed, I commit to using the tools at my disposal to ensure that American workers and innovators are able to compete effectively abroad.

“Senator Grassley

“Question 1:

“If confirmed, how will you use the tremendous leverage the United States has to revitalize the WTO’s negotiating function so that the rules reflect the modern economy, including e-commerce?

“Answer: The WTO negotiating function has failed to keep pace with changes in the global economy. WTO rules need to be updated to reflect developments that have unfolded over the past quarter-century, particularly in the digital economy. If confirmed, I commit to work with like-minded partners to ensure that any new rules are high-standard ones that reflect the Build Back Better agenda.

“What reforms would the Biden Administration be interested in pursuing to WTO’s Appellate Body?

“Answer: Over the years, the Appellate Body has overstepped its authority and erred in interpreting WTO agreements in a number of cases, to the detriment of the United States and other WTO members. In addition, the Appellate Body has failed to follow existing rules created to ensure that disputes are resolved in a timely manner. If confirmed, I commit to seeking a comprehensive range of reforms to address these shortcomings.

“Do you think China should be accorded developing country status at the WTO?

“Answer: If the WTO is going to succeed in promoting equitable economic development, it is critical that the institution rethink the ability of countries to self-select developing country status. The rules for special and differential treatment should be reserved for those countries whose development indicators and global competitiveness actually warrant such flexibilities; they should not be abused by countries that are already major trading powers.

“Question 7:

“The European Union is in the process of implementing legislation that will impose new EU antibiotic use restrictions on producers of animal products that export to the EU, a move that could cause serious disruptions. EU regulators are refusing to take into account relevant data from countries outside the EU or to consider use restrictions already in place in the U.S. and elsewhere, as required under WTO rules.

“How do you intend to deal with this type of EU regulatory protectionism?

“Answer: I understand the importance of this issue. If confirmed, I commit to holding our trading partners to their WTO commitments with respect to sanitary and phytosanitary measures, the application of standards and other obligations that impact our agricultural exporters.

“Senator Cantwell

“Question 4 – Boeing-Airbus Dispute/Europe:

“Aerospace has been a leading U.S. export for many years. The future of aerospace matters to U.S. jobs. There are more than 100,000 aerospace jobs in Washington state and before the pandemic there were even more.

“In 2006, the United States brought a case at the World Trade Organization (WTO) because Europe provided $22 billion in illegal subsidies for the development of Airbus commercial aircraft (A350 and A380).

“The Europeans countered with a case against the United States. The WTO ruled for the United States in 2012 and 2016 and for the EU in 2019. As a result of the WTO cases, the United States imposed WTO-approved tariffs of up to 25% on a range of products including European aircraft, wine and spirits, and dairy. The European Union still imposed tariffs of up to 25% on U.S. aircraft and a range of agricultural products including Pacific salmon, wine, wheat, and berries.

“The EU has kept sanctions in place even though in March 2020 Washington State repealed the tax provision that the WTO found to be out of compliance. Last year, the Trump administration failed to reach an agreement with the Europeans on commercial aircraft subsidies that would finally end the dispute and the tariffs.

“As it seeks to rebuild the transatlantic alliance, the Biden administration has a real opportunity to resolve this dispute, finally end harmful Airbus subsidies, and establish a level playing field for America’s aerospace industry.

“Will you prioritize reaching an agreement on commercial aircraft subsidies to end European and U.S. tariffs and finally end the Boeing Airbus dispute?

“Answer: The Boeing/Airbus WTO litigation has been ongoing for more than 15 years. If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field.

“Do you anticipate reaching separate agreements with the United Kingdom and the European Union?

“Answer: The United Kingdom left the European Union on January 31, 2020. If confirmed, I look forward to working with the United Kingdom on a range of trade issues, including the disputes regarding Boeing and Airbus.

“Will you commit to resolving the Boeing-Airbus dispute and tariffs prior to finalizing any U.S. – EU Trade Agreement or U.S. – United Kingdom Trade Agreement?

“Answer: If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field. I commit to working with Members of Congress on trade priorities with the European Union and the United Kingdom.

“Question 5 – Digital Trade/Europe:

* * *

“What steps will you take to cooperate with Europe on addressing intellectual property and market access challenges in China?

“Answer: While there are differences between the U.S. and the EU on some important issues, the U.S. and the EU share broad concerns about China’s unfair practices, including policies that in practice condition market access on technology transfer. It is a priority of the Biden Administration to work with our allies, including our European allies, to address the many challenges posed by China.

“Will you re-engage on the WTO negotiations on e-commerce and will you make it a priority?

“Answer: The WTO negotiating function has failed to keep pace with changes in the global economy. WTO rules need to be updated to reflect developments that have unfolded over the past quarter-century, particularly in the digital economy. If confirmed, I commit to work with like-minded partners to ensure that any new rules reflect the values of the Build Back Better agenda.

“Question 6 – Environmental Goods:

“Climate Change is a global challenge that no nation can solve on their own. For this reason, I appreciate President Biden rejoining the Paris Agreement so the U.S. can resume its role as a leader in reducing the world’s dangerous levels of carbon pollution.
Being part of the global solution on climate will also help ensure the U.S. has access to a rapidly growing trillion-dollar annual market that could create thousands of high-wage trade and manufacturing jobs in Washington state.

“But that market opportunity is currently constrained by a variety of tariffs that make environmental goods and services more expensive and less accessible then they should be, especially in the developing world where most future carbon pollution will come from.

“That’s why I think it’s imperative that we work to make it easier for all countries to adopt lower carbon technologies. Examples include goods and services that address air pollution control, renewable energy, water and waste management, environmental monitoring, and carbon capture and storage technologies.

“Ideally with America being the ones manufacturing and selling those technologies to the rest of the world.

“In 2001, the Doha Ministerial Declaration directed WTO members to negotiate the elimination of tariffs on environmental goods. In 2014 the U.S. and its global trading partners began negotiations on an Environmental Goods Agreement (EGA) under the WTO with the goal of eliminating tariffs on environmental products and services. That was a big deal, because the 46 WTO members negotiating that Agreement account for 90% of environmental goods traded worldwide. Unfortunately, discussions stalled in 2016 and were not pursued by the last Administration.

“Ms. Tai, do you support the goals of the Environmental Goods Agreement?

“Answer: Combatting climate change and developing green enterprises and jobs are key priorities for the Biden-Harris Administration. In July 2014, the United States and 13 additional Members of the World Trade Organization (WTO) officially launched negotiations on the proposed Environmental Goods Agreement (EGA) to eliminate tariffs on green technologies. If confirmed, I will pursue a trade agenda that supports 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.

“As U.S. Trade Representative, will you seek to restart negotiations on this vital pact that could make the products we need to combat climate change cheaper and more accessible worldwide?

“Answer: If confirmed, I will seek stakeholder input on the EGA and evaluate the agreement for its consistency with the Build Back Better agenda and its potential contribution to the Biden-Harris Administration’s goal of achieving net-zero global emissions by 2050.

“Will you commit to looking into existing tariff levels with other WTO members to determine which countries have tariffs on environmental goods that differ or exceed corresponding US tariffs? And will you share that analysis with the members of this Committee?

“Answer: If confirmed, I commit to working closely with you to identify barriers to reciprocal market access for U.S. producers of environmental goods.

“Senator Cornyn

“Question 1:

“Since June 2018, certain American spirits exports to the EU and UK have faced a 25% tariff in response to the U.S. imposition of tariffs on steel and aluminum, and in connection with the WTO dispute concerning Boeing. Absent a resolution to the steel tariffs, the EU’s tariff on American Whiskey will automatically double to 50% in June. The U.S. has imposed a 25% tariff on certain EU and UK wines and spirits imports since October 2019 in connection with the WTO Airbus dispute. The negative impact of these tariffs are being felt across the U.S. from farmers, to suppliers, retailers, and the hospitality sector.

“Will you commit to taking these views into account?

“What is the Administration’s plan to negotiate resolutions to the various trade disputes with the EU and UK to ensure that these tariffs are quickly removed?

“Answer: The purpose of WTO dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The Boeing/Airbus WTO litigation has been ongoing for more than 15 years. If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field and that takes into account all affected stakeholders.

“Question 8:

“The Biden Administration has announced its intention to increase government procurement of domestically manufactured goods and services. At the same time, the United States is a party to the WTO Government Procurement Agreement (GPA), which limits the United States’ ability to apply robust Buy America requirements to government procurement. Some have proposed suspending U.S. obligations under the GPA on a temporary, emergency basis to shore up critical domestic supply chains and spur economic recovery in the wake of the COVID pandemic.

“What are your thoughts on such a concept?

“Should the U.S. renegotiate any of its U.S. GPA commitments to ensure that the Administration can achieve its “Buy America” objectives?

“Answer: As a part of its review of the implementation and efficacy of laws, regulations, and policies related to federal procurement, the United States should also examine procurements made under our trade agreement obligations to ensure that they serve the interests of the United States, its businesses and workers. If confirmed, I commit to undertake this review.

“Question 9:

“Both the Obama and Trump Administrations recognized the existence of serious deficiencies in the WTO dispute settlement process. WTO members have used the dispute settlement process to achieve what they could not achieve in negotiations, including the severe weakening of antidumping and countervailing duty laws. In addition, the Appellate Body has repeatedly failed to address China’s dangerous combination of government subsidies, state-owned enterprises and distortive non-market behavior. The United States needs to engage in serious and meaningful negotiations to resolve these issues prior to considering any reestablishment of the Appellate Body.

“What are your plans for addressing the serious deficiencies in the WTO’s dispute settlement process?

“Do you agree that the Appellate Body should not be revived until these problems are fully addressed?

“Answer: If confirmed, I will re-engage like-minded partners who similarly recognize the importance and necessity of reform of the WTO, including its dispute settlement process. This will be difficult work, but I remain hopeful that with proper U.S. leadership, we can achieve the necessary reform that resolves our long-standing, bipartisan concerns.

“Question 10:

“Domestically produced steel is among the cleanest in the world.

“How do you plan to ensure that the WTO cannot block or weaken the administration’s efforts to promote and expand markets for domestically produced steel?

“Answer: If confirmed, I commit to examining any potential barriers to the expanding the exportation of domestically produced steel, including at the WTO, and working with Congress to address those barriers.

“Senator Portman

“Question 3:

“In Choruses from the Rock, T.S. Elliot wrote of creating ‘a system so perfect that no one will need to be good.’ That sentiment might also be applied to the World Trade Organization (WTO), which despite having clear, agreed upon rules has found itself drifting from the obvious meaning of those rules. For systems, or organizations, to be sustainable they need active engagement and not just passive reliance on their underlying institutional architecture. One of the dilemmas facing the WTO reform agenda is the fact that the existing rules are quite clear, and yet the development of new rules may suffer from the same jurisprudential drift as the existing rules have.

“Aside from tacking on a clause that says ‘and we mean it’ to a number of provisions in the WTO agreements, how do you believe new rules should be written to avoid the pitfalls that the United States has seen with respect to Appellate Body activism? And what mechanisms, if any, should be created to ensure that those who interpret such agreements remain faithful to the text of the agreement and neither expand or diminish obligations created by the agreement?

“Question 4:

“The previous two administration have, on a bipartisan basis, blocked appointments to the Appellate Body (AB) of the World Trade Organization (WTO) over concerns about AB activism. Restoring the AB without addressing the underlying issues that sparked U.S. concerns would likely not be a sustainable solution to the problem of AB overreach.

“How do you intend to approach issues related to the stalled AB? Do you believe that resuscitating the AB should come with reforms to guard against future overreach? What might some of those reforms be?

“Answer: Yes, it is absolutely critical that any solution to the existing impasse be one that seeks to address the underlying problems, including longstanding concerns of overreach and jurisprudential drift. If confirmed, I will seek to work with other countries that share U.S. concerns about WTO dispute settlement to craft reforms to guard against such problems re-emerging in the future.

“Question 5:

“Last summer I introduced a bipartisan resolution, which articulated some proposed reforms to the World Trade Organization (WTO). One of those solutions is to pursue more plurilateral agreements without Most Favored Nation (MFN) requirements. This would allow the United States to pursue trade opening opportunities with like-minded nations while preventing those not party to the agreement from benefiting.

“Do you agree about the value of non-MFN plurilaterals? If confirmed, do you intend to explore such arrangements with like-minded countries?

“Answer: Given the negotiating challenges that the WTO has encountered in recent years, I agree that non-MFN plurilaterals need to be explored as a possible path forward. If confirmed, I commit to exploring the possibility of such arrangements with like-minded countries. Developing countries are hesitant to accept them, however, and getting these arrangements accepted within the WTO will not be easy.

“Question 21:

“For roughly the past two and a half years, the European Union (EU) and the United Kingdom (UK) have levied a 25 percent tariff on American whiskey imports in response to the United States’ Section 232 tariffs. These tariffs are set to double to 50 percent in June 2021. At the same time, the United States has imposed a 25 percent tariff on certain wine and spirit imports from the EU and UK in connection to the Boeing-Airbus dispute

“How do you propose to solve the Boeing-Airbus dispute in order to ensure WTO compliance by the EU, while prioritizing the removal of tariffs on products such as American whiskey subject to 232 retaliation?

“Answer: The purpose of WTO dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The focus must be on the resolution of the issue that has been found to impact our industry and workers. If confirmed, I will make it a priority to review the status of this long-term dispute and seek a resolution that finally addresses the unfair practices found through the WTO process that disadvantage U.S. industry and workers.

“Question 22:

“The United Kingdom (UK) is no longer a member of the European Union. Yet, the UK continues to face Airbus-related tariffs. Since the UK cannot advocate for policy change in Brussels on this issue, and as a gesture of goodwill in the interest of bringing our countries closer together, these tariffs on the UK should be removed.

“Do you believe that these tariffs should be removed from the UK?

“Question 23:

“Wheels of Jarlsberg cheese are produced in Ireland by a Norwegian company. These wheels are subject to a 25 percent tariff as a result of the Boeing-Airbus dispute. The same company makes loaves of Jarlsberg cheese in Ohio. The tariff on the wheels threatens the entire company and therefore the U.S. production of loaves. The last six-month statutory review of these tariffs did not benefit from public input, therefore did not account for the impacts on Jarlsberg cheese.

“When do you plan to review the items that are subject to Boeing-Airbus tariffs, and will you seek public input? How will you decide what stays on the tariff list and what is removed?

“Answer: If confirmed, I will work to make sure our trade enforcement actions consider the impact of tariffs on U.S. businesses and workers. When action taken under the Section 301 process leads to the imposition of tariffs on certain imports, USTR requests public input through a notice and comment period. This statutorily required practice will continue if I am confirmed as U.S. Trade Representative.

“Question 31:

“The World Trade Organization’s Government Procurement Agreement (GPA) opens up parts of the U.S. procurement market to other countries. Yet, the GPA is also a uniquely helpful model for bringing like-minded allies together on a plurilateral basis. In this way, the GPA can be both a limiting and empowering factor when it comes to restoring the resiliency of our supply chains.

“To what extent do you intend to pursue changes to U.S. GPA commitments as part of the administration’s broader Buy American agenda?

“Answer: It is the policy of the Biden-Harris Administration that the United States should seek to maximize the use of goods made in the United States for federal procurement and financial assistance awards, consistent with applicable law. As a part of its review of the implementation and efficacy of laws, regulations, and policies related to federal procurement, the United States should also examine procurements made under our trade agreement obligations to ensure that they serve the interests of the United States, its businesses and workers. If confirmed, I commit to undertaking this review.

“Question 32:

“In May 2020, President Trump signed an Executive Order directing the Food and Drug Administration (FDA) to identify essential medical countermeasures and require the U.S. Trade Representative (USTR) to withdraw coverage under U.S. trade agreements for these products. USTR has since notified the Government Procurement Agreement (GPA) Committee and our trade agreement partners of the intent to withdraw coverage for these medical countermeasures. This drew objections from some of our trading partners.

“Do you intend to pursue this withdrawal of coverage?

“Answer: As part of a review of whether our trade agreement obligations serve the interests of the United States, if confirmed, I will review the action taken to withdraw coverage of certain essential medical countermeasures from the Government Procurement Agreement and our trade agreements.

“Question 37:

“In 2018, China began to indulge protectionist impulses with respect to imports of certain waste and scrap paper. Just the other month, China banned imports of recovered paper. As you know, the United States has raised with China the inconsistency of China’s import restrictions on recyclable materials with World Trade Organization (WTO) rules. These new restrictions seem to likely to further constitute a violation of those rules.

“Will you commit to looking into these new import restrictions on recycled paper, and work with domestic industry who has been affected by these restrictions? Do you see an opportunity to include these import restrictions on paper within the scope of any future negotiations with China?

“Answer: If confirmed, I commit to engaging in a review of how trade policy can advance the development of the circular economy. As part of that process, I will engage in close consultations with domestic industry and Congress. Given the importance of China to these discussions at the global level, I would hope that China would be interested in active discussions with the U.S. on this matter.

“Senator Brown

“Question 4 – World Trade Organization:

“As was discussed during Thursday’s hearing, many agree that it is past time for World Trade Organization (WTO) reform to ensure that both dispute settlement panels and the Appellate Body are not used as a venue for foreign governments and competitors to subvert the will of Congress and perpetuate unfair trade practices.

“If confirmed, how will you approach WTO reform and how will you ensure that U.S. trade laws remain effective and are not weakened as a result of WTO dispute settlement proceedings?

“Answer: If confirmed, I will work to re-engage with like-minded partners who similarly recognize the importance and necessity of reform of the WTO. Since the founding of the General Agreement on Tariffs and Trade (GATT) in 1947, U.S. leadership has been critical at every juncture when the global trade system has required a major updating. This will be difficult work that may take some time, but I remain hopeful that with proper U.S. leadership, we can achieve the necessary reforms. This includes reforming WTO dispute settlement to prevent diminishing the rights and obligations of countries to use their trade remedy laws to counteract unfair trade practices.

“Senator Bennet

“Question 8:

“The Airbus/Boeing dispute tariffs are significantly affecting the Colorado small businesses. Restaurants in particular, which are already struggling due to the pandemic, are facing substantial costs on European food, wine, and spirits.

“If nominated, what will be your first steps regarding the EU Airbus/Boeing dispute?

“Answer: If confirmed, I will make it a priority to review the status of these long-term disputes and seek a resolution that finally addresses the unfair practices found through the WTO process that disadvantage U.S. industry and workers.

“Will you work with a wide range of interests to understand the tariffs’ impacts on their industries, including restaurants?

“Answer: The purpose of the dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The focus must be on the resolution of the issue that has been found to impact our industry and workers. If confirmed, I will ensure that our trade enforcement actions consider the impact of tariffs on U.S. businesses and workers.

“Senator Cassidy

“Question 4 – Sugar – WTO Quota Allocation Methodology:

“There have been indications over the past year or so that USTR and USDA are considering revising the methodology used by the United States to allocate our WTO sugar quota. This quota has traditionally been allocated in varying amounts to 40 countries based on a longstanding formula, with reallocations being carried out later in the fiscal year to account for nonperformance. While it is understood there may be some inefficiencies built into the current methodology, there are also elements to the arrangement that benefit the overall operation of existing sugar policy.

“Can you provide your assurance that USTR will engage in thorough consultations with both USDA program managers and industry stakeholders regarding potential changes to the existing allocation process before any such changes are instituted?

“Answer: If confirmed, I commit to consulting with USDA program managers and industry stakeholders before any changes to the current allocation process take place.

“Question 5 – Spirits:

“What are your thoughts on how this situation can be improved?

“Answer: The purpose of the WTO dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The focus must be on resolving the issue that has harmed has our industry and workers. If confirmed, I will make it a priority to review the status of these long-term disputes and evaluate the use of tariffs, including their impact on unrelated industries, to ensure U.S. trade tools maximize the benefit and minimize the cost for U.S. industries, workers, and consumers.

“Senator Daines

“Question 4:

“As you know, many agricultural commodities have been targeted by the European Union with retaliatory tariffs due to disputes over Boeing/Airbus and other issues. In particular, Hard Red Spring wheat has been harmed by WTO sanctioned punitive tariffs on U.S. grown non-durum wheat. Until the Airbus/Boeing dispute is resolved, or the tariffs are lifted in negotiations, U.S. wheat growers will be at a disadvantage in the marketplace relative to competitors in Canada and elsewhere.

“What steps can be taken to find a negotiated solution and put the respective tariffs on hold?

“Other agriculture commodities have been impacted as well. Will you commit to working to lift these retaliatory tariffs?

“Senator Warren

“Question 1:

“The Covid-19 pandemic has been the worst public health crisis facing our nation and the world in over a century. Now that safe and effective vaccines are available, it is vital that all people around the world have access to vaccines and any future treatments for Covid-19. Unfortunately, the Trump administration put the profits of pharmaceutical manufacturers ahead of global public health. Too many people in low- and middle-income countries may have to wait years to get vaccinated because of the high prices being charged for Covid-19 vaccines, and an insufficient supply that is currently being bought up disproportionately by wealthy nations. No one should die because drug company profits are prioritized over the health and wellbeing of human beings.

“Countries that can manufacture pharmaceuticals should be given the opportunity to produce Covid-19 vaccines and treatments as quickly as possible in order to bolster global supplies and ensure equitable distribution. In October, South Africa and India proposed a temporary waiver of the WTO’s Trade-Related Intellectual Property Rights (TRIPS) agreement, to increase the global supply of COVID vaccines and treatments and save lives throughout the world. That proposal is now supported by a large number of low and middle income countries. Under the Trump administration, the United States was one of the wealthy nations working to block this emergency waiver.

“Will you as United States Trade Representative reverse the Trump-era decision that is putting lives at risk, and instead support the TRIPS waiver so that Covid-19 vaccines and medications can be made widely available in low and middle-income countries?

“Answer: Responding to the COVID-19 pandemic is the top priority of the Biden Administration. I recognize the critical importance of ensuring widespread access to life-saving vaccines, diagnostics, therapeutics, treatments, and other key products worldwide in order to counter the pandemic and enable global economic recovery. If confirmed, I commit to examining the TRIPS waiver proposal thoroughly to determine its efficacy in enhancing our global health security and saving lives.

“Senator Barrasso

“Question 4 – Sugar:

“The current world sugar market is highly dysfunctional, driven by production and trade distorting practices employed by nearly all sugar-producing countries.

“It is more important than ever that the United States maintain its current no-cost sugar policy which provides a stable and predictable economic environment for U.S. producers, an environment necessary for capital investments and long-run sustainability.

“How would you envision taking on a multilateral challenge like the reform of the global sugar market, and

“Answer: If confirmed, any reforms I pursue regarding the global sugar market will be consistent with maintaining the current no-cost U.S. sugar policy.

“Do you think the World Trade Organization (WTO) is equipped now, or can be made equipped going forward, to effectively address the underlying issues among all members?

“Answer: WTO rules need to be updated to reflect long-standing agricultural issues that have not been rectified under the WTO’s current construction. If confirmed, I will work with like-minded partners to ensure that any new rules are consistent with U.S. domestic sugar goals.“

The full set of questions and answers is embedded below.

USTR-nominee-answers-to-written-questions

Excerpts from USTR’s 2021 Trade Policy Agenda and 2020 Annual Report of the President of the United States on the Trade Agreements Program

The section of the 2021 Trade Policy Agenda dealing with “partnering with friends and allies” is copied below. However, other priorities correspond with priorities for major trading partners like the EU and with the priorities identified by the WTO’s Director-General Ngozi Okonjo-Iweala, including dealing with the COVID-19 pandemic and recovery, having trade play a role in addressing climate change, addressing China’s many trade distortive practices and more.

“Partnering with Friends and Allies

The Biden Administration will seek to repair partnerships and alliances and restore U.S. leadership around the world. The Biden Administration will reengage and be a leader in international organizations, including the World Trade Organization (WTO). The United States will work with Director-General Ngozi Okonjo-Iweala and like-minded trading partners to implement necessary reforms to the WTO’s substantive rules and procedures to address the challenges facing the global trading system, including growing inequality, digital transformation, and impediments to small business trade. The Biden Administration will also work with allies and like-minded trading partners to establish high-standard global rules to govern the digital economy, in line with our shared democratic values.

