Dominican Republic

Making the WTO relevant to businesses and workers — the example of travel and tourism

Each of the eight candidates to become the next Director-General of the World Trade Organization correctly noted that the WTO’s relevance was at risk without significant reform and the ability to make the three pillars of the multilateral trading system function properly (negotiations, transparency/monitoring, dispute settlement). Some candidates talked about the need for the WTO to take actions that can be clearly seen by businesses, workers and consumers as being relevant to their lives. Most have also talked about the need for the WTO to review how it can provide greater resilience and predictability in the context of a pandemic like COVID-19. Some candidates were also asked questions about how the WTO can be more involved in helping the world achieve the sustainable development goals (SDGs) laid out by the UN in 2015 with a targeted completion date of 2030. Most candidates also commented on the need to improve coordination with other multilateral organizations to see that the capacity needs, financing and other elements often needed for progress on improving integration of smaller and less developed countries into the global trade system are met.

One issue that intersects all of the above needs/concerns is the travel and tourism sector. It is the third largest trade export sector, has been one of the hardest hit sectors globally by the fallout from the COVID-19 pandemic with some 100-120 million jobs at risk this year with the potential closure of hundreds of thousands or millions of businesses – most mciro-, small- and medium enterprises (MSMEs) — and a sector that directly or indirectly is relevant to most of the UN’s SDGs. It is also a sector where there has been a great deal of activity by other multilateral organizations and the U.N.

While travel and tourism is important for nearly all countries, it has an outsized importance for small island developing states (SIDS), least developed countries (LDCs) and many countries in Africa. Thus, an effort by the WTO to prioritize actions that would help restore the international trade dimension of the travel and tourism sector and in a way that is supportive of the actions of other international organizations would have meaningful effects for businesses, workers and consumers globally.

United Nations, Policy Brief: COVID-19 and Transforming Tourism

On August 25, 2020, UN Secretary-General Antonio Guterres released a policy brief entitled COVID-19 and Transforming Tourism. The video of his statement when releasing the study can be found here, https://www.unwto.org/news/un-secretary-general-it-is-imperative-that-we-rebuild-the-tourism-sector (news release with video of statement towards bottom). The press release from the UN World Tourism Organization is copied below (emphasis in original).

UN SECRETARY-GENERAL: ‘IT IS IMPERATIVE THAT WE REBUILD THE TOURISM SECTOR IN A SAFE, EQUITABLE AND CLIMATE FRIENDLY MANNER

“Madrid, Spain, 25 August 2020 – As part of the wider UN response to COVID-19, the UN Secretary-General António Guterres released today a thematic brief on the impact the pandemic has had on tourism. Drawing on the latest data from the World Tourism Organization (UNWTO), the lead author of the publication, it warns that as many as 100 million direct tourism jobs are at risk, and the massive drop in export revenues from tourism could reduce global GDP by as much as 2.8%. The brief stresses that tourism is an essential pillar of the SDGs and the most vulnerable workers and nations at greatest risk.

“Tourism has been among the hardest hit of all sectors by COVID-19 and no country has been unaffected, with restrictions on travel and a sudden drop in consumer demand leading to an unprecedented fall in international tourist numbers.

“The ‘COVID-19 and Transforming Tourism’ Policy Brief from the Secretary-General of the United Nations, António Guterres, makes clear the impact that the pandemic has had on global tourism and how this affects everything from jobs and economies to wildlife conservation and the protection of cultural heritage.

“Mr Guterres said: that ‘It is imperative that we rebuild the tourism sector‘ in a ‘safe, equitable and climate friendly’ manner and so ‘ensure tourism regains its position as a provider of decent jobs, stable incomes and the protection of our cultural and natural heritage’. The UN Secretary-General further underscored that tourism is one of the world’s most important economic sectors, providing ‘livelihoods to hundreds of millions more’, while it’“boosts economies and enables countries to thrive’, and at
the same time allowing ‘people to experience some of the world’s cultural and natural riches and brings people closer to each other, highlighting our common humanity’.

“The Brief warns that the impacts of the pandemic on tourism are already placing conservation efforts in jeopardy. Citing case studies from around the world, it warns that the sudden fall in tourism revenues has cut off funding for biodiversity conservation and, with livelihoods at risk in and around protected areas, cases of poaching and looting are expected to rise. Again, the impact on biodiversity and ecosystems will be particularly critical in SIDS and LDCs. Furthermore, with 90% of World Heritages Sites having closed as a result of the pandemic, both tangible and intangible heritage is at risk in all parts of the world.


Five points priorities moving forward

“UNWTO Secretary-General Zurab Pololikashvili said: ‘Tourism touches on nearly every part of our societies and is a cornerstone of growth and employment, both in developed and developing economies. The United Nations Secretary-General echoes the five key priority areas that UNWTO has identified for tourism to return and drive wider recovery, and both governments and the private sector now have a duty to put this plan into
action.’

“The Policy Brief notes that women, youth and workers in the informal economy are most at risk from job losses and business closures across the tourism sector. At the same time, destinations most reliant on tourism for jobs and economic growth, including SIDS) and Least Developed Countries (LDCs) are likely to be hardest hit, including through an anticipated fall in foreign direct investment (FDI).

“In addition to calling for strong support for the sector in mitigating these massive impacts, the Brief stresses that this crisis represents an opportunity to rethink tourism, including how it contributes to the SDGs. To this end, the Policy Brief provides Five Priorities for the restart of tourism, all aimed at ensuring a more resilient, inclusive and carbon neutral sector. These priorities are:

“1. Mitigate socio-economic impacts on livelihoods, particularly women’s employment and economic security.

“2. Boost competitiveness and build resilience, including through economic
diversification and encouragement of MSMEs.

“3. Advance innovation and digital transformation of tourism

“4. Foster sustainability and green growth

“5. Enhanced focus on coordination, and responsible leadership

“Alongside penholder UNWTO, a further 11 United Nations agencies contributed to the Policy Brief, highlighting the sector’s unique importance and outreach.”

The policy brief is embedded below.

