European Union

The Ottawa Group’s November 23 Communication and Draft Elements of a “Trade and Health” Initiative

On Monday, Novemer 23, Canada hosted a virtual meeting of the Ottawa Group on WTO reform. The Group includes Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland. Deputy Director-General Alan Wolff provided comments and urged the Members to “translate their statements about reforms to global trade rules into formal proposals and concrete requests at the WTO.” WTO, 23 November 2020, DDG Wolff calls on Ottawa Group to table formal reform proposals at WTO, https://www.wto.org/english/news_e/news20_e/igo_23nov20_e.htm. DDG Wolff provided seven options for the consideration of the Ottawa Group on WTO reform, the first four of which used trade and health as one example.

“First, an observation: the game must be in play for key players to conclude that they have to join. If negotiations are not under way, there may be a substantial delay in attracting participation.

“Declarations, such as on trade and health, should be turned into formal proposals as soon as possible and should be embraced by all WTO members.

“And if some Members won’t come along or seek to delay — a joint initiative is a practical way to proceed and could then be launched as a priority. The time of testing should not be so long as to make a response to the pandemic arrive too late to be responsive to the current crisis.

“Second, Members can ask the WTO Secretariat for and receive support for evaluations of aspects of WTO reform. For example, on trade and health, Members can —

“Request the Secretariat to upgrade its COVID-19-related trade monitoring activities to collect and publish the best information available, not relying solely on notifications and verification. (This would be a more comprehensive and in-depth activity than that which takes place at present, which in itself was an upgrade from pre-COVID monitoring.)

“Request the Secretariat to work with the WHO, relevant UN agencies and other stakeholders, to highlight trade issues affecting vaccine production and availability, and to propose ways to eliminate obstacles. (This would go beyond existing activities and result in proposals put to the WTO Member- ship).

“Third, Members can

“Propose that the Director General convene a small, representative, ambassador-level group of Friends of Trade and Health to identify how the trading system has performed during the pandemic and to issue preliminary conclusions and recommendations for useful changes in approach within a short, defined timeline.

“Propose that the WTO Secretariat embark now upon the necessary supporting work without delay.

“Propose that the Director General constitute other ‘Friends’ groups to advance consideration of institutional reform and other issues of current importance, and providing possible solutions, such as with respect to the relationship to current and future WTO Agreements of the Paris Accord on Climate Change, the disciplining of fossil fuel subsidies, addressing border adjustments likely with the adoption of carbon taxes, assessing the impact on markets of subsidies and other state interventions, employing trade to reduce income inequality, making the WTO more effective for economic development within and among Member economies, improving the trading system with respect to women in trade, providing WTO support for the African Continental Free Trade Agreement, and more generally strategic foresight.

“G20 Members clearly want to enhance preparedness for future pandemics and other crises. Flexible groups with appropriate balance but able to be nimble and responsive are one way to supplement but not supplant the work of committees and joint statement initiatives (JSIs).

‘Propose that an ad hoc horizontal mechanism be created promptly in the event of crises to address — in real time — trade measures that are of concern. The mechanism, similar to trade policy reviews, but not limited to any single WTO Member’s measures, trade restrictive and trade liberalizing, should be constituted immediately for the current pandemic and economic recovery measures.

“Fourth, Members can

“Propose that the signatories of the Pharmaceutical Agreement providing for duty-free trade be updated (last done in 2010), that major nonsigna- tories join and that essential medical supplies be added to the coverage.

“Propose that the signatories of the Information Technology Agreement review and update its coverage, including adding medical equipment.

“Propose that negotiations on the Environmental Goods Agreement re-start in earnest now, with the addition of services.”

The Ottawa Group agreed to put forward a communication seeking action by WTO Members. Each of Canada and the EU (and likely other members) put out press releases. See, e.g., Government of Canada, November 23, 2020, Minister Ng hosts successful ministerial meeting of the Ottawa Group on WTO reform, https://www.canada.ca/en/global-affairs/news/2020/11/minister-ng-hosts-successful-ministerial-meeting-of-the-ottawa-group-on-wto-reform.html; European Commission, Directorate-General for Trade, 23 November 2020, Ottawa Group proposes a global Trade and Health Initiative, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2215&title=Ottawa-Group-proposes-a-global-Trade-and-Health-Initiative.

The Canadian press release states in part, “As countries face a rise in COVID-19 cases, it is essential that governments minimize disruptions to trade flows in essential medical supplies. Today, members of the Ottawa Group took important steps toward a proposed WTO Trade and Health Initiative, which identifies short-term actions to strenghten supply chains and ensure the free flow of medicines and medical supplies.”

Similarly the European Commission press release stated that –

Today the Ottawa Group, a group of 13 like-minded World Trade Organisation (WTO) partners including the EU, agreed today on an initiative, calling on the WTO members to increase their cooperation and work toward enhanced global rules to facilitate trade in essential medical goods. The agreement took place as an outcome of the Ottawa Group Ministerial meeting, hosted virtually by Minister Mary Ng of Canada.

“The Ottawa Group members called for immediate actions in response to the coronavirus crisis such as exercising a restraint in using any export restrictions, implementing trade-facilitating measures in the area of customs and services, as well as improving transparency.

“They also called for further cooperation amongst members, and between the WTO and other international organisations.

“The group also encourages WTO members to refrain from imposing tariffs on essential medical goods during the crisis. Such actions are intended to strengthen the resilience of supply chains and contribute to an effective response to a public health emergency. They can serve as a basis for future permanent commitments on trade in essential medical goods.

“Commission Executive Vice President and Commissioner for Trade Valdis Dombrovskis said: ‘We are proud to promote this trade and health initiative. It aims to encourage stronger global cooperation at WTO level, by facilitating trade in healthcare products. This is critical in the current global health crisis and will also help us in future. But the Ottawa Group trade and health initiative is just the first step. Going forward, the EU will work to promote resilient global healthcare systems, as well as accessible and affordable healthcare products universally.’

“The communication will now be submitted later this week to the WTO secretariat, before being presented to the WTO General Council for discussion. It will be used to prepare the 12th Ministerial Conference of the WTO, due to be held in 2021.”

That same day, November 23, the Ottawa Group submitted to the WTO a communication entitled “COVID-19 and beyond: Trade and Health”. WT/GC/223 (24 November 2020). The document is embedded below.

223

The communication is ten paragraphs plus an Annex which is described as “Draft Elements of a ‘Trade and Health’ Initiative”. The communication reviews the social and economic impact of the COVID-19 pandemic and invites “all WTO Members to start working on a Trade and Health Initiative” referencing the Annex. Paragraph 6 of the communication summarizes the specific actions being proposed.

“6. With this objective in mind, we call on WTO Members to make their utmost efforts to prevent further disruptions in the supply chains of essential medical goods. As set out in the Annex to this Communication, we propose specific actions relating to export restrictions, trade facilitation,
technical regulations, tariffs, transparency and review, and call for the WTO to enhance its cooperation with other relevant international organizations, such as WHO, WCO, OECD as well as G20, given the context of the on-going evaluations of the global response to COVID-19. These proposed actions are not intended to be prescriptive and do not cover the universe of possible
measures that could support trade in essential medical goods. Rather, they reflect emerging best practices and should provide sufficient flexibility to be adapted to differing national circumstances.”

The Ottawa Group is hoping to get the support of all Members on a joint statement early in 2021 on a Trade and Health Initiative which could serve as a starting point for negotiations for new WTO commitments at the 12th Ministerial Conference in the summer of 2021 in Kazakhstan.

On export restrictions, the Annex calls for greater oversight of such restrictions without eliminating them outright.

On customs, services and technical regulations, the Annex calls for Members to share information and experiences on best practices in trade facilitation during a crisis (customs procedures, services (including freight, logistics, distribution and transport)) and on standards and technical requirements looking towards regulatory alignment.

On tariffs, the Annex calls on Members to “make best endeavours to temporarily remove or reduce tariffs on goods that are considered essential to fighting COVID-19 pandemic”.

On transparency and review, the Annex calls on Members to enhance transparency during the pandemic with the aim of identifying supply chain disruptions and avoiding such disruptions.

On the topic of cooperation of the WTO with other organizations, the Annex both encourages the WTO Secretariat to continue it outreach on measures related to COVID-19 and the studies developed by the Secretariat with a focus “on the causes and effects of the disruptions in the supply chains of essential goods and drawing on research of other international organizations.” The WTO Director-General is also encouraged to “intensify cooperation” with other organizations (including the G20) to improve “the analytical capacity of Members to monitor market developments in trade and production of essential medical goods.”

Finally, the Annex asks Members to review the effectiveness of the identified elements at the 12th Ministerial Conference “with a view to adopting possible commitments regarding trade in essential medical goods.”

Conclusion

There have been many communications put forward by different groups of Members at the WTO in the last eight months on actions that would make sense in terms of limiting export restraints on medical goods or avoiding such restraints on agricultural goods, about the need for effective trade facilitation measures to reduce barriers to movement of medical goods, and on other topics related to the COVID-19 pandemic.

The Ottawa Group’s communication from Monday is an effort to come up with an early possible deliverable that could garner broad WTO Member support. As a result it seeks a joint statement with agreement on the statement for early 2021. The Group also provides five draft proposals for such a joint statement. The proposals don’t eliminate existing flexibility (e.g., export restraints) but try to tighten disciplines via increased transparency. The proposals encourage development of best practices on a range of trade facilitation and regulatory alignment issues. The proposals also encourage what is obviously in most Members self-interest — reducing or eliminating tariffs on medical goods during the pandemic. The proposals also call on Members to do a better job on transparency on measure taken during the pandemic with a focus on identifying disruptions to supply chains and addressing the same in short order. Finally, while the WTO already cooperates with other organizations, the proposals point to specific areas where enhanced cooperation would be helpful.

In an organization where Members have a low level of trust in each other, a joint statement on the need for a Trade and Health Initiative such as proposed by the Ottawa Group is probably all that can be achieved in the short term. Something along the lines outlined in the Annex would indeed be a confidence builder if achieved early in 2021. The ability to review developments at the 12th Ministerial and start negotiations on trade in essential medical goods at that time will also be important if accomplished. The more ambitious options presented by DDG Wolff should be considered but realistically are unlikely to either happen or get started ahead of the 12th Ministerial.