“The Biden Administration will also coordinate with friends and allies to pressure the Chinese Government to end its unfair trade practices and to hold China accountable, including for the extensive human rights abuses perpetrated by its state-sanctioned forced labor program. In addition, the trade agenda will seek to collaborate with friends and allies to address global market distortions created by industrial overcapacity in sectors ranging from steel and aluminum to fiber optics, solar, and other sectors to which the Chinese Government has been a key contributor.”

The complete publication from USTR is embedded below.

USTR-2021-trade-policy-agenda-and-2020-annual-report

Conclusion

President Biden’s nominee for U.S. Trade Representative is likely to be confirmed in the coming days after being voted out of the Senate Finance Committee tomorrow. Her confirmation hearing before the Committee and responses to questions asked cover a very wide array of topics. But a significant number pertain to WTO reform including addressing distortions flowing from China’s state capital system and changing special and differential treatment away from self-selection, addressing the problems of the Appellate Body reviewed by prior Administrations including the overreach problem, working to resolve long running disputes (US-EU on Airbus-Boeing), getting results in the e-commerce/digital trade plurilateral negotiations, addressing the growing conflict over digital services taxes (although likely through the OECD/G20 process) and other issues. Her answers are consistent with the 2021 Trade Policy Agenda released by USTR yesterday and show strong interest in using trade policy to help address the COVID-19 pandemic and restore global economic growth, addressing the existential threat from a warming planet and other Biden Administration priorities. The Biden Administration, and Ms. Tai as the next USTR, will work with trading partners in the WTO to help restore relevance and hopefully create rules for the 21st century. Both the answers to questions and the 2021 Trade Policy Agenda should be good news for our trading partners looking at the future of multilateralism.

WTO Director-General Ngozi Okonjo-Iweala’s opening statement at the March 1 General Council meeting

Terence P. Stewart · March 1, 2021 · Director-General Ngozi Okonjo-Iweala · access to vaccines, COVAX, COVID-19, General Council, India, South Africa · No Comments

Dr. Ngozi Okonjo-Iweala took the helm of the WTO today, March 1, as Director-General and outlined at the beginning of the first day of a two day General Council meeting the need for change at the organization and how Members address the many challenges before them. In a post last week, I had looked at some of the challenging issues confronting the WTO and the new Director-General (DG), some within the General Council agenda. See February 26, 2021, WTO Director-General Ngozi Okonjo-Iweala’s first week on the job starts with a two day General Council meeting, https://currentthoughtsontrade.com/2021/02/26/wto-director-general-ngozi-okonjo-iwealas-first-week-on-the-job-starts-with-a-two-day-general-council-meeting/.

The statement by DG Okonjo-Iweala can be found on the WTO webpage. See WTO, DG Okonjo-Iweala: WTO can deliver results if members “accept we can do things differently”, 1 March 2021, https://www.wto.org/english/news_e/spno_e/spno1_e.htm. Her comments started with thanks to the Members, to the troika of Chairs that had worked the DG selection process, to the four Deputy Directors-General who had managed the organization since the end of August and to the WTO Secretariat staff. Dr. Okonjo-Iweala reviewed the need for doing things differently, the fact that in a Member driven-organization, movement would require efforts by all, and her view based on discussions that the WTO was viewed as less relevant since it has been unable to deliver results. Her comments on the challenges to relevance are copied below.

“I have said it. It cannot be business as usual. We have to change our approach from debate and rounds of questions to delivering results. Excellencies, many of you put in long hours and a great deal of effort to do good work much of which goes unnoticed. There are excellent people in the capitals doing good work. We have talented staff in the Secretariat. But the world is no longer cognizant of this, does not recognize the effort because we are not delivering results at the pace required by our fast-changing environment. Last week at the TNC, several Ambassadors said that You Excellencies talk past each other. You don’t talk to each other. This approach has to change. We have to be more accountable to the people we came here to serve — the ordinary women and men, our children who hope that our work here to support the MTS, will result in meaningful change in their lives, will improve their standard of living, and create decent jobs for those who seek work.

“Excellencies, coming from the outside I have noticed that the world is leaving the WTO behind. Leaders and decision makers are impatient for change. Several Trade Ministers said to me that if things don’t change, they will no longer attend the Ministerial because it is a waste of their time. I have noticed that more and more of the work and decision making that should be undertaken at the WTO is being done elsewhere because there is an increasing loss of confidence in the ability of the WTO to produce results. But there is hope. If we all accept that we can no longer do business as usual, that will help us create the parameters for success.”

DG Okonjo-Iweala then reviewed the long list of issues of importance to various parts of the WTO Membership and the need to achieve deliverables by the 12th Ministerial Conference. After her speech, the date and venue of the 12th Ministerial Conference were taken up as agenda item 4 and a decision taken to hold the Ministerial Conference the week of November 29 in Geneva with the Kazakhstan trade minister chairing the Ministerial Conference (Kazkhstan had offered to host in 2020 and again in 2021 including in December). 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.

For DG Okonjo-Iweala it is important that the WTO membership have an achievable agenda for the upcoming Ministerial Conference (MC), which means not attempting too much. However, the list of “deliverables” DG Okonjo-Iweala outlined is significant as well as the group of issues on which agreed work programs should be ready for adoption at the MC. Here is what DG Okonjo-Iweala outlined as the hoped-for focus.

“Therefore, we must work hard to complete a few deliverables before MC12 so that Ministers can focus on ratifying agreements and agreeing best methods for implementation. In this regard, we need to prioritize action on COVID-19 both for the immediate and longer term and focus on completing Fisheries Subsidies negotiations before the middle of the year. We must agree the road map for reform of the Dispute Settlement System and prepare a work program to achieve this which can be endorsed at MC12. On Agriculture, let us identify a few things we can deliver such as PSH, SSM, Cotton, and the WFP Humanitarian waiver which is material to our Pacific Island economies as we heard a few days ago. We must put forward a subsidies work program both on domestic support and industrial subsidies which can be agreed on at MC12. We must sharpen our approach to SDT bearing in mind how crucial this is to the policy space of Least Developed Countries in particular. For the rest, let us review the work on e-commerce, investment facilitation, Services Domestic Regulation, MSMEs, Women in Trade, and Trade and Climate to see what aspects of these important work programs we can advance at MC12. So in short, I am suggesting three or four clear deliverables finalized before MC12 and work programs for the rest to be agreed at MC12.”

DG Okonjo-Iweala then turned to the challenges of the COVID-19 pandemic, more specifically getting the world vaccinated. She noted the proposal by India and South Africa (supported by many developing countries) for a waiver from TRIPS obligations for medical goods during the pandemic. A status report from the TRIPS Council on the proposed waiver is agenda item 6. DG Okonjo-Iweala argues that time is of the essence and that while WTO Members deal with the waiver proposal, efforts should be made to ramp up global production and distribution, noting the challenges facing COVAX in delivering vaccines to low- and middle-income countries and the gross shortfall between global vaccine capacities and global vaccine needs. It is not clear what direct role the WTO has or should have in working with companies to expand production or to encourage additional licensing, but certainly there is a role for governments collaborating on the issue and for multilateral organizations to collaborate and develop information on current and planned capacities, existing licensing arrangements (as there are some in existence already). Here is what DG Okonjo-Iweala said.

“Permit me Ladies and Gentlemen to spend just a little time on COVID-19. We have a demand for a TRIPS waiver by a growing number of developing countries and the dialogue is intensifying. Whilst this is happening, I propose that we ‘walk and chew gum’ by also focusing on the immediate needs of dozens of poor countries that have yet to vaccinate a single person. People are dying in poor countries. We just had our first COVAX shipment to Ghana last week and others will follow but it will not be enough. There is serious supply scarcity and some countries are out bidding COVAX and diverting supplies. The world has a normal capacity of production of 3.5 billion doses of vaccines and we now seek to manufacture 10 billion doses. This is just very difficult, so we must focus on working with companies to open up and license more viable manufacturing sites now in emerging markets and developing countries. We must get them to work with us on know how and technology transfer now. There will soon be a world manufacturing convention where we can seek to build this partnership. I also hope we can initiate a dialogue and information exchange between us and representatives of manufacturers associations from developing and developed countries. Excellencies, this should happen soon so we can save lives. As I said at the beginning, this will be an interim solution whilst we continue the dialogue on the TRIPS waiver.”

The General Council meeting runs through tomorrow March 2. While much of a General Council meeting is simply reporting developments in various areas, it is also an opportunity for Members to stake out positions and measure the sense of openness to agenda items by the WTO membership. There is no doubt that WTO Members expressed great enthusiasm and hope for the new Director-General. Whether that will translate into Members working differently to obtain solutions and find compromises is unknown at this point but seems unlikely with the deep divisions and differences of views on objectives for the WTO held by Members. The new DG clearly will be pushing Members to proceed in a more collaborative and solution-finding mode. Her own list of objectives for MC12 is quite ambitious and includes items that are very controversial to many. Her wanting WTO involvement in considering vaccine production and distribution levels is more consistent with her prior role at GAVI and her background as a development economist than her current role as WTO DG. Finding a comfort zone for WTO Members to act within the WTO, other than the consideration of the waiver proposal, on such issues may prove to be challenging. What is clear is that the new DG is looking forward to working with Members to return the WTO to greater relevance. Her opening statement at the General Council meeting says she will be urging Members to get out of their comfort zones. Fingers crossed that she is successful.

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

Terence P. Stewart · June 5, 2020 · China, U.S.-China Phase I Agreement, United States · Annex 6.1 to U.S.-China trade agreement, China, COVID-19, United States · No Comments

The U.S.-China Phase I trade agreement went into effect in mid-February just as the COVID-19 pandemic was rapidly spreading globally. In the United States, the U.S. Trade Representative and U.S. Secretary of Agriculture have released a series of statements indicating that China has been making a number of the substantive changes that were contained in the agreement, with the U.S. being pleased with the progress. See, e.g. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/usda-and-ustr-announce-continued-progress-implementation-us-china-phase-one-agreement

The COVID-19 pandemic has seriously reduced economic activity in the United States and in many other countries. Despite such reduced economic activity in recent months, the U.S. Administration has remained optimistic about China’s meeting the agreement’s terms and the agreement being “a success,” including the significant increase in exports to China from the United States over two years (2020-2021). https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/usda-and-ustr-announce-continued-progress-implementation-us-china-phase-one-agreement.  An important measure of the success will be the extent to which there are significant increases in U.S. exports.

As reviewed in a recent post, the United States has announced it will be terminating special status of Hong Kong in light of Chinese security actions taken vis-a-vis Hong Kong. U.S. Withdrawal from the World Health Organization and Decision to Revoke Preferential Treatment for Hong Kong – Reduced Cooperation as COVID-19 Pandemic Rages On, https://currentthoughtsontrade.com/2020/05/30/u-s-withdrawal-from-the-world-health-organization-and-decision-to-revoke-preferential-treatment-for-hong-kong-reduced-cooperation-as-covid-19-pandemic-rages-on/.  U.S. action did not call for the termination of the US-China Phase I Agreement. In recent days, the press have reported that China has ordered state-owned entities to stop purchasing from the United States various agriculture products, including soybeans, pork, corn and cotton. https://thehill.com/policy/finance/trade/500464-china-halts-state-purchases-of-us-soybeans-pork-report.  There have been some statements in the U.S. press suggesting that China continues to buy U.S. agricultural products including soybeans despite the earlier reports to the contrary. See, e.g., https://insidetrade.com/trade/grassley-confident-china-will-meet-phase-one-commitments.

With April 2020 U.S. export data now available, what is clear is that China is far behind in meeting the levels of purchases from the United States in a wide range of goods categories to meet the first year growth over 2017 on goods of $63.9 billion. Total U.S. domestic exports to China in 2017 were $119.910 billion. The $63.9 billion increase of U.S. exports of goods were on a subset of total U.S. goods exports, just $66.381 billion. Thus, the rate of increase in the first twelve months under the agreement is expected to be 96.26% on the categories contained in Annex 6.1 to the Agreement. There are specific commitments with regard to certain manufactured goods (increase of $32.9 billion over 2017 levels), agriculture (increase of $12.5 billion over 2017 levels) and energy (increase of $18.5 billion over 2017 levels). While there are no specific commitments on other products the U.S. exports to China, the rate of increase as measured against all U.S. domestic exports to China in 2017 would be 53.29% if all other products were at the same level as in 2017.

Unfortunately, looking just at March and April 2020 (the first two full months after the agreement took effect for which U.S. export data are available), U.S. domestic exports of the products contained in Annex 6.1 to the agreement declined by 4.04% from the March-April 2017 period. All other U.S. domestic exports of goods to China declined 39.35% in March-April 2020 compared to the same period in 2017. In total U.S. domestic exports to China of all products declined by 20.24% in March-April 2020 compared to the same months in 2017. Thus, the early months of the first year of the Phase I Agreement are moving in the wrong direction in terms of U.S. exports. While challenges in China and in the United States from the pandemic have undoubtedly dampened both demand in China and ability to ship from the U.S. for some products, that situation has changed in May and will presumably improve moving forward.

The above figures do not account for increased U.S. services exports to China contained in Annex 6.1 to the agreement (increase of $18.5 billion over 2017 levels). Data for U.S. services exports for 2020 are not available by country at this point for January-April. But overall U.S. services exports have been hard hit in the first four months of 2020 and this will include U.S. exports to China. U.S. exports of services to the world were $169.482 billion in the January-April 2020 time frame, down from $193.010 billion in 2019, with March and April 2020 being more sharply contracted, $72.117 billion vs. $97.103 billion in 2019. See https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf (page 16).

The table below shows the 18 categories of goods for which there are growth commitments in Annex 6.1 of the Agreement. All figures are in U.S.$ billions.

Product Category	March-April 2017	March-April 2020	Change
Manufactured goods
1. Industrial machinery	$1.845	$2.091	+$0.246
2. Electrical Equipment and machinery	$0.694	$0.867	+$0.173
3. Pharmaceutical products	$0.323	$0.501	+$0.178
4. Aircraft (orders and deliveries	$0	$0	$0
5. Vehicles	$1.747	$0.716	-$1.031
6. Optical and medical instruments	$0.522	$0.566	+$0.044
7. Iron and steel	$0.232	$0.081	-$0.151
8. Other manufactured goods	$1.737	$2.224	+$0.487
Subtotal — MFG goods	$7.099	$7.046	-$0.053
Agriculture
9. Oilseeds	$0.747	$0.230	-$0.517
10. Meat	$0.106	$0.582	+$0.476
11. Cereals	$0.224	$0.194	-$0.030
12. Cotton	$0.229	$0.200	-$0.029
13. Other agricultural commodities	$0.000	$0.354	+$0.354
14. Seafood	$0.231	$0.152	-$0.079
Subtotal – Agriculture	$1.536	$1.712	+$0.175
Energy
15. Liquefied natural gas	$0.014	$0.162	+$0.148
16. Crude oil	$0.658	$0.210	-$0.448
17. Refined products	$0.334	$0.193	-$0.241
18. Coal	$0.090	$0.016	-$0.074
Subtotal – Energy	$1.096	$0.581	-$0.515
Total of 1.-18.	$9.731	$9.339	-$0.392

Conclusion

The Trump Administration has had an aggressive program over the last several years to address perceived serious problems in our bilateral relationship with China. The Phase I Agreement was viewed as a down payment with the more challenging issues still on the table to be negotiated in a phase 2 agreement. There is no sign that Phase 2 negotiations have started. The history of U.S.-China consultations has been a great many promises of change by China and relatively little action by China to address U.S. concerns.

It is a positive that a number of the specific changes China has agreed to in the Phase I Agreement have been implemented to date. The U.S. has also made modifications it agreed to make in the Phase I Agreement. But the core issue for the Trump Administration is to see if its different approach to China can achieve meaningfully greater reciprocity in our trade relationship with China. That has been the justification for the large tariff increases on large parts of Chinese exports — getting long overdue changes to Chinese actions that harm American businesses and workers and obtain greater market access to the Chinese market.

Through April, U.S. trade data don’t show meaningful expansion of exports to China despite the commitments contained in Annex 6.1 to the Agreement. Indeed, U.S. exports are down sharply to China (U.S. imports from China are down sharply as well).

Despite the ongoing bilateral differences and actions causing a continuation of tensions between the two largest economies in the world, improving bilateral trade to a more reciprocal level would be in both countries’ interest. With China having recovered from COVID-19 constraints and with the U.S.having started its reopening process, the coming months will reveal whether the Agreement represents a further lost opportunity or a sea change in trade flows.

COVID-19 Trade and Economic Fallout — Are current projections too optimistic?

Terence P. Stewart · June 2, 2020 · COVID-19, United States, World Health Organization · Brazil, Bureau of Economic Analysis, Chile, Colombia, Congressional Budget Office, COVID-19, France, IMF, India, Italy, Mexico, Peru, United States, World Health Organization · No Comments

The COVID-19 pandemic is not simply a global health crisis but also a global economic crisis of unprecedented proportions.

The WTO has projected that global trade will decline between 13 and 32 percent in 2020 before rebounding in 2021. https://www.wto.org/english/news_e/pres20_e/pr855_e.htm.

The IMF in its April 2020 update of the global economy modified its projection to show global GDP contraction of 3.0% for 2020 with a 6.1% contraction by advanced economies (U.S., -5.9%; Euro Area, -7.9%; Japan, -5.2) and a 1.0% contraction for emerging markets and developing economies. https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020.

Developments in global trade and the national economy for the United States and the rising severity of the pandemic in some of the emerging and developing countries will likely cause future downward revisions to the global trade and economic fallout occurring in 2020 and reemphasize the importance of global cooperation both in responding to the pandemic but also in posturing the world for an economic recovery in the second half of 2020 and beyond.

United States data through April as an example

Gross domestic product in the United States declined 5.0% in the first quarter of 2020 based on a May 28, 2020 second estimate provided U.S. Department of Commerce’s Bureau of Economic Analysis. https://www.bea.gov/sites/default/files/2020-05/gdp1q20_2nd_0.pdf.

With more than 40 million people filing for unemployment benefits between mid-March and the end of May, the projection for second quarter GDP from at least one source on June 1, 2020 is an extraordinary contraction of 52.8%. See https://www.frbatlanta.org/cqer/research/gdpnow. This compares to the Congressional Budget Office’s projection of a 39.6% decline in the second quarter. https://www.cbo.gov/publication/56335. The CBO estimate uses a 3.5% decline in GDP for the first quarter and an annual projected decline of 5.6% for 2020.

With the current first quarter data GDP contraction in the U.S. at 5.0% and the most recent data from a model similar to that used by the Bureau of Economic Analysis projecting a 52.8% contraction in the second quarter, it is highly likely that the U.S. contraction in 2020 will exceed the 5.9% projected in the April IMF data.

Indeed, with the number of bankruptcies being reported in the U.S. and the large number of small and medium sized companies that may not be able to return to operation as reopening occurs, the economic rebound may not be as strong as current projections estimate either. The continued large number of new cases in the United States may be a contributing cause as some states either delay the speed of reopening or face larger resurgence of cases once reopening occurs because of the continued high level of COVID-19 in the population.

While the number of cases in the United States has at least stabilized and has been trending down, the rate of decline is far lower than that experienced in western Europe. For example, the United States continues to have the largest number of new confirmed cases of any country in the world, many weeks after the U.S. peak. Indeed in today’s European Centre for Disease Prevention and Control report on the COVID-19 situation update worldwide, as of 2 June 2020, the U.S. has 302,679 cases reported in the last fourteen days of the continuing to grow global total of 1,477,362 new cases in the last fourteen days. European countries have relatively few (7,973 for Spain; 7,311 for Italy, 9,188 for France and 6,818 for Germany). https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases. In a prior post, data were shown for various countries over the period December 31, 2019 – May 24, 2020. Most European countries show reductions from their peak two week period of 80-90% while the United States has shown declines of only 23.5% through May 24 (slightly more through June 2, 26.0%). See COVID-19 – new hot spots amidst continued growing number of confirmed cases, https://currentthoughtsontrade.com/2020/05/25/covid-19-new-hotspots-amidst-continued-growing-number-of-confirmed-cases/. To the extent that IMF projections are based on infection rates that decline more rapidly than the actual U.S. experience with COVID-19, that would be another reason to believe the IMF projected contractions for the U.S. are too low.

On the trade front, the United States was doing well until mid-March. But the COVID-19 challenges that resulted in government actions led to 1st quarter 2020 exports from the U.S. of goods being down 1.2%, services exports down 21.5% for a total contraction of U.S. exports of 6.7%. U.S. imports of goods were down 11.5%, led by contraction of imports from China due to various additional duties imposed on Chinese goods. U.S. imports of services were down 29.9% for total imports being down 15.5%. See Bureau of Economic Analysis, News Release BEA 20-23, May 28, 2020 at 7, https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-second-estimate-corporate-profits-1st-quarter.

The U.S. Department of Commerce, U.S. Census Bureau puts out a “Monthly Advance Economic Indicators Report”. The April 2020 report was released on May 29th and showed estimated data for imports and exports of goods (seasonally adjusted). April exports for the U.S. were down 29.9% with individual sectors being down 5.3% (food, feeds and beverages) to 70.8% (automotive vehicles). Similarly, U.S. imports were down 20.6% for April with sectors varying from being down 5.6% (foods, feeds and beverages) to 57.0% (automotive vehicles). https://www.census.gov/econ/indicators/advance_report.pdf.

Thus, U.S. trade contractions in April suggest that the range put forward by the WTO (13-32% for the year) is probably the correct range.

Rising Number of COVID-19 cases in South America and in India

The IMF revised 2020 projections from April likely understate the negative effects that emerging and developing countries are experiencing. Specifically, Latin America and the Caribbean are seeing major outbreaks of COVID-19 cases with the peak not yet reached in a number of important countries like Brazil, Peru, Chile and Colombia and also in Mexico. Depending on developments in these major countries and the spread in others, the likely economic contraction in the region could be significantly higher than the 5.2% contained in the April 2020 projections by the IMF. Brazil was estimated to experience a GDP contraction of 5.3% by the IMF, but recent estimates show a steadily growing projected contraction, latest figures showing 6.25%. See https://www.statista.com/statistics/1105065/impact-coronavirus-gdp-brazil/. With the COVID-19 cases still growing in Brazil, the contraction in GDP for 2020 will likely continue to worsen.

Similarly, India was projected to have GDP growth of 1.9% in 2020. The country’s challenges with COVID-19 cases are just starting with the current total number of confirmed cases at just under 200,000 but with nearly half of the cases reported in the last fourteen days (97,567 of 198,706). Indeed, some recent projections by Oxford Economics now have India’s GDP contracting in 2020. See https://www.icis.com/explore/resources/news/2020/06/01/10513907/india-gdp-growth-slows-to-4-2-lockdown-stays-at-manufacturing-hubs.

Other countries are also seeing increasing case numbers and the global totals of new cases have not peaked as yet which likely mean greater numbers of cases than most models have anticipated. If so global contraction could be significantly worse than the April estimates of the IMF.

High national debt levels are growing higher

The collapse of economic activity even for a few months is reducing tax revenues, increasing government spending in many jurisdictions and worsening national debt levels. For example, in the United States the Congressional Budget Office blog from April 24 estimated that the U.S. budget deficit in 2020 and 2021 will be $2.7 billion and $1.1 billion higher than earlier estimates and that federal debt held by the public is likely to grow from 79% of GDP in 2019 to 101% of GDP in 2020 and 108% of GDP in 2021. https://www.cbo.gov/publication/56335. The actual deficits and federal debt are likely to be significantly higher as the CBO estimates are based on forecasts for GDP contraction that already understates the severity experienced through the first quarter and assumes no further federal assistance will be required to pull the economy out of the steep contraction being experienced in the second quarter. As governors across the country have made clear, the serious budget shortfalls being experienced by the states because of closed businesses, reduced revenues and increased expenditures are not sustainable. If these 2020 shortfalls are not addressed through federal legislation, the outcome will be large reductions in state and local services and massive layoffs of state and municipal employees including police, fire, health care and teachers. So either the budget shortfall of the federal government is understated because of additional stimulus funding needs or the expected recovery of the economy (and hence government revenues) is overstated because of the challenges for many states.