SG-Policy-Brief-on-COVID-and-Tourism

There are a set of slides that lay out what is at stake for the world from the impact of COVID-19 on tourism. International tourist arrivals are down 56% in the January – May time period for the world, with the range by region being between 47% (Americas and Africa) and 60% (Asia and the Pacific). The loss in revenue in five months was US$320 billion with an annual projection of lost revenue from US$910 billion to US$1.2 trillion. The most optimistic projection has international tourism revenues declining to a level last seen in 2003.

The small island developing states (SIDS) and least developed countries (LDCs) most at risk include 21 which have international tourism exports accounting for 50-90% of total exports of goods and services and an additional 20 countries where international tourism exports are between 30 and 50% of total exports of goods and services. Macao (China), Palau, Bahamas, Saint-Lucia, Maldives, Turks and Caicos, and Aruba are all 80% or higher; St. Maarteen and Anguila are 70-79%; Cabo Verde, Antigua & Barbuda, Sao Tome & Principe, Barbados, Vanuatu, and Samoa are all 60-69%; Jamaica, Montenegro, Gambia, Fiji, Comoros, and Dominica are all 50-59%; Tonga, Ethiopa, Belize, Lebanon, Montserrat, Georgia, French Polynesia, and Jordan are all 40-49%; and Mauritus, Seychelles, Haiti, Dominican Republic, Bermuda, Albania, St. Vincent & Grenadines, Croatia, Tanzania, Curacao, Grenada, and St. Kitts and Nevis are all 30-39%.

One of slides shows that women make up 54% of the workforce of accommodation and food services supporting the point that women are among the most vulnerable in terms of job security during the pandemic.

The slides are embedded below.

UN-Tourism-Policy-Brief-Visuals

Conclusion

As WTO Members look at their responses to the COVID-19 pandemic in general with a focus on export restraints and other restrictions, consider how trade can speed economic recovery and consider steps that should be taken to reduce the challenges should there be another health pandemic in the future, it is important that the Members consider the travel and tourism sector with a sense of urgency. Cooperation and coordination among WTO Members on when and how to reopen international travel and other needs of travelers, businesses, workers and host governments is obviously critical. Also coordination with the WHO, UNWTO, IMF, World Bank and regional development banks is critical to see that the special needs of SIDS, LDCs and the MSMEs are identified and addressed.

Review of the COVID-19 pandemic — continued overall growth in cases and deaths, resurgence in some countries where COVID-19 had receded

This past week saw the release of information on GDP contraction in the U.S. in the second quarter of 2020 (9.5% (annualized at 32.9%)) and in the European Union (11.9%). See U.S. Department of Commerce Bureau of Economic Analysis, News Release BEA 20-37, Gross Domestic Product, Second Quarter 2020 (Advance Estimate) and Annual Update, https://www.bea.gov/sites/default/files/2020-07/gdp2q20_adv_0.pdf; Eurostat newsrelease 121/2020 – 31 July 2020, Preliminary flash estimate for the second quarter of 2020, GD down by 12.1% in the euro area and by 11.9% in the EU, https://ec.europa.eu/eurostat/documents/2995521/11156775/2-31072020-BP-EN.pdf/cbe7522c-ebfa-ef08-be60-b1c9d1bd385b#:~:text=The%20next%20estimates%20for%20the,released%20on%2014%20August%202020.&text=Compared%20with%20the%20same%20quarter,respectively%20in%20the%20previous%20quarter. Japan has similarly suffered substantial contraction in its GDP through the second quarter. See https://asia.nikkei.com/Economy/Japan-GDP-to-shrink-22-in-Q2-in-biggest-postwar-drop-forecast.

These sharp contractions in U.S. and EU GDP reflect the effects of the actions by governments in the U.S. and in the EU to shut down parts of their economies in an effort to control the spread of the COVID-19 pandemic. The sharp contractions would have been far worse but for government efforts to provide emergency funding to support companies, workers and local governments. While the COVID-19 pandemic has been far less severe in terms of cases and deaths in Japan and in other countries in Asia, contraction in GDP reflects both declining consumer spending and global effects of trade contraction that are occurring.

China, where COVID-19 infections were first discovered, saw a decline in GDP in the 1st quarter of 2020 with a rebound in the second quarter to a 3.2% increase. See CNBC, China says its economy grew 3.2% in the second quarter this year, rebounding from coronavirus, July 15, 2020, https://www.cnbc.com/2020/07/16/china-economy-beijing-reports-q2-2020-gdp.html.

The sharp contractions in GDP from much of the developed world is consistent with projections by the IMF from June 2020. A summary table from the World Economic Outlook Update is copied below.

The hope was that after a sharp contraction in the second quarter, the world would experience a v-shaped recovery once the pandemic was brought under control in much of the world.

As we start August 2020, expectations are turning to a longer and shallower rebound in the third and fourth quarters of 2020 which will negatively affect billions of people. The world has not yet crested in terms of new COVID-19 cases and countries that had gotten the virus seemingly under control are seeing various levels of resurgence. The United States which never got the virus under control has seen a second surge that has reached levels at least twice as high as earlier levels of new cases and has seen a resurgence in hospitalizations and deaths.

There are a few bright spots. Some countries have managed to drastically reduce the spread of the virus and have been reopening in phases with limited recurrence. Moreover, a number of pharmaceutical companies have entered phase three trials of vaccines, and governments have fronted billions of dollars to build capacity for vaccines should they prove safe and effective. While major countries like the U.S. and the EU block have secured access to potentially hundreds of millions of doses from various companies should vaccines in trial receive approval for distribution, at least a number of these pharmaceutical companies (or consortia) have arrangements for massive production around the world including billions of doses for developing and least developed countries which should enable a more equitable and affordable distribution than may have been true in the past.

COVID-19, the number of new cases in the last fourteen days

Looking at the daily reports put out by the European Centre for Disease Prevention and Control, the world saw an additional 3,568,162 cases in the fourteen days ending August 2nd. This was an increase of some 550,000 from the previous fourteen days ending July 19 where new cases were 3,018,993. The July 19 two week figures were again up close to 550,000 from the period ending July 5 when there were 2,469,859 cases. The period ending June 21 has 1,932,024 new cases; the period ending June 7 had seen an additional 1,567,983 new cases. Thus, in less than two months the global number of new cases in a fourteen-day time period increased by 127.56 percent. The COVID-19 situation update worldwide, as of 2 August 2020 is embedded below.