Let’s hope that the WTO membership can come together to support the Ottawa Group proposal. The EC has indicated that the Communication will be taken up at the December General Council meeting. That will be an early opportunity to see if there is likely to broad support for the initiative.

Responding to a comment received on yesterday’s post, WTO subsidy disciplines — an update and coordination across areas is long overdue

Earlier today I received a comment from a well respected trade attorney in Washington, D.C., on my post of yesterday calling for an update of subsidy disciplines including exploring the logic of how subsidies are treated in different areas and whether distortions caused by subsidies from actors not presently covered should be covered in the update. As I haven’t sought permission to identify the commenter, I simply provide the comment below as it is one that may be shared by other readers of the post.

“A review of the big picture of WTO subsidy control efforts ought to at least mention the damage done, through DSB-adopted decisions, to the fairly decent set of disciplines the ASCM appeared to have when it was first brought live in 1995.  Today’s need for better ASCM rules is in substantial part the result of 25 years of bad interpretations of ASCM Art. 1, most of them rendered in pursuit of gutting the United States’ CVD remedy.

“To the extent Azevedo was suggesting that merely the passage of time is to blame for the current inadequate state of WTO subsidy rules, he is wrong.  Purposeful shredding has played a role too.”

Here is my response to the thoughtful comment provided. First, there is no doubt that some dispute settlement decisions have undermined the disciplines that exist in the Agreement on Subsidies and Countervailing Measures (“ASCM”). The U.S. Trade Representative’s Office paper on concerns with the WTO’s Appellate Body present various examples of egregious overreach by the Appellate Body, including a number of cases involving interpretations of the ASCM. See USTR, Report on the Appellate Body of the World Trade Organization, February 2020, pages 81-89 (public body), 105-109 (use of out of country benchmarks), https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf; February 14, 2020, USTR’s Report on the WTO Appellate Body – An Impressive Critique of the Appellate Body’s Deviation from Its Proper Role, 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/.

I have written extensively over the years on the problem of overreach by the Appellate Body, and the damage caused to the balance of rights and obligations that the United States and others negotiated in the Uruguay Round. The problem has been most obvious in the trade defense agreements (antidumping, subsidies and safeguards), but exist in decisions involving other agreements as well as is reviewed in the USTR report. I have also suggested ways for the WTO, in addressing the impasse on the Appellate Body, to clarify DSU language and address specific instances of claimed overreach. See, e.g., July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/; November 12, 2019, Background Materials on WTO Appellate Body Reform Challenges – The Critical Issue of “Overreach”, https://currentthoughtsontrade.com/2019/11/12/background-materials-on-wto-appellate-body-reform-challenges-the-critical-issue-of-overreach/; November 4, 2019, WTO’s Appellate Body Reform – The Draft General Council Decision on Functioning of the Appellate Body, https://currentthoughtsontrade.com/2019/11/04/wtos-appellate-body-reform-the-draft-general-council-decision-on-functioning-of-the-appellate-body/.

So while I agree with the comment that the ASCM is less robust because of erroneous WTO Appellate Body reports, that fact does not change the intended message of the post. There is significantly different treatment of subsidies between industrial goods, agricultural goods and services that are not logical or justifiable. There have been major changes in the world economy and who the major trading nations are in the last twenty-five years which raise questions about a range of topics that are not specifically covered by the ASCM, the Agreement on Agriculture, GATS (where there are no subsidy disciplines at present) or other agreements. While the U.S., EU and Japan are concerned (rightly so) about the extreme damage being caused by massive industrial subsidies from economies with non-market economic systems and hence the need for enhanced rules, lack of coverage of services, more restrictive subsidy rules on agriculture than on industrial goods are issues that can and should be examined as well as the areas not covered by the existing ASCM.

My second point would be that if I suggested in my earlier note that former Director-General Roberto Azevedo was suggesting the problems with the ASCM were due to the passage of time, that was not the intention. Mr. Azevedo’s interview for the 25th anniversary program and the comment quoted was focused on a much broader question — where had the WTO not accomplished what was originally envisioned. Mr. Azevedo’s comment reflected his understanding that a properly functioning WTO would have Members engaged in negotiations on issues on an ongoing basis to ensure the WTO was maintaining its relevance to Members in the light of evolving global commerce and technology. The fact that there are no rules on ecommerce decades after the rise of ecommerce is an obvious case in point where the WTO has not been able to update the rulebook in a timely manner. I was using Mr. Azevedo’s general statement to undergird the propriety of examining the important topic of where distortions are caused by the subsidy actions of governments (and possibly private parties). Such an examination is needed as part of the WTO reform efforts that should be occurring going forward. But examining subsidy disciplines in the reform effort is not intended to excuse the problem of overreach by the Appellate Body that has resulted in the temporary shut down of the Appellate Body at the WTO. The WTO Members need to find a way in resolving the Appellate Body impasse to restore the rights of Members that had been agreed as part of the Uruguay Round but undermined by panel or Appellate Body reports.

For ease of reference for readers, yesterday’s post is copied below. I hope the above eliminates any confusion that my post yesterday may have caused.

Yesterday’s post

When the WTO came into being at the beginning of 1995, subsidy disciplines were fragmented. Agricultural subsidies were largely addressed under the Agreement on Agriculture although also subject to the ASCM. Industrial subsidies were covered by the Agreement on Subsidies and Countervailing Measures (ASCM). The General Agreement on Trade in Services has no disciplines on subsidies although negotiations on a possible article dealing with subsidies was one of the open issues where negotiations were supposed to continue after the WTO started up. And there was the separate plurilateral agreement on civil aircraft which had rules on subsidies as well.

While export subsidies were prohibited on industrial goods from the beginning, there are only loose controls on domestic subsidies. As the U.S., EU and Japan have articulated at the WTO, the changing make up of WTO Members and the rise in trade importance of Members with a state-directed economy have created increased challenges from state subsidies where existing disciplines are not viewed as adequate.

In agriculture, export subsidies were originally capped and being reduced but have now been eliminated by developed countries. Agriculture faces many more vagaries of nature that directly affect growing conditions (climate change, increased severe storms, increased flooding, increased draughts, etc.) than do industrial goods. Despite this reality, domestic supports in agriculture are capped and are facing increased calls for reductions by some Members.

While the GATS was originally driven by developed country service providers who were unconcerned with the need for trade remedies, the changing make-up of the WTO Membership, the changing technologies used by many service providers, and the growth of state-owned or state-invested service providers competing internationally have all raised the specter of significant government supports being provided to service providers that distort economic outcomes between competing service providers but which are not presently addressable under WTO rules.

In addition, the ongoing COVID-19 pandemic has created enormous economic dislocations for many WTO Members and has led many countries to provide unprecedented stimulus packages to minimize the economic fallout within their countries or territories. The WTO hasn’t explored how, if at all, such stimulus efforts can or should be evaluated under WTO rules.

Similarly, subsidy disciplines basically apply simply to subsidies provided by a government or a private party at government direction within the economy of the government in question. There are issues of whether subsidized loans from intergovernmental entities should be addressable if causing distortion with other entities. There are similarly questions about whether subsidies into inputs in one country which are then exported and used in a second country for export to other countries can or should be addressable when a country is investigating the second country’s product. Similarly, while the WTO ASCM deals with subsidies from governments or private parties at the direction of governments, the distortions to international competition are not necessarily more distortive than private sector subsidies between or within companies may be. Just as the Agreement on Antidumping deals with private market distortions, it isn’t clear why subsidy disciplines should root out distortions whether coming from governments or private parties. And, of course, when the GATT came into existence in the late 1940s, there were concerns about dual exchange rates causing distortions and permission to handle those distortions under either the antidumping or countervailing duty provisions of Article VI of the GATT. When currencies become significantly undervalued there can be significant distortions in economic outcomes. While at least the United States is addressing such distortions under its countervailing duty law at the moment, there is no agreed updated rules in the WTO.

Last week, the WTO on November 19 celebrated its first 25 years with both various panels and with a video of the last three Directors-General being interviewed about the first 25 years. Former Director-General Roberto Azevedo who stepped down at the end of August this year was asked a question of where the WTO had fallen short in his view in the first 25 years. His answer was as follows (according to my notes): “The WTO has to be constantly updating itself. For example, tariff negotiations or disciplines or rules we negotiated thirty years ago are completely out of date.” WTO at 25: Conversations with former Directors-General of the WTO, 19 November 2020 (video). He added that when the WTO came into existence in 1995, it was clear that the WTO would need to update itself continuously without requiring big rounds, but that has not occurred.

There is no area where a review of the existing rules and disciplines is needed more urgently than the area of subsidies. But unlike in the past, there should be greater evaluation of all subsidy areas to be sure that distortions in any area of economic activity internationally can be addressed while actions which simply address emergency situations flowing from pandemics or weather events are not addressable if not adding to capacity. Such a review obviously needn’t slow down the important efforts to reach agreement on Fisheries Subsidies which has dragged on for roughly 19 years and is tied now to the UN Sustainable Development Goal 14.6.

Past Directors-General, the candidates for the position in 2020 and most Members readily agree that for negotiations to advance there has to be items of interest to all Members. A broad subsidy review should provide exactly that broad potential interest while at the same time permitting the rules and disciplines on subsidies to be updated to address the commercial realities of today.

WTO subsidy disciplines — an update and coordination across areas is long overdue

When the WTO came into being at the beginning of 1995, subsidy disciplines were fragmented. Agricultural subsidies were largely addressed under the Agreement on Agriculture although also subject to the ASCM. Industrial subsidies were covered by the Agreement on Subsidies and Countervailing Measures (ASCM). The General Agreement on Trade in Services has no disciplines on subsidies although negotiations on a possible article dealing with subsidies was one of the open issues where negotiations were supposed to continue after the WTO started up. And there was the separate plurilateral agreement on civil aircraft which had rules on subsidies as well.

While export subsidies were prohibited on industrial goods from the beginning, there are only loose controls on domestic subsidies. As the U.S., EU and Japan have articulated at the WTO, the changing make up of WTO Members and the rise in trade importance of Members with a state-directed economy have created increased challenges from state subsidies where existing disciplines are not viewed as adequate.