Virtually every country is facing budget challenges as they attempt to address the COVID-19 pandemic and its economic fallout. See, e.g., articles on growing budget deficits for France, Italy, Brazil and India; https://www.reuters.com/article/us-health-coronavirus-France-budget/france-more-than-doubles-crisis-package-cost-to-100-billion-euros-idUSKCN21R2J2; https://www.nytimes.com/reuters/2020/05/22/world/americas/22reuters-brazil-economy.html; https://www.reuters.com/article/us-health-coronavirus-italy-budget-exclu/exclusive-italy-sees-2020-budget-deficit-near-10-of-gdp-source-idUSKBN21Y2U9; https://economictimes.indiatimes.com/news/economy/indicators/indias-fiscal-deficit-may-shoot-to-6-2-of-gdp-in-fy21-fitch-olutions/articleshow/74928660.cms?from=mdr#:~:text=NEW%20DELHI%3A%20India’s%20fiscal%20deficit,Fitch%20Solutions%20said%20on%20Wednesday.

Budget shortfalls, the need to borrow more money and the pressure to reduce national, regional and local services all affect the ability of nations to contribute to international institutions, to provide financial assistance to the poorest countries and to facilitate short-, medium- and longer-term growth.

Conclusion

The global COVID-19 pandemic is creating economic havoc in addition to the heavy health toll on countries around the world. A global challenge of this magnitude hasn’t been faced since World War II. The projections that have been made by multilateral and national organizations have been for huge contractions in world trade and in global economic growth. Unfortunately, the estimates at least on global GDP contraction are likely too optimistic both in terms of the severity of the second quarter 2020 contraction and the anticipated level of second half 2020 recovery. Moreover, there is likely to be significantly more national stimulus programs needed to help economies recover increasing already huge national debts for many countries and the likely greater need for trade financing and debt support for many developing and least developed countries because of the severity of the global trade and GDP contraction.

The challenges being faced affect the health and livelihood of billions of people but are occurring at a time of reduced trust in multilateral institutions, increased trade frictions between major nations and groups of nations and a lack of strong leadership within and among nations.

How severe the damage to the world turns out to be from the pandemic will depend on –

(1) whether countries come together to ensure open markets;

(2) whether countries both coordinate information about and promote expanded production of essential medical goods to ensure adequate and equitable availability to all at affordable prices,

(3) whether countries support efforts of both public and private players on the development of effective vaccines and therapeutics and facilitate the sharing of information while ensuring equitable availability to all at affordable prices where breakthroughs occur,

(4) whether countries support multilateral organizations’ efforts and individually support the bolstering of health care infrastructure of least developed countries and some developing countries where COVID-19 cases could easily overwhelm internal capabilities;

(5) whether countries cooperate for a strong global recovery by pursuing stimulus programs that don’t distort markets and create other challenges to global participation, and by providing multilateral organizations with the resources to address debt and trade financing needs of the poorest among us.

There are some efforts to address each of the five items above although the U.S. announced withdrawal from the World Health Organization handicaps efforts reviewed in (3).

More needs to be done and could be done with greater cooperation among the top 50 countries in the world. However, we may be at the maximum of what is the art of the possible at the moment. For the 7.8 billion people living on earth in 2020, let us hope that more is possible quickly.

The future of the WTO — restoring relevance

Terence P. Stewart · May 27, 2020 · Uncategorized · China, COVID-19, Deputy Director-General Alan Wolff, Need for reform, United States, World Trade Organization · No Comments

The World Trade Organization has 164 Members at present with 23 more countries or territories in the process of accession. Nearly all international trade in goods and services is handled by WTO Members and those seeking accession.

At the beginning of 2020, the WTO officially turned 25 years old. Despite some successes in the first 25 years in terms of negotiated improvements, the WTO set of agreements are largely reflective of the world in the 1980s. Advances in technology, manufacturing make-up and importance of certain service sectors (e.g., e-commerce) are not covered by the existing agreements.

The WTO’s negotiating function has been nearly moribund on a multilateral level for more than a decade, with most successes at the WTO keyed to actions by plurilateral groups of Members (action by the willing). A system built on consensus decision making has been the hallmark of activity during the GATT and now during the WTO years but has proven unworkable in moving many topics forward amongst an expanded membership.

Similarly, the dispute settlement function of the WTO, long referred to as the “jewel” of the WTO, has been in a state of crisis for the last several years and now has a nonfunctioning Appellate Body (“AB”) as longstanding systemic concerns of the United States about the Appellate Body’s operation and adherence to the Dispute Settlement Understanding (“DSU”) have led to the United States blocking appointments of Appellate Body members until the system is corrected consistent with the DSU. With only one of seven AB members still in place as of December 11, 2019, the AB is unable to hear appeals (as all appeals must be heard by three AB members).

At the same time, many WTO Members have not kept current with notification requirements contained in each Agreement and intended to help Members understand actions of trading partners and their likely compliance with WTO Agreement obligations. This lack of full transparency limits the ability of Members to address issues and seek compliance with underlying obligations.

With the increased importance of China and other countries with economic systems not consistent with the GATT’s and now WTO’s architecture, there have also grown concerns by some Members on the ability of the WTO to handle different economic systems under the existing rules with the U.S., EU and Japan seeking new rules addressing some of the major elements flowing from the different systems.

The WTO, unlike other multilateral institutions, has a process of self-selection of developing country status. Least developed countries do have a clear definition consistent with other organizations. As there has been substantial economic development of many countries describing themselves as “developing” during the first 25 years of the WTO’s existence, there is conflict on the need to change current classification and/or the need for special and differential treatment.

On top of all of these ongoing concerns, the COVID-19 pandemic has resulted in WTO Members acting first for their own domestic interests, particularly in light of huge shortfalls in global supplies and capacity for medical supplies versus the needs of countries facing spikes in the number of cases. The result has been dozens of export restraints (styled as temporary) and dozens of unilateral actions by countries to reduce duties, simplify or prioritize entry procedures for medical supplies. While the WTO has established a webpage for COVID-19 information and provides information on actions taken by Members (either export restraints or import liberalizing), the WTO Members have not agreed on a course of action for all Members to pursue.

The COVID-19 pandemic has also disrupted the functioning of the WTO as in-person meetings have been cancelled for the last several months, and many developing countries have insisted that virtual meetings not be used for decision making, essentially halting the negotiations on areas like fisheries subsidies.

The challenges reviewed above raise the question about the WTO’s continued relevance and as importantly what reforms are needed to restore the WTO’s relevance going forward. The short-term challenges for the WTO are compounded by the decision by Director-General Azevedo to step down at the end of August which will divert much energy at the WTO into the process for finding a replacement Director-General.

Deputy Director-General Alan Wolff’s virtual presentation at a webinar hosted by the Korean International Trade Association

Earlier today, the WTO’s Deputy Director-General Alan Wolff made a virtual presentation in a webinar that was hosted by the Korean International Trade Association. The title of the presentation was “COVID-19 and the Future of World Trade. A link to the presentation can be found here. https://www.wto.org/english/news_e/news20_e/ddgaw_27may20_e.htm.

Everyone interested in the future of the multilateral trading system should take the time to read DDG Wolff’s presentation. The presentation reviews actions needed by WTO Members to respond to COVID-19, measures WTO Members can take to assist with the economic recovery from the pandemic, and systemic reform that WTO Members should consider. It is the last of these that takes up the bulk of the presentation.

In talking about reform, DDG Wolff states that —

“It is necessary to understand what values the multilateral trading system is designed to promote before it can be reformed.

“A serious inquiry into this subject would serve three purposes:

“(1) to know the value of what we have in the current system,

“(2) to determine if the values of the current system enjoy the support of all WTO Members, and

“(3) to address the degree to which the WTO is of sufficient continuing relevance as it is at present or whether it needs fundamental change.

“My list of the underlying values of the WTO has 16 entries. They include a number of basic principles.

“The first two, not obvious to all of us today, are supporting peace and stability. This was the key concern of the founders of the multilateral trading system in 1948 and the central objective of conflict-affected and fragile acceding members today.

“Other values, such as nondiscrimination, transparency, reciprocity, international cooperation and the rule of law are more obvious. Still others are more nuanced, less obvious perhaps, and emerge only upon reflection. They include well-being, equality, sovereignty, universality, development, market forces, convergence and morality.

“A recent addition to the list is sustainability.

“A serious discussion of WTO reform is long overdue. The pandemic simply adds to the urgency of it taking place.”

Not surprising, DDG Wolff’s review of the sixteen entries is well done and presents a much broader understanding of the importance and value of a global trading system than trade negotiators, businesses, workers, and governments generally bring to the table.

I won’t review the presentation in detail as the value of the presentation in my view is in reviewing the entirety. While DDG Wolff presents the detailed analysis as a possible road to a better future, there are issues identified which similarly suggest the need for a new set of agreements. Consider his discussion of “convergence”:

“Convergence

“A corollary of the principle that market forces are to dictate competitive outcomes is that the rules of the WTO are based implicitly, but without doubt, on convergence and not coexistence. If the desire is to have systems where market forces are not allowed to operate and deliver results, an underlying unstated assumption of the multilateral trading system would not be valid.

“Coexistence would require a different WTO. Where there is no agreement on convergence, a new modus vivendi will inevitably be sought. The arrangement is likely to settle at a lower level of trade than the WTO rules would otherwise provide.”

The United States has in fact raised this exact issue with the WTO Membership in reviewing the market economy basis of the WTO and the incompatibility of state-directed/controlled economies like that of the People’s Republic of China (and others).

Will WTO Members be able to rise to the current needs to engage in reform that supports the 16 principles reviewed in DDG Wolff’s paper? The future relevance of the WTO and the future dynamism of the global trading system depend on it.

U.S.-China Phase I Agreement — Some Progress on Structural Changes; Far Behind on Trade in Goods and Services

Terence P. Stewart · May 12, 2020 · U.S.-China Phase I Agreement · agriculture, Annex 6.1, business travel and tourism, China, cloud and related services, COVID-19, energy, Expanding Trade Chapter, financial services and insurance, manufactured goods, United States · No Comments

In prior posts, I reviewed the U.S.-China Phase I Agreement and the commitments made by the parties. See https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/. While for many the promised start of a Phase II was viewed as the more important in light of the issues not reached in the partial deal that was struck in January, the COVID-19 pandemic has absorbed much of the global energy for both countries, and no new talks have started.

Moreover, with both countries exchanging charges against the other in terms of the origin of the virus causing the pandemic and more recently concerns about transparency on the virus in China, there have been heightened tensions between the two countries. with some comments in the press calling for an end of the agreement by each country.

A recent telephone call between U.S. Treasury Secretary Mnuchin, USTR Ambassador Lighthizer and China’s Vice Premier Liu He seemed aimed at keeping the Phase I Agreement moving forward. The US press release on the call is reproduced below.

“USTR and Treasury Statement on Call With China

“05/07/2020

“Vice Premier Liu He, U.S. Treasury Secretary Steven T. Mnuchin, and Ambassador Robert Lighthizer participated in a conference call today. They discussed economic and trade issues, including the recently concluded Phase One agreement. The parties shared updates on COVID-19 and their assessments of its effects on economic growth as well as the measures their countries are taking to provide support to their economies.

“The parties discussed the ongoing process of implementing the Phase One agreement between the two countries that went into effect February 14. Both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success. They also agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner. Meetings required by the agreement have been conducted via conference call and will continue on a regular basis.”

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/ustr-and-treasury-statement-call-china.

Indeed, notices on Chinese Ministry websites as well as statements from U.S. government officials have made clear that China has been making progress on a number of the changes to laws and regulations where commitments were undertaken in the Phase I Agreement. For example on the large number of agricultural program changes that China agreed to make, USDA and USTR released a joint statement in late February, shortly after the Agreement took effect, reviewing the progress being made. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/february/usda-and-ustr-announce-progress-implementation-us-china-phase-one-agreement.

USDA-and-USTR-Announce-Progress-on-Implementation-of-U.S.-China-Phase-One-Agreement-_-United-States-Trade-Representative

Similarly, the United States has taken steps to address obligations that it undertook in the Agreement such as authorizing the importation of citrus products from China. See 85 FR 20975-20983 (April 15, 2020; https://www.aphis.usda.gov/aphis/newsroom/stakeholder-info/sa_by_date/sa-2020/sa-04/china-citrus.

“APHIS Authorizes Importation of Fresh Citrus Fruit from China

“Last Modified: Apr 14, 2020 Print

“The U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) is authorizing the importation of five types of commercially produced fresh citrus fruit from China into the continental United States. After thorough analysis, APHIS scientists determined that pummelo, Nanfeng honey mandarin, ponkan, sweet orange, and Satsuma mandarin fruit from China can be safely imported into the United States under a systems approach to protect against the introduction of plant pests. 

“A systems approach is a series of measures taken by growers, packers, and shippers that, in combination, minimize pest risks prior to importation into the United States. In this case, the systems approach includes importation in commercial consignments only, registration of places of production and packinghouses, certification that the fruit is free of quarantine pests, trapping program for fruit flies, periodic inspections of places of production, grove sanitation, and postharvest disinfection and treatment. This completes agreements on another Chinese commodity listed in Annex 11: Plant Health of the Economic and Trade Agreement between the United States of America and The People’s Republic of China, Phase One.

“This notice of authorization will go into effect on the date of publication in the Federal Register, April 15, 2020. The docket with information about this decision is available here upon publication on April 15, 2020: http://www.regulations.gov/#!docketDetail;D=APHIS-2014-0005.”

Expanding Trade -Growing Exports to China from the U.S. by $76.7 Billion in 2020

One of the important parts of the Phase I Agreement was the chapter on Expanding Trade and the commitments by China to increase imports from the United States by some $200 billion over 2020 and 2021 above the 2017 figures (i.e., U.S. exports to China ahead of the additional tariffs imposed by the U.S. and then China against goods from each other). The figures for 2020 were for increases of $76.7 billion, $64.9 billion in certain goods and $12.8 billion in certain service sectors.

The challenges to the Chinese economy in the first quarter because of COVID-19 and to the United States (and many other countries) for part of the 1st quarter and at least the second quarter of 2020 because of the pandemic makes the large increase in purchases seem unlikely. Certainly, first quarter figures for U.S. domestic goods exports paint a picture suggesting 2020 will not meet objectives. The goods categories that were included in Annex 6.1 and the Attachment thereto of the Phase I Agreement accounted for 59.1% of U.S. domestic exports to China in 2017 (the base year)– $70.9 billion of $119.9 billion total U.S. domestic exports to China. In the first quarter of 2020, the goods categories covered by the Annex showed U.S. domestic exports of $12.7 billion which would leave $122.1 billion to be exported in the last nine months of 2020 ($13.57 billion/month or greater each month than the U.S. exported in the first quarter of the year).

The remaining $49 billion of U.S. domestic exports don’t have particular export targets, but are running well below 2017 levels and indeed are more than 21% lower than the first quarter 2019 levels, suggesting 2020 levels of just $28.29 billion.

The table below shows the US exports for 2017-March 2020 and the objective for 2020 included in Annex 6.1. All figures are in $ Billions.

Product	2017	2018	2019	1st Qtr. 2019	1st Qtr. 2020
Manufactured goods
1. industrial machinery	$10.949	$12.288	$11.062	$2.318	$2.500
2. electrical equip. & machinery	$4.311	$4.586	$4.283	$1.008	$1.078
3. pharmaceutical products	$2.089	$2.126	$2.362	$0.483	$0.665
4. aircraft*	$0	$0	$0	$0	$0
5. vehicles	$10.093	$6.487	$7.050	$1.888	$1.049
6. optical and medical instruments	$3.135	$3.398	$3.527	$0.763	$$0.806
7. iron and steel	$1.176	$0.652	$0.285	$0.075	$0.069
8. other manufactured goods	$10.702	$11.168	$11.914	$3.167	$3.021
Total MFG goods	$42.456	$40.705	$40.484	$9.702	$9.188

Agriculture
9. oilseeds	$12.225	$3.119	$7.989	$1.696	$1.028
10. meat	$0.559	$0.440	$1.193	$0.110	$0.727
11. cereals	$1.358	$0.696	$0.313	$0.015	$0.119
12. cotton	$0.973	$0.921	$0.707	$0.197	$0.290
13. other agricultural commodities	$4.504	$4.121	$3.680	$0.765	$0.768
14. seafood	$1.234	$1.055	$0.822	$0.200	$0.132
Total Agriculture	$20.852	$10.353	$14.704	$2.983	$3.063

Energy
15. liquefied natural gas	$0.424	$0.464	$0.063	$0.036	$0.059
15. crude oil	$4.304	$5.374	$2.478	$0.405	$0.182
17. refined products	$2.444	$1.781	$0.469	$0.185	$0.141
18. coal	$0.403	$0.311	$0.127	$0.047	$0.048
Total Energy	$7.575	$7.930	$3.138	$0.674	$0.429

Total Phase I Goods HS	$70.882	$58.987	$58.326	$13.360	$12.680

Other domestic exports	$49.028	$50.593	$36.005	$9.435	$6.798
Total domestic exports to China	$119.911	$109.580	$94.331	$22.795	$19.478

Annex 6.1 has manufactured goods increasing $32.9 billion above 2017 levels for a total of $75.356 billion for 2020; leaving $66.168 billion for the last nine months of the year or $7,352 billion/month for the last three quarters.

Similarly, Annex 6.1 has agriculture imports by China from the U.S. increasing $12.5 billion over 2017 levels to $33.354 billion for 2020 which would leave $31.015 billion for the last nine months of 2020 ($3.446 billion/month).

Finally, Annex 6.1 shows energy increasing by $18.5 billion in 2020 over 2017 levels. That means 2020 has a target of $26.075 billion with $25.646 billion needing to be exported over the last nine months ($2.86 billion/month).

With the ongoing pandemic and Chinese industry operating below full capacity and U.S. industry and agriculture still coping with the market problems in the U.S. from efforts to cope with COVID-19, it is hard to see the goods commitments being met in 2020.

The challenges for the US service sector in exports to China are equally daunting. Total U.S. exports of services to China in 2017 were $56.009 billion of which $55.458 billion are in categories covered by Annex 6.1. Specifically, category 19, charges for use of intellectual property were $7.591 billion in 2017 for U.S. services exports to China. Business travel and tourism (category 20) showed U.S. exports to China of $32.705 billion in 2017. Financial services and insurance (category 21) had exports to China of $4.208 billion in 2017, while other services (category 22) showed exports of $10.030 billion to China. Finally, cloud and related services had exports to China in 2017 of $0.924 billion.

U.S. services export data for 2020 doesn’t show the breakdown by category by country. However, China has a much larger percent of U.S. services exports in the travel and tourism category (about 25% for all countries vs. 58.4% for China). U.S. data for the first quarter of 2020 show exports of travel and tourism services to the world down 19.5% with March being down more than 50%.

With the travel limitations in place in the U.S. and that have been in place in China and with the slow ability of the U.S. to reopen much of the travel and tourism related sectors (transportation, hotels, restaurants, entertainment venues, etc.), there seems to be no realistic scenario by which US service exports to China grow $12.5 billion in 2020.

Conclusion

The U.S.-China Phase I Agreement was an important step in trying to find a path forward for normalized trade relations between the world’s two largest economies. The path requires the start of a Phase 2 but importantly needs the building of confidence between the two countries based on achieving results in implementing the Phase I Agreement.

There have been extraordinary events clouding the global community as nations struggle to address the COVID-19 pandemic. Those events have complicated the ability of the U.S. and China to achieve in 2020 what the Phase I Agreement contemplates, at least in terms of expanded trade. That said, both China and the U.S. have implemented certain provisions of the Agreement, and there has been a recognition by the U.S. Administration of efforts by China to comply with modifications to laws, regulations, etc. agreed to in the Phase I Agreement.

The first two months that the Agreement has been in place have not resulted in significant movement on implementing the important chapter of expanding trade. For the United States, struggling to right its economy amidst the pandemic, a strong effort by China to honor its commitments to expand trade significantly in 2020, would be a welcome development and hopefully lead to the reengagement by the two countries to start and complete a phase 2 Agreement.

The COVID-19 Pandemic – An Update on Shifting Patterns of Infections and Implications for Medical Goods Needs

Terence P. Stewart · May 11, 2020 · COVID-19 · Bangladesh, Belarus, Brazil, Canada, Chile, Costa Rica, COVID-19, Ecuador, European Union, Georgia, Ghana, India, Kyrgyzstan, Malaysia, Mexico, Nigeria, Norway, Pakistan, Peru, Russian Federation, Saudi Arabia, Switzerland, Taiwan, Thailand, United Kingdom, United States, Vietnam, World Trade Organization · No Comments

Since late March there have been significant shifts in the number of COVID-19 cases being reported by countries and within countries. Many countries where the virus hit hardest in the first months of the year have been seeing steady progress in the reduction of cases. Some in Asia, Oceania and in Europe are close to no new cases. Others in Europe and some in Asia have seen significant contractions in the number of new cases. Other countries have seen a flattening of new cases and the beginnings of reductions (e.g., the U.S. and Canada). And, of course, other countries are caught up in a rapid increase of cases (e.g., Russia, Brazil, Ghana, Nigeria, India, Pakistan, Saudi Arabia).

As reviewed in a prior post, the shifting pattern of infections has implications for the needs for medical goods and open trade on those products. https://currentthoughtsontrade.com/2020/04/28/shifting-trade-needs-during-the-covid-19-pandemic/. As the growth in number of cases is seen in developing and least developed countries, it is important that countries who have gotten past the worst part of Phase 1 of the pandemic eliminate or reduce export restraints, if any, that were imposed to address medical needs in country during the crush of the pandemic in country. It is also critical that the global efforts to increase production of medical goods including test kits and personal protective equipment continue to eliminate the imbalance between global demand and global supply and to permit the restoration and/or creation of national and regional buffer stocks needed now and to address any second phase to the pandemic. And as tests for therapeutics and vaccines advance, it is critical that there be coordinated efforts to see that products are available to all populations with needs at affordable prices.

While there is some effort at greater coordination on research and development as reviewed in a post last week (https://currentthoughtsontrade.com/2020/05/06/covid-19-the-race-for-diagnostics-therapeutics-and-vaccines-and-availability-for-all/), concerns exist that as nations get past the first phase of the pandemic, countries will turn their focus to other needs and not in fact address the severe gaps between pandemic supply needs and existing capacity and inventories. Such an outcome would exacerbate the challenges the world is facing from the current pandemic and its likely phase 2 later this year.

The following table shows total cases as of May 11 and the number of cases over fourteen day periods ending April 11, April 27 and May 11 as reported by the European Center for Disease Prevention and Control. The data are self-explanatory but show generally sharply reduced rates of new infections in Europe and in a number of Asian countries, though there are increases in a few, including in India and Pakistan and in a number of countries in the Middle East, such as Saudi Arabia. North America has seen a flattening of the number of new infections in the U.S. and Canada with some small reductions in numbers while Mexico is seeing growth from currently relatively low levels. Central and South America have some countries with rapid increases (e.g., Brazil, Chile, Peru). The Russian Federation is going through a period of huge increases. While there are still relatively few cases in Africa, there are countries who are showing significant increases, albeit from small bases.