COVID-19-situation-update-worldwide-as-of-2-August-2020

Fourteen of the forty-two countries or customs territories that I have been tracking who account for more than 90% of total cases and total deaths from the pandemic continue to not have peaked in terms of two week number of new cases. See July 21, 2020, COVID-19 – the United States continues to spin out of control with increasing shortages of medical goods; sharp increases in developing countries in the Americas and parts of Asia, https://currentthoughtsontrade.com/2020/07/21/covid-19-the-united-states-continues-to-spin-out-of-control-with-increasing-shortages-of-medical-goods-sharp-increases-in-developing-countries-in-the-americas-and-parts-of-asia/. Japan, which had peaked a number of months ago, has a resurgence of cases, so much so that the last two weeks (11,439 new cases) exceed any other two week period for the country. Other countries which have not peaked include the United States (908,980 new cases), India (673,105 new cases) Brazil (633,017 new cases), Colombia (115,481 new cases), Mexico (95,280 new cases), Argentina (72,001 new cases) and these additional countries — Bolivia, Dominican Republic, Ecuador, Honduras, Indonesia, Iraq, and the Philippines). South Africa peaked in the prior two week period but still had an additional 152,411 new cases (93.56% of its peak).

Many developed countries have seen sharp increases in the last two weeks, albeit from much lower levels than in the spring. These include Spain, France, Germany, Italy, Canada, Australia and Japan.

Many developing and least-developed countries in Central and South America, Africa and parts of Asia are seeing growing numbers of cases. While some of these countries have seen a peak in the number of new cases, for others that is not true. India and Brazil are continuing to struggle to contain the spread as are the Latin and Asian countries reviewed above.

In the last two weeks, the United States had more new cases per 100,000 population than all of the other 41 countries being monitored other than Brazil and Panama. The U.S. number of new cases per 100,000 population was 5.88 times the number for all countries (including the U.S) and 4-50 times as high as major EU countries. And on deaths in the last fourteen days, the U.S. has more deaths per 100,000 population than all of the other 41 countries other than Brazil, Mexico, Peru, South Africa, Chile, Bolivia, Colombia and Panama. The U.S. death rate in the last fourteen days is 3.95 times the rate/100,000 population for the entire world and 25-87 times the rate for major EU countries (France, Germany, Italy, Spain).

WTO Members have the opportunity to adopt rules to minimize trade disruptions and expedite economic recovery

Many Members of the WTO have submitted proposals for action by the Membership to minimize the harm to global economies and trade flows from addressing trade restrictions, trade liberalization possibilities and other matters within the WTO’s wheelhouse.

In a previous post, I reviewed the July 25 APEC trade ministers joint statement and annex which in my view could provide the platform for WTO Members coming together to adopt a group of principles that have been endorsed not only by the APEC countries but also by G-20 members (in various G-20 releases). See July 28, 2020, APEC trade ministers’ virtual meeting on July 25 – Declaration on Facilitating the Movement of Essential Goods during COVID-19, https://currentthoughtsontrade.com/2020/07/28/apec-trade-ministers-virtual-meeting-on-july-25-declaration-on-facilitating-the-movement-of-essential-goods-during-covid-19/.

The WTO, being a member-driven organization, requires the WTO Members to come together for the common good if progress is to be made. While recent actions on seemingly non-substantive issues, like selecting an acting Director-General (largely an administrative function pending selection of a new Director-General), lay bare the lack of trust and widely divergent views among WTO Members, adopting basic principles for getting through the pandemic should be a win-win for all Members.

Conclusion

The COVID-19 pandemic is continuing to wreak havoc across the globe with new cases and new deaths continuing to mount. The health consequences are severe and are increasingly shifting to developing and least-developed countries. However, some developed countries, like the U.S., have not gotten the virus under control. Moreover, a number of countries who have had success controlling the spread of COVID-19 are seeing a resurgence as reopening of economies continues. This has led some countries to slow or even reverse some of the reopening steps.

As the sharp economic contractions in major developed economies attest, there are huge economic costs to dealing with the pandemic. The economic rebound is unlikely to be as strong or as quick as many have hoped. While much of what is needed is focus by each country and its citizenry to follow the science and get the pandemic under control, there is also an important role for multilateral organizations to play in keeping markets open, providing financing for those in need and more. The WTO has a potentially important role on the trade front. It is unclear that WTO Members will embrace the opportunities presented, but if Members would it would reduce the depth of the trade contraction and help speed economic recovery.

COVID-19 — the global rate of increase of confirmed cases is surging

By the close of business on June 22, there will be more than 9 million confirmed cases of COVID-19 with the rate of growth exploding more than six months after the first cases were reported in China, with deaths approaching a half million. For the two weeks ending June 21, the number of new cases approached 2 million (1,932,024), up 24.0% from the two weeks ending June 7 (1,557,983) which in turn were up 21.5% from the two weeks ending May 24 (1,281,916). Thus, the last six weeks have seen the rate of new cases grow by 50.7%. Indeed, the last six weeks account for 54.25% of total cases since the end of 2019 (roughly 25 weeks).

As the worst of the pandemic has passed (at least the first wave) for most of the developed world (other than the United States and countries in the Middle East), the sharp growth in cases is mostly due to the spread of the virus in the developing world where healthcare infrastructure and ability to handle the challenges of the pandemic are likely less than for the developed world.

Central and South America, parts of Asia and the Middle East are the current hot spots of infections with growth in a number of African countries as well. The United States which peaked during the two week period ending April 26, has by the far the largest number of total cases (more than 2.2 million) and is seeing the number of cases rise again in the most recent two weeks.