In agriculture, export subsidies were originally capped and being reduced but have now been eliminated by developed countries. Agriculture faces many more vagaries of nature that directly affect growing conditions (climate change, increased severe storms, increased flooding, increased draughts, etc.) than do industrial goods. Despite this reality, domestic supports in agriculture are capped and are facing increased calls for reductions by some Members.

While the GATS was originally driven by developed country service providers who were unconcerned with the need for trade remedies, the changing make-up of the WTO Membership, the changing technologies used by many service providers, and the growth of state-owned or state-invested service providers competing internationally have all raised the specter of significant government supports being provided to service providers that distort economic outcomes between competing service providers but which are not presently addressable under WTO rules.

In addition, the ongoing COVID-19 pandemic has created enormous economic dislocations for many WTO Members and has led many countries to provide unprecedented stimulus packages to minimize the economic fallout within their countries or territories. The WTO hasn’t explored how, if at all, such stimulus efforts can or should be evaluated under WTO rules.

Similarly, subsidy disciplines basically apply simply to subsidies provided by a government or a private party at government direction within the economy of the government in question. There are issues of whether subsidized loans from intergovernmental entities should be addressable if causing distortion with other entities. There are similarly questions about whether subsidies into inputs in one country which are then exported and used in a second country for export to other countries can or should be addressable when a country is investigating the second country’s product. Similarly, while the WTO ASCM deals with subsidies from governments or private parties at the direction of governments, the distortions to international competition are not necessarily more distortive than private sector subsidies between or within companies may be. Just as the Agreement on Antidumping deals with private market distortions, it isn’t clear why subsidy disciplines should root out distortions whether coming from governments or private parties. And, of course, when the GATT came into existence in the late 1940s, there were concerns about dual exchange rates causing distortions and permission to handle those distortions under either the antidumping or countervailing duty provisions of Article VI of the GATT. When currencies become significantly undervalued there can be significant distortions in economic outcomes. While at least the United States is addressing such distortions under its countervailing duty law at the moment, there is no agreed updated rules in the WTO.

Last week, the WTO on November 19 celebrated its first 25 years with both various panels and with a video of the last three Directors-General being interviewed about the first 25 years. Former Director-General Roberto Azevedo who stepped down at the end of August this year was asked a question of where the WTO had fallen short in his view in the first 25 years. His answer was as follows (according to my notes): “The WTO has to be constantly updating itself. For example, tariff negotiations or disciplines or rules we negotiated thirty years ago are completely out of date.” WTO at 25: Conversations with former Directors-General of the WTO, 19 November 2020 (video). He added that when the WTO came into existence in 1995, it was clear that the WTO would need to update itself continuously without requiring big rounds, but that has not occurred.

There is no area where a review of the existing rules and disciplines is needed more urgently than the area of subsidies. But unlike in the past, there should be greater evaluation of all subsidy areas to be sure that distortions in any area of economic activity internationally can be addressed while actions which simply address emergency situations flowing from pandemics or weather events are not addressable if not adding to capacity. Such a review obviously needn’t slow down the important efforts to reach agreement on Fisheries Subsidies which has dragged on for roughly 19 years and is tied now to the UN Sustainable Development Goal 14.6.

Past Directors-General, the candidates for the position in 2020 and most Members readily agree that for negotiations to advance there has to be items of interest to all Members. A broad subsidy review should provide exactly that broad potential interest while at the same time permitting the rules and disciplines on subsidies to be updated to address the commercial realities of today.

G20 Leaders’ Declaration, 22 November 2020

The two day Leaders’ Summit of the G20, chaired in 2020 by Saudi Arabia, ended yesterday with the issuance of a Leaders’ Declaration. https://g20.org/en/media/Documents/G20%20Riyadh%20Summit%20Leaders%20Declaration_EN.pdf. The twelve page document is embedded below.

G20-Riyadh-Summit-Leaders-Declaration_EN

Yesterday, I had put up a post that looked at the WTO’s Deputy Director-General Alan Wolff’s statement to the G20 on important measures needed in the trade arena to help with responding to the global health pandemic, economic recovery and WTO reform. See November 22, 2020, DDG Wolff’s comments to G20 on immediate challenges for trade to address economic rebound from the pandemic and for WTO reform, https://currentthoughtsontrade.com/2020/11/22/ddg-wolffs-comments-to-g20-on-immediate-challenges-for-trade-to-address-economic-rebound-from-the-pandemic-and-for-wto-reform/. The activities of the G20 are far broader than simply the trade issues reviewed in yesterday’s post and much of the Declaration looks at various aspects of addressing recovery from the pandemic, including access to vaccines and therapeutics. However, on the trade agenda in particular identified by DDG Wolff, the G20 does not appear to have addressed the issue of trade finance for developing and least developed countries, did not call for creating duty free treatment for all pharmaceuticals and medical goods relevant to the COVID-19 pandemic, and while supportive of WTO reform did not provide specifics or a sense of time urgency. The Declaration contains 38 paragraphs broken in four sections. Many deal with topics that are being examined in part at the WTO (e.g., digital trade) or that may be going forward (e.g., environment, climate change). There was only one paragraph on trade and investment (para. 12) (under section “B. Building a Resilient and Long-Lasting Recovery”). The paragraph reads as follows:

“12. Trade and Investment: Supporting the multilateral trading system is now as important as ever. We strive to realize the goal of a free, fair, inclusive, non-discriminatory, transparent, predictable, and stable trade and investment environment, and to keep our markets open. We will continue to work to ensure a level playing field to foster an enabling business environment. We endorse the G20 Actions to Support World Trade and Investment in Response to COVID-19. We recognize the contribution that the Riyadh Initiative on the Future of the World Trade Organization (WTO) has made by providing an additional opportunity to discuss and reaffirm the objectives and foundational principles of the multilateral trading system as well as to demonstrate our ongoing political support for the necessary reform of the WTO, including in the lead up to the 12th WTO Ministerial Conference. We recognize the need to increase the sustainability and resilience of national, regional, and global supply chains that foster the sustainable integration of developing and least developed countries into the trading system, and share the objective of promoting inclusive economic growth including through increased participation of micro-, small-, medium-sized enterprises (MSMEs) in international trade and investment. We note that structural problems in some sectors, such as excess capacities, can cause a negative impact.”

The G20 Declaration in paragraph 3 provides a statement indicating G20 members “will spare no effort to ensure * * * affordable and equitable access for all people, consistent with members’ commitments to incentivize innovation,” to COVID-19 diagnostics, therapeutics and vaccines. The paragraph refers to the efforts of the “Access to COVID-19 Tools Accelerator (ACT-A) initiative and its COVAX facility,” and commits G20 members “to addressing the remaining global financing needs.” While obviously encouraging, the financing needs that remain are large both for vaccines and for testing and treatment. Total additional funding needs approach $40 billion. See Statement by President von der Leyen at the joint press conference with President Michel ahead of the G20 Summit, Brussels, 20 November 2020, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_2170. Such contributions are voluntary and substantially exceed what has been pledged or received to date. So time will tell whether G20 countries actually fulfil the general commitment included in yesterday’s declaration.

The New York Times in an article on November 22 headlined “G20 Summit Closes With Little Progress and Big Gaps Between Trump and Allies,” describes the large number of topics where the current U.S. Administration has been at odds with many of the other G20 leaders and the resulting challenges to meaningful joint action as opposed to “general appeals for more global cooperation” and for “affordable and equitable access” to vaccines and therapeutics. New York Times, Nov. 22, 2020, G20 Summit Closes With Little Progress and Big Gaps Between Trump and Allies, ahttps://www.nytimes.com/2020/11/22/us/politics/g20-summit-trump.html. While the Trump Administration undoubtedly has contributed to the lack of greater specifics in the Declaration, there are undoubtedly strong differences among different G20 members on what commitments should be undertaken that involve G20 members specifically.

Conclusion

The G20 process has been important over the last decade or so in mobilizing the world’s leading nations to provide leadership to address global challenges. The success of the group’s efforts depends on leadership of the majors and a common understanding of the challenges at hand. There are structural challenges in the current G20 configuration with different economic models and different levels of economic development providing points of conflict as well as points of expanded understanding of global needs. The challenges have been exacerbated by the concerns of the current U.S. Administration with multilateral organizations and with whether climate change is an actual problem.

With the current internal friction points, the G20 has nonetheless put forward a largely united front in seeking to meet the challenges from the COVID-19 pandemic and economic shocks through collaboration and to seek to rebuild more sustainably and more inclusively. The lack of specifics in some areas may be better addressed under a new U.S. Administration’s participation with the expected closer ties the Biden Administration will have with at least many of the G20 members.

In the trade arena, the conflicts within the WTO are not likely to go away with a new U.S. Administration. That doesn’t mean that U.S. leadership couldn’t permit rapid movement on a number of issues that would be helpful in addressing the pandemic and the global economic recovery. But WTO reform and even singular issues like updated coverage by the Pharmaceutical Agreement or the elimination of tariffs on medical goods unfortunately are likely to take way too long to be helpful in the current pandemic. That leaves voluntary actions by countries in their own interest as the likely option most likely to provide some improved market access during the pandemic.

United States becomes only country to have more than 2,000,000 new COVID-19 cases in fourteen days

The European Centre for Disease Prevention and Control (ECDC) daily report, “COVID-19 situation update worldwide, as of 19 November 2020,” shows the number of new cases in the United States surpassing two million for the fourteen days November 6 -19. The 2,043,321 new cases more than doubled the 1,019,609 new cases reported by the United States for October 19-November 1 (the first time the United States surpassed one million in a fourteen day period according to the daily reports from the ECDC). For the last fourteen days, the U.S. accounted for 24.99% of new cases recorded around the world. The 11,529,807 cases recorded by the U.S. since the end of December 2019 have been 20.45% of the world’s total cases of 56.37 million. The U.S. has just 4.3% of the world’s population.

The United States is the largest source of increases in new cases and has been that over the last month. Europe which has suffered a huge increase this fall is seeing a reduction from peak numbers for many countries.