Country	cases through 5-11	14 days to 4-11	14 days to 4-27	14 days to 5-11
Austria	15,787	5,863	1,252	598
Belgium	53,081	19,383	16,487	6,947
Bulgaria	1,965	342	625	665
Croatia	2,187	909	430	157
Cyprus	898	433	184	81
Czechia	8,123	3,453	1,413	719
Denmark	10,429	3,773	2,401	1,854
Estonia	1,739	683	334	96
Finland	5,962	1,744	1,602	1,386
France	139,063	57,712	29,172	14,488
Germany	169,575	69,076	32,177	14,382
Greece	2,716	1,045	392	210
Hungary	3,284	967	1,125	701
Ireland	22,996	5,968	9,607	3,734
Italy	219,070	61,079	41,312	21,395
Latvia	939	332	161	127
Lithuania	1,479	641	387	30
Luxembourg	3,886	1,618	442	163
Malta	496	211	70	48
Netherlands	42,627	14,494	12,258	4,782
Poland	15,996	4,566	4,943	4,379
Portugal	27,581	11,204	7,279	3,717
Romania	15,362	4,175	4,736	4,326
Slovakia	1,457	420	637	78
Slovenia	1,457	528	202	50
Spain	224,390	92,963	43,045	16,756
Sweden	26,322	6,639	8,157	7,682
EU27	1,018,867	370,221	220,830	109,551
United Kingdom	219,183	55,729	68,561	66,343
EU27 + UK	1,238,050	425,950	289,391	175,894

United States	1,329,799	396,874	408,339	363,889
Canada	68,848	17,458	22,519	21,964
Mexico	35,022	3,127	10,016	20,345
North America	1,433,669	417,459	440,874	406,198

Japan	15,798	3,848	6,130	2,413
South Korea	10,909	972	201	171
Singapore	23,336	1,177	11,092	9,712
Australia	6,941	2,860	391	228
New Zealand	1,147	619	58	25
Subtotal	58,131	9,476	17,872	12,549

China	84,010	1,058	990	-189
India	67,152	6,574	18,740	39,260
Indonesia	14,032	2,466	4,641	5,150
Iran	107,603	35,860	18,795	17,122
Turkey	138,657	41,331	53,174	28,527
Israel	16,477	7,373	4,253	1,079
Bangladesh	14,657	376	4,795	9,241
Kazakhstan	5,126	647	1,756	2,409
Krygyzstan	1,016	281	276	321
Malaysia	6,656	2,185	1,097	876
Pakistan	30,941	3,591	7,954	17,613
Saudi Arabia	39,048	2,547	13,060	21,526
Taiwan	440	113	41	11
Thailand	3,015	1,382	343	93
Vietnam	288	86	6	0
Sri Lanka	863	91	313	340
Subtotal	529,981	105,961	130,234	143,397

Russian Federation	209,688	10,881	65,179	128,739
Ukraine	15,232	1,985	6,232	6,223
Belarus	22,973	1,887	7,885	12,510
Georgia	635	153	229	149
Subtotal	248,528	14,906	79,525	147,621

South Africa	10,015	833	2,373	5,469
Egypt	9,400	1,299	2,254	5,081
Morocco	6,063	1,103	2,404	1,998
Algeria	5,723	1,456	1,468	2,341
Burkina Faso	751	302	135	119
Cameroon	2,579	715	801	958
Cote d’Ivoire	1,700	379	576	550
D.R. of the Congo	1,024	165	225	565
Djibouti	1,280	137	809	187
Ghana	4,263	241	984	2,713
Guinea	2,146	207	844	1,052
Kenya	672	158	158	317
Mali	704	83	273	315
Mauritius	332	224	8	0
Niger	821	428	167	125
Nigeria	4,399	224	950	3,126
Senegal	1,709	146	391	1,038
Somalia	1,054	18	411	618
Sudan	1,363	12	218	1,126
Tunisia	1,032	444	242	83
U.R. of Tanzania	509	19	268	209
subtotal	57,469	8,593	15,959	27,990

Switzerland	30,222	12,124	3,758	1,244
Liechtenstein	83	20	3	0
Norway	8,099	2,663	1,090	594
Iceland	1,801	785	91	9
Subtotal	40,205	15,592	4,942	1,847

Argentina	5,776	1,285	1,564	2,009
Brazil	162,699	16,221	39,719	100,811
Chile	28,866	1,934	6,118	15,535
Colombia	11,063	1,934	2,603	5,684
Dominican Republic	10,347	2,039	3,168	4,212
Ecuador	29,559	5,534	15,253	6,840
Panama	8,448	2,188	2,379	2,669
Peru	67,307	5,262	19,998	39,790
Costa Rica	792	295	100	97
El Salvador	958	105	173	660
Subtotal	325,815	36,797	91,075	178,307

All Other Countries	131,677	26,780	38,809	55,215

Total of all countries	4,063,525	1,061,514	1,108,681	1,149,018

The WTO maintains a data base of actions by WTO members in response to the COVID-19 pandemic which either restrict medical goods exports or which liberalize and expedite imports of such products. As of May 8, the WTO showed 173 measures that the WTO Secretariat had been able to confirm, with many countries having temporary export restrictions on medical goods, some restraints on exports of food products, and a variety of measures to reduce tariffs on imported medical goods or expedite their entry. https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. Some WTO Members other than those included in the list have had and may still have informal restrictions.

The EU and its member states are presumably in a position now or should be soon to eliminate any export restrictions based on the sharp contraction of cases in the EU as a whole over the last six weeks – last 14 days are roughly 59% lower than the 14 days ending on April 11. Similarly, countries with small numbers of cases and rates of growth which seem small may be candidates for eliminating export restrictions. Costa Rica, Kyrgyzstan, Taiwan, Thailand, Vietnam, Malaysia, Georgia, Norway and Switzerland would appear to fit into this latter category. Most other countries with restrictions notified to the WTO appear to be either in stages where cases continue at very high levels (e.g., United States) or where the number of cases is growing rapidly (e.g., Russia, Belarus, Saudi Arabia, Ecuador, Bangladesh, India, Pakistan). Time will tell whether the WTO obligation of such measures being “temporary” is honored by those who have imposed restrictions. Failure to do so will complicate the efforts to see that medical goods including medicines are available to all on an equitable basis and at affordable prices.

COVID-19 — US International Trade Commission report on U.S. imports and tariffs on COVID-19 related goods

Terence P. Stewart · May 7, 2020 · COVID-19 · Belgium, Canada, China, Costa Rica, COVID-19, Germany, India, Ireland, Italy, Japan, Malaysia, medical goods, Mexico, Netherlands, South Korea, Switzerland, tariff reduction or elimination, U.S. International Trade Commission, United Kingdom · No Comments

In a post from April 6th, I reviewed a WTO document on medical goods relevant to COVID-19. https://currentthoughtsontrade.com/2020/04/06/covid-19-wto-report-on-medical-goods-fao-report-on-food-security/. As reviewed in that post, the data compiled by the WTO were useful but both over- and underinclusive. Because tariffs are harmonized for most countries at the 6-digit HS level, comparable data was only available at that level for the WTO’s analysis even though virtually every category included many products that are not relevant to treating COVID-19. The list also doesn’t include input materials as recognized by the WTO. I had suggested that it would be useful to have WTO Members supply information at their most disaggregated level of detail to see if a tighter fit of at least finished products could be identified in terms of trade.

The United States has now provided a report that provides its data at the 10-digit HTS level of detail for imports into the United States. It would be helpful if other major trading nations similarly provided their detail data to the WTO and for public release. Hopefully, the U.S. will provide similar data for its exports in the coming months.

Development of U.S. import data

USTR has been exploring possible elimination of duties on medical goods needed for the U.S. response to COVID-19 and is accepting comments through late June. The U.S. International Trade Commission (“USITC”) was asked by the Chairman of the U.S. House of Representatives Ways and Means Committee and the Chairman of U.S. Senate Committee on Finance to conduct “a factfinding investigation to identify imported goods related to the response to COVID-19, their source countries, tariff classifications, and applicable rates of duty.”. The report from the USITC’s Investigation 332-576 was completed in late April and is now available from the USITC webpage. USITC, COVID-19 Related Goods: U.S. Imports and Tariffs, Publication 5047 (April 2020). Updates to the report may be made through June 2020. See https://www.usitc.gov/press_room/news_release/2020/er0504ll1540.htm

In the report, the USITC compiled data on 112 10-digit HTS categories but noted that many of these categories which are generally more detailed than the 6-digit categories used in the WTO paper still contain large quantities of goods that are not relevant to the COVID-19 response. Thus, the U.S. data, while more refined that the 6-digit data used by the WTO are still overinclusive. To the extent major input data for products needed to address COVID-19 are not included in the USITC investigation, the results are underinclusive as well.

The USITC Executive Summary notes that of the 112 HTS categories:

6 cover COVID-19 test kits/testing instruments,

9 cover disinfectants ad sterilization products,

22 cover medical imagining, diagnostic, oxygen therapy, pulse oximeters, and other equipment,

20 cover medicines (pharmaceuticals),

19 cover non-PPE medical consumables and hospital supplies,

27 cover personal protective equipment, and

9 covered other products.

Looking at what tariffs were applied, the ITC looked both at ordinary customs duties (Column 1 rates) and also whether additional duties on products from China were owed because of the 301 investigation and subsequent actions by the Administration. The USITC indicated that 76 products (68%) were duty-free for ordinary customs purposes and that 36 products (32%) were subject to duties, though one or more countries’ goods entered duty free for each of the 36 products.

For goods from China, 59 categories were not subject to additional 301 duties, 55 products were subject to additional duties (39 products at 25% additional duties; 16 products at 7.5% additional duties) although 28 of the 55 categories were subject to exclusions (total exclusions for 13 product categories; partial exclusions for the remaining 15 categories).

The Commission pulled import data for 2017-2019 (including for several categories which expired before 2020 for completeness of the underlying data). The data show US imports by HTS category and then show the top 5 source countries by HTS and the all other country customs value.

The data from the investigation will be used by USTR and Congress to inform Administration decisions on which products should receive tariff reductions/eliminations.

Using the ITC’s list, the trade data can presently be updated through March 2020 as March 2020 data are now publicly available.. The total for the 112 categories for 2019 was U.S. imports for consumption of $105.3 billion up from $81.3 billion in 2017 and $93.7 billion in 2018. Imports in the first quarter of 2020 were $28.6 billion up from $24.6 billion in the first quarter of 2019.

The top 15 sources of imports into the U.S. in 2019 are the following. Data also show the percentage change in the first quarter of 2020 compared to the first quarter of 2019.

Top sources of imports Customs Value 2019 % change 2019-2020

Ireland $14.173 billion +12.77%

China $12.313 billion -14.13%

Germany $12.228 billion +20.35%

Mexico $ 8.791 billion + 4.44%

Canada $ 6.026 billion +19.57%

Belgium $ 5.952 billion +63.21%

Switzerland $ 5.082 billion +39.80%

Japan $ 4.144 billion +28.38%

United Kingdom $ 3.409 billion +11.42%

India $ 2.816 billion +16.71%

South Korea $ 2.694 billion -30.68%

Netherlands $ 2.545 billion +94.16%

Italy $ 2.177 billion +75.66%

Malaysia $ 2.163 billion + 7.65%

Costa Rica $ 1.693 billion +22.50%

All Other $16.574 billion +15.13%

Total $105.267 billion +16.16%

Different supplying countries focus on different parts of the medical goods needs of the United States. For example, the top four HTS categories imports from Ireland accounted for more than $10 billion of the $14.173 billion from the country in 2019 and all were medicines. In comparison, the top two HTS categories of imports into the U.S. from China were basket categories (other articles of plastic; other made up articles) which are presumably personal protective equipment (“PPE”) products and were $5 billion of the $12.313 billion. While ventilators were also a significant item, most other major items appear to fit within the PPE category.

Conclusion

The purpose of the USITC investigation and report are to provide information to the Congress and Administration to help identify which imported products relevant to the COVID-19 response by the United States are dutiable and which products from China are also subject to additional tariffs from the 301 investigation. The Administration and Congress will use the information as part of the Administration’s review of which imported products should face a reduction or elimination of tariffs at least during the pandemic.

However, the data also provide useful information for broader use in understanding the extent of trade in goods actually relevant to the global response to COVID-19. Hopefully, the U.S. will compile comparable data on the country’s exports and other major trading nations will supply comparable data to the WTO and to the public.

COVID-19 — the race for diagnostics, therapeutics and vaccines and availability for all

Terence P. Stewart · May 6, 2020 · COVID-19 · Coronavirus Global Response, COVID-19, diagnostics, G20, intellectual property, therapeutics, vaccines, World Trade Organization · No Comments

With the mounting global death toll, with confirmed infections of over 3.6 million and continuing to climb, with no known effective vaccine and just the beginnings of finding possible therapies to reduce the severity or length of illness from the infection, it is clear to most that there is no full return to normalcy until effective vaccines are developed and made available to all in the world community. Because the costs to the global economy from the pandemic are measured in trillions of dollars and job losses in the hundreds of millions, there is a global urgency to advance medical solutions, despite a history with prior infectious disease outbreaks which would suggest that solutions could be years away.

The severity of the pandemic has led to some extraordinary efforts to have international organizations, pharmaceutical companies, universities and government labs work collaboratively and share data. There have also been a wide range of statements made by international organizations such as the World Health Organization, governments, NGOs, and the pharmaceutical industry that diagnostics, therapeutics and vaccines developed to address the COVID-19 pandemic must be developed on an expedited basis, be available equitably and be affordable. The phrase “no one is safe until everyone is safe” sums up what many leaders are saying is the goal.

Many countries with a pharmaceutical industry, university research center invloved in medical research, government agency that addresses disease control and prevention or the safety of medical supplies are engaged in research that may be company specific, university or lab specific or collaborative within the country and across countries. Governments are providing substantial financial assistance to spur research and development.

With the various infectious disease outbreaks of the last few decades, there are also groups which focus on improving the healthcare infrastructure in developing countries and least developed countries and in working to get needed tests, medicines and vaccines to countries unable to address such needs on their own. Groups like CEPI, GAVI, FIND, UNITAID are involved and are supported by the generosity of various governments and other organizations. They are all actively engaged in the response to COVID-19.

G20 Involvement

The G20 countries issued a statement on COVID-19 after an Extraordinary G20 Leaders’ Summit on March 26, 2020 which stated in part,

“We further commit to work together to increase research and development funding for vaccines and medicines, leverage digital technologies, and strengthen scientific international cooperation. We will bolster our coordination, including with the private sector, towards rapid development, manufacturing and distribution of diagnostics, antiviral medicines, and vaccines, adhering to the objectives of efficacy, safety, equity, accessibility, and affordability.”

https://g20.org/en/media/Documents/G20_Extraordinary%20G20%20Leaders%E2%80%99%20Summit_Statement_EN%20(3).pdf.

G20_Extraordinary-G20-Leaders’-Summit_Statement_EN-3

The G20 presidency on April 24, 2020 noted its support of the Access to COVID-19 Tools (“ACT”) Accelerator whose purpose is to speed development, production and equitable distribution of new COVID-19 diagnostics, therapeutics and vaccines. The initial cost estimate for the early research and development efforts was estimated at $8 billion. The statement is embedded below

G20SS_PR_G20-ACT-Initiative-Launch_EN

European Union led initiative to obtain pledges for $8 billion

The European Union and a number of individual countries co-led an international pledging event, the Coronavirus Global Response, on May 4 which developed pledges of 7.4 billion Euros ($8 billion) The countries co-leading with the EU were France, Germany, Japan, Norway, Canada, Italy, Spain and the United Kingdom. European Commission President Ursula von der Leyen moderated the event. Her opening statement is below and reflects the reality that “we will have to learn to live with the virus – until and unless we develop a vaccine”. Collaboration is critical and the objective is to see that vaccines, diagnostics and treatments against coronavirus are deployed “to every single corner of the world. And we must ensure that they are available and affordable for all.” https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_804.

Opening_remarks_by_President_von_der_Leyen_at_the_Coronavirus_Global_Response_international_pledging_event

Besides comments from the EC’s president, other speakers included leaders from the European Council; the United Nations; the UN World Health Organization; France; Germany; Japan; Norway; Canada; Spain; United Kingdom; Saudi Arabia (2020 G20 Presidency); Jordan; South Africa (on behalf of African Union); Monaco; Turkey; Italy; Switzerland; Israel; the Netherlands; the Bill and Melinda Gates Foundation; Luxembourg; Sweden; Portugal; Croatia; Estonia; the Global Preparedness Monitoring Board; Bulgaria; Ireland; Serbia; Czechia (for itself, Slovakia, Hungary and Poland); Poland; Australia; Denmark; Greece; Austria; Malta; Belgium; Wellcome Trust; Latvia; South Korea; Mexico (for Latin America); Kuwait; Slovenia; Lithuania; Oman; Romania; Finland; United Arab Emirates; China; World Economic Forum; European Investment Bank; World Bank; CEPI (Coalition for Epedemic Preparedness Innovations); GAVI, the Vaccine Alliance; FIND (Foundation for Innovative New Diagnostics); UNITAID; IFPMA (International Federation of Pharmaceutical Manufacturers & Associations), and the DCVMN (Developing Countries Vaccine Manufacturers Network).

The pledging event goes on through the month of May. The kick-off event lasted just under three hours. The list of speakers was impressive covering international organizations, countries (from Europe; parts of Asia, North America and the Middle East; and South Africa), NGOs, philanthropic groups, pharmaceutical companies.

The message from all was fairly uniform – collaboration is crucial to speed the findings of solutions; solutions must be available to all on an equitable basis that is affordable. The $8 billion is simply the first step in a much larger endeavor once new diagnostics, therapeutics and vaccines are found and one turns to the need for broad production and distribution.

Press accounts have raised questions about some of the countries which did not participate in the May 4th event – the United States, Russian Federation, India, Brazil to name four countries with active pharmaceutical industries — and with whether the pledges largely reflect expenditures already made or committed versus new commitments. For many of the no shows (and for China which was apparently a late addition and only from the Ambassador to the European Union), important pharmaceutical companies were represented by either IFPMA or by DCVMN. Moreover, there is yet time to join. And these countries all have their own research underway which is generally being done in a collaborative effort within country or with others and are making data available to other players.

There is little doubt that the pharmaceutical companies, the university research centers, and the government labs will be important players in the research and development stage. Consider the following document from IFPMA which reviews how major pharmaceutical companies are engaged in various segments of the R&D effort. IFPMA reviews how its member companies are engaged in (1) repurposing existing and testing new treatments, (2) sharing real-time trial data with governments and other companies; (3) speeding up R&D on safe and effective vaccines; (4) developing diagnostic testing and securing supply; (5) securing essential supplies for medicines and vaccines; (6) increasing and sharing capacity for medicines and vaccines; and (7) supporting global health care systems. See https://www.ifpma.org/print/?url=covid19-print&options=–viewport-size%20%221200×50%22%20–zoom%201.5%20–orientation%20%22Landscape%22.

download

Will a global solution available to all present challenges for holders of intellectual property?

There are billions of dollars being spent by private companies, by research universities, government labs, and various NGOs, philanthropic groups and others in the global race to develop new diagnostics, therapeutics and vaccines. Much of the money spent will not result in effective solutions. Some, hopefully, will. Patent rights will arise for those developing the new products and there will thus be questions about how the new products can be made available to all at affordable prices.

Some individuals and companies may make any breakthroughs they are responsible for available to all at no cost (we have seen some of that in the past on medicines and recently on PPE products).

It is also the case, that governments can invoke exceptions to patent rights under certain circumstances and subject to certain limitations. See TRIPS Art. 31 (compulsory licensing).

Some governments (e.g., France) at the pledging event recognized the need to see that the innovators received a fair return on their investment, but also characterized COVID-19 products as “public goods”. The IFPMA in its activities has joined collaborative undertakings and has recognized the need for new diagnostics, therapeutics and vaccines to be available to all at affordable prices. But it is unclear what that means to the company or companies who develop a breakthrough product in terms of patent rights and revenues.

While the U.S. pharmaceutical industry has indicated that they are working with governments and insurers to see that new drugs and vaccines are available to all and affordable, they also have a blog post on the continued importance of intellectual property for pharmaceutical companies ability to tackle COVID-10. See The Catalyst, What they are saying: Intellectual property protections are critical as we work to defeat COVID-19, https://catalyst.phrma.org/what-they-are-saying-intellectual-property-protections-are-critical-as-we-work-to-defeat-covid-19.

What-they-are-saying_-Intellectual-property-protections-are-critical-as-we-work-to-defeat-COVID-19

With possible breakthroughs in the next six months or so, how this important trade aspect of rewarding innovation in the fight against COVID-19 plays out could complicate or simplify the core desire of getting effective solutions to all at affordable prices.

Other trade issues

There are already efforts underway to get WTO Members to eliminate customs duties on medical supplies needed to address COVID-19. If not already covered by that effort, one would think it would be doable to get WTO Members to agree to trade any new diagnostics, therapeutics and vaccines for treating COVID-19 as duty-free articles (and presumably add the inputs to such new products).

Update on food security amidst COVID-19 pandemic

Terence P. Stewart · May 6, 2020 · COVID-19 · Canada, COVID-19, European Union, food security, Least Developed Countries, meat and poultry processing plants, United States · No Comments

On May 1, I reviewed the challenges being faced in the United States and Canada because of the large number of meat and poultry processing plants that had large numbers of workers who had tested positive for COVID-19 with facilities closing temporarily as a result. In the United States, President Trump issued an Executive Order to require the meat processing plants to remain open, but it is unclear whether steps taken by the plants will provide adequate protection to the workers to get sufficient workers back in the plants or to restore prior production levels. Indeed, the AFL-CIO’s Richard Trumka has indicated many changes in meat processing plants are needed to protect workers including increased supplies of personal protective gear, daily testing and more. See https://www.foxbusiness.com/money/coronavirus-meat-plant-workers-afl-cio-richard-trumka-1

Shortages of meat and poultry products start to appear in the United States

The concern about short-term shortages of meat and poultry products in the United States is starting to play out as news reports indicate that several hundred Wendy’s fast food facilities ran out of hamburger on May 5 and several retail operators have limited what customers can buy of meat and poultry products — Costco and Kroger, with more grocery chains and some other fast food operators noting concerns about availability as well. See May 5, 2020, New York Times, A Wendy’s With No Burgers as Meat Production Is Hit, https://www.nytimes.com/2020/05/05/business/coronavirus-meat-shortages.html.

As noted in the earlier post, there are adequate upstream supplies (cattle, pigs, chickens) in the United States and Canada but a short-term reduction in processing capacity, with the result of large numbers of animals being killed without being processed. There are, however, also reportedly large supplies of frozen meat products available. Id.

The European Union has a temporary surplus of beef and some other products

At the same time, the European Union has experienced shifts in demand as restaurants have been closed in many countries as governments have sought to reduce the spread of COVID-19. Similar shifts in demand have occurred in the United States and many other countries. Shifts in demand (including declines in demand for some products) in the EU have resulted in excess supplies of many agricultural products, including beef, sheep and goat meat products. The EU’s response has been in part to permit temporary waiver from EU competition law to permit certain agricultural producers to coordinate production and to stockpile some excess product. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_788.

Coronavirus__Commission_adopts_package_of_measures_to_further_support_the_agri-food_sector-1

To the extent that there are short-term shortages in the United States, Canada or other countries because of the COVID-19 infections at processing plants, governments could work with trading partners facing surpluses to reduce retail price volatility. This is undoubtedly complicated for some suppliers (e.g., Australia to the U.S.) because of higher costs of air cargo shipments with the huge reduction in commercial flights. The issue will also be politically sensitive because of the challenges facing U.S. ranchers and farmers already.

Efforts by some WTO Members to reduce food security concerns

There are eighteen countries or territories that have active or inactive export restraints on some food products. Twelve of these are active and affect 9.9% of the global trade in agricultural goods subject to export restraints. See, IFPRI’s Food Export Restrictions Tracker, https://public.tableau.com/profile/laborde6680#!/vizhome/ExportRestrictionsTracker/FoodExportRestrictionsTracker?publish=yes.