Afghanistan, Argentina, Bangladesh, Bolivia, Brazil, Chile, Colombia, the Dominican Republic, Ecuador, Egypt, Guatemala, Honduras, India, Indonesia, Iraq, Kuwait, Mexico, Nigeria, Oman, Pakistan, Panama, the Philippines, Qatar, Saudi Arabia, South Africa and the United Arab Republic all have significant numbers of cases and all but Kuwait, Qatar and the UAE are still growing rapidly in terms of new cases where peaks have not been reached. Thus, the likelihood of even greater number of new cases is a near certainty for the coming weeks.

Some recent developments

Most of western Europe has been engaged in reopening in recent weeks as the rates of infection are dramatically lower than in the March-April period. Indeed, travel within the EU and some neighboring countries is opening up in time for the July-August vacation season. Time will tell if the steps being taken to test, trace and quarantine any cases found going forward will minimize any upward movement in cases.

China and parts of Asia with low rates of infections where economic interruption has been less (e.g., Taiwan, the Republic of Korea, Singapore and Japan), are seeing low numbers of new cases. China has taken strong measures to address a new outbreak in Beijing (numbers are a few hundred cases).

Australia and New Zealand have few if any new cases and the numbers for Canada are also way down with reopening occurring as would be expected.

The U.S. and Canada and the U.S. and Mexico are maintaining travel restrictions between themselves (though excluding movement of goods and services).

In the United States, the story on the control of the pandemic is very mixed as individual states have been engaged in reopening at different rates in part reflecting different infection rates and growth rates. However, reopening in some states is occurring despite conditions in the state not being consistent with the Administration’s guidelines from the Center for Disease Control ad Prevention (“CDC”) on when reopening should occur. Thus, there are states seeing large increases in recent days and weeks while many other states are seeing significant declines or at least stable rates of infection. It is unclear how the infection rate in the U.S. will progress in the coming weeks and months.

Trade Considerations

As my post from last week on the Ottawa Group communication reviewed, there are lots of proposals that have been teed up by WTO Members to keep trade flowing during the pandemic and to potentially reduce the likelihood of such trade disruptions as are being experienced at present in future pandemics.

But large numbers of export restraints remain in place, transparency is better than it was in the first quarter but still not what is needed. However, import liberalization/expedition is occurring in many countries to facilitate obtaining medical goods needed at the lowest price.

The toll flowing from the pandemic and the closing of economies to control the pandemic is enormous despite efforts of governments to provide funding to reduce the damage. This has led the WTO to project 2020 trade flows to decline between 13 and 32% from 2019 levels. As data are available for the March-June period, the severity of the decline for various markets is being fleshed out and resulting in lower global GDP growth projections.

Because the COVID-19 pandemic hit many developed countries hard before spreading to most of the developing world, developing countries have seen economic effects from the pandemic preceding the health effects in their countries. Reduced export opportunities, declining commodity prices (many developing countries are dependent on one or a few commodities for foreign exchange), reduced foreign investment (and some capital flight), higher import prices for critical goods due to scarcity (medical goods) and logistics complications flowing from countries efforts to address the spread of the pandemic are a few examples of the economic harm occurring to many developing countries.

The needs of developing countries for debt forgiveness/postponement appears much larger than projected although multilateral organizations, regional development banks and the G20 have all been working to provide at least some significant assistance to many individual countries. Trade financing will continue to be a major challenge for many developing countries during the pandemic. Harm to small businesses is staggering and will set many countries back years if not decades in their development efforts when the pandemic is past.

As can be seen in developed countries, sectors like travel and tourism (including airlines, hotels, restaurants, entertainment venues) are extraordinarily hard hit and may not recover for the foreseeable future. The need for social distancing makes many business models (e.g., most restaurants, movie theaters, bars, etc.) unworkable and will result in the loss of large portions of small businesses in those sectors in the coming months. For many developing countries, travel and tourism are a major source of employment and income. Losses in employment will likely be in the tens of millions of jobs, many of which may not return for years if at all.

Role of WTO during Pandemic

The WTO views itself as performing the useful functions of (1) gathering through notifications information from Members on their actions responding to the pandemic and getting that information out to Members and the public, (2) providing forecasts of the trade flows during the pandemic, and (3) providing a forum for Members to bring forward proposals on what action the WTO as a whole should consider. Obviously the success of all three functions depends on the openness and engagement of the Members.

WTO agreements don’t really have comprehensive rules for addressing pandemics or for the policy space governments are likely to need to respond to the economic tsunami that may unfold (and will unfold with different intensities for different Members). Some recent proposals would try to address some of the potential needs for the trading system to better respond to pandemics. However, most proposals seem to suggest narrowing the policy space. Last week’s Committee on Agriculture was reported to have had many Members challenging other Members actions in the agriculture space responding to the extraordinary challenges flowing from the pandemic. While Committee activity is designed to permit Members the opportunity to better understand the policies of trading partners, a process in Committee which focuses simply on conformance to existing rules without consideration of what, if any, flexibilities are needed in extraordinary circumstances seems certain to result in less relevance of the WTO going forward.

Most countries have recognized that the depth of the economic collapse being cased by the global efforts to respond to COVID-19 will require Members to take extraordinary steps to keep economies from collapsing. Looking at the huge stimulus programs put in place and efforts to prevent entire sectors of economies from collapsing, efforts to date by major developed countries are some $10 trillion. Concerns expressed by the EU and others have generally not been the need for such programs, but rather have been on ensuring any departures from WTO norms are minimized in time and permit a return to the functioning of market economies as quickly as possible.

Members have not to date proposed, but should agree, that the WTO undertake an evaluation of programs pursued by Members and how existing rules do or do not address the needs of Members in these extraordinary times.