The United States is seeing new records in terms of hospitalizations of patients with COVID-19. The COVID Tracking Project shows the U.S. having 79,410 hospitalizations on November 18, up from 28,606 on September 20 and nearly 20,000 hospitalizations more than prior peaks in July (59,677 on July 24) and April (59,773 on April 21). Some sources are projecting hospitalizations could exceed 100,000 in the coming weeks.

Deaths in the U.S. are also increasing with the COVID Project recording 1,869 on November 18. The ECDC 19 November 2020 COVID-19 situation update worldwide shows U.S. deaths due to COVID-19 as 250,537 or 18.55% of the world total up til November 19. With the spiraling number of new cases and huge increases in hospitalizations, the daily death totals are projected to continue to increase.

Many U.S. states are overwhelmed with COVID-19 hospitalizations, and there continue to be challenges for medical workers obtaining needed personal protective equipment despite increased global production and some domestic onshoring. See, e.g., NPR, November 10, 2020, COVID-19 Hospitalizations Hit Record Highs. Where Are Hospitals Reaching Capacity?, https://www.npr.org/sections/health-shots/2020/11/10/933253317/covid-19-hospitalizations-are-surging-where-are-hospitals-reaching-capacity; American Medical Association, Amid PPE shortage, AMA collaboration offers supplier for doctors, November 16, 2020,https://www.ama-assn.org/delivering-care/public-health/amid-ppe-shortage-ama-collaboration-offers-supplier-doctors.

While the news from several pharmaceutical companies about results from phase 3 vaccine tests are highly encouraging, production and distribution of the vaccines, once approved, means the U.S. will be dealing with the continuing surge of new cases for a number of months to come at least. Some forecasts predict deaths in the U.S. reaching 430,000 by the end of the first quarter of 2021. Moreover, with a change in government occurring in late January, the U.S. is suffering from a lack of coordination from the outgoing Administration with the Biden Administration as the Trump Administration has to date refused to provide access to information that is normally received by incoming Administrations. Such handicapping of an incoming Administration will have significant adverse effects on the nation’s ability to distribute vaccines once approved and otherwise permit the Biden Administration to get on top of the pandemic.

Complicating the economic and trade picture in the United States is the lack of an additional stimulus package during the growing crisis from the pandemic. Millions of Americans face serious challenges with the expiration of various relief programs, some at the end of December. Millions are at risk of eviction beginning in January. See CNN, November 18, 2020, Key pandemic relief programs are set to expire at the end of the year. No one knows what’s next, https://www.cnn.com/2020/11/18/politics/covid-relief-programs-expiring-in-december/index.html.

While before the election, the Speaker of the House Nancy Pelosi and Treasury Secretary Steven Mnuchin were discussing a possible package of around $2 trillion, the Senate was not on board with a large package, and there was no agreement on the package even between the Administration and the House. It is looking increasingly unlikely that an agreement will be reached before Joe Biden is sworn in as the next President on January 20, 2021, meaning months of delay before new legislation can be enacted. Such delay will cause significant harm to millions and millions of Americans and to the overall U.S. economy.

A large reason for the significant rebound in the third quarter from the steep drop in GDP in the second quarter in the U.S. was the broad and deep stimulus package adopted much earlier in the year. Without a new stimulus package and with surging new cases, there is the very real risk of slipping into a double dip recession. See, e.g., The Hill, November 15, 2020, Fears of double-di recession rise alongside COVID-19 cases,https://thehill.com/policy/finance/economy/525951-fears-of-double-dip-recession-rise-alongside-covid-19-cases. Indeed, with more and more states imposing at least some restrictions in an effort to slow the spread of the coronavirus, the economic rebound is certainly already slowing. The New York Fed Staff Nowcast projection of 4th quarter 2020 GDP growth has shrunk from an estimate of 7.12% on August 28 to just 2.86% projected on November 13.

The United States is not alone in facing challenges getting new stimulus measures put in place or facing a double dip recession or seeing large surges in cases during the fall. See, e.g., NPR, November 17, 2020, Hungary and Poland Block EU Budget with Pandemic Relief Funds for Hard-Hit Nations, https://www.npr.org/sections/coronavirus-live-updates/2020/11/17/935775895/hungary-and-poland-block-eu-budget-with-pandemic-relief-funds-for-hard-hit-natio; CNN Business, November 5, 2020, The UK economy heads back into recession, https://www.cnn.com/2020/11/05/economy/uk-economy-recession/index.html. Europe has already reduced its forecasted GDP growth for 2021 because of the fall resurgence in COVID-19 cases.

Conclusion

The United States continues to struggle with a pandemic that has affected all parts of the world. The U.S.’s response has been the least successful and the most costly of any nation in the world. As we head towards the end of the year, the virus continues to spiral out of control across the country with many states and local communities basically at the breaking point in terms of health care services. The President and many of his supporters have politicized basic public health steps needed to control the virus. While the Trump Administration has helped support expediting research, development and production of vaccines, the U.S. is now and will almost certainly remain the country with the worst record in terms of infections and deaths from the COVID-19 pandemic. Today’s record of more than two million new infections recorded in the last fourteen days is just one more “first” that the United States should never have achieved.

WTO initiatives on trade and the environment — likely to receive a warm welcome under a Biden Administration

The challenges facing the world from climate change are staggering and getting worse. While the Trump Administration withdrew the United States from the Paris climate agreement, a Biden Administration will have the U.S. rejoin and work with other nations to find solutions to the pressing problems.

Today in Geneva, two initiatives were announced by groups of WTO Members. One addresses trade and environmental sustainability and was presented in a communication from 49 Members. Communication on Trade and Environmental Sustainability, WT/CTE/W/249 (17 November 2020). Neither the U.S., China, India, Brazil nor South Africa are on the communication though most developed countries and other Members are initial sponsors. The communication is embedded below.

W249

The second initiative was the launch of an informal dialogue on plastics pollution and environmentally sustainable plastics trade. Seven Members are launching the informal dialogue. All Members are welcome to participate. The seven Members involved in the launch are Australia, Barbados, Canada, China, Fiji, Jamaica and Morocco. Only Australia, Canada and Fiji are part of both initiatives. The press release from the Secretariat on today’s initiatives included the following discussion of the plastics initiative.

“The dialogue is borne out of the recognition of the need for coordinated action to address the rising environmental, health and economic cost of plastics pollution and the importance of the trade dimension as a solution.

“Proponents aim to circulate their communication soon. * * *

“Ambassador Xiangchen Zhang of China said at the online event that possible subjects for discussion include improving transparency, monitoring trade trends, promoting best practices, strengthening policy coherence, identifying the scope for collective approaches, assessing capacity and technical assistance needs, and cooperating with other international processes and efforts. Ambassador Nazhat Shameem Khan of Fiji said they hope this informal dialogue will encourage discussion and exploratory work on how the WTO can contribute to efforts to reduce plastics pollution and transition to a circular, more environmentally sustainable plastics trade.”

Deputy Director-General Alan Wm Wolff spoke at today’s event and identified a range of initiatives that have been looked at by the Committee on Trade and Environment, or that could be, that could help move forward both initiatives including resuming talks at eliminating tariffs and non-tariff barriers on environmental goods and services, reforming subsidies on fossil fuels, promoting a global circular economy, addressing the carbon content of traded products and other actions.

The press release and DDG Wolff’s remarks are embedded below.

WTO-_-2020-News-items-New-initiatives-launched-to-intensify-WTO-work-on-trade-and-the-environment

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff-remarks-on-the-Structured-Discussions-on-Trade-and-Environmental-Sustainability

Likely U.S. engagement in a Biden Administration

Because addressing the challenges from climate change are a core priority for the incoming Biden Administration, I would expect that once the new trade team is in place, the U.S. will become involved in both of the initiatives and other activities at the WTO on the importance of finding rules and solutions to pressing trade and environment issues.

The Biden team almost certainly supports most if not all of the items identified in paragraph 1 of the Communication (WT/CTE/W/249), including the importance of multilateral environmental agreements, that there is an urgent need for action on climate change, that trade and environmental objectives and policies should be mutually supportive, that trade and trade policy need to support efforts to reach the Sustainable Development Goals, among others. Similarly, the Biden Administration will presumably strongly support the four areas of activity identified in paragraph 2 of the Communication:

“2. Therefore, express our intention to collaborate, prioritize and advance discussions on trade and environmental sustainability, including by:

“intensifying our work to share experiences and best practices; promote transparency, dialogue and information sharing along the full value chain of products and materials;

“strengthening coherence at the national and international level with a view to identifying areas of common interest and for future work within the WTO, in order for WTO to address more effectively sustainable development issues;

“working in cooperation with relevant international organizations and relevant actors, including the private sector, to identify and support technical assistance and capacity building needs of Members, and in particular least-developed countries (LDCs).

“working on possible actions and deliverables of environmental sustainability in the various areas of the WTO.”

Similarly, I would expect the Biden Administration to have an active interest in working with industry and other governments to address the challenges of plastics pollution, although U.S. interests are likely to be more action oriented than the items teed up by China at today’s announcement.

Conclusion

For years, many Members have fought focusing energies at the WTO on issues involving trade and the environment. With the climate change crisis and consequences being felt around the world, it appears that many or most WTO Members are appreciating the need for the WTO to play its role in addressing sustainable development and the climate change challenge.

With a new U.S. Administration, the U.S. should be a very active participant in moving the WTO and its Members forward.

“The values of the WTO” — do Members and the final Director-General candidates endorse all of them?

On November 6, Deputy Director-General Alan Wolff presented comments to the UN Chief Executives Board. In a press release, entitled “DDG Wolff shares views with international agency heads on future of multilateral cooperation,” the Secretariat provides a short introduction and then includes DDG Wolff’s comments including an Annex. See WTO, WTO and Other Organizations, DDG Wolff shares views with international agency heads on future of multilateral cooperation, 6 November 2020, https://www.wto.org/english/news_e/news20_e/igo_06nov20_e.htm. The statement by DDG Wolff is worth reading in its entirety and presents information on the effects of the pandemic and the future of multilateralism including reforms needed for the WTO. However, for purposes of this post, I will focus on Annex 1 to his statement, entitled “The Values of the World Trade Organization. The Annex is copied below and generally reflects views DDG Wolff has presented in the past.