Because the COVID-19 pandemic is a health crisis, and there is no current significant global shortage of agricultural products in fact, many WTO members are working together to keep agricultural markets open to prevent concerns about food security.

For example, on April 22, 2020, Canada submitted a statement on its own behalf and that of 22 other WTO members (including the EU and the US) which contained the following “commitments”:

“1.6. To help ensure well-functioning global agriculture and agri-food supply chains in response to this crisis we therefore are committed:

“a. To ensure that supply chains remain open and connected so that international markets can continue to function in supporting the movement of agricultural products and agriculture inputs, which plays an instrumental role in avoiding food shortages and ensuring global food security.

“b. To exercise restraint in establishing domestic food stocks of agricultural products that are traditionally exported so as to avoid disruptions or distortions in international trade.

“c. Not to impose agriculture export restrictions and refrain from implementing unjustified trade barriers on agriculture and agri-food products and key agricultural production inputs.

“d. That emergency measures related to agriculture and agri-food products designed to tackle COVID-19 must be targeted, proportionate, transparent, and temporary, and not create unnecessary barriers to trade or disruption to global supply chains for agriculture and agri-food products. Any such measures are to be consistent with WTO rules.

“e. To inform the WTO as soon as practicable of any trade related COVID-19 measures affecting agriculture and agri-food products, including providing scientific evidence in accordance with WTO agreements if necessary, to ensure transparency and predictability. Members should be given opportunities to review new measures.

“f. To ensure that updated and accurate information on levels of food production, consumption and stocks, as well as on food prices is widely available, including through existing international mechanisms.

“g. To support the efforts of the WTO and other international organizations in analysing the impacts of COVID-19 on global agriculture and agri-food trade and production.

“h. To engage in a dialogue to improve our preparedness and responsiveness to regional or international pandemics, including multilateral coordination to limit unjustified agriculture export restrictions, in particular at the WTO.”

RESPONDING TO THE COVID-19 PANDEMIC WITH OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS,
STATEMENT FROM: AUSTRALIA; BRAZIL; CANADA; CHILE; COLOMBIA; COSTA RICA; EUROPEAN UNION; HONG KONG, CHINA; JAPAN; REPUBLIC OF KOREA; MALAWI; MEXICO; NEW ZEALAND; PARAGUAY; PERU; QATAR; SINGAPORE; SWITZERLAND; THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU; UKRAINE; UNITED KINGDOM; UNITED STATES; AND URUGUAY, WT/GC/208, G/AG/30 (22 April 2020)(Emphasis added).

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On May 5, 2020, Switzerland submitted a statement from 42 WTO members pledging not to impose export restraints and to refrain from unjustified trade barriers on agricultural trade.

“1.5. We also stress the necessity of maintaining agriculture supply chains and preserving Members’ food security. We, therefore, pledge to not impose export restrictions and to refrain from implementing unjustified trade barriers on agricultural and food products in response to the COVID-19 pandemic.”

STATEMENT ON COVID-19 AND THE MULTILATERAL TRADING SYSTEM BY MINISTERS RESPONSIBLE FOR THE WTO FROM AFGHANISTAN; AUSTRALIA; BARBADOS; BENIN; CAMBODIA; CANADA; CHILE; COLOMBIA; COSTA RICA; ECUADOR; EL SALVADOR; GUATEMALA; GUYANA; HONG KONG, CHINA; ICELAND; ISRAEL; JAMAICA; JAPAN; KENYA; REPUBLIC OF KOREA; THE STATE OF KUWAIT; LIECHTENSTEIN; MADAGASCAR; MAURITIUS; MEXICO; REPUBLIC OF MOLDOVA; MONTENEGRO; NEPAL; NEW ZEALAND; NIGERIA; NORTH MACEDONIA; NORWAY; PERU; SAINT LUCIA; KINGDOM OF SAUDI ARABIA; SINGAPORE; SOLOMON ISLANDS; SWITZERLAND; UKRAINE; UNITED ARAB EMIRATES; UNITED KINGDOM AND URUGUAY, WT/GC/212 (5 May 2020).

Brazil, the EU, Malawi, Paraguay, Qatar, Taiwan and the United States were part of the April 22 statement but not the May 5 statement. The two together cover 75 WTO members (counting the 27 members of the EU).

Missing from either of these statements are important WTO Members who are also important agricultural producers — Argentina, China, India, Indonesia, Malaysia, Russia, and Vietnam. Some of these Members have export restraints on some agricultural products in place now (e.g., Russia and Vietnam) and others imposed such restraints back in 2007-2008 (e.g., China, India, Indonesia, Malaysia).

There has also been a joint statement from the LDC countries urging the importance of keeping markets open both for medical supplies and food products. See SECURING LDCS EMERGENCY ACCESS TO ESSENTIAL MEDICAL AND FOOD PRODUCTS TO COMBAT THE COVID-19 PANDEMIC.
COMMUNICATION BY CHAD ON BEHALF OF THE LDC GROUP, WT/GC/211 (4 May 2011) . There are currently 36 LDCs who are members of the WTO. Seven of the 36 were part of the April 22 or May 5 statements (Malawi on the April 22 statement; Afghanistan, Benin, Cambodia, Madagascar, Nepal, and the Solomon Islands on the May 5 statement). Adding the 29 LDCs not already counted in the April 22 and May 5 statements, brings the total number of WTO Members advocating for maintaining open markets for agricultural trade to 104.

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There have also been statements provided by the ASEAN countries and by APEC on COVID-19 supplied to the WTO, although any commitments on trade in agricultural goods are limited. ASEAN DECLARATION AND STATEMENTS ON COVID-19, WT/GC/210 (1 May 2020); Statement on COVID-19 by APEC Ministers Responsible for Trade, Kuala Lumpur, Malaysia (05 May 2020), https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_trade

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Conclusion

The world is better prepared to deal with a future wave of export restraints on agricultural products than it was in 2007-2008 with an improved understanding of production and supplies around the world and with notification systems and with groups tracking government actions. Fortunately, 2020 does not present a situation of acute food shortages of core products although lockdowns, stay at home orders and the collapse of air travel and reduction in ship traffic creates potential challenges for both production and distribution of food articles.

While there have been a number of countries who have imposed export restraints and others that are imposing some barriers (including increased tariffs), a major group of countries and territories involved in international trade in agriculture has committed either not to impose export restraints or to do so only under limited circumstances and only temporarily.

The temporary shortage of meat and poultry products occurring in the United States will receive a fair amount of press attention. With frozen meat supplies reportedly plentiful in the U.S. and with efforts to get temporarily closed processing plants back on line (dependent on ability of processors to improve protection for workers), hopefully concerns about U.S. and Canadian meat supplies will dissipate in the coming weeks.

It is also the case that other major meat producing countries may have significant surpluses which could alleviate shortage issues if they continue for a period of time, if policy makers are willing to work together to address the short-term needs.

So hopefully COVID-19 does not also become a food security crisis in 2020.

Update on the collapse of travel and tourism in response to COVID-19

Terence P. Stewart · May 3, 2020 · COVID-19 · Africa, Americas, Asia, COVID-19, Europe, job losses, Oceania, travel and tourism, World Travel & Tourism Council · No Comments

In a post from April 30, I provided information on the importance of travel and tourism to the global economy and the sharp contraction flowing from national efforts to stem the growth in COVID-19 infections. Travel restrictions, stay at home orders and other actions have seriously limited travel and tourism in recent months and will likely continue to do so for at least several more months going forward.

A series of documents from the World Travel & Tourism Council provide an overview of the importance of the sector to various geographic areas of the world in 2019, what had been growth projections to 2030 and the projected job losses in the sector for 2020 because of the pandemic.

In 2019, some 330 million jobs were in the travel and tourism sector globally or one in ten jobs. Travel and tourism in 2019 accounted for 10.3% of the global economy with higher growth rate versus the total global economy (3.5% vs. 2.5%). The COVID-19 pandemic is projected to cost the world 100.8 million jobs in 2020, a loss of 31% from 2019. The loss in global GDP is projected at $2.7 trillion. Truly staggering projected losses from the pandemic are hitting countries and territories around the world.

EIR_Global_Economic_Impact_from_COVID_19_Infographic

The percent of total GDP and total employment in a region was highest in 2019 for the Caribbean at 13.9% and 15.2% respectively, followed by South East Asia at 12.1% and 13.3%, Oceania at 11.7% and 12.6%, North East Asia at 9.8% and 10.0%, the European Union at 9.5% and 11.2%, North America at 8.8% and 11.1%, North Africa at 8.5% and 9.3%, the Middle East at 8.6% and 8.8%, with other areas somewhat lower. International travel and tourism in 2019 was 28.7% of the total with domestic being 71.3%; 21.4% of expenditures were by business travelers with the remaining 78.6% being leisure travel and tourism. 179.7 million jobs in travel and tourism were in Asia in 2019, 37.1 million in Europe, 45.4 million in the Americas, 24.6 million in Africa and 6.7 million in the Middle East.

Projections for 2030 (before the pandemic) were for travel and tourism to capture 11.3% of global GDP and increase employment to 425 million jobs. Depending on the damage from the pandemic and the recovery time , presumably the effects through 2030 will show much smaller employment numbers and a smaller percent of GDP going to travel and tourism.

EIR2020-importance-of-travel-infographics.indd_

While travel and tourism expenditures reflect the size of the overall economy in terms of total dollars, the fastest growth is often in smaller countries, including island countries and territories.

EIR-global-infographic-2020-v2

As seen in these data from the World Travel and Tourism Council, the growth of travel and tourism as a sector in 2019 exceeded growth rates in healthcare, retail and wholesale, agriculture, construction and manufacturing while lagging just information and communications and financial services. Moreover, travel and tourism effect other sectors of the economy when expanding or when contracting. The challenges facing companies like Boeing and Airbus at a time when most commercial fleets are largely not operating would be one obvious example.

For there to be a rapid return to economic growth in many parts of the world as the COVID-19 pandemic recedes, all countries will need a return to the use of restaurants, hotels, transportation services, entertainment venues and other elements of the travel and tourism sector.

With the enormous losses being suffered by the sector and the large part of the sector populated by small- and medium-size businesses, many countries are likely to find far fewer travel and tourism businesses operating in the coming months than was true in 2019 even after reopening. Governments in various countries are working to provide financial support to workers and businesses, but it unclear how many businesses will nonetheless go out of business and how many jobs will be lost even after reopening. This is complicated by the social distancing requirements that are either recommended or required by countries who are starting to open up (or in the United States, in the states that are starting to reopen). For example, restaurants typically operate on small margins. Requirements to limit seating to half of capacity (or worse depending on density of current seating arrangements) to be able to implement social distancing recommendations in restaurants could make operating many restaurants uneconomic going forward.

Moreover, for many consumers and businesses, travel and tourism activities will likely be greatly curtailed pending development and distribution to the world’s population of an effective vaccine. This is regardless of government actions to reopen economies and flows from the understandable concern for many people about enjoying normal life when the invisible enemy has no cure. While there are substantial efforts by pharmaceutical companies and government researchers to achieve an unusually quick breakthrough, 2021 is a very optimistic timeline. Whatever the timeline actually is will determine when the travel and tourism sector is able to fully help in rebuilding economic momentum around the world.

From a trade policy perspective, governments can reduce the costs to the state and local governments and to businesses and consumers by keeping markets open, lowering duties, expediting customs clearance and working to expand production of medical goods to eliminate the gap in global supply during periods of peak demand. The latter is the only realistic answer to temporary export restraints by countries who find themselves in a situation of surging infection rates and inadequate supplies where they are significant domestic producers. Moreover, with a second wave of the pandemic possible in the fall/winter, a global ramp up of capacity and production of needed supplies and creation of regional inventories is a need if the world is to avoid further trade disruptions from the pandemic coming back later this year.

Other actions by governments such as stimulus programs and safety net projects, reinforcing healthcare infrastructure, ramping up testing, tracing and quarantining, and addressing the financial needs of developing and least developed countries are all being pursued to some extent by international organizations and by individual countries, though the stress on the global economy complicates the extent of some of these efforts going forward.

Conclusion

The pandemic is projected to result in the loss of more than 100 million jobs in the travel and tourism sector in 2020 – a staggering situation and certainly among the most difficult of the global challenges to economies from COVID-19. The reality will be that travel and tourism will trail other parts of the global economy in rebounding as economies are reopened absent an effective vaccine which in all likelihood is a year or more (at a minimum) away. Governments and international organizations need to focus on steps which can reduce the challenges for the sector in the coming months. The UN World Tourism Organization has prepared a series of recommendation that were reviewed in my earlier post. They are a good starting point.

Food security – how will COVID-19 infections at meat processing plants affect?

Terence P. Stewart · May 1, 2020 · COVID-19 · Australia, Brazil, Canada, COVID-19, European Union, food security, meat and poultry products, United States · No Comments

COVID-19 is a health pandemic. However, because of the various restrictions placed on movement of people within countries and internationally, there have been concerns that there could be disruptions in food supplies and the possibility of a food crisis. With travel curtailed and many restaurants closed, there has been a sudden shift in demand patterns as demand in food service (restaurants, caterers) has largely dried up and demand in grocery stores has sharply increased. This has led to problems in processing and distribution and a sharp contraction in the demand for some food products where demand was concentrated in food service.

The concerns about a possible food crisis have been amplified by the actions of some countries or territories to impose export restrictions on certain agricultural products and the actions of some other countries to increase tariffs on certain imported agricultural products to protect domestic producers amidst falling food prices. The concerns arise during a period (2020) when there is ample food production globally, and hence a food crisis should be avoidable.

For the WTO, FAO and most governments, the actions of dozens of countries in 2007-2008 who imposed export restraints on certain food products remain fresh of mind. The vast majority of trade restrictions then were on rice and wheat, two staples for populations around the world. The introduction of export restraints by one or more countries led to similar actions by others. The result was serious shortages of products for import dependent countries and highly volatile prices which affected most countries.

In an earlier post I reviewed actions taken by the G20 agriculture ministers and a group of WTO Members to pledge to work to keep markets open for food products during the COVID-19 pandemic. Deputy Director-General Alan Wolff provided a virtual statement yesterday looking at food security and the increased reliance on international trade in food for many WTO Members. Similarly, different groups monitor countries who are imposing export restraints on food. See DDG Wolff, “Reliance on international trade for food security likely to grow,” https://www.wto.org/english/news_e/news20_e/ddgaw_30apr20_e.htm; https://public.tableau.com/profile/laborde6680#!/vizhome/ExportRestrictionsTracker/FoodExportRestrictionsTracker?publish=yes.

Today’s post looks at the challenges being experienced in North America, Europe and globally from the high level of infections of COVID-19 at meat and poultry processing plants. These infections have resulted in thousands of workers testing positive, many being very ill, some dying and many plants closing for some period of time to achieve a safer working environment. In the U.S. and Canada, a large number of facilities that handle a significant part of total U.S. and Canadian production have been affected. Workers are understandably concerned about returning to work when the facilities reopen despite an Executive Order by President Trump invoking the Defense Production Act to mandate the continued functioning of the meat and poultry processing facilities. See https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-taking-action-ensure-safety-nations-food-supply-chain/;https://www.whitehouse.gov/presidential-actions/executive-order-delegating-authority-dpa-respect-food-supply-chain-resources-national-emergency-caused-outbreak-covid-19/

But the consequences of the large number of infections in meat and poultry processing plants have been a reduction in operating capacity, reduced supply to domestic markets, possible reductions in export supplies and massive waste of cattle, pigs and chickens which are being killed and not processed because of the challenges and with downward prices to farmers and ranchers.

While it is not known if the problem will be very short term, a sudden reduction in capacity or production can lead to imbalances in the supply/demand ratio which could result in higher prices, reduced supplies and possible actions to satisfy domestic demand needs, including export restraints.

Because to date there has been no evidence that COVID-19 is transmitted from food or food packaging, there should not be any reason for food embargoes of meat and poultry imported from countries where facilities have closed temporarily due to COVID-19 worker infections. See https://www.who.int/images/default-source/health-topics/coronavirus/eng-mythbusting-ncov-(19).tmb-1920v.png; https://www.fda.gov/food/food-safety-during-emergencies/food-safety-and-coronavirus-disease-2019-covid-19; https://ec.europa.eu/food/sites/food/files/safety/docs/biosafety_crisis_covid19_qandas_en.pdf

Problems in meat processing plants in the U.S. and Canada

There have been a host of articles in the press in recent weeks in both the U.S. and Canada reviewing the huge number of plants that have had COVID-19 confirmed cases. As many as 30 plants in the U.S. and Canada are involved with more than 3,000 workers testing positive. More than 70% of beef processing in Canada has been affected and some 25% in the United States. See, e.g., https://time.com/5830178/meat-shortages-coronavirus/; https://www.ctvnews.ca/health/coronavirus/these-are-the-meat-plants-in-canada-affected-by-the-coronavirus-outbreak-1.4916957; https://globalnews.ca/news/6857867/alberta-covid-19-meat-processing-beef-production/; https://nevalleynews.org/13141/news/meat-processing-plants-close-in-u-s-and-canada-as-covid-19-spreads-through-work-force/.

Not surprisingly, the eruption of COVID-19 cases in processing plants and the resulting need to close facilities at least temporarily has led to concern about worker safety as well as the economic effects of a sudden reduction in meat supplies. The Center for Disease Control issued guidelines for meat processing plants to permit improved safety for workers. See CDC, Guidance for Meat and Poultry Workers and Employers, https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/meat-poultry-processing-workers-employers.html. The guidance is embedded below.

Guidance-for-Meat-and-Poultry-Processing-Workers-and-Employers-_-CDC

It has also led to reductions in production of processed meats and poultry and the wasting of cattle, pigs and chickens unable to be processed in recent weeks. USDA reports on beef and pork in the last week show sharp contractions in production. For beef, the USDA data show collapsing production and falling prices for cattle and rising prices for beef.

4-27-2020-USDA-data-on-beef

For pork, hog slaughter which had been up significantly through March has seen sharp declines in April with prices for pork products falling til April and then increasing rapidly.

4-30-pork-production-USDA

For poultry, USDA data through April 24, show relatively steady production volumes although press reports have reviewed millions of chickens being killed because of lack of access to processing facilities.

4-24-2020-USDA-poultry-data

Challenges in Canada would be similar or greater since a larger part of their beef processing facilities has been affected.

Meat Production Outside of the U.S. and Canada

An article by IHS Markit from March 31, 2020, reviews challenges of COVID-19 in meat processing facilities around the world as well as other challenges flowing from COVID-19 (shift in mix as restaurants shut down; export challenges with transportation limitations). “Meat industry on a knife-edge as COVID-19 disruption deepens,” https://ihsmarkit.com/research-analysis/analysis-meat-industry-covid19-disruption.html. The challenges differ in terms of pressures on meat supplies and prices as transportation problems would reduce the ability to export and thus reduce prices in exporting countries while presumably increasing prices in importing countries. By contrast, plant closures and/or reduced operating levels will reduce supply and hence increase prices of meat products in the producing country and in any export markets. There are reported issues in the EU, in Australia and potentially in Brazil.

The last forecast from USDA on U.S. exports of meats and poultry continues to show generally growing U.S. exports around the world, but the report predates some of the COVID-19 outbreaks in meat processing plants in the U.S. and the resulting concerns from communities and workers. https://apps.fas.usda.gov/psdonline/circulars/livestock_poultry.pdf

Conclusion

It is likely that over the next several months, there will be a temporary shortage of meat and poultry products in at least several important consuming and producing nations. Reduced supplies could lead to reduced exports and concerns about food security in importing countries. Reduced supplies could also lead to higher prices and internal political pressure to increase domestic availability. One such approach to increase supplies for domestic consumption for exporting countries is to restrict exports.

Fortunately, most of the major producing nations of beef and pork and at least some of the major poultry producing nations are parties to the joint statement to the WTO of April 22 2020 indicating their commitment to keeping trade flows open for agricultural products. Many are also part of the G20 and hence similarly supporting the need to keep agricultural trade open. See my prior post on the G20 agriculture ministers and the statement of Members to the WTO, https://currentthoughtsontrade.com/2020/04/23/food-security-complications-from-covid-19-recent-un-information-and-g20-and-wto-member-statements/.

In the United States, the Executive Order of President Trump can send a signal to meat and poultry processors to work to keep facilities open, but the Executive Order can’t force workers to return to working environments which workers see as unsafe. The CDC’s guidance to workers and employers should be helpful but both increase costs for employers and likely reduce productivity of facilities. The increased costs are necessary for worker safety as may be reduced productivity. Both, however, will likely result in higher prices to consumers and lower prices to farmers and ranchers.

The bigger question will be whether more countries who currently don’t have export restraints on food products introduce such restraints on non-meat and poultry products from fear of spreading food security issues.

Hopefully, the world will not find itself with dual pandemics – COVID-19 and food security. Stay tuned.

The collapse of tourism during the COVID-19 pandemic

Terence P. Stewart · April 30, 2020 · COVID-19 · China, COVID-19, European Union, Greece, Malta, travel and tourism, UN World Tourism Organization, United States, World Trade Organization · No Comments

As any of us knows all too well, the COVID-19 pandemic and resulting government efforts to control the spread of the virus has led to sharp reductions in the use of various services, including restaurants, hotels, entertainment venues and travel. This has been true domestically in many countries and has been even more obvious when one looks at international travel and tourism.

In a news release from the UN World Tourism Organization (“UNWTO”) on 28 April 2020, the toll on global tourism is reviewed, and the facts are shocking. See https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2020-04/200428%20-%20Travel%20Restrictions%20EN.pdf. The news release is copied below and is followed by the full report (embedded).

“100% OF GLOBAL DESTINATIONS NOW HAVE COVID-19 TRAVEL RESTRICTIONS, UNWTO REPORTS

“Madrid, Spain, 28 April 2020 – The COVID-19 pandemic has prompted all destinations worldwide to introduce restrictions on travel, research by the World Tourism Organization (UNWTO) has found. This represents the most severe restriction on international travel in history and no country has so far lifted restrictions introduced in response to the crisis.

“Following up on previous research, the latest data from the United Nations specialized agency for tourism shows that 100% of destinations now have restrictions in place, of these, 83% have had COVID-19-related restrictions in place already for four or more weeks and, as of 20 April, so far no destination has lifted them.

“UNWTO Secretary-General Zurab Pololikashvili said: ‘Tourism has shown its commitment to putting people first. Our sector can also lead the way in driving recovery. This research on global travel restrictions will help support the timely and responsible implementation of exit strategies, allowing destinations to ease or lift travel restrictions when it is safe to do so. This way, the social and economic benefits that tourism offers can return, providing a path to sustainable recovery for both individuals and whole countries.’

“Tracking Restrictions by Time and Severity

“As well as a general overview, the UNWTO research breaks down the type of travel restrictions that have been introduced by destinations in all of the global regions, while also plotting the evolution of these restrictions since 30 January – when the World Health Organization (WHO) declared COVID-19 a Public Health Emergency of International Concern. The latest analysis shows that, of 217 destinations worldwide:

“• 45% have totally or partially closed their borders for tourists – ‘Passengers are not allowed to enter’

“• 30% have suspended totally or partially international flights – ‘all flights are suspended’

“• 18% are banning the entry for passengers from specific countries of origin or passengers who have transited through specific destinations

“• 7% are applying different measures, such as quarantine or self-isolation for 14 days and visa measures.

“Against this backdrop, UNWTO has been leading calls for governments worldwide to commit to supporting tourism through this unprecedented challenge. According to Secretary-General Pololikashvili, the sudden and unexpected fall in tourism demand caused by COVID-19 places millions of jobs and livelihoods at risk while at the same time jeopardising the advances made in sustainable development and equality over recent years.” (emphasis and italics in the original)

TravelRestrictions-28-April

UNWTO data show roughly 1.5 billion arrivals of travelers around the world in 2019 following a long-term growth record in arrivals, accounting for 10% of global jobs and $1.5 trillion of international tourism receipts. See https://www.unwto.org/healing-solutions-tourism-challenge. The UNWTO in late March projected a decline in international tourism receipts for 2020 of 20-30% from 2019 (or $300-450 billion). See https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-public/2020-03/200327%20-%20COVID-19%20Impact%20Assessment%20EN.pdf. The situation is likely more precarious as we enter May with the continued global economic harm flowing from government actions to address the continued strong expansion of number of confirmed cases worldwide and deaths. As noted, every government with international tourism has introduced and continues to maintain travel restrictions. Stay at home orders have closed restaurants (other than take out or delivery), hotels, entertainment venues and more.