WTO Appellate Body Reports on Australia’s Plain Packaging of Tobacco Products — Separate Views of One Division Member Merit Close Review

In a post from yesterday, I reviewed the Appellate Body (“AB”) reports released on June 9 in the appeals by Honduras and the Dominican Republic on the panel reports on Australia’s plain packaging regime on tobacco products. As noted, the AB upheld the panel reports that Australia’s regime did not violate any WTO Agreements as alleged by the Appellants. See WTO Appellate Issues Reports on Australia’s Plain Packaging Requirements on Tobacco Products – Last Reports Until WTO Appellate Body Reform Occurs, https://currentthoughtsontrade.com/2020/06/09/wto-appellate-body-issues-reports-on-australias-plain-packaging-requirements-on-tobacco-products-last-reports-until-wto-appellate-body-reform-occurs/

There are important “separate views” contained in the AB reports that while agreeing with the final conclusion that there was no violation disagree with the searching review of the underlying record on the claim that the panels had not made an objective assessment of the facts pursuant to DSU Art. 11. The separate views also disagreed with the finding of the other two Division members that appellants’ due process rights were violated based on use of information in the interim panel reports that had not previously been available to the parties.

As WTO disputes have become ever more litigious, lawyers used by Members to handle appeals have increased the frequency of seeking a review of the factual record on the claim that panels have not made an objective assessment of the record. Instead of parties limiting appeals of such claims to extraordinary situations, increasing numbers of appeals have focused on these appeal issues. The result has been greatly complicated appeals, much longer AB reports and an inability for AB Divisions to render decisions in 60-90 days of the filing of an appeal.

The Australia plain packaging appeals were filed by Honduras on 17 July 2018 and by the Dominican Republic on 23 August 2018. Thus, the AB reports released on 9 June 2020 were 693 days and 656 days after the appeals were filed. While certainly part of the delay flows from the inability to fill the AB member vacancies since 2018, a significant part flows from the failure of the AB Divisions to limit review of claims under DSU Art. 11 to situations that plausibly create the extraordinary circumstances required for its invocation.

The AB reports in these appeals are 232 pages in length. The concept that a Division of the AB will draft reports in 60-90 days that are 232 pages in length is obviously implausiible. Eliminating the DSU Art. 11 claims would have reduced the length of the reports by roughly 100 pages and would have permitted the AB to focus on the legal issues and legal interpretations of the panel appealed by the parties. As clear from the Dispute Settlement Understanding, the AB isn’t to review factual issues. Rather DSU Art. 17.6 limits the AB to reviewing legal issues and legal interpretations of the panel.

The proper role of the AB and the need to clarify the limited circumstances when a challenge to facts found by the panel by claims of panel bias or failure to make an objective evaluation of the record (DSU Art. 11) have been some of the ongoing concerns of the United States in looking at the functioning of the AB. The latest AB reports demonstrate the importance of addressing the U.S. concerns. The separate views included in the report are important in articulating how the DSU Art. 11 claims in these appeals should have been handled.

The separate views are copied below and eloquently lay out the correct approach in these appeals. WT/DS435/AB/R at 179 – 183 and WT/DS441/AB/R at 179 – 183

6.2 Separate opinion of one Division Member regarding Article 2.2 of the TBT Agreement

6.2.1 Introduction

“6.523. It is well settled that not every error by a panel rises to the level of a breach of Article 11 of the DSU. Under the DSU, panels enjoy considerable discretion with respect to fact-finding and the evaluation of facts. This is underscored by the language of Article 11 that ‘a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case’, read in conjunction with Article 17.6 of the DSU, which says that ‘[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.’ In other words, Article 11 claims on appeal should be reserved – and entertained – only for rare instances of ‘egregious’ errors by panels, which call into question the good faith of the panel.1433

“6.524. With respect to the appellants’ claims regarding the Panel’s analysis under Article 2.2 of the TBT Agreement, I concur with the majority’s ultimate findings and conclusions. However, I disagree on two points: (i) that it was necessary to examine in detail the appellants’ claims that the Panel erred in determining the degree of contribution of the TPP measures to Australia’s objective; and (ii) that the Panel’s treatment of and reliance on multicollinearity and non-stationarity constituted an error under Article 11 of the DSU.

6.2.2 Addressing the appellants’ claims regarding the contribution of the TPP measures was not necessary to resolve the dispute

“6.525. The complainants’ main argument before the Panel was that the TPP measures are more trade-restrictive than necessary because: (i) they are trade-restrictive; and (ii) they are not apt to, and do not, contribute to Australia’s legitimate public health objective.1434 In the alternative, the complainants argued that, even assuming that the TPP measures contribute to Australia’s legitimate public health objective, they are still ‘more trade-restrictive than necessary’ because there are alternative measures that are reasonably available to Australia and that would be less trade-restrictive while making an equivalent contribution to the objective.1435

“6.526. The Panel rejected those arguments by the complainants, while noting that the TPP measures are necessarily trade-restrictive because all tobacco products are imported into Australia, and that the TPP measures contribute to Australia’s public health objective by reducing consumption of tobacco products. The appellants challenge the Panel’s rejection of their arguments. My discussion of that challenge centres on the two sentences in paragraph 7.1025 of the Panel Report.

“6.527. In the first of these sentences, the Panel found that the complainants failed to demonstrate that the TPP measures ‘are not apt to make a contribution to Australia’s objective’.1436 In the second sentence, the Panel found that, ‘[r]ather, … the evidence … , taken in its totality, supports the view that the TPP measures … are apt to, and do in fact, contribute to Australia’s objective.’1437

“6.528. The appellants’ appeals were silent regarding the first sentence. They addressed only the second sentence. In doing that, the appellants have not explained how any errors undermining the Panel’s finding in the second sentence of paragraph 7.1025 would suffice to demonstrate that the Panel erred in forming the conclusion in the first sentence of that paragraph.

“6.529. In response to questioning at the second hearing, the appellants stated that it was unnecessary to raise any independent appeal or challenge of the Panel’s finding in the first sentence, because the Panel’s finding in that sentence is integrally linked to the Panel’s finding in the second sentence. The appellants underscored that the Panel conducted an integrated analysis of the degree of contribution based on the evidence as a whole.1438

“6.530. I read these two sentences as saying different things. The first sentence says that the appellants failed to demonstrate that the TPP measures are not apt to make a contribution; the second sentence says that the totality of evidence supports the view that the TPP measures are apt to, and do in fact, make a contribution.