Annex I

The Values of the World Trade Organization

“In the current upsurge in criticism of the inadequacies of the collective responses to the pandemic, the WTO is receiving heightened scrutiny, and more urgent calls for WTO reform. It is necessary to understand the values that the multilateral trading system is designed to promote before it can be reformed.

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

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

“to determine if the values of the current system enjoy the support of all WTO members, and

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

“WTO members can make progress toward improving the organization to help it to create a better world through building on the values that are inherent in the system. These include –

Stability and peace — The original mission of the multilateral trading system was to enhance economic growth to achieve stability and support peace; today the WTO fosters integration of conflicted countries into the world economy.

Well-being — At its core, the organization is about the economic advancement of the people whom its members represent. Well-being is defined to include creating jobs and, as we are finding out, it also includes health;

Rule of law — The enforceability of obligations is a key distinguishing feature of the WTO as compared with most other international endeavours;

Openness – The multilateral trading system rests upon the principle that to the extent provided within the bounds of the WTO agreements, markets will be open to international trade and trade is to be as free from distortions as possible;

Equality — Equality among members provides the opportunity for each member to participate in the organization, and its rights and obligations, to the extent of its capabilities;

Sovereignty — Sovereignty is preserved — no decision taken within the WTO is to have an automatic effect on the laws or actions of any member;

Development — Fostering development to allow all members to benefit equally from the rights and undertake equally the obligations of the WTO.

International cooperation — Cooperation is a shared responsibility of membership to enable the organization to function.

Sustainability — There is increasingly an attitude of care among members for stewardship of the planet and its inhabitants.

The primacy of market forces — Commercial considerations are to determine competitive outcomes.

Convergence —The WTO is not simply about coexistence; differences among members affecting trade which deviate from the principles governing the WTO, its core values, are to be progressively overcome.

Reciprocity — Broadly defined reciprocity is required for negotiations to succeed.

Balance — is provided:

“Through each member’s judgment of the costs and benefits of the rights it enjoys and the obligations it has undertaken;

“Through its view of how its costs and benefits compare with those of other members;

“Through a member’s view of its freedom of action in relation to the freedom of action for others, and

“Specifically, through its judgment of whether it has sufficient freedom to act to temper its commitments for trade liberalization (openness) with measures designed to deal with any harms thereby caused.

Trust — International trade would largely cease if trade-restrictive measures that were inconsistent with the rules were as a regular matter put into place and only removed prospectively through lengthy litigation.

Morality — in its absence, it would be hard to fully explain the provision addressing pharmaceutical availability in health emergencies. The 1994 Marrakech Declaration states that the WTO was being created to reflect the widespread desire to operate in a fairer and more open multilateral trading system.

Universality — Membership is open to all who are willing to negotiate entry.”

Many of these “values of the WTO” are not controversial. Two are critical to the direction of the WTO moving forward — the primacy of market forces and convergence. These values are viewed as critical by the United States and as central by the EU, Japan, Brazil and others. China’s economic system is viewed as inconsistent with these values. See, e.g., February 22, 2020, WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/; Statement from Brazil, Japan and the United States, Importance of Market-Oriented Conditions to the World Trading System, WT/GC/W/803/Rev. 1 (2 October 2020); CHINA’S TRADE-DISRUPTIVE ECONOMIC MODEL,
COMMUNICATION FROM THE UNITED STATES, 16 July 2018, WT/GC/W/745.

China rejects the claim that its economic system is properly the subject of WTO scrutiny or that it hasn’t engaged in “reform”. Coexistence, not convergence is China’s view of the appropriate value within the WTO. See, e.g., Statement of H.E. Ambassador Zhang Xiangchen of China at the General Council Meeting (Item 7), October 13, 2020, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202010/20201003007644.shtml; CHINA AND THE WORLD TRADE ORGANIZATION, COMMUNICATION FROM CHINA, 19 July 2018, WT/GC/749; General Council, MINUTES OF THE MEETING, 26 July 2018, WT/GC/M/173 (5 October 2018)(pages 29-41). And, of course, while China is the largest economy with an economic system at odds with market-economy conditions, it is not the only one.

Importantly, the candidate found through consultations with the WTO membership to be most likely to attract consensus and hence be recommended by the Chair of the General Council and his facilitators to become the next Director-General of the WTO, Dr. Ngozi Oknojo-Iweala of Nigeria, has taken the view that the WTO’s role is not to exclude any economic system but is rather to determine if different economic systems create distortions in trade that need to be addressed through modifications to the rules. See, e.g., August 19, 2020 [updated August 27], The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates, https://currentthoughtsontrade.com/2020/08/19/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-addre/; August 17, 2020, The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/.

Here is what I had written up based on Dr. Okonjo-Iweala’s participation in a WITA webinar on Jly 21 and her answer to specific questions. The webinar can be found at https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/.

“Q: On resetting of tariff commitments (comment from USTR Lighthizer as a problem within the WTO based on changing economic development of many countries), would this be in the best interest of the system? 

“A:  This is a critical question and issue.  Renegotiating any agreement would require consensus building that would be very difficult to achieve.  That would certainly be true on bound tariffs. The balance of rights and obligations raised by the United States flows from the concerns about state-led economies and state-owned enterprises and whether such economies belong in the system.  Dr. Okonjo-Iweala stated that the WTO is not there to comment on the economy of any Member.  In her view, the key question is what disciplines does the WTO have around any issue that arises.  Are the disciplines sufficient to address the imbalances in rights and obligations that may arise?  We need to start there.  What are the fundamental issues —  state-owned enterprises (SOEs), public body.  Can we come to agreement on the meaning of the term public body?  Can we tighten subsidy disciplines that already exist or can we negotiate new subsidy or other disciplines to address the concerns that arise from these types of economies? That is the approach all Members should be pursuing. 

“Q: On industrial subsidies, China has signaled that they will oppose tightening disciplines.  The U.S., EU and Japan have been working on a proposal and discussing with some Members.  How can the Director-General help the membership navigate these issues? 

“A:  If Dr. Okonjo-Iweala becomes the next Director-General, she would encourage that proposals from the U.S., EU and Japan be tabled so all Members can see what they are and how acceptable they are to other Members (including China).  Let’s start to work with an actual proposal.  Sometimes countries are not as far away as one might think.  Members need to work on a specific proposal and see what happens.”

Conclusion

The WTO is a different organization in 2020 than it was when it started in 1995 or when its basic structure and agreements were being negotiated during 1986-1994. Major economies have joined and some have economic systems that are significantly different than the traditional economies who led the GATT. The question of how to deal with different economic systems within the global trading system has not been addressed directly although some would argue that the U.S., EU and others have worked hard during accession negotiations to get commitments from acceding countries to engage in reform if the economy is based on state-control or other deviations from a market economy. For an economy like China’s, there were early reforms, some of which have been reversed over time and others which were never in fact implemented.

While evaluation of distortions caused by different economic systems is certainly an approach that can be pursued, it starts from a premise of coexistence of economic systems within the WTO and assumes rules can be formed that will adequately address all distortions created by non-market factors in a given economy. But the “convergence” value and the “primacy of market forces” value are fundametal to a system where the results of competition will be viewed as acceptable by all Members. In a consensus system, the refusal of a major player like China to agree to these values limits the likely options to other Members but clearly endangers the ability of the WTO to fulfil its core functions in ways that are acceptable to all.

That the likely next Director-General has taken a position that is at odds with the two WTO values identified in Annex 1 of DDG Wolff’s presentation from November 6 is understandable in a consensus system where there is obvious disagreement among WTO Members on the particular values. However, if moving forward with reform, the WTO membership and its Director-General fail to get Members to agree on the core values, such failure will ensure the WTO will not be the sole arbitrator of trade matters going forward.

WTO reports a 30% decline in commercial services trade in 2nd quarter of 2020 — travel challenges through September will continue to put downward pressure on commercial services trade

A press release from the WTO on October 23, 2020 was headlined “Services trade drops 30% in Q2 as COVID-19 ravages international travel.” https://www.wto.org/english/news_e/news20_e/serv_22oct20_e.htm. One of the charts in the press release shows travel down 81% in the second quarter of 2020, with transport down 31% and all other commercial services down 9%. Within other services, construction exports were down 24%; manufacturing and repair services exports were down 22%; telecommunications services exports were down 8%; insurance services exports were down 3%; financial services exports were down 1%; and computer services exports up 4%, with remaining categories of services exports down 9-14%.

The press release contained a link to monthly trade trends through August which looked at both imports and exports of merchandise and of commercial services. See WTO statistics, latest trends, https://www.wto.org/english/res_e/statis_e/latest_trends_e.htm. Commercial services were presented at an aggregate level and showed percent change for months on a year-on-year basis. For the European Union commercial services exports outside of the EU, the rate of decline from 2019 data declined 29% in May 2020, 22% in June, 21% in July and 20% in August. For the United States, exports of commercial services declined by 31% in May, 30% in June, 29% in July and 29% in August. China’s exports of commercial services went from a decline of 6% in May to a decline of 5% in June, and a !% growth in July and a 6% growth in August. The United Kingdom showed a decline of 27% in commercial exports in May, an 11% decline in June, a 9% decline in July and a 1% increase in August. India showed declines in each of the four months from May-August of 10%, 8%, 11% and 10%. Similarly, Japan showed declines each month in the four months from 24% in May, 23% in June, 35% in July and 36% in August. Korea was the last country shown and had declines each month of 30%, 24%, 27% and 26%.

Travel continues to be the major driver of the decline in commercial services into the third quarter, with the UNWTO reporting in its World Tourism Barometer (Volume 18, Issue 6, October 2020) that international arrivals declined 81% in July and 79% in August compared to year earlier figures. For the first eight months of 2020 compared to the same period in 2019, international arrivals are down 70.1%, with Asia and the Pacific down 78.8%, Europe down 67.7%, the Americas down 64.8%, Africa down 69.% nd the Middle East down 68.7. UNWTO World Tourism Barometer, Volume 18, Issue 6, October 2020, https://www.e-unwto.org/doi/epdf/10.18111/wtobarometereng.2020.18.1.6.