While all countries and territories are adversely affected by the toll on international tourism from the pandemic, the harm is greater to island nations and poorer countries where tourism is a high percentage of total GDP. Even for advanced countries, the importance of tourism can be critical to a functioning economy. In the EU, a recent article indicates that 10% of GDP is from tourism with some countries (Greece and Malta) having much higher percentages (20-25%). See https://www.dw.com/en/when-and-how-post-coronavirus-travel-in-the-eu-is-up-in-the-air/a-53273416

Commitments for tourism and travel services under the World Trade Organization

Many World Trade Organization Members have undertaken tourism and travel-related service commitments. As noted on the WTO webpage on Tourism and travel-related services, https://www.wto.org/english/tratop_e/serv_e/tourism_e/tourism_e.htm, more than 125 WTO members have made services commitments in the tourism area (hotels, restaurants (including catering), travel agencies, tour operator services tourist guide services, etc.). A note from the WTO Secretariat in 2009 provides information on commitments undertaken by Member (at that time, more countries have joined the WTO in the decade since the note) as well as providing other information on travelers by country and receipts. See S/C/W/298 (8 June 2009) embedded below.

SCW298

But, as with trade in goods, trade in services has general exceptions which permit Members to adopt or enforce measures “necessary to protect human, animal or plant life or health” as long as such measures “are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services”. GATS Article XIV(b). Measures adopted in response to the COVID-19 pandemic restricting travel (and resulting effects on other services) have not been challenged at the WTO and would be likely found permissible even if challenged.

Many of the actions governments are taking to keep supplies of medical goods and food moving are only tangentially relevant to tourism in the broad sense, though of assistance to those needing to travel or moving goods. Removal of restrictions will likely occur over time and tourism’s return will also depend on confidence of consumers in the safety of travel, of dining out, of staying in hotels and of attending entertainment events. That confidence is likely going to flow primarily from the adequacy of testing, tracking and quarantining of those found to be infected, and ultimately with the development and widespread availability of a vaccine.

UNWTO recommendations for actions to address the pandemic and accelerate recovery

In a publication released on April 1, 2020, the UNWTO identifies 23 actions they seek governments to embrace broken into three topics:

1, “Managing the crisis and mitigating the impact” (1-7);

2. “Providing stimulus and accelerating recovery” (8-16)’

3. “Preparing for tomorrow” (17-23).

The 23 action recommendations are listed below. The full UNWTO document is embedded after that. As the list of action recommendations reveals, some of the action recommendations are included in actions already taken by major countries including China, the EU and its members, the United States and others. Actions reviewed in earlier posts by the IMF and others may permit some of these action recommendations to be implemented by some of the developing and least developed countries. Many of the recommendations will likely not be addressable in the near term but may encourage collective activity post pandemic.

“1. Incentivize job retention, sustain the self-employed and
protect the most vulnerable groups

“2. Support companies’ liquidity

“3. Review taxes, charges, levies and regulations impacting
transport and tourism

“4. Ensure consumer protection and confidence

“5. Promote skills development, especially digital skills

“6. Include tourism in national, regional and global economic
emergency packages

“7. Create crisis management mechanisms and strategies

“8. Provide financial stimulus for tourism investment and
operations

“9. Review taxes, charges and regulations impacting travel and
tourism

“10. Advance travel facilitation

“11. Promote new jobs and skills development, particularly
digital ones

“12. Mainstream environmental sustainability in stimulus and
recovery packages

“13. Understand the market and act quickly to restore
confidence and stimulate demand

“14. Boost marketing, events and meetings

“15. Invest in partnerships

“16. Mainstream tourism in national, regional and international
recovery programmes and in Development Assistance

“17. Diversify markets, products and services

“18. Invest in market intelligence systems and digital
transformation

“19. Reinforce tourism governance at all levels

“20. Prepare for crisis, build resilience and ensure tourism is
part of national emergency mechanism and systems

“21. Invest in human capital and talent development

“22. Place sustainable tourism firmly on the national agenda

“23. Transition to the circular economy and embrace the SDGs.” (Sustainable Development Goals).

COVID19_Recommendations_English_1

Conclusion

As the world is exploring ways to reopen individual economies as the worst of COVID-19 (at least phase 1) passes, governments will be under enormous pressure to reopen as quickly as is responsible to do. As data from the UNWTO demonstrate, travel and tourism is a labor intensive sector which has outgrown overall economic growth in the last decade and which can help facilitate recovery when economies are able to reopen.

There are huge challenges in the short- and medium-term for the sector including the depth of the decline, the fragility of many of the businesses financially and the challenges to restoration of consumer confidence. With the United States alone having recorded nearly 30 million people filing for unemployment over the last six weeks, the size of the economic challenge globally is obviously massive. The UNWTO recommended actions address an array of certain needs for many players. For those businesses that survive the pandemic, restoring consumer confidence and having governments withdraw restrictions safely will become the biggest challenges to forward movement. Government actions during the pandemic to provide safety nets for businesses and workers will influence how many businesses and jobs remain when markets do reopen.

Shifting Trade Needs During the COVID-19 Pandemic

Terence P. Stewart · April 28, 2020 · COVID-19 · Canada, China, COVID-19, European Union, India, Iran, Japan, Mexico, Russia, scarcity, Singapore, South Korea, Turkey, United Kingdom, United States, World Trade Organization · No Comments

As of April 28, the number of confirmed COVID-19 cases around the world is over three million. The EU/UK and U.S. have dominated the number of cases and number of deaths to the present time after the start of the pandemic in China. The EU and UK have more than one million cases and more than 120,000 deaths. The United States will likely surpass one million cases by the end of April 28th with deaths above 55,000. . Together they accounted for roughly 70% of cases through April 27 and 84% of deaths.

But the rate of growth is expanding in other parts of the world while number of new cases is shrinking in Europe and flatlining in the United States. The data below look at the number of cases on April 27 and the percent growth of new cases measuring a fourteen day period ending on April 27 compared to a fourteen day period ending on April 11. What the table makes clear is that Europe has been going through a period of declining numbers (percentage less than 100%), North America (based on the US) is close to zero growth (though Mexico’s 14 day numbers more than tripled) , while parts of Africa, Central and South America and some countries in Asia are experiencing rapid growth, albeit generally from low levels. China has largely gotten through the first wave and so numbers for both fourteen day periods are quite low even though the ratio is close to 100%.

Country/Area Number of cases April 27 ratio 14 day cases 4-27/4-11

EU27 908,316 59.65%

UK 152,840 123.03%

4 (Switz., Nrwy, Icel, Lich) 38,358 31.70%

United States 965,910 102.89%

Canada 46,884 128.99%

Mexico 14,677 320.31%

Japan 13,385 159.30%

South Korea 10,738 20.68%

Singapore 13,624 942.40%

China 84,199 93.57%

India 27,892 285.06%

Iran 90,481 52.41%

Turkey 110,130 128.65%

Russia 80,949 599.02%

21 African countries 29,479 185.71%

8 South & Central America 146,515 249.48%

World Total 2,914,507 104.44%

Source; European Centre for Disease Prevention and Control, situation update worldwide, as of 27 April 2020 and 11 April 2020.

As the growth in the number of new cases slows in many developed countries while ramping up in other countries, there will be increasing needs for medical supplies (medicines, equipment, personal protective equipment and other supplies) in countries or territories that heretofore have not had large supply needs.

At the same time, needs for some types of equipment may be reduced in countries that have gotten past the worst of the first wave. Ventilators would be a case in point. In the United States, as hard hit areas like New York see lower hospitalization rates, the state has been able to forward some ventilators to other states with growing case loads. Similarly, the United States has moved from a situation of buying ventilators abroad to being able to send ventilators abroad. That ability is presumably increasing as expanded U.S. production of ventilators kicks into higher gear as we get to the end of April.

Countries like China that have largely gotten through the first wave of COVID-19 have moved from being large importers of medical supplies to being able to export significant quantities of various supplies, including personal protective equipment. They have also ramped up production of some medical supplies and so should be able to both handle any internal needs and continue to expand exports to the world.

However, for countries that have gotten into a period of declining new cases or even flat growth, needs for personal protective equipment, disenfectant, testing equipment and supplies will continue to grow as these countries deal with both ongoing needs for hospital care and the significant increase in testing and tracing needed for a safe reopening of countries and the likely change in protective gear needed for citizens freed from stay at home orders.

Prior posts have reviewed efforts by the multilateral organizations like the WHO, IMF, World Bank, FAO, WCO and WTO to facilitate transparency, financial and other needs of the world during the pandemic as well as efforts at coordinated actions by the G20.

Faced with the worst pandemic in more than a century, the world was generally caught flat footed and without adequate supplies to address the needs of individual countries or the world as a whole.

Transparency and efforts to keep markets open are two of the trade focuses of governments and the WTO. However, a health crisis during a time of grossly inadequate medical supplies has resulted in many countries taking at least temporary actions to secure medical supplies needed for domestic demand. This has occurred through export restraints, commandeering domestic production, using laws aimed for national emergencies and other actions which favor the large and wealthy over other parties.

There appears to be little or no international efforts to coordinate expansion of critical supplies or to monitor demand vs. supply availability to maximize utilization of the scarce supplies that are available in areas hardest hit. If in fact, the pandemic is gaining steam in developing and least developed countries, there is an increasing need for coordinated action in supporting these countries in the weeks and months ahead.

In that regard, Deputy Director-General Alan Wolff provided virtual remarks on April 20th to an event hosted by the Center for China and Globalization in Beijing on the role of the WTO in assisting in the response to the COVID-19 pandemic. The link to the presentation is here and the materials off of the WTO webpage are embedded below. https://www.wto.org/english/news_e/news20_e/ddgaw_20apr20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff_-Policy-coordina

While DDG Wolff recognizes that any action by the WTO is based upon initiatives from Members, he includes a series of “[a]genda items for a WTO COVID 19 Response”. Some of the agenda items have been pursued by individual WTO members as well as being part of an agreement between Singapore and New Zealand. These would include tariff suspensions on relevant medical supplies and enhanced trade facilitation for medical supplies. The WTO membership has already authorized transparency on actions taken, although Members have at best a spotty performance in providing the transparency agreed to.

The proposed agenda includes items that appear to be more aspirational in nature, at least during the current pandemic, including an agreement on codes of conduct on topics such as “guidelines on allocating scarcity”, “an accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form)”. Such issues will likely have greater likelihood of success after the pandemic has passed.

Of great interest to me is the last posting under “Codes of conduct, best practices and international understandings resulting in” which is “Coordinated efforts to enhance manufacturing of medical equipment and supplies”. It is possible that there are efforts within the WTO or the OECD or other groups to gather information on current capacities and planned expansions. Such an effort if not currently occurring should be made a priority during the pandemic and going forward. As China’s experience demonstrated (where demand in China for masks exceeded China production by ten-to-one during the peak increase in cases), supply is unlikely to meet demand in individual countries without better coordination amongst countries and without a greater global inventory buffer to address extraordinary demand surges.

The last agenda item proposed by DDG Wolff is the “Formation of a WTO Member Emergency Covid 19 Response Committee (ERC) or Task Force”. One would hope that an ERC could be quickly created within the WTO although many Members have shown reluctance during the pandemic (at least during the time where in-person meetings are not possible) to agree to any substantive decisions, although being open to collect information. It is also unclear how quickly an ERC, if created, would be able to advance proposals of interest to Members. But it could certainly be a group focused on gathering greater information relevant to supplies and demand as well as restrictions and liberalizations.

Finally, DDG Wolff in looking at planning for the future advances the idea of creating a WTO Committee for Policy Planning. “It is necessary to assure that there is dedicated policy planning capacity within the WTO Secretariat and networked with Members, including experts in capitals who would be able to participate remotely.” Such a Committee could hopefully, inter alia, help WTO Members come up with policies and rules that would better prepare the world for any future pandemics. While much of what is required to minimize the effects of future pandemics is not within the WTO’s jurisdiction, there are certainly areas that are. Many of those include the items DDG Wolff has included in his suggested agenda for the WTO in response to COVID-19. Hopefully, if not doable during the pandemic, such agenda items will be addressed aggressively after the pandemic, perhaps through a Committee for Policy Planning.

Conclusion

The current health pandemic is continuing at a high level but with growing infections starting to shift geographical areas of interest. As developing countries and least developed countries become areas of increased cases, the challenges of ensuring adequate medical supplies to those in need will become greater and be complicated by health infrastructure in many countries, financial resources, and continued supply/demand imbalances. The best hope for positive outcomes is greater coordination of activity and expanded financial resources available to those in need. The seemingly largest gap in coordinated activity is in the area of current supply abilities, growth in capacity and shifting demand needs. Hopefully international organizations like the WTO can help fill the gap.

Oil and gas sector suffers declining demand, collapsing prices, expanded state involvement — skewed economic results damage much of the global economy

Terence P. Stewart · April 26, 2020 · Oil and gas, State Ownership and State Investment · Algeria, Angola, China, Congo, COVID-19, Equatorial Guinea, European Union, Gabon, Iran, Iraq, Japan, Kuwait, Libya, Nigeria, oil and gas, OPEC, Russia, Saudi Arabia, state ownership or control, UAW, United States, Venezuela · No Comments

The United States and many other countries view the World Trade Organization as the forum for global trade rules that support market economies. One of the challenges for the WTO going forward is what to do with the important Members whose economic systems are not anchored in market economic principles. While China is the most frequently mentioned WTO Member whose economic system is causing massive disruptions for market economies, there are other countries with important sectors that are state-owned, controlled and directed. The United States, European Union and Japan have been working on proposals for modifications of WTO rules to address distortions flowing from massive industrial subsidies and state controlled sectors that do not operate on market principles.

While WTO reform is not likely to see serious engagement by WTO Members before the COVID-19 pandemic is brought under control, the sharp contraction of economic activity in many countries is highlighting the importance for WTO Members actually addressing the role of the state in industry and rule changes needed to avoid the massive distortions that state involvement too often created.

Oil and Gas as an Example

Few industrial sectors have as much state ownership and control as the oil and gas sector. While there are countries with privately owned producers, much of the world operates with producers that are state owned or state controlled. Since the 1960s, a number of countries have engaged in cartel-like activity to collectively address production levels to achieve desired price levels. While many of these countries are part of the Organization of Petroleum Exporting Countries (“OPEC”), OPEC meets with other countries as well in an effort to achieve production and pricing levels. Current OPEC members include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela.

The activity has resulted in artificial pricing levels in export markets as compared to prices in home markets of OPEC members and periodic price shocks based on collective action. Large price increases in the 1970s led to high levels of inflation and rapid changes to manufacturing operations in some countries.

Economic contraction as countries struggle to limit spread of the coronavirus

There has been a sharp contraction in demand for petroleum products in 2020 as countries have shut down movement of people in an effort to control the spread of COVID-19. Air travel has been decimated in many parts of the world and there are significant reductions in automobile travel. Manufacturing has also seen significant reductions. The contractions have resulted not only in national reductions in use of petroleum products but also international reductions both directly (reduced air traffic and ship traffic) and because of disruptions to supply chains which have reduced downstream production.

The U.S.-China Economic and Security Review Commission released a staff research report on April 21, 2020 entitled “Cascading Economic Impacts of the COVID-19 Outbreak in China” which reviews information on the wide range of economic impacts from the COVID-19 pandemic as felt in the U.S. https://www.uscc.gov/sites/default/files/2020-04/Cascading_Economic_Impacts_of_the_Novel_Coronavirus_April_21_2020.pdf. The report includes a section entitled “Turmoil in Energy Markets” which states,

“The standstill in Chinese production and halt in flows of goods and people has drastically depressed Chinese demand for energy products such as crude oil and liquified natural gas (LNG), adding pressure to an oil supply glut that had materialized at the end of 2019.99 In December of 2019, Institute of International Finance economist Garbis Iradian had forecasted a supply glut, pointing to high output from Brazil, Canada, and the United States.100 The COVID-19 outbreak exacerbated this challenging outlook. As the Organization of the Petroleum Exporting Countries (OPEC) reported in April 2020: ‘The largest ever monthly decline in petroleum demand in China occurred in February 2020.’101 Chinese oil demand ‘shrank by a massive 3.2 million barrels per day’ over the prior year.102 Research by OPEC forecasted China’s 2020 demand for oil will decrease by 0.83 million barrels per day over 2019.103 As the largest oil importer,104 Chinese oil consumption has a significant impact on global demand. In 2019, China accounted for 14 percent of global oil demand and more than 80 percent of growth in oil demand.105 Following the outbreak in China, the OPEC Joint Technical Committee held a meeting on February 8 to recommend new and continued oil production adjustments in light of “the negative impact on oil demand” due to depressed economic activity, “particularly in the transportation, tourism, and industry sectors, particularly in China.”106 In LNG markets, on February 10, Caixin reported Chinese state-owned oil giant China National Offshore Oil Corp. (CNOOC) requested a reduction of an unknown quantity in LNG shipments, invoking a “force majeure” clause due to COVID-19.107 S&P Global Platts, an energy and commodities analysis group, stated China’s LNG imports in January and February fell more than 6 percent over the same period in 2019.108

Prices have also dropped in this period. OPEC’s reference price index fell from $66.48 per barrel in December 2019 to $55.49 per barrel in February 2020, a drop of 19.8 percent.109 These price cuts are causing financially strapped* U.S. energy producers to cut back investment in oil and gas projects as profits erode. The U.S. Energy Information Administration forecasts that the current drop in oil prices will lead to lower U.S. crude oil production beginning in the third quarter of 2020.110″

The complete report is embedded below (footnotes 99-110 can be found on page 22 of the report).

USCC-staff-research-Cascading_Economic_Impacts_of_the_Novel_Coronavirus_April_21_2020

2. State-owned or controlled oil companies create further crisis

With a sharp contraction in oil demand, one would expect falling oil prices and reductions in global production over time. OPEC efforts to achieve reductions in production amongst themselves and Russia didn’t work out with Russia walking out of talks to reduce production to prevent further price declines. Russia and Saudi Arabia then engaged in a price war which resulted in further sharp price reductions in March and early April, large surpluses of oil in the market, with dwindling storage capacity for surplus production. See, e.g., https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war (and sources cited therein). Below is a graph of crude oil prices from 2015 through April 2020.

3. April Agreement to Reduce Production Beginning in May and June 2020

The United States, concerned with the collapse of oil prices and the effects on U.S. producers and oil/gas field companies, engaged in outreach to both Saudi Arabia and Russia to seek a solution. OPEC members, Russia and many others (including the United States) agreed to global production reductions of close to 10 million barrels/day beginning in May and carrying through June, with smaller reductions for later periods, in an effort to bring about balance between supply and demand. See, e.g., April 12, 2020, AP article, “OPEC, oil nations agree to nearly 10M barrel cut amid virus,” https://apnews.com/e9b73ec833e9a5ad304a69e3b9b86914. The U.S. Department of Energy has a webpage that reviews statements by members of Congress and others on the OPEC+ deal.

Because the agreement kicks in at the beginning of May, the continued production and reductions in available storage for oil resulted in further declines in oil prices, with prices on April 20 going negative for the first time in history. Prices have recovered somewhat in the last several days. https://www.cnbc.com/2020/04/24/oil-prices-could-remain-under-pressure-according-to-satellite-imagery-analysis.html; https://oilprice.com/Latest-Energy-News/World-News/OPECs-No3-Already-Started-Cutting-Oil-Supply.html.

WTO Challenges

Joint action during the global COVID-19 pandemic may be understandable and in keeping with the resort to extraordinary measures by governments during the crisis to preserve health and economies. Nonetheless, the extraordinary distortions that flow to global commerce from joint government activity limiting production of oil and gas products or establishing minimum prices for export have been ignored within the GATT and now the WTO for decades. This is unfortunate as the distortions affect both competing producers of the products in question in other countries and also downstream users and consumers more broadly. The overall distortions over time are certainly in the trillions of dollars.

GATT Art. XX(g) permits governments to enforce measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.” While there have been some cases where Art. XX(g) has been examined, actions by OPEC or OPEC+ countries to limit production (and hence exports) have never been challenged.

While there are national antitrust laws in many countries, such laws (such as those in the United States) don’t make government interference in the economy or government restrictions on export actionable despite the harm to consumers and to downstream manufacturers.

In a consensus based system like the WTO, the likelihood of obtaining improved rules on state-owned or state-invested companies or to restrict governments’ ability to unilaterally or jointly restrict production and exports seems implausible. This is especially true on oil and gas with Saudi Arabia and Russia as WTO Members. The US-EU-Japan initiative hasn’t yet fleshed out possible rule changes for state entities, so one may see some efforts in the coming years that could be useful if accepted by the full membership. But if there is to be meaningful WTO reform, agreeing on rules for the actions of governments that affect production and trade in goods and services is clearly of great importance. Without such rules, the WTO will not actually support market economies in critical ways.

Modifying antitrust laws is the other option, but one which legislators have been unwilling to address over the last fifty years. It is not clear that there are current champions of such modifications in the United States or in other major countries.

Conclusion

There are many sectors of economies that are being seriously adversely affected by efforts to control the spread of COVID-19. Governments are taking extraordinary actions to try to prevent their economies from collapsing under the strains of social distancing.

The oil and gas sector is one where there has been significant negative volume and price effects. Unfortunately the extent of the negative volume and price effects is driven in large part by the actions of governments who are preventing the global market for these products from functioning correctly, just as government actions have interfered in the functioning of these markets for the last fifty-sixty years.

The recent agreement to slash global production by nearly 10 million barrels per day was needed in light of the extensive government interference that has characterized the market and the actions by Russia and Saudi Arabia in March and early April.

More importantly, the long-term government involvement and interference with the functioning of the sector should cause trade negotiators and legislators to be looking at how to reform the WTO and/or modify national laws to prevent government ownership, control or cartel-like actions from distorting trade flows and economies. The need is pressing, but don’t hold your breath for action in the coming years.

WTO dispute settlement in 2020 – forward movement or further crisis?

Terence P. Stewart · April 20, 2020 · WTO Dispute Settlement · Canada, China, COVID-19, DSU Art. 25 arbitration, European Union, United States, WTO Reform · No Comments

As of April 20, 2020, there has been relatively limited new activity within the WTO on dispute settlement. Indeed just two requests for consultations were filed in the first quarter of 2020. While not the lowest number for the first quarter, it is one of the lowest over the first 25+ years of the WTO existence. The reason or reasons for the low number of disputes is not known. However, many WTO Members are focused on the COVID-19 pandemic at home reducing the focus on WTO activities. Moreover, the pandemic has disrupted the ability of the WTO to conduct business as usual, with no meetings in person having taken place over the last month and with many Members arguing against making substantive decisions during the pendency of the pandemic lockdown in many countries. See https://www.wto.org/english/news_e/news20_e/hod_17apr20_e.htm

There have been a few Appellate Body reports on disputes where Appellate Body hearings had occurred before December 10, 2019 and some panel reports issued in ongoing cases. The Appellate Body will not issue further reports after the plain packaging cases pending a resolution of the impasse on the functioning of the Appellate Body.