“6.531. Even assuming, arguendo, that the appellants are correct that the Panel relied on the totality of the evidence in forming both conclusions in these two sentences of paragraph 7.1025, I do not see how the errors alleged by the appellants pertaining to the Panel’s second-sentence finding would vitiate the Panel’s finding in the first sentence. The mere fact that the Panel may have relied on the same evidence for both findings does not mean that any errors in the Panel’s second determination – that the evidence supports the view that the TPP measures ‘are apt to, and do in fact’ make a contribution – also would undermine the Panel’s conclusion that the complainants failed to substantiate their burden of demonstrating that the TPP measures are not apt to contribute. Those are two different conclusions.

“6.532. Consequently, in order for us to overturn the Panel’s conclusion that the complainants failed to demonstrate that the TPP measures are not apt to contribute to Australia’s objective – expressed in the first sentence of paragraph 7.1025 – the appellants were required to demonstrate that the Panel’s errors in its examination of the evidence vitiated that conclusion, and did so in a manner so egregious as to constitute a violation of Article 11 of the DSU.

“6.533. As noted, the appellants did not appeal the Panel’s finding in the first sentence of paragraph 7.1025. They also did not otherwise address the question of whether any errors in the Panel’s evaluation of the second sentence in that paragraph would vitiate the first sentence, except to argue that the two sentences ‘are linked’ and that the Panel’s evaluation of them was based on the same evidence.

“6.534. As a result, I consider that the Panel’s determination that the complainants failed to demonstrate that the TPP measures are not apt to contribute to Australia’s objective is undisturbed on appeal. Since measures are presumed to be WTO-consistent until shown otherwise, it follows that the TPP measures are presumed to be at least capable of making a contribution to Australia’s objective1439, whether or not the Panel might have erred in determining that the totality of evidence supports the view that the TPP measures are apt to, and do in fact, make a contribution to Australia’s objective.

“6.535. It follows that the Panel’s finding, in the first sentence of paragraph 7.1025 of the Panel Report, stands. Since the TPP measures are therefore presumed to be capable of contributing to Australia’s objective, it further follows that: (i) the appellants have failed to demonstrate that the Panel erred in rejecting their principal argument; and (ii) with respect to their alternative argument, whether or not the proposed alternatives make an equivalent contribution to the TPP measures, the appellants did not present an alternative that is less trade-restrictive than the TPP measures1440, and consequently there is no basis for us to overturn the Panel’s overall conclusion that the appellants failed to demonstrate that the TPP measures are inconsistent with Article 2.2.

“6.536. Thus, I believe it was unnecessary, for purposes of resolving these disputes, for the majority to consider in detail the appellants’ claims regarding the Panel’s assessment of the TPP measures’ contribution to Australia’s objective. For that reason, I also believe that it was inadvisable for the majority to consider in detail the appellants’ contribution claims. This could have been a much shorter report, I believe, based on the findings that the first sentence of paragraph 7.1025, regarding aptness, stands, that the appellants’ proposed alternatives would not be less trade-restrictive than the TPP measures, and therefore that the appellants failed to demonstrate that the TPP measures are inconsistent with Article 2.2.

6.2.3 Due process and Article 11 of the DSU

“6.537. I disagree with the majority’s intermediate finding that, by introducing in its Interim Report econometric analyses that had not been tested with the parties, the Panel failed to observe due process in a way that constitutes a violation of Article 11 of the DSU.

“6.538. In my view, the Panel’s reliance on multicollinearity and non-stationarity to test the robustness of the parties’ evidence was part of the Panel’s reasoning, with respect to which a panel enjoys considerable discretion. The parties to this case submitted to the Panel a large amount of econometric evidence. It was appropriate for the Panel to assess the probative value of that evidence. The Panel tested the robustness of the econometric studies submitted by the parties by taking into account, inter alia, whether the models suffered from multicollinearity and non-stationarity. The mere fact that these two so-called ‘criteria’ were not specifically mentioned by the parties is not sufficient to warrant a different scrutiny of the Panel’s reliance on them, as compared to the Panel’s reliance on other econometric concepts (e.g. overfitting and endogeneity) that the parties had identified. I therefore consider that the Panel acted within the bounds of its discretion as a trier of facts by not only examining the parameters used by each party, but also by going further in its evaluation and testing the robustness of the parties’ econometric evidence for multicollinearity and non-stationarity.

“6.539. With regard to the issue of due process, Australia argues that the complainants could have used the interim review stage to request the Panel to review the relevant parts of the Panel Report pursuant to Article 15 of the DSU but chose not to do so.1441 The appellants submit that interim review would not have provided them with a ‘meaningful opportunity’ to comment on the Panel’s concerns regarding multicollinearity and non-stationarity.1442

“6.540. Article 15.2 of the DSU says, in relevant part, that: Within a period of time set by the panel, a party may submit a written request for the panel to review precise aspects of the interim report prior to circulation of the final report to the Members. At the request of a party, the panel shall hold a further meeting with the parties on the issues identified in the written comments. If no comments are received from any party within the comment period, the interim report shall be considered the final panel report and circulated promptly to the Members.

“6.541. The complainants became aware of the Panel’s analysis of multicollinearity and non-stationarity when they received the Panel’s Interim Report on 2 May 2017. However, the complainants did not raise any substantive concerns with respect to these aspects of the Panel’s analysis in their comments on the Interim Report, nor did they request an interim review meeting. It is reasonable to read Article 15.2 as placing responsibility on the complainants to have raised the Panel’s reliance on multicollinearity and non-stationarity at the interim review stage, especially given the importance that the appellants attribute to these issues on appeal. In my view, the complainants’ failure to raise these issues at the interim review stage undermines the appellants’ claim regarding due process.

“6.542. Thus, since the complainants had an opportunity to raise these issues and did not do so, I do not agree with their claim that the Panel denied them due process by not ‘giving the parties any opportunity whatsoever to comment’.1443 Since the complainants did not attempt to raise their concerns regarding the Panel’s reliance on multicollinearity and non-stationarity at the interim review stage, it is unnecessary to speculate about whether the alleged limited nature of the interim review process, which I do not find to be expressed in the text of Article 15.2, would have been sufficient. Consequently, I disagree with the majority’s interim conclusion on this point.