While travel restrictions through August had been being reduced in a number of countries, the huge increase in Europe of new COVID-19 cases in October and early November has resulted in increased restrictions in a number of European countries and will likely mean extended challenges for international travel to and from Europe, as well as cut backs in domestic travel for the remainder of 2020.

The International Air Transport Association (IATA) puts out various publications including an Air Passenger Market Analysis. The September issue shows that revenue passenger kilometers (RPKs) were down 88.8% in September 2020 for international air travel, bringing the January-September decline to 72.3%. Domestic air travel by contrast was down, but “just” 43.3% in September (51.2% for January – September). Thus, the total market (international and domestic) was down 72.8% in September and 64.7% for the first nine months of 2020. IATA, Air Passenger Market Analysis, The recovery in passenger travel slows amid elevated risks, September 2020, https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis—september-2020/.

While the travel sector encompasses far more than air travel, the challenges facing the airline industry are similar to challenges faced by other parts of the sector, although other parts of the sector are often far more fragmented (restaurants, bars, hotels, entertainment venues) and without the resources to survive the prolonged depression in demand due to the pandemic.

IATA provided a powerpoint analysis by their Chief Economist, Brian Pearce, on the 6th of October 2020, entitled “COVID-19, Outlook for airlines’ cash burn,” https://www.iata.org/en/iata-repository/publications/economic-reports/outlook-for-airlines-cash-burn/. The powerpoint reviews the steep reduction in stock prices for airlines compared to other stocks, outlines the extraordinary level of aid the industry has received from governments ($160 billion) and suppliers ($20 billion), shows the timing when government support is ending, graphs the slow recovery in passenger revenues, and explores the challenge for the airlines to downsize costs sufficiently to deal with the drastic contraction in revenues, and shows an industry cash burn (expenditures exceeding revenues) of $51 billion in the 2nd quarter of 2020 and a projected further cash burn of $77 billion in the second half of 2021. The presentation also shows that many airlines can’t sustain for long the cash burn and ends on the sobering note that airlines are not expected to turn cash positive until 2022.

Press reports show challenges for airlines in many parts of the world. See, e.g., South China Morning Post (Bloomberg article), November 3, 2020, Asia airlines seen staving off pandemic ruin for now as troubles head West, https://www.scmp.com/news/asia/article/3108066/asia-airlines-seen-staving-pandemic-ruin-now-financial-troubles-head-west; BBC, November 3, 2020, Covid threatens to ground India’s aviation industry, https://www.bbc.com/news/world-asia-india-54729074.

The U.S. has seen tens of thousands of airline employees furloughed or dismissed since October 1st as government support came to an end in September, and Congress and the Administration have not been able to agree on a further package of supports for the industry or the nation more broadly as the pandemic continues to grow in size in the U.S. The surge in new cases in the United States is also resulting in various states imposing restrictions on bars and restaurants, and the hotel and entertainment industries continue to be severely affected by declines in demand.

Similarly, much of Europe has been reimposing at least some restrictions that affect the travel sector in an effort to regain control over the pandemic.

All of the above is simply to point out that the decline in commercial services trade reported by the WTO last month for the second quarter of 2020 is likely to continue through the remainder of 2020, led by the devastating contraction of the travel sector.

WTO Director-General selection process doesn’t generate immediate consensus

The troika of WTO Chairs (of the General Council, Dispute Settlement Body and Trade Policy Review Body) met with the WTO heads of delegation on October 28 to review the results of the third round of consultations with Members as part of the long process of selecting the next Director-General. The meeting which was scheduled for 3 p.m. Geneva time, started after 3:15 p.m. and resulted in at least temporary challenges.

The two remaining candidates for consideration during the third round were Korea’s Minister for Trade, H.E. Yoo Myung-hee and Nigeria’s Dr. Ngozi Okonjo-Iweala. Both are considered highly qualified though with very different backgrounds — trade for Minister Yoo; development economics and finance for Dr. Okonjo-Iweala. Both candidates received strong support from their host governments in terms of politic outreach.

Amb. David Walker, the Chair of the General Council, announced that Dr. Okonjo-Iweala has emerged from the third round as the candidate most likely to attract consensus among the Members, and it is understood that she received broad support. Press articles have indicated support from WTO Members of the African Union, support from the countries part of the European Union and other support in the Americas and Asia, including China and Japan. Thus, Dr. Okonjo-Iweala may have been the preferred candidate for more than 100 of the 164 WTO Members.

Minister Yoo reportedly had the support of the United States, many countries in Asia and other support from the Americas and elsewhere.

The actual support of each candidate is not released by the WTO as consultations are confidential, though individual governments are, of course, free to identify which candidate they preferred.

Importantly, the Republic of Korea did not withdraw Minister Yoo’s candidacy and the U.S. has indicated it continues to support Minister Yoo, which means that at least for the moment there is not a consensus for Dr. Okonjo-Iweala.

Presumably the troika will continue to consult with Korea and the United States to see if they can get those Members to support the potential consensus behind Dr. Okonjo-Iweala. The procedures adopted by the General Council in late 2002 indicate that the troika should be submitting the name of Dr. Okonjo-Iweala to the General Council recommending her appointment by the General Council:

“At the end of the final stage of the consultative process, the Chair, with the support of the facilitators, shall submit the name of the candidate most likely to attract consensus and recommend his or her appointment by the General Council.”

Procedures for the Appointment of Directors-General, Adopted by the General Council on 10 December 2002, WT/L/509 (20 January 2003), para. 19.

Because of the present positions of Korea and the United States, it is likely that Amb. Walker will delay calling a General Council meeting in the hope of obtaining clearance of the current blockage. At some point, Amb. Walker will presumably call the General Council meeting so Members have to be on the record as opposing consensus. As a last resort, Amb. Walker and his facilitators can have the General Council vote to select the next Director-General. Id, para. 20.

Recourse to voting as a last resort

“20. If, after having carried out all the procedures set out above, it has not been possible for the General Council to take a decision by consensus by the deadline provided for the appointment, Members should consider the possibility of recourse to a vote as a last resort by a procedure to be
determined at that time. Recourse to a vote for the appointment of a Director-General shall be understood to be an exceptional departure from the customary practice of decision-making by consensus, and shall not establish any precedent for such recourse in respect of any future decisions in the WTO.”

The deadline for the appointment under existing procedures, is November 7, 2020. Id, para. 15. It is unclear what the objection is for the United States to Dr. Okonjo-Iweala, although press accounts have indicated that the U.S. has concerns about Dr. Okonjo-Iweala based on her work with U.S. officials with significantly different views on trade policy than the current U.S. Administration. It is also not clear why Korea’s candidate would not follow the agreed procedures for appointment of Directors-General and withdraw in light of the preferences expressed to the troika during the third round.

Conclusion

The WTO has been fortunate to have very strong candidates put forward to be considered as the next Director-General. Minister Yoo is highly qualified and had a strong presentation of views and intended approach for leading the WTO forward.

Dr. Okonjo-Iweala with her service as Minister of Finance twice for Nigeria and twenty-five years experience at the World Bank, background in development economics, and service as Chair of GAVI brings a wealth of experience at high levels of government and multilateral organizations. She is also a candidate from Africa, a continent that has not to date had a Director-General of the WTO. As stated in the General Council’s procedures for appointing Directors-General,

Representativeness of candidates

“13. In order to ensure that the best possible candidate is selected to head the WTO at any given time, candidatures representing the diversity of Members across all regions shall be invited in the nominations process. Where Members are faced in the final selection with equally meritorious
candidates, they shall take into consideration as one of the factors the desirability of reflecting the diversity of the WTO’s membership in successive appointments to the post of Director-General.”

There has been a prior WTO Director-General from Asia, which may have been a consideration for some WTO Members in providing their preference for Dr. Okonjo-Iweala instead of Minister Yoo in the third round.

It is obviously unfortunate that a process that has worked smoothly so far in 2020, has developed the current set of challenges from Korea and the U.S. Hopefully, the challenges will be addressed and a consensus reached in the next nine days. The correct outcome at this point is for Dr. Okonjo-Iweala to be the next Director-General, the first female Director-General and the first African Director-General.

If the unexpected holdup in concluding the selection process can be resolved, Dr. Ngozi Okonjo-Iweala will hopefully be up to the daunting task that awaits the next Director-General. Success will depend on the willingness of Members to find common ground and address the need for reform and updating the rule book — clearly a herculean challenge considering the very different views of major Members and different groups of Members. But the WTO needs a leader who can help Members find the path forward, be an honest broker, help Members restore confidence in the organization and ensure trade issues can be effectively addressed within the organization, help ensure engagement by all, and be able to engage with governments at a political level and with other multilateral organizations to achieve meaningful participation by all. The global trading system needs a strong and relevant WTO. Time will tell if Dr. Okonjo-Iweala will be that leader. Let’s hope that the next Director-General will succeed.

WTO Dispute Setttlement Body meeting of October 26, 2020 — no movement on Appellate Body impasse; U.S. appeals panel report on its imposition of tariffs on Chinese goods

The regular monthly meeting of the WTO’s Dispute Settlement Body (DSB) occurred on October 26, 2020. The agenda for the meeting contained the normal issues looking at surveillance of implementation of recommendations adopted by the DSB, a review of certain disputes, nominations for the indicative list of governmental and non-governmental panelists. It also contained review and adoption of the draft annual report of the DSB (2019/2020) and the renewed proposal to start the process for selecting Appellate Body members. See DSB, 26 October 2020, Proposed Agenda, WT/DSB/W/670 (22 October 2020). The agenda is embedded below.

W672

Of particular interest are items 4 and 5 dealing with the WTO panel report on United States – Tariff Measures on certain goods from China, WT/DS/543/R and WT/DS/543/R/Add.1 and item 10 dealing with the long running proposal to start the process for filling vacant Appellate Body seats.