Arbitration under Art. 25 of the Dispute Settlement Understanding

The EU and fifteen other WTO Members have agreed to a Multi-Party Interim Arbitration Agreement to permit signatories to use arbitration along agreed lines as a substitute for an appeal within the WTO until the Appellate Body is back functioning. While the agreement has not been notified to the WTO as yet, pending signatories clearing domestic hurdles, the agreement is open to other WTO Members who wish to participate. See March 27 post, https://currentthoughtsontrade.com/2020/03/28/march-27-2020-agreement-on-interim-arbitration-process-by-eu-and-15-other-wto-members-to-handle-appeals-while-appellate-body-is-not-operational/

In an introductory statement by Commissioner Phil Hogan at an informal meeting of EU Trade Ministers on April 16, Commissioner Hogan stated that

“Working with like-minded WTO members since the effective collapse of the Appellate Body last December, we have developed the Multi Party Interim Arbitration Arrangement as a stop-gap to maintain an independent, two step dispute settlement function.

“There are 15 co-signatories alongside the EU, including some of the biggest users of the system, such as Brazil and China. I have also extended a broad invite to the entire membership to join, underlining the inclusive nature of the arrangement.

“There will be 10 arbitrators on the MPIA roster. The EU has the option of nominating a candidate. The nominee will need to be submitted by the end of May. We will notify the TPC of work on this in due course, respecting best practices used for the nomination of members of the Appellate Body heretofore.”

https://ec.europa.eu/commission/commissioners/2019-2024/hogan/announcements/introductory-statement-commissioner-phil-hogan-informal-meeting-eu-trade-ministers_en.

EU’s efforts to retaliate without WTO authorization where Appellate Body is not functioning and defending party does not agree to arbitration

The EU has also been working to develop regulatory authority to impose sanctions without WTO authorization on Members against whom the EU has brought disputes when such Members lose panel decisions at the WTO, don’t participate in arbitration and rather file an appeal when the Appellate Body is not functioning, preventing retaliation at the WTO. See https://www.europarl.europa.eu/meetdocs/2014_2019/plmrep/AUTRES_INSTITUTIONS/COMM/COM/2020/02-19/COM_COM20190623_EN.pdf.

COM_COM20190623_EN

The EU Council and Parliament need to meet to agree to a modified final text. It is assumed that a major target of the EU actions is the United States. There are two pending disputes that the EU has with the US where panels are underway, including the EU challenge to the US Section 232 actions on steel and aluminum and the EU challenge of a countervailing duty order on olives from Spain.

On the 232 dispute, the EU did not pursue a challenge prior to taking retaliation, claiming that the US use of the national security law (Section 232 of the Trade Expansion Act of 1962, as amended) on steel and aluminum was in effect a safeguard action. Thus, the EU claimed it was justified in retaliating to a certain extent immediately consistent with the Safeguard Agreement. The U.S. has filed a dispute challenging the EU’s retaliation as the U.S. action was not taken under U.S. safeguard (escape clause) law but pursuant to a national security law making the EU retaliation inappropriate. Both disputes are pending before panels at the WTO.

The interesting element of the EU’s pursuit of new regulatory authority is its willingness to act outside of the WTO while wrapping itself in the mantle of champion of the multilateral system.

China’s challenge of U.S. tariffs following Section 301 of Trade Act of 1974 investigation (and retaliations by China)

In August 2017, USTR commenced an investigation into whether certain actions of the Chinese government violated Section 301 of the Trade Act of 1974. Forced technology transfer, cybertheft of intellectual property and other issues were investigated by USTR and resulted in a determination in early 2018 of violations of U.S. law. The USTR fact sheet issued in 2018 is attached and embedded below. https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/section-301-fact-sheet.

Section-301-Fact-Sheet-_-United-States-Trade-Representative

Original tariffs imposed when the unfair practices were not addressed by China were $50 billion. Those amounts were increased as China retaliated against the U.S. without authorization from the WTO. Ultimately, the U.S. imposed tariffs on more than $360 billion and China imposed retaliatory tariffs on nearly all of U.S. exports to China.. https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/section-301-fact-sheet.

China filed a WTO dispute after the initial tariffs imposed by the United States. WT/DS543. It filed two additional requests for consultations as the U.S. expanded tariffs on other products, although both of these requests for consulation remain in the consultation phase. WT/DS565 and WT/DS587. The U.S. filed a challenge to China’s retaliation. WT/DS558.

While the panel proceedings have been underway in Geneva, the United States and China reached a Phase One Agreement in January 2020. See prior posts, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/; https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/.

The WTO dispute settlement panel provided a notice to the parties that the panel decision would be available to the parties by the end of June (a little more than two months from now). See WT/DS543/9 (15 April 2020). Because the dispute involves the largest amount of trade (at least when considering the additional actions by both the U.S. and China) of any trade dispute in the history of the WTO, the panel decision will not only be carefully watched by all members but could result in major rifts within the organization by one or both of the parties.

China’s briefs in disputes are typically not publicly available. The U.S. always releases public versions of its briefs. The below excerpt from the first U.S. submission in WT/DS543 gives a glimpse of the importance of the case from the United States perspective. The entire first brief is embedded.

“I. INTRODUCTION

“1. Technology, intellectual property, and innovation are the foundation of the competitiveness of the United States and many other Members in the world economy. China has chosen to adopt a range of policies and practices to obtain an unfair competitive edge over other Members by stealing or otherwise unfairly acquiring their technology and intellectual property. Where those policies or practices can be addressed through WTO rules, the United States is pursuing WTO dispute settlement. Most of China’s practices, however, are not covered by existing WTO disciplines.

“2. In these circumstances, the United States is pursuing its sovereign right to protect its fundamental economic competitiveness from China’s unfair, predatory, and harmful technology-transfer policies. The purpose of the U.S. tariff action is to obtain the elimination of China’s unfair practices, and thereby to promote a fair and sustainable trading system for the United States and all other Members that rely on technology and intellectual property for their competitiveness in world markets. Unfortunately, China has responded not by reforming its unfair technology-transfer policies, but instead by imposing retaliatory tariffs on most U.S. goods.

“3. In pursuing this course of action, China has demonstrated what the Panel should conclude in response to China’s pursuit of this dispute – namely, that this is a bilateral dispute between the United States and China concerning key economic issues not covered by existing WTO rules. In short, this dispute is fundamentally not about WTO rights and obligations.

“4. China’s decision to pursue this dispute represents a profound misuse and abuse of the WTO dispute settlement system. Having already adopted retaliation in response to the U.S. measures aimed at obtaining a fair world trading system, China knows full well that any WTO findings will not contribute to the resolution of the matter. Rather, China’s pursuit of this dispute is a cynical and hypocritical attempt to try to have the WTO side with China in the ongoing dispute involving China’s unfair technology transfer policies. To elaborate:

“5. In bringing this dispute, China seeks to abuse the WTO dispute settlement system by attempting to use it as a shield for a broad range of unfair and trade-distorting technology transfer policies and practices not covered by WTO rules. In doing so, it is China, and certainly not the United States, that – as China puts it – ‘is undermining’1 the viability of the multilateral trading system.

“6. China’s decision to launch this dispute is hypocritical. China is currently retaliating against the United States by imposing duties on most U.S. exports – over $100 billion of trade. China cannot legitimately challenge measures at issue for being “unilateral”2 and WTO-inconsistent, while at the same time openly adopting its own unilateral tariff measures in connection with the very same matter.

“7. The matters related to this dispute are currently subject to bilateral discussions between the Governments of China and the United States. The parties are holding these discussions at multiple levels, including between the leaders of the two disputing parties. It is those bilateral discussions, and not any possible findings to be adopted by the Dispute Settlement Body (“DSB”), that will resolve the important issues arising from China’s unfair and harmful technology transfer policies, from the U.S. response to those policies, and from China’s unilateral retaliation.

“8. Under these circumstances, the outcome of a dispute settlement proceeding would be pointless, and, worse – a misuse by China of the dispute settlement system by trying to have the WTO side with China in support of its fundamentally unfair technology transfer policies. As noted, China has already taken the unilateral decision that the U.S. measures cannot be justified under WTO rules, and on that basis, already imposed tariff measures on most U.S. goods. Accordingly, addressing China’s legal claims would not ‘secure a positive solution to [this] dispute,’3 as China has already adopted the response that China unilaterally has determined is appropriate.

“9. Fundamentally, both the United States and China have recognized that this matter is not a WTO issue: China has taken the unilateral decision to adopt aggressive industrial policy measures to steal or otherwise unfairly acquire the technology of its trading partners; the United States has adopted tariff measures to try to obtain the elimination of China’s unfair and distortive technology-transfer policies; and China has chosen to respond – not by addressing the legitimate concerns of the United States – but by adopting its own tariff measures in an attempt to pressure the United States to abandon its concerns, and thus in an effort to maintain its unfair policies indefinitely.

“10. By taking actions in their own sovereign interests, both parties have recognized that this matter does not involve the WTO and have settled the matter themselves. Accordingly, there in fact is no live dispute involving WTO rights and obligations. Therefore, in light of each party’s action settling the matter, the report of the Panel should “be confined” to a brief description reporting that the parties have reached their own resolution, as provided for in Article 12.7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (‘DSU’).4

“11. Even aside from the fact that the parties have settled the matter through their actions, were the Panel to examine China’s contentions, the Panel would find that the U.S. measures at issue would be justified under WTO rules.

“12. The United States adopted the measures at issue in this dispute to combat China’s longstanding policy and practice of using government interventions, coercion, and subterfuge to steal or otherwise improperly acquire intellectual property, trade secrets, technology, and confidential business information from U.S. companies with the aim of advantaging Chinese companies and advancing China’s industrial policy goals. Although China’s conduct is not addressed by current WTO rules, it is unfair and contrary to basic moral standards. No WTO Member endorses forced technology transfer policies and practices such as those employed by China.

“13. Indeed, such fundamentally unfair policies and practices undermine support for an international trading system that permits such practices to escape discipline, undermine U.S. norms against theft and coercion, and undermine the belief in fair competition and respect for innovation, all of which are key aspects of U.S. culture (as well as that in a number of other Members). ). The United States does not undertake these activities against Chinese citizens or companies. China’s non-reciprocal and morally wrong behaviour further threatens to undermine U.S. society’s belief in the fairness and utility of the WTO trading system, if that system creates the conditions for, and fails to address, a fundamentally uneven playing field. Accordingly, the measures at issue in this dispute are legally justified because they are measures “necessary to protect public morals” within the meaning of Article XX(a) of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”).

“14. Finally, the United States notes that one of the U.S. measures that China is challenging in this dispute is not within the Panel’s terms of reference because it was issued and took effect after China requested the establishment of a panel. Accordingly, for this additional reason, there is no legal basis for the Panel to examine or make any findings with respect to that measure.

“15. The United States emphasizes that a world trading system where one Member can adopt policies to steal or unfairly acquire technology and intellectual property from its trading partners, and where the organization responsible for overseeing world trade would entertain a request to issue findings in support of the Member adopting these unfair actions, is simply unsustainable. In order to maintain the viability and relevance of the WTO, this Panel must reject China’s request that the Panel make findings that China might use as support for maintaining its fundamentally unfair technology transfer policies and practices.

“1 See China’s First Written Submission, para. 5.

“2 See China’s First Written Submission, paras. 3, 4, 5, 24.

“3 See DSU Article 3.7 (Providing in part that “The aim of the dispute settlement mechanism is to secure a positive solution to a dispute.”).

“4 See DSU, Article 12.7 (‘Where the parties to the dispute have failed to develop a mutually satisfactory solution, the panel shall submit its findings in the form of a written report to the DSB. In such cases, the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes. Where a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.’). (emphasis added).”

US.Sub1_.DS543.fin_.public

Canada’s dispute with the U.S. over Countervailing Duty Order on Supercalendered Paper from Canada

Canada pursued a challenge to a countervailing duty investigation and order on supercalendered paper from Canada conducted by the United States and received reports from the panel and Appellate Body that the U.S. actions were inconsistent with WTO obligations. Canada pursued the challenge despite the fact that the order had been revoked retroactively by the United States. In a submission posted today on the WTO website, Canada has given notice that it intends to seek retaliation at such time as the DSB is able to convene (recognizing the present inability to meet because of the COVID-19 lockdown in place). WT/DS505/11 (20 April 2020).

Because the United States has viewed the panel and Appellate Body as having erred in their decisions in the case and because of the importance to the United States of its countervailing duty law in addressing other countries subsidy practices, any such action by Canada is likely to worsen the dynamics in Geneva and in capitals in terms of reaching reform of the dispute settlement system.

Needed reforms of the dispute settlement system

While there has been activity to put in place for some Members an arbitration system, there is little indication of any effort to pursue resolution of the underlying reform needs to the dispute settlement system outlined by the United States over the last several years. See prior posts, https://currentthoughtsontrade.com/2020/03/07/impasse-on-the-wto-appellate-body-any-progress-likely-by-the-12th-ministerial/; https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/; https://currentthoughtsontrade.com/2020/01/30/wto-appellate-body-impasse-how-and-why/.

The COVID-19 pandemic has made forward movement more difficult as attention of most countries, understandably, is focused on the immediate needs of their populations to address the global pandemic.

Conclusion

With the 12th WTO Ministerial Conference already postponed, with meetings at the WTO cancelled through at least April, there has been increasingly diminished hopes for what the WTO can achieve in 2020. While the dumbing down of expectations appears true across the board of the WTO’s reform program and pending negotiations, it is certainly true for reform of the dispute settlement system. The EU and China have engaged in unilateral action regardless of WTO rules (generally where the U.S. has taken actions that the others disagree with and don’t want to work through the WTO system or pursue reform). The U.S. has taken aggressive actions in a number of situations, though they have articulated WTO justifications for the actions which justifications are currently subject to WTO dispute settlement (but usually in situations where the Members challenging the U.S. have unilaterally retaliated without WTO authorization).

With important panel decisions due out yet this year and with EU actions to give itself retaliation rights regardless of WTO authorization while the Appellate Body is nonfunctioning, the likelihood of WTO Members focusing on dispute settlement reform are seemingly nonexistent for the foreseeable future. The ride is likely going to get a lot bumpier in the coming months.

Transparency on trade actions surrounding the COVID-19 pandemic

Terence P. Stewart · April 15, 2020 · Uncategorized · China, COVID-19, European Union, IMF, Singapore, South Korea, transparency, United States, WHO, World Trade Organization · No Comments

Global confirmed cases of COVID-19 will reach two million today, April 15, with the actual number likely much higher and with deaths over 125,000. Nearly every country on earth has at least some confirmed cases.

Different countries and territories are at different stages in dealing with COVID-19 infections, with China, South Korea and Singapore seemingly well past the worst of the first wave of infections. Countries in Europe and various states within the United States are also seeing the rate of infection flatten or even decline following weeks of stay-at-home orders, social distancing and drastic changes to daily life. Hot spots are shifting both within countries (e.g., the United States) and to different countries.

The economic cost of closing down portions of economies has been unprecedented with the IMF characterizing the hit on global GDP to be the worst since the great depression of the 1930s. https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020. To avoid even worse economic fallout, countries are pouring huge sums into their economies to prevent massive bankruptcies, limit unemployment and provide expanded social safety nets. Press reports suggest at least $8 trillion has been committed with more being considered in various countries.

For countries who are witnessing likely GDP reductions of as much as 35% in one of the first two quarters of 2020, governments are mapping out scenarios for reopening closed portions of their economies if they have been recent epicenters or engaged in phased reopening if apparently largely past the first phase. Such planning is occurring at the subnational, national or trading bloc level (EU) with little apparent effort to coordinate efforts around the world. Where plans are being discussed publicly, common elements appear to be expanded and harmonized testing (both for the infection and for antibodies), ability to do tracing of individuals who have been in contact with individuals found to have the virus to secure quarantining, capacity of the healthcare system to handle cases, and adequacy of supplies. Concerns about privacy interests are also part of the discussion/needs for democracies. See, e.g., European Commission roadmap released April 15, 2020, https://ec.europa.eu/commission/presscorner/detail/en/ip_20_652; https://ec.europa.eu/info/sites/info/files/communication_-_a_european_roadmap_to_lifting_coronavirus_containment_measures_0.pdf

For most of the developing and least developed countries, the pandemic has yet to show its full force. Many of these countries have inadequate healthcare infrastructure and don’t have the internal manufacturing capabilities or financial resources to handle the pandemic without assistance if they become an epicenter.

The world has seen limited actual coordination of efforts by major players despite commitments by G20 countries although funding for multilateral institutions like the IMF have been increased to facilitate expanded efforts for the weakest countries. There also seems to be an exchange of information and some cooperation in the research efforts underway to find a vaccine.

Many countries who have been hard hit by the pandemic were slow to recognize the extent of the challenge and often slow in implementing comprehensive actions which has exacerbated the challenges, the loss of life and the harm to their economies. This has led to some lack of transparency at least in the early days and perhaps a reluctance for greater cooperation.

The pandemic’s spread has led to extraordinary gaps in supply availability versus short term demand requirements. For example, the OECD indicated that China, which manufactures half of the world supply of masks, found demand for masks at the peak of the crisis in China at ten times the beginning manufacturing capability of the country. Even after ramp up of production, demand in China was twice as large as the dramatically expanded manufacturing capabilities until the country’s infection rate declined. With both the EU and the US going through huge expansions of COVID-19 cases in March and into April, the global shortage problem has been continued and magnified despite additional capacity expansions occurring in other countries.

With no current vaccine to deal with the infections, countries faced with expanding case loads have often shifted to imposing export restraints to prevent loss of scarce supplies, encouraging expanded production, and using other tactics to address domestic demand even if reducing supply to other countries or even if local actions are counterproductive because of global supply chains and similar actions by others. Export restraints have been imposed by close to 70 countries or territories and include actions by China, the EU, the United States and many others, though restraints are arguably temporary and may have exceptions depending on the country applying the restraints. And countries who had export restraints at one point, may be significant exporters later (China) or had been exporters to hard hit countries prior to ramp up of internal demand (e.g., U.S. to China).

Importance of transparency in times of crisis

Each government attempts to provide some level of transparency to its citizens and businesses on actions it is taking. Members of the WTO have committed to providing information on trade measures taken to respond to COVID-19 and groups of countries (G20) have supported that effort. As of April 14th, WTO Members had provided 49 notifications of trade actions related to COVID-19 that either restricted goods or liberalized movement of goods https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. While this is a start, there are likely dozens or hundreds of other actions that have not been notified as yet (including actions that may have been withdrawn after a period of time). The lack of full transparency by WTO Members is unfortunate and prevents other Members to understand the reality around the world or to understand potential best practices by other trading partners.

Some business trade associations have put together data bases of actions addressing particular actions important to their members. For example, the Baltic and International Maritime Council (“BiMCO”) has compiled and updates port restrictions/requirements including ability of crew to depart cargo ships in ports, etc. https://www.bimco.org/ships-ports-and-voyage-planning/crew-support/health-and-medical-support/novel-coronavirus—implementation-measures. Similarly, IATA has collected and updates data on requirements for airlines (passenger and air cargo) by country. https://www.iata.org/en/programs/safety/health/diseases/government-measures-related-to-coronavirus/. The data compiled is obviously important for the ships and planes moving cargo internationally. So transparency exists because of efforts of business associations. Unfortunately, one does not see any effort by governments to harmonize requirements across countries to simplify and reduce the costs of moving essential goods.

It does not appear that there are readily accessible data on all suppliers globally of essential medical goods, capacity expansions, current bottlenecks, product availability, etc. It is not clear if such data could be compiled by industry associations or by governments. Presumably such information would be important for a global effort to maximize availability of products to all countries during the pandemic, identify ongoing shortages, prioritize where additional products are needed and so forth. The lack of such information has to be a major shortfall in the transparency needs to effectively deal with the pandemic.

Individual governments, of course, address internal needs on an ongoing basis through notices, regulations, etc. Many of these actions could be notified to international organizations (e.g., to the WTO) in addition to being available domestically. Expanding notifications would improve transparency and potentially encourage other governments to adopt best practices of other countries.

In the United States, many agencies, as well as the White House, are involved in different aspects of keeping goods moving during the pandemic or in restricting the export of such goods. For example, to look just at a few of the agencies involved in the United States, the State Department has made announcements on ensuring H-2 visas for farm workers. https://travel.state.gov/content/travel/en/News/visas-news/important-announcement-on-h2-visas.html. Homeland Security and Customs and Border Protection have taken various actions to expedite clearance of essential goods or implement Administration restrictions on the export of goods. https://www.fema.gov/news-release/2020/04/08/fema-covid-19-supply-chain-task-force-supply-chain-stabilization; https://www.cbp.gov/newsroom/coronavirus. The Department of Agriculture and the Food and Drug Administration have issued various notices addressing special needs for agricultural goods with the collapse of food service sector which supplies restaurants (e.g., temporary waiver of requirements for country of origin information or certain labeling requirements for goods originally destined for food service that are being sold at retail). https://www.usda.gov/coronavirus; https://www.ams.usda.gov/content/usda-announces-labeling-flexibilities-facilitate-distribution-food-retail-locations; https://www.fda.gov/emergency-preparedness-and-response/counterterrorism-and-emerging-threats/coronavirus-disease-2019-covid-19. FEMA, EXIM and others are all playing roles as well.

Conclusion

The COVID-19 pandemic has created extraordinary challenges for the health of the world’s peoples and has imposed unimaginable costs to the global and national economies. As countries work through their individual challenges, there are a spectrum of options to pursue that will reduce or expand the human and economic costs of the pandemic. International organizations are only as strong as their member governments permit them to be. Many observers have lamented the lack of global leadership. Such lack of leadership handicaps the ability and likelihood of countries to minimize the damage from the pandemic and to prepare better for future challenges. Transparency should be the bare minimum we receive from the world’s governments. While there is certainly some transparency on COVID-19 and trade actions being taken (better in some countries than others), we are not maximizing the benefits that broad-based transparency would make available for countries individually or acting collectively. There is still time for a better effort. There are real costs for failing to do all that can be done on this issue.

COVID-19 – OECD first policy brief on trade issues related to the pandemic

Terence P. Stewart · April 13, 2020 · Uncategorized · COVID-19, European Union, export restraints, governmental financial assistance, OECD, supply chains, transparency, United Kingdom, United States, World Trade Organization · No Comments

As the world moves towards two million confirmed COVID-19 cases later this week (week of April 13) and global deaths near 125,000, the EU and the United States continue to hold center stage with the largest number of cases and deaths. As of April 11th, the EU represented 39.29% of confirmed cases and 57.9% of deaths. The UK (now not part of the EU) was 4.25% of confirmed cases and 8.77% of deaths. The United States had 30.34% of confirmed cases and 18.39% of deaths. Collectively, the EU, UK and US have had 73.88% of confirmed cases, 85.07% of deaths despite having just 10.86% of the world’s population. See attached table.

Situation-update-worldwide-as-of-11-April-2020

The rate of infection is picking up in a wide range of countries, including in areas with larger populations and often lower per capita incomes. Prior posts have looked at a range of issues surrounding COVID-19 and trade policy responses, including proposals from business groups, intergovernmental organizations and the actual response of countries and territories attempting to deal with the global health pandemic.

On Friday, April 10, the OECD released the first in a series of policy briefs on trade issues related to COVID-19, The title of the policy brief is simply, COVID–19 and International Trade: Issues and Actions. https://read.oecd-ilibrary.org/view/?ref=128_128542-3ijg8kfswh&title=COVID-19-and-international-trade-issues-and-actions.

The policy brief starts with the statement that “In a challenging and uncertain situation, trade is essential to save lives – and livelihoods”. Going beyond the March 2020 OECD Interim Economic Outlook estimate of the impact of global growth (halved to 1.5%), the policy brief estimates that each month extension of containment measures will further reduce global growth by 2 percentage points. The brief then reviews the wide range of challenges to nations and the world in both coping with the health dimensions of the pandemic and the extraordinary challenges to economies, national and private sector debt, employment and other issues. The estimated “initial impact on activity of partial or complete shutdowns on activity in a range of economies” shows GDP declines of 15-35% (page 2, figure 1).