“6.543. In light of the above, I consider that the appellants have not demonstrated that the Panel failed to make an objective assessment of the facts of the case as required under Article 11 of the DSU by denying the parties an opportunity to comment on the Panel’s reliance on multicollinearity and non-stationarity.

“1428 Panel Report, paras. 7.1025 and 7.1043.

“1429 Panel Report, para. 7.1255.

“1430 Panel Report, paras. 7.1464 and 7.1531.

“1431 Panel Report, paras. 7.1417 and 7.1495.

“1432 See also Panel Report (DS435), para. 8.1.a; Panel Report (DS441), para. 8.1.b.i.

“1433 Appellate Body Report, EC – Hormones, para. 133. See also Appellate Body Reports, Japan – Agricultural Products II, para. 141; Korea – Alcoholic Beverages, para. 164; EC – Bed Linen (Article 21.5 – India), para. 177.

“1434 See Panel Report, paras. 7.426, 7.437, 7.485 and 7.520; Honduras’ and the Dominican Republic’s responses to questioning at the second hearing.

“1435 See Honduras’ first written submission to the Panel, paras. 853 and 911; Dominican Republic’s first written submission to the Panel, paras. 737-739, 980, and 1019.

“1436 Panel Report, para. 7.1025.

“1437 Panel Report, para. 7.1025.

“1438 Honduras’ and the Dominican Republic’s responses to questioning at the second hearing (referring to Panel Report, paras. 7.495-7.497).

“1439 Where a panel finds that the parties’ evidence reveals that a measure is capable of contributing, or the evidence is unclear or mixed as to whether the measure is capable of contributing, a panel should find that the complainant has failed to demonstrate that the measure is incapable of contributing to the objective. This would at the same time mean that, to the extent that the complainant also argues that the measure is inconsistent with Article 2.2 on the basis that there are reasonably available less trade-restrictive alternative measures capable of making an equivalent contribution, the presumption of WTO-consistency requires that a panel presume that the measure is at least capable of making some contribution to the legitimate objective and, on that basis, proceed to examine the remaining factors for determining ‘necessity’, such as the degree of the measure’s trade restrictiveness and the availability of less trade-restrictive alternative measures.

“1440 For the reasons set forth in sections 6.1.3-6.1.4 we have upheld the Panel’s findings that the alternative measures proposed by the complainants would not be less trade-restrictive than the TPP measures.

“1441 Australia’s appellee’s submission, para. 464.

“1442 Honduras’ responses to questioning at the second hearing. In addition, the Dominican Republic noted that, at the interim review stage, it could pose only ‘rhetorical questions’ to the Panel. (Dominican Republic’s responses to questioning at the second hearing).

“1443 Dominican Republic’s appellant’s submission, para. 42. (emphasis omitted).”

WTO Appellate Body Issues Reports on Australia’s Plain Packaging Requirements on Tobacco Products — Last Reports Until WTO Appellate Body Reform Occurs

On June 9th, the long awaited WTO Appellate Body (“AB”) reports on the two challenges to Australia’s plain packaging requirements on tobacco products were released. AUSTRALIA – CERTAIN MEASURES CONCERNING TRADEMARKS, GEOGRAPHICAL INDICATIONS AND OTHER PLAIN PACKAGING REQUIREMENTS APPLICABLE TO TOBACCO PRODUCTS AND PACKAGING, WT/DS435/AB/R and WT/DS441/AB/R (9 June 2020). The appellants were Honduras and the Dominican Republic. The Appellate Body essentially upheld the panel reports not finding violations of WTO Agreements by Australia’s actions. The decisions are important for governments and citizens concerned with the need to limit the reach of health harmful products like cigarettes. With plain packaging laws now prevalent in a number of countries, one can expect today’s AB decision to encourage more countries to emulate the approach taken by Australia (in part or in whole).

The WTO Secretariat prepares summaries of findings on cases. Below is the link to the summary followed by the summary of findings from the AB decisions provided on the WTO webpage, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds435_e.htm#bkmk435abr:

“Honduras (DS435) and the Dominican Republic (DS441) (together referred to as the appellants) requested the Appellate Body to reverse the Panel’s conclusions under Article 2.2 of the TBT Agreement, and Articles 16.1 and 20 of the TRIPS Agreement.