China’s dispute with the U.S. over the U.S. 301 investigation and resulting tariffs on Chinese goods

On October 26th, the U.S. filed an appeal from the panel decision in United States – Tariff Measures on certain goods from China, WT/DS/543/R and WT/DS/543/R/Add.1. See UNITED STATES – TARIFF MEASURES ON CERTAIN GOODS FROM CHINA, NOTIFICATION OF AN APPEAL BY THE UNITED STATES UNDER ARTICLE 16 OF THE UNDERSTANDING ON RULES AND PROCEDURES GOVERNING THE SETTLEMENT OF DISPUTES (“DSU”), WT/DSB543/10 (October 27, 2020). The U.S. notice of appeal is embedded below. The last paragraph states, “At this time, no division of the Appellate Body can be established to hear this appeal in accordance with DSU Article 17.1. The United States will confer with China so the parties may determine the way forward in this dispute.” This is consistent with the U.S. view that Members have many ways to resolve differences, and so a lack of immediate appeal options doesn’t mean a resolution isn’t possible.

543-10

That the U.S. would file an appeal was widely expected and suggested in an earlier post. See September 16, 2020:  WTO panel decision in United States – Tariff Measures on Certain Goods from China increases the need for comprehensive WTO reform, https://currentthoughtsontrade.com/2020/09/16/wto-panel-decision-in-united-states-tariff-measures-on-certain-goods-from-china-increases-the-need-for-comprehensive-wto-reform/.

Nonetheless, the panel decision was on the agenda of the DSB meeting (item 4). Below is the U.S. statement on agenda item 5 responding to China’s statement regarding the panel report. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, October 26, 2020, pages 12-15,https://geneva.usmission.gov/wp-content/uploads/sites/290/Oct26.DSB_.Stmt_-2.pdf:

“STATEMENT BY CHINA REGARDING THE PANEL REPORT IN ‘UNITED STATES – TARIFF MEASURES ON CERTAIN GOODS FROM CHINA’

“ The findings in the report United States – Tariff Measures on Certain Goods from China are based on legal errors. The United States has notified an appeal of this report to the DSB. Accordingly, the panel report cannot be adopted today.

“ The United States would submit a notice of appeal and an appellant submission once a Division of the Appellate Body can be established to hear this appeal. China may file its own appeal of the panel report now or at that point of time.

“ The United States nonetheless wishes to address this panel report because it reflects a major, missed opportunity for the WTO to begin to address the most serious problem faced by every Member that seeks a balanced and fair world trading system: namely, aggressive, state policies that seek to dominate broad industrial sectors.

“ In prior DSB statements, the United States has elaborated upon China’s far-reaching efforts to unfairly take technology from other Members.1 And, as Member’s are aware, it was that action taken by the United States to combat these policies that led to the U.S. measures that China challenged in this dispute.

“ These unfair trade practices have cost U.S. innovators, workers, and businesses billions of dollars every year. Further, they harm every Member, and every industry in every Member, that relies on technology for maintaining competitiveness in world markets.

“ The tariff measures the United States took in response to China’s practices led earlier this year to the historic Phase One Economic and Trade Agreement Between the United States and China.2 In this agreement, China committed to cease some – though not all – of its unfair and harmful technology transfer practices.3 The Phase One Agreement includes a strong enforcement mechanism, including China’s agreement that the United States may impose additional tariffs on goods of China upon a U.S. finding that China has failed to meet its obligations. Pursuant to the Phase One Agreement, China is making changes to its economic and trade practices that will benefit not just the United States, but also China, and all WTO Members.

“ China would not have agreed to the technology transfer provisions of the Phase One Agreement but for the additional U.S. tariffs that China chose to challenge in this dispute. Moreover, it cannot credibly be asserted that alternative tools were available to the United States, nor to any other Member, to address China’s unfair and harmful technology transfer policies.

“ Accordingly, the Panel’s findings against the U.S. tariff measures amount to an acknowledgement that the WTO system, as currently formulated, is an impediment to an improved world trading system. This is completely backwards. Rather, as stated in the preambles to the WTO Agreement and the Marrakesh Declaration, the WTO’s role should be to promote ‘reciprocal and mutually advantageous arrangements’;4 ‘an integrated, more viable and durable multilateral trading system’;5 and ‘open, market-oriented policies.6’

“ The Panel reached its institutionally-harmful findings by making fundamental legal errors in the evaluation of two defenses presented by the United States.

“ First, the Panel failed to conduct its own objective assessment of whether the facts on the record in the dispute established that China and the United States had both agreed that issues relating to the dispute were to be addressed outside the WTO system.

“ The United States established, and China did not dispute, that China had already adopted its own remedy by imposing retaliatory tariffs on more than half of all U.S. exports to China. And China did this openly as a response to the same tariff measures that China challenged in this dispute.7

“ Furthermore, in the Phase One Agreement, China agreed that the United States may impose additional tariff measures upon a U.S. finding that China was breaching its obligations under that agreement, including with respect to technology transfer.8

“ In short, the Parties’ actions demonstrated that they had agreed on bilateral mechanisms to address the issues related to the dispute. The Panel, however, took no account of the evidence. Rather, the Panel simply accepted China’s assertion to the contrary – an assertion made during the litigation and only for the purpose of seeking a finding that essentially would signal the WTO’s support for China’s technology theft.9

“ This erroneous result amounts to an approval for the cynical misuse of the WTO dispute settlement system. Even if adopted, the finding would not in any way promote the resolution of any dispute between China and the United States. At most, a Member that prevails in a WTO dispute can obtain the authority to suspend WTO concessions. But here, China had already taken the unilateral decision that the U.S. measures could not be justified, and China had already imposed tariff measures on U.S. goods.

“ Second, the Panel incorrectly rejected the U.S. defense that the measures were necessary to protect public morals under Article XX(a) of the GATT 1994.10 The United States provided extensive evidence and argumentation, showing:

“o the existence of China’s unfair and harmful technology transfer policies, as we summarized earlier in this statement;

“o that these policies were inconsistent with U.S. and international norms for moral conduct;

“o that the U.S. measures were taken for the explicit purpose of ending the unfair practices;

“o and that after years of unproductive negotiations and discussions in various fora, the United States had no other available tools to address this crucial issue.

“ The U.S. showings on these factual matters were largely undisputed by China. China did not even attempt to rebut the existence of the unfair technology transfer policies documented by the United States.

“ At the outset of its analysis, the Panel did correctly find that the norms against theft, misappropriation, and unfair competition underlying the U.S. tariff measures could fall within the scope of public morals as used in Article XX(a).11

“ However, the Panel used an unsupportable approach for evaluating whether the U.S. measures were ‘necessary’ within the meaning of Article XX(a).12 As a result, the Panel findings are legally unsound.

“ Ironically, the Panel wrote that it was adopting a ‘holistic’ approach to the analysis of necessity.13 But the actual approach was anything but that; rather, it was myopic, addressed only to whether the public morals objective of the U.S. measure was sufficiently connected to the particular products subject to the U.S. tariffs.14

“ The Panel had no legal basis for adopting this single test to evaluate ‘necessity.’ As an initial matter, nothing in the text of Article XX(a) requires any particular level of connectedness. And even if this were a valid consideration, the Panel had no basis for assuming that it was even possible for any Member to tightly connect particular sets of imported products to far-ranging and non-transparent policies involving technology theft.

“ Nor did the Panel even address the U.S. showing that there were no possible alternative means for the United States to achieve the public morality goals recognized under Article XX(a).

“ In short, the Panel failed to conduct a holistic analysis, ignoring nearly all of the record evidence in the dispute. Instead, the Panel rejected the U.S. defense based only on the legally erroneous use of a narrow and unsupportable legal test.

“ In closing, the United States will turn to the real-world events involving China’s unfair technology transfer policies, and U.S. efforts to address them. As noted, China committed in the Phase One Agreement not to pursue some of the unfair technology transfer policies that led to the U.S. tariff measures. This is a positive step, and the United States is closely monitoring China’s compliance. The issuance of this report has no effect on the Parties’ ongoing implementation of the Phase One Agreement, which will benefit all of China’s trading partners.

“ The Panel avoided any meaningful findings by taking flawed legal shortcuts, instead of considering the extensive record evidence involving China’s harmful technology transfer policies and the past failed attempts to address these policies in other ways. In taking this approach, the panel report indicates that the WTO is incapable of handling these issues. The report thus serves as further confirmation that the U.S. tariff measures were the only available means to address the major problems to the world trading system resulting from China’s forced technology transfer policies.

“1 See WT/DSB/M/410, paras. 11.2-11.3 (March 27, 2018, meeting); WT/DSB/M/412, paras. 5.5-5.11 (April 27, 2018, meeting); WT/DSB/M/413, paras. 4.1-4.4 (May 28, 2018, meeting); WT/DSB/M/423, paras. 8.3-8.7 (December 18, 2018, meeting); see also Findings of the Investigation into China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974, https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF.

“2 Economic and Trade Agreement Between the Government of the United States and the Government of the People’s Republic of China (Phase One Agreement), https://ustr.gov/sites/default/files/files/agreements/phase%20one%20agreement/Economic_And_Trade_Agreement_Between_The_United_States_And_China_Text.pdf.

“3 Id., see Chapter 2 (“Technology Transfer”).

“4 Marrakesh Agreement Establishing the World Trade Agreement, preamble.

“5 Id.

“6 Marrakesh Declaration of 15 April 1994, preamble.

“7 Panel Report, paras. 7.4-7.6.

“8 Phase One Agreement, Chapter 7.

“9 Panel Report, para., 7.22.

“10 Panel Report, paras., 7.236-7.238.

“11 Panel Report, para., 7.140.

“12 Panel Report, paras., 7.178 and 7.180.

“13 Panel Report, paras., 7.111, 7.152 -7.1533, and 7.238.

“14 Panel Report, para., 7.178.”

China’s statement at the DSB meeting is not presently up on China’s WTO Mission website. Press accounts indicate that “Beijing, meanwhile accuseed the United States of taking advantage of the non-functioning AB to avoid having to comply with the panel decision. China argued that the panel was correct in finding that Washington applied the tariffs in a discriminatory maner. The US decision to appeal the ruling is an abuse of WTO rules, China said.” Washington Trade Daily, October 27, 2020, US Appeals WTO Ruling on China Tariffs, https://files.constantcontact.com/ef5f8ffe501/344bb981-f669-41fb-8a47-4bdf16a9d1a0.pdf.