The policy brief then identifies four actions that can be taken by governments to improve trade flows and reduce the negative effects on economies:

“First boost confidence in trade and global market by improving transparency”

“Second, keep global supply chains going, especially for essentials”

“Third, avoid making things worse”

“Fourth, look beyond the immediate: Policy actions now could have a long life”

Improved transparency

The policy brief supports the need for governments to notify trade-related measures that are taken in response to the pandemic to the WTO. The WTO website contains a page on COVID-19 which lists notices provided to the WTO from governments (both trade restricting and trade liberalizing) in response to COVID-19. As of April 9th, 41 notifications had been received. https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm.

The OECD also shares information it receives with the WTO. In addition, the OECD provides information on agriculture production and trade to the Agricultural Market Information System “to ensure accurate, up-to-date information on market developments and country policies in critical commodities for the global food system.” Page 3.

With more than 60 trade restrictive measures flagged by observers, the efforts at improved transparency are a work in progress obviously dependent upon the actions of WTO Members.

Keeping supply chains going

The OECD policy brief reviews a range of developments since the start of the pandemic which have raised costs and complicated the flow of trade:

Loss of air cargo as part of reduction in passenger flights;

2. Drop in ship traffic and increased procedures and documentation requirements; vs. establishment of some “green lanes” at ports and border crossing points;

3. Location of shipping containers in China at time of pandemic, creating shortages and raising costs;

4. Labor availability at ports reduced in many cases or increased costs from additional protective measures;

5. Limits on mobility of people affecting various trade processes (inspections, etc.);

6. Higher costs throughout supply chains from increased protective measures for workers.

For essential medical supplies, the OECD policy brief calls for removing tariffs, expediting certification procedures and enhancing trade facilitation..

While the policy brief recognizes the need for expanded production in a later section, it doesn’t address the need for increased transparency on or coordination of such efforts to expand production despite the obvious fact that a pandemic which moves around the globe creates temporary acute shortages of medical supplies where trade could minimize harm to populations going through surges in infections.

As reviewed in my post of April 10 on scarcity, a significant part of the health challenge in medical goods in the current COVID-19 pandemic flows from the rapid demand expansion exceeding global supply availability. This contrasts with food security issues in 2020 where there are adequate supplies of key agriculture products but there are concerns because of border closures, mobility issues and the like.

Avoid making things worse

The OECD policy brief has avoiding export restrictions on essential goods as the chief action countries can take to avoid making things worse. The brief reviews the 2007-2008 food price spikes that flowed from large scale export restraints on agriculture products and the harm done to many countries as a result.

In discussing food security, the brief states, “While there is not an immediate threat to global supplies of basic foodstuffs, there is the potential for specific food supply chains to be severely disrupted, including from lack of seasonal workers for planting or harvesting key crops, logistics constraints, and additional SPS and technical measures. Vigilance will be required to ensure that crisis- or policy-induced risk factors do not cause disruptions in supply, in particular if the containment measures related to COVID-19 are long-lived. ” Pages 5-6

For essential medical goods, there is a critical need for expanded production which some governments are pursuing often in connection with their private sectors. Trade challenges on essential medical goods include the use of export restraints, guaranteed purchases and requisitioning of goods. More than 60 countries have imposed export restraints, and, with the US and EU the current centers of COVID-19 infections, many other countries are having great difficulties obtaining adequate or any supplies.

OECD recommendations, such as limiting future export restraints, reducing tariffs and not imposing new tariffs or trade restrictive measures, are similar to those recommended by other groups. However, nothing in the recommendations deals with the very real need for better information on supply availability and expansions vs. current and projected demand, or for the possible role of international organizations or others in coordinating shifting of supplies from countries that have gotten past the worst of the pandemic to others with limited capacities and resources.

Look beyond the immediate: Policy actions now could have a long life

The OECD policy brief examines three sets of issues in terms of future implications — the massive financial assistance being provided, the examination of the shape of global supply chains, and preparing for future pandemics. These are taken up in turn below.

A. Governmental financial assistance

Because of the massive support governments are pumping into their economies to avoid collapse (some $8 trillion based on some recent estimates), there are obvious questions about how such support is structured, how governments will modify their conduct once the pandemic is past or economies have reopened. As the policy brief states,

“The scale of public investments needed during and after the crisis – from health systems and social protection, to access to education and digital networks – underscores the need for support to firms and sectors to be as efficient as possible to maximise available public resources. Well-designed support will also be less market-distorting and give rise to fewer concerns about the impact on international competition. Fairness – in both the national-level distribution of benefits ad in global competition – is essential for maintaining public support for trade and the open markets need to get through and emerge from the crisis.” Page 8.

Key principles for support granted include the following, according to the policy brief:

Support should be transparent (including terms of support);
non-discriminatory and not used to rescue companies that would have failed absent the pandemic;
time limited and reviewed for continued relevance/need;
targeted at consumers vs. tied to consumption of specific goods and services.

B. Global supply chains

An issue important to a number of governments has been the structure of existing supply chains and whether supply chains should be reshored or at least shortened. The OECD policy brief focus on rethinking the “resilience” in global supply chains but cautions against quick answers or simply reshoring.

C. Being ready for the next pandemic

The OECD policy brief also reviews actions the global community should take to be ready for the next pandemic. Five elements of a possible agreement among countries are suggested for consideration:

“Ensuring transparency”;
“Cutting tariffs on essential medical products”;
“Disciplines on export restrictions” (essentially G20 language);
“Upfront investments in co-operative solutions” (including creation of stockpiles at national or regional level);
“addressing the needs of the most vulnerable countries”.

Conclusion

The first OECD policy brief is a useful contribution to the discussion of trade issues that can and should be addressed to reduce the negative effects of the COVID-19 pandemic both in the short-term and in the recovery phase. The proposals are not surprising and reflect underlying views of the member countries. As is true of other papers and proposals for action, collective action depends on leadership and willingness of like-minded countries to act for the common good. With a serious pandemic with dimensions not experienced in 100 years, large and advanced economies have talked the talk of cooperation and keeping markets open but haven’t always walked the walk of greater global cooperation or avoiding trade restrictive measures.

The actions of major governments are not surprising considering the pressing needs for supplies within countries that have been at the epicenter of the pandemic in the early months of its existence or the reaction of others worried about supplies or about food security. Political leaders obviously respond to the needs of their citizens first, particularly where needs are about life and death.

Unfortunately, such local focus doesn’t help smaller and/or economically weaker countries, many of whom may find themselves part of the epicenter of the pandemic in coming months.

Moreover, governments around the world generally have shown a poor ability to spend the money to prepare for future events which are uncertain as to timing or severity. It seems unlikely that the pandemic of 2020 will result in greater collective action and preparation for the future.

Indeed, the extraordinary sums that are being needed to avoid total collapse of economies in 2020 will create additional challenges for the global trading system going forward and will likely limit actual efforts to avoid a repeat in the future.

End note

The OECD has indicated that they have four additional policy briefs in the series under preparation. The future briefs deal with trade facilitation, government support, global value chains for essential goods and services trade (page 11), in addition to a paper looking at COVID-19 and Food and Agriculture: Issues and Actions.

WTO and the challenge of scarcity — are there lessons from COVID-19?

Terence P. Stewart · April 10, 2020 · Uncategorized · access to medical goods, COVID-19, European Union, food security, scarcity, United States, World Trade Organization · No Comments

The global trading system has built in flexibilities for nations and customs territories to address scarcity or threatened scarcity at home in the trade rules. Specifically, while GATT 1994 Article XI:2 provides for the general elimination of quantitative restrictions on imports or exports, there are exceptions provided in XI:2. The first permits “Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.” GATT 1994 Art. XI:2(a). There are also general exceptions to WTO obligations contained in GATT 1994 Article XX including measures “necessary to protect human, animal or plant life or health” (Art. XX(b)) although such general exceptions have certain conditions to prevent discrimination in application.

These WTO rules go back to original GATT provisions from 1947/48 and reflect the understandable desire of governments to maintain the ability to look out for their own people in times of crisis particularly to avoid threats from food scarcity or to human health.

Over the last seventy plus years, global trade flows have dramatically expanded in both agricultural and non-agricultural products. Indeed, many countries and customs territories are import dependent on food products. Moreover, with the development of global supply chains for medicines, medical equipment, medical supplies and personal protective gear, few, if any, countries are self-sufficient for medical goods.

The question arises whether in a much more interdependent world, global trade rules need review and modification to deal with actual or perceived shortages of agricultural, medical or other goods.

The 2007-2008 food shortages on critical agricultural products led to dozens of countries imposing export restraints on core products like rice and wheat resulting in expanded shortages, price volatility and social unrest in many countries.

The COVID-19 pandemic has resulted in nearly 70 countries imposing export restraints on certain medical goods and in a number of countries imposing export restraints on agricultural goods in anticipation of potential shortages. The breadth and depth of the pandemic has resulted in a global severe shortage of a wide range of medical products, equipment and protective gear with countries (and within some countries, provinces, states, regions and even individual hospitals and medical facilities) competing against each other for limited supplies, bidding up prices, resulting in price gouging and hording of goods. It has also resulted in efforts by individual countries and companies (whether local or multinational) to ramp up production to meet the surge in demand. Press reports indicate that many smaller countries find themselves shut out of the market for supplies as large countries or groupings (US and EU) lock up available supplies for months going forward.

The two types of shortages are different in type. Food shortages, if real, flow (1) from some form of crop failure and inadequate inventories, (2) from the failure to keep markets open so goods go to markets where there are needs, or (3) from conflicts. That is, the shortage flows from a temporary supply problem. The shortage is not from a sudden upward change in global demand.

Medical pandemics create severe shortages because of the extraordinary growth in demand for medicines, supplies, equipment and personal protective equipment in a very limited time frame. While arguably countries could build up inventories of potentially needed supplies to address any magnitude of surge in demand, few countries effectively do so and long term demand for the products/supplies of interest don’t support massive capacity outside of a pandemic. Supply can be disrupted as it has been in the COVID-19 pandemic through border measures aimed primarily at limiting movement of people potentially infected but affecting the movement of goods as well, through export restraints imposed to ensure some supplies in country, through disruptions of supply chains, and through aggressive purchasing by large and/or rich countries reducing supplies available for other countries. Supply can also be increased through expanded investment (whether permanent or temporary), through diversion of existing manufacturing from other goods to needed goods, or through reducing inventories. Countries, to offset some of the upward pricing pressures, can reduce the cost of supplies by reducing customs duties, by reducing value added taxes or sales taxes on domestic and imported product, by streamlining and greenlaning import entry, by having the central government coordinate purchasing and distribution during the pandemic, by encouraging expanded production and by keeping markets open.

The COVID-19 pandemic has the added dimension that efforts to address the health crisis have resulted in massive unemployment, collapsing GDPs around the world, sharp contraction in global trade and the need to pump huge sums into economies to prevent greater collapse. Such actions by governments to permit economies to rebound in the future both involve much greater state involvement in economies at least temporarily and issues of how WTO rules on subsidies can or should be applied. The WTO, as the US and others have pointed out frequently, is designed for market economies and wasn’t designed to address the consequences of a pandemic of the magnitude of COVID-19. The extraordinary consequences of the current pandemic will challenge WTO members to determine if current rules remain applicable or need modifications.

Possible solutions for food security and for the availability of medical goods

Food security should, in my view, have different solutions in the trade arena than what may be needed for medical pandemics.

For food security, banning export restraints should be theoretically possible if coupled with (1) national, regional or global inventory reserves of key products to address the periodic droughts and other challenges to supply, (2) market access liberalization of the key agricultural products, and (3) rapid resolution if WTO Members violate their commitments. Even though theoretically possible, the global history of famines and the critical role of food security to governments around the world suggests that meaningful change to trade rules to reduce the flexibilities that presently exist to address food shortages is highly unlikely as part of WTO reform.

On medical pandemics, there are theoretically possible steps that countries could take to reduce the personal and economic toll of future pandemics and the damage to global trade flows. Countries historically have done a poor job of investing in research to address future diseases or viruses until a crisis has occurred. Countries could expand R&D efforts before pandemics. Similarly, national, regional, state/province, local inventories of many critical medical goods could be maintained to address pandemic-level needs. But the reality has been that governments, hospitals and medical businesses have generally not invested in the inventory needed for the historically infrequent pandemic level demand. Supply chains can be modified to provide more sources for all inputs versus reliance on suppliers from one or just a few countries. Governments could develop with companies a game plan for where additional capacity could be generated and how quickly if a pandemic arose and update those game plans periodically. Tariffs could be eliminated on all medical goods, supplies, equipment, and personal protective goods. Governments could ensure priority access of imports of such goods that meet international standards. Governments could provide information to the WHO and WTO on capacities of key medical goods on an annual basis to improve the transparency for countries on supplies. Governments could agree to ban export restraints during a pandemic. Governments could authorize international institutions to build regional inventories for access by countries without the financial resources to build inventories on their own.

While only some of the above actions would come within the WTO’s area of competence, it is hard to imagine WTO Members agreeing to the elimination of discretion they currently enjoy for medical emergencies. It is similarly difficult to imagine countries taking actions longer term to address a problem that could be dismissed as a once-in-a-century crisis.

The broader issues flowing from the need for massive government infusions of funds to prevent the global economy from collapsing are certainly important. If not addressed in a way that allows Members to do what they individually believe they need to do in this crisis, the broader issues will further impede forward movement on broad WTO reform.

Challenging times reveal important structural issues for consideration by WTO Members. Let’s hope there is sufficient recognition of the need for addressing the issues to lead to meaningful progress in reforming the WTO. But don’t hold your breath.

COVID-19 – WTO report on medical goods; FAO report on food security

Terence P. Stewart · April 6, 2020 · Uncategorized · Cambodia, COVID-19, export restraints, Food and Agriculture Organization of the United Nations, food security, Indonesia, Kazakhstan, Malaysia, Myanmar, restraints on the movement of persons, Russia, Thailand, the Philippines, trade in medical goods, Ukraine, Vietnam, World Trade Organization · No Comments

The World Trade Organization has a page on its website that is dedicated to COVID-19 including references to statements from various governments, international organizations, business groups, information from the WTO itself including a compilation of notifications by Members of actions (whether trade limiting or trade expanding) taken in response to COVID-19, and links to a range of websites providing important information on the pandemic. Joint statements are also included. See today’s joint statement between the WTO and the World Customs Organization, https://www.wto.org/english/news_e/news20_e/igo_06apr20_e.htm.

Last Friday, April 3rd, the WTO released a sixteen page note entitled “Trade in Medical Goods in the Context of Tackling COVID-19”. https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf. The note is very useful in terms of providing some definition to a range of products relevant to handling the COVID-19 crisis, identifying major importers and exporters of various product types and providing information on tariffs on the product categories for all WTO Members. The note identifies the following “key points”:

“• Germany, the United States (US), and Switzerland supply 35% of medical products;

“• China, Germany and the US export 40% of personal protective products;

“• Imports and exports of medical products totalled about $2 trillion, including intra-EU trade, which represented approximately 5% of total world merchandise trade in 2019;

“• Trade of products described as critical and in severe shortage in COVID-19 crisis totalled about $597 billion, or 1.7% of total world trade in 2019;

“• Tariffs on some products remain very high. For example, the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%;

“• Protective supplies used in the fight against COVID-19 attract an average tariff of 11.5% and goes as high as 27% in some countries;

“• The WTO has contributed to the liberalization of trade medical products in three main ways:

“➢ The results of tariff negotiations scheduled at the inception of the WTO in 1995;

“➢ Conclusion of the plurilateral sectoral Agreement on Pharmaceutical Products (“Pharma Agreement”) in the Uruguay Round and its four subsequent reviews;

“➢ The Expansion of the Information Technology Agreement in 2015.”

As is true with any analysis of data, the reader needs to understand what is covered and what is not and how good a fit the data provided have with the topic being discussed.

For example, the note reviews four categories of products relevant to the world addressing the COVID-19 pandemic (page 1):

“medicines (pharmaceuticals) – including both dosified and bulk medicines;
“medical supplies – refers to consumables for hospital and laboratory use (e.g., alcohol, syringes, gauze, reagents, etc.);
“medical equipment and technology; and
“personal protective products -hand soap and sanitizer, face masks, protective spectacles.”

While the four categories are, of course, relevant to addressing the COVID-19 pandemic, the products covered by the tariff schedule categories are both over- and underinclusive if one is trying to understand the size of global trade in medical products directly relevant to the global efforts to address COVID-19.

The report’s data are overinclusive because the Harmonized System of Tariffs used by most nations is only harmonized to the six-digit level of specificity. The categories included in the WTO note cover both COVID-19 related products and many others. Stated differently, nearly all of the product categories identified in Annex 1 to the note include at least some items that are not germane to the current pandemic. This is a limitation on the usefulness of the data flowing from the lack of more specific classifications that all countries adhere to. As the six-digit data are all that are available with a consistent definition around the world, it is not surprising that the WTO relied on the data. Arguably better, but not uniform data could have been derived by reviewing the 8-, 9- or 10-digit statistical data for imports and exports of at least major Members, but that was not done.

Similarly, the product coverage is underinclusive as recognized in the WTO note (page 2). “It should be noted that this note focuses solely on the final form of these products and does not extent to the different intermediate products that are used by global value chains in their production. The protective garments for surgical/medical use are not included in the analysis, because it is impossible to distinguish them from general clothing product in the HS classification.”

As governments and companies have articulated over the last several months, many of the key final products (e.g., ventilators) require a large number of inputs which are often sourced from a variety of suppliers around the globe. For example, one ventilator company which assembles the ventilators in the United States is reliant on circuit boards from its facility in China to maintain or increase production. Other companies bring various inputs in from Canada or Mexico or other countries as well as shipping U.S. components to other countries for final assembly. The same reality is obviously true for producers of medical goods in other countries as well. Thus, an inability to cover inputs significantly understates global trade volumes of products relevant to addressing the COVID-19 pandemic.

Similarly, there are shortages in many countries of the protective garments for which no data are included. These are important products traded that are directly relevant to the world’s ability to respond to COVID-19. The lack of coverage of those products understates the importance of personal protective products to the total and understates global trade.

The above is simply to say, the sections of the WTO note that look at trade patterns (imports, exports, leading players) are helpful in identifying possible breaks between products and possible major players but the data may be significantly off from the actual split among products or role of major players if complete data limited to products relevant for addressing COVID-19 were available. It may also understate the importance of keeping markets open even if there are relatively few imports of finished products.

To explore how overstated data may be, if one looks at the HS categories shown in Annex 1 for personal protective products and looks at the United States U.S. imports for consumption for 2019 at the 10-digit HTS level of detail, the top seven 10-digit categories by customs value accounted for more than 72% of the $17 billion in imports. Yet each of the categories would contain many products not actually relevant to efforts to address COVID-19. In fact five of the seven categories are basket categories.

3926.90.9990	OTHER ARTICLES OF PLASTIC, NESOI
6307.90.9889	OTHER MADE-UP ARTICLES NESOI
3824.99.9297	CHEMICAL PRODUCTS AND PREPARATIONS AND RESIDUAL PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES, NESOI
9004.90.0000	SPECTACLES, GOGGLES AND THE LIKE, CORRECTIVE, PROTECTIVE, NESOI
3926.90.7500	PNEUMATIC MATTRESSES & OTHR INFLATABLE ARTICLES,NESOI
3824.99.3900	MIXTURES OF TWO OR MORE INORGANIC COMPOUNDS
3926.90.4590	OTHER GASKETS AND WASHERS & OTHER SEALS

Similarly, the analysis of applied tariff rates is useful in showing rates for product groupings and the rates for individual countries for those product groupings but may be less useful in identifying the assistance tariff reductions would have in the present time of the pandemic. Obviously, tariff reductions by any Member that imposes them on imported products relevant to the pandemic would reduce the cost for the importing country of the needed materials. But the extent of assistance varies significantly depending on the Member as the data in Annex 2 show.

As the EU/EEA/United Kingdom and the United States account for 73.9% of the confirmed cases in the world as of April 6, 2020, a review of the applied rates for those countries would identify likely benefit from tariff reductions by the countries with the major outbreaks at the moment. The EU has an average applied rate of 1.5%, the U.S. an average applied rate of 0.9%, Norway 0.6% and Switzerland 0.7%. These rates don’t include any special duties, such as US duties on China flowing from the Section 301 investigation (with some products being subject to potential waiver of additional duties). Thus, for the vast majority of current cases, the importing countries’ applied rates are very low and hence not a significant barrier to trade.

https://www.ecdc.europa.eu/en/geographical-distribution-2kistan019-ncov-cases; https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea

Other countries where the reach of the pandemic may intensify typically have much higher applied tariffs. As case loads intensify in other countries or in anticipation of such potential eventualities, countries with higher tariffs should be exploring autonomous duty reductions to make imported products more affordable. India has an average applied tariff of 11.6%; Pakistan an average rate of 10.0% and Malaysia a rate of 11.7% to flag just three Members with rates at or above 10%.

The WTO note is embedded below.

rese_03apr20_e

Food security and the FAO analysis of current agricultural product availability

In a prior post, I reviewed the compounding problems during the COVID-19 pandemic of some countries starting to impost export restraints on selected products (e.g., rice, wheat) to protect food supplies. Countries reported to be imposing export restraints on food had been Russia, Ukraine, Kazakhstan and Vietnam. A series of articles in Asian and European press have noted that Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia have also introduced various restraints as well. Major agricultural groups in Asia are warning that disrupting movement of food (including movement of workers to help harvest, etc.) could lead to food shortages in Asia and have reviewed that Asian countries import some 220 million tons of agricultural products which underlines the need to keep markets open. See, e.g., https://www.scmp.com/week-asia/politics/article/3078376/coronavirus-food-security-asias-next-battle-post-covid-world; https://www.dairyreporter.com/Article/2020/03/30/Major-food-shortages-possible-in-Asia-says-FIA#.

While fear can lead to panic and various border measures, the actual situation globally as laid out by the Food and Agriculture Organization of the United Nations (“FAO”) in a recent paper is that there are more than sufficient supplies of food. The key is minimizing disruptions to production and distribution. This is not a period where major disruptions from drought or floods have caused shortages of products. Specifically, the FAO’s Chief Economist prepared a document entitled “COVID-19 and the risk to food supply chains: How to respond?” which was released on March 29. http://www.fao.org/3/ca8388en/CA8388EN.pdf. The paper starts with a section entitled “What we know”:

“Countries have shut down the economy to slow the spread of the coronavirus. Supermarket shelves remain stocked for now. But a protracted pandemic crisis could quickly put a strain on the food supply chains, a complex web of interactions involving farmers, agricultural inputs, processing plants, shipping, retailers and more. The shipping industry is already reporting slowdowns because of port closures, and logistics hurdles could disrupt the supply chains in coming weeks.

“In order to avoid food shortages, it is imperative that countries keep the food supply chains going. Unlike the 2007-2008 global food crisis, scarcity is not an issue this time. The supply of staple commodities is functioning well, and the crops need to be transported to where they are needed most. Restricting trade is not only unnecessary, it would hurt producers and consumers and even create panic in the markets. For high-value commodities that require workers (instead of machines) for production, countries must strike a balance between the need to keep production going and the need to protect the workers.

“As countries combat the coronavirus pandemic, they must also make every effort to keep the gears of their food supply chains moving.”

The paper then goes on to identify five actions needed to minimize the likelihood of food shortages arising during the pandemic. These actions are:

“Expand and improve emergency food assistance and social protection programs

“Give smallholder farmers support to both enhance their productivity and market the food they produce, also through e-commerce channels

“Keep the food value chain alive by focusing on key logistics bottlenecks

“Address trade and tax policies to keep the global trade open

“Manage the macroeconomic ramifications”.

With the number of countries already taking actions that are inconsistent with keeping global markets open for the movement of food supplies, the world is at risk of having a major complication added to the extrordinary economic shocks already being felt to address the health needs of the COVID-19 pandemic. Such a major complication would, as it did in 2007-2008, directly harm developing and least developed countries, countries least able to absorb additional shocks.

The report and a powerpoint from FAO are embedded below.

COVID-19-and-the-risk-to-food-supply-chains_-How-to-respond_

ca8308en