  • “1. With respect to Article 2.2 of the TBT Agreement:
    • With respect to the contribution of the TPP measures to Australia’s objective, the Appellate Body found that Honduras had not substantiated its claim that the Panel erred in its application of Article 2.2 to the facts of the case. Ultimately, the Appellate Body found that the appellants had not demonstrated that the Panel failed to make an objective assessment of the facts under Article 11 of the DSU. In particular, the Appellate Body found that, although the Panel erred by disregarding certain evidence adduced by the Dominican Republic, and acted inconsistently with Article 11 of the DSU by compromising the complainants’ due process rights with respect to the Panel’s reliance on multicollinearity and non‑stationarity when reviewing the parties’ econometric evidence, such errors were not sufficiently material to vitiate the Panel’s findings regarding the contribution of the TPP measures to Australia’s objective, namely improving public health by reducing the use of, and exposure to, tobacco products.
    • The Appellate Body found that the appellants had not demonstrated that the Panel erred in its intermediate conclusions pertaining to the trade restrictiveness of the TPP measures. In particular, the Appellate Body upheld the Panel’s finding that the impact of the TPP measures on reducing the opportunity for producers to differentiate between different products on the basis of brands did not in itself necessarily amount to a limiting effect on international trade. The Appellate Body also upheld the Panel’s finding that the complainants failed to demonstrate that the TPP measures would necessarily lead to a decline in the value of imported tobacco products as a consequence of consumers shifting from premium to non-premium products in response to the TPP measures (downtrading).
    • With respect to the alternative measures, the Appellate Body found that the Panel erred in finding that the complainants had failed to demonstrate that each of the two alternative measures (the increase in the MLPA and an increase in taxation) would be apt to make a contribution equivalent to that of the TPP measures. However, the Appellate Body found that the Panel did not err in finding that the complainants had failed to demonstrate that these two alternative measures are less trade restrictive than the TPP measures. Consequently, the Panel’s finding that the complainants had not demonstrated that the increase in the MLPA and the increase in taxation would each “be a less trade restrictive alternative to the TPP measures that would make an equivalent contribution to Australia’s objective”, stands.
    • Consequently, the Appellate Body upheld the Panel’s conclusion that the complainants had not demonstrated that the TPP measures are more trade restrictive than necessary to fulfil a legitimate objective, within the meaning of Article 2.2 of the TBT Agreement.
  • “2. With respect to Article 16.1 of the TRIPS Agreement:
    • The Appellate Body found that the Panel did not err in its interpretation of Article 16.1. The Appellate Body agreed with the Panel that Article 16.1 of the TRIPS Agreement grants a trademark owner the exclusive right to preclude unauthorized use of the trademark by third parties. However, Article 16.1 does not confer upon a trademark owner a positive right to use its trademark or a right to protect the distinctiveness of that trademark through use.
    • Having found no error in the Panel’s interpretation, the Appellate Body agreed with the Panel that there was no need to examine further the complainants’ factual allegation that the TPP measures’ prohibition on the use of certain tobacco related trademarks would in fact reduce the distinctiveness of such trademarks, and lead to a situation where a “likelihood of confusion” with respect to these trademarks is less likely to arise in the market.
    • Consequently, the Appellate Body upheld the Panel’s conclusion that the complainants have not demonstrated that the TPP measures are inconsistent with Article 16.1 of the TRIPS Agreement.
  • “3. With respect to Article 20 of the TRIPS Agreement
    • The Appellate Body found that the Panel did not err in its interpretation and application of Article 20 of the TRIPS Agreement. In particular, the Appellate Body considered that the Panel did not err in its interpretation of the term ‘unjustifiably’ in Article 20 and in its application of this interpretation to the facts of the case. The Appellate Body thus agreed with the Panel that the complainants had not demonstrated that trademark-related requirements of the TPP measures unjustifiably encumbered the use of trademarks in the course of trade within the meaning of Article 20.
    • Consequently, the Appellate Body upheld the Panel’s conclusion that the complainants had not demonstrated that the TPP measures are inconsistent with Article 20 of the TRIPS Agreement.

“The Appellate Body recalled that, having rejected all of the complainants’ claims, the Panel had declined Honduras’ and the Dominican Republic’s requests that the Panel recommend, in accordance with Article 19.1 of the DSU, that the DSB request Australia to bring the measures at issue into conformity with the TRIPS Agreement and the TBT Agreement.

“Having upheld the Panel’s findings under Article 2.2 of the TBT Agreement and Articles 16.1 and 20 of the TRIPS Agreement, it followed that the Appellate Body also agreed with the Panel that Honduras and the Dominican Republic had not succeeded in establishing that Australia’s TPP measures are inconsistent with the provisions of the covered agreements at issue. Accordingly, the Appellate Body made no recommendation to the DSB, pursuant to Article 19.1 of the DSU.”

While the Reports are Not Surprising in Outcome, They Show Many of the Concerns that U.S. has Raised about the AB Over Time

These are the last reports of the Appellate Body until the impasse on the appointment of new Appellate Body members is solved, which will require the United States achieving reforms in the operation of the Appellate Body and the AB’s actual adherence to the Dispute Settlement Understanding as negotiated.

Many of the concerns that the U.S. has long raised are present in the current decisions. For example, the reports were not prepared in 90 days from the date of appeal, nor were the delays in completion of the appeals specifically authorized by the parties. The decisions were prepared by non-current members of the Appellate Body (although Members had agreed to permit conclusion of appeals where hearings had already occurred). The vast majority of the issues in the appeals were challenges to findings of fact by the panels under the guise of DSU Article 11 challenges that the panels failed to make an objective assessment of the facts. While the Appellate Body decisions attempt to limit what the AB should be reviewing where DSU Art. 11 is the basis for the claim, the bulk of the decisions still involve discussions of at least some of the DSU Art. 11 claims made by the appellants. See WT/DS435/AB/R at 38-135 and WT/DS441/AB/R at 38-135.

The United States was a third party to the cases but limited its written comments to a few issues, the most important of which was the need for the Appellate Body not to permit Art. 11 to be used for a review of factual findings, which by DSU are issues for the panel. See WT/DS435/AB/R/Add.1, Annex C-16 at 92-93; WT/DS441/AB/R/Add.1, Annex C-16 at 92-93:

“III. COMPLAINANTS’ CLAIMS OF ERROR UNDER THE DSU

“7. Honduras and the Dominican Republic both appeal dozens of factual findings under DSU Article 11. Both appeals by Honduras and the Dominican Republic to the Appellate Body make numerous claims under Article 11 of the DSU of what clearly are alleged factual errors by the Panel. By agreement of all WTO Members, the DSU expressly limits the scope of an appeal to alleged legal errors by a panel, not factual errors.6 The United States disagrees with these attempts to re-litigate dozens of unfavorable factual determinations by the Panel through claims of breach of Article 11 of the DSU.

“8. The Appellate Body has an opportunity in this appeal to reconsider how its originally limited approach to review the “objective assessment” of a panel has been seized by appellants to cover practically all factual determinations by a panel. Given the lack of textual basis in the DSU for
appellate review of panel fact-finding, the Appellate Body could instead reassert that the proper issues for appeal are issues of law and legal interpretations covered by a panel report.7

“6 See DSU Article 17.6.

“7 Id. (“An appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.”).”

Conclusion

The plain packaging decisions by the Appellate Body are the last AB decisions until the impasse over AB member selection is resolved which means that the U.S. concerns of the operation of the AB must be resolved.

While the decisions are important in themselves, they also demonstrate the types of problems which have made Appellate Body decisions untimely and problematic to the United States and other Members.

While some Members are now proceeding with arbitration type actions to maintain a second-level review of disputes, the need for collective action to return the Appellate Body to its proper and limited role continues. With the COVID-19 pandemic and now the Director-General selection process taking up much of the trade oxygen for many WTO Members, the need for Appellate Body reform is likely to slip to 2021 or later before being focused on again.