Bloomberg’s reported on October 26, 2020, U.S. appeals WTO ruling that Trump’s China tariffs were illegal, https://www.bloomberg.com/news/articles/2020-10-26/u-s-appeals-wto-ruling-that-trump-s-china-tariffs-were-illegal, “China criticized Washington’s decision to take advantage of appellate body’s state of limbo and touted the ruling as a victory for the multilateral trading system against unilateralism, according to prepared remarks obtained by Bloomberg.”

The EU was among other Members who commented on the dispute. The EU comments on item 5 are contained below. See EU Statements at the Regular DSB Meeting, 26 October 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/87549/eu-statements-regular-dsb-meeting-26-october-2020_en.

“AGENDA POINT 5: STATEMENT BY CHINA REGARDING THE PANEL REPORT IN ‘UNITED STATES – TARIFF MEASURES ON CERTAIN GOODS FROM CHINA’

“This is yet another dispute that illustrates the grave consequences of the blockage of Appellate Body appointments since 2017. That blockage frustrates the essential rights of Members that were agreed
multilaterally in the DSU.

“In that regard we refer to EU’s intervention under item 7 of the DSB meeting on 28 September 2020, where we elaborated on these consequences and on the possibility of appeals being adjudicated upon through appeal arbitration based on Article 25 of the DSU, consistently with the principles of the DSU. We will not repeat these points today.

“The EU takes note of US’ decision to appeal the panel report in this case. The panel report will therefore not be adopted by the DSB today.

“The EU intervened as third party in this case and will intervene before the AB once the proceedings can resume. We therefore reserve our position for the purposes of these appellate proceedings.

“This being said, we would like to offer some brief remarks on the substance of the report.

“The EU would like to recall, as expressed in its written submission, that it shares the concerns expressed by the US regarding the protection of intellectual property rights and discriminatory conditions applying to foreign licensors of intellectual property in China.

“However, we do welcome the general approach of the panel to the exception in Article XX(a) of the GATT.

“In our view, much as the text of Article XX itself, the panel’s approach strikes the right balance between the Members’ legitimate right to protect public morals and the need to ensure that exceptions are not used to
circumvent the Members’ obligations under the GATT.

“Second intervention

“The EU’s appeal to the Appellate Body in DS494 must not be confused with ‘blocking the dispute resolution’ or appealing ‘into the void’.

“The EU attaches great importance to maintaining a functioning two-tier dispute settlement process. This is why we have actively supported all efforts to find a solution to the impasse over the Appellate Body appointments and this is also why the EU, together with other Members, has put in place the MPIA.

“However, if the other party is not willing to agree on such contingency measures while the impasse continues, the EU may have no choice but to appeal before the Appellate Body. Whether or not such appeal would be
processed is in the hands of the other party.

“In the DS494 dispute, the EU offered to Russia to agree on a means of having the appeal heard through appeal arbitration based on Article 25 of the DSU and that offer still stands.”

Continued Impasse on Appellate Body Vacancies

A large majority of WTO Members support starting the process of finding Appellate Body members to fill the current six vacancies. The U.S. continues to oppose moving forward with this process as it doesn’t feel that its concerns have been addressed. The U.S. statement at the October 26 meeting is copied below:

“APPELLATE BODY APPOINTMENTS: PROPOSAL BY SOME WTO MEMBERS (WT/DSB/W/609/REV.18)

“ As we have explained in prior meetings, we are not in a position to support the proposed decision. The systemic concerns that the United States has identified remain unaddressed. Instead, Members should consider how to achieve meaningful reform of the dispute settlement system.

“ The U.S. view across multiple U.S. Administrations has been clear and consistent: When the Appellate Body overreaches and itself breaks WTO rules, it undermines the rules-based trading system.

“ The Appellate Body’s abuse of the limited authority we Members gave it damages the interests of all WTO Members who care about a WTO in which the agreements are respected as they were negotiated and agreed.

“ Earlier this year, the Office of the U.S. Trade Representative published a Report on the Appellate Body of the World Trade Organization. The Report details how the Appellate Body has failed to apply WTO rules as agreed by WTO Members, imposing new obligations and violating Members’ rights.17 We appreciate the number of Members who have reviewed the Report and share the view that the Report identifies serious errors by the Appellate Body.

“ As the United States has explained repeatedly, the fundamental problem is that the Appellate Body has not respected the current, clear language of the DSU.

“ Members cannot find meaningful solutions to this problem without understanding how we arrived at this point. Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.

“ The United States has actively sought engagement from Members on these issues. Yet, some Members have remained unwilling to admit there is even a problem, much less engage in a deeper discussion of the Appellate Body’s failures.

“ And rather than seeking to understand why the Appellate Body has departed from what Members agreed, these Members and others have now redirected the focus and energies of the Membership to pursue an arrangement that would, at best, perpetuate the failings of the Appellate Body.18

“ Nevertheless, the United States is determined to bring about real WTO reform. We Members must ensure that the WTO dispute settlement system reinforces the WTO’s critical negotiating and monitoring functions, and does not undermine those functions by overreaching and gap-filling.

“ The central objective of the dispute settlement system is to assist the parties to find a solution to their dispute. As before, Members have many methods to resolve a dispute, including through bilateral engagement, alternative dispute procedures, and third-party adjudication.

“ Parties should redouble their efforts to find such a positive solution to their disputes.

“ The United States will continue to insist that WTO rules be followed by the WTO dispute settlement system. We will continue our efforts to seek a solution on these important issues.

“17 United States Trade Representative, Report on the Appellate Body of the World Trade Organization (February 2020), available at https://geneva.usmission.gov/wp-content/uploads/sites/290/AB-Report_02.11.20.pdf.

“18 See U.S. Statement at the June 29, 2020, Meeting of the Dispute Settlement Body (Item 13), available at: https://geneva.usmission.gov/wp-content/uploads/sites/290/Jun29.DSB_.Stmt_.as-deliv.fin_.public13218.pdf.
U.S. Statements at the October 26, 2020, DSB Meeting.”

The history of the efforts in 2019-2020 by Members to get the Appellate Body vacancies filled is chronicled in the Draft Annual Report of the DSB, WT/DSB/W/662 (16 October 2020) pages 2-6. The draft annual report is embedded below.

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Conclusion

The dispute between China and the U.S. over the U.S. 301 investigation and imposition of duties on certain Chinese goods brings into stark relief the challenges for the WTO in regaining relevance. To the United States, the limitations of the WTO and the incompatibility of the Chinese economic system with WTO rules has led to building conflict over the last twenty years and to the U.S.’s search for a solution to render some of the distortive practices in China less problematic. The panel report raised significant concerns for the United States though embraced by China even though both Members have been engaged bilaterally outside of the WTO trying to address many of the concerns raised in the U.S. 301 investigation.

At the same time, the U.S. (and others) have had problems with the dispute settlement system that go back at least twenty years. These problems go to the Appellate Body in some cases creating obligations or rights not found in the Agreements from which disputes are filed, and to the increasing practice of the Appellate Body in ignoring the procedural and substantive limitations on the AB’s conduct contained in the Dispute Settlement Understanding. There are major differences in views on what is appropriate for the Appellate Body with the U.S. and Europe (and others) far apart. An overactive dispute settlement system which has created obligations that Members never agreed to has led many Members to pursue disputes instead of negotiating. Such action by Members has contributed to the nearly moribund negotiating function at the WTO.

The path forward on these critical issues is unclear and unlikely to be clarified in the near future. All of which means that the new Director-General when selected will face a WTO in a growing state of paralysis and diminished relevance.

WTO Director-General selection — press reports EU, Japan join those supporting Dr. Ngozi Okonjo-Iweala of Nigeria

With the third round of consultations concluding on Tuesday, October 27, press reports indicate that Japan will be supporting the Nigerian canadidate and the EU, after extended internal debate, has apparently agreed to support Dr. Ngozi Okonjo-Iweala of Nigeria as well. See The Japan Times, October 26, 2020, Japan decides against backing South Korean for WTO chief, https://www.japantimes.co.jp/news/2020/10/26/business/japan-south-korea-nominee-wto/; Politico, October 26, 2020, EU backs Nigerian candidate for WTO top job, https://www.politico.eu/article/eu-backs-nigerian-candidate-for-wto-top-job/.

Dr. Okonjo-Iweala has received the backing of the WTO Members of the African Union and reportedly several dozen other Members from the Americas and Asia. See, e.g., RTL Today, October 19, 2020, ‘I feel the wind behind my back’: Nigerian WTO candidate, https://today.rtl.lu/news/business-and-tech/a/1596831.html.

Some press article have suggested that China is also likely to support the Nigerian candidate, although there has not been formal confirmation to date and some articles have suggested China may have problems with each of the two remaining candidates. See, e.g., South China Morning Post, October 8, 2020, China faces ‘difficult trade-off’ as WTO leadership race heads into final round, https://www.scmp.com/economy/china-economy/article/3104712/china-faces-difficult-trade-wto-leadership-race-heads-final.

The United States has been reported in the press as supporting Minister Yoo Myung-hee from the Republic of Korea. Bloomberg (article in Swissinfo.com), October 21, 2020, Global Trade-Chief Race Slows as U.S., EU Split on Finalists, https://www.swissinfo.ch/eng/bloomberg/global-trade-chief-race-slows-as-u-s—eu-split-on-finalists/46110158.

It is also known that the President of Korea and other senior officials within the Korean government have been actively reaching out to WTO Members to encourage support of Minister Yoo in the third round. See, e.g., Yonhap News Agency, October 20, 2020, Moon requests support from 2 nations for S. Korean candidate’s WTO chief bid, https://en.yna.co.kr/view/AEN20201020009151320; The Korea Times, October 20, 2020, Government goes all out for Yoo’s WTO election, https://en.yna.co.kr/view/AEN20201020009151320.

What do the news articles portend?

Assuming the support for Dr. Ngozi Okonjo-Iweala is as broad and deep as is being reported, the Nigerian should be the candidate who is announced by the troika in the WTO (Chairs of the General Council, Dispute Settlement
Body and Trade Policy Review Body) as the candidate most likely to achieve consensus from the membership at an informal heads of delegation. If there is no opposition from a Member or Members suggesting blockage of consensus, the informal heads of delegation meeting could be set for as early as Thursday, October 29, with a General Council meeting to confirm the selection held that afternoon or on the 30th of October. If one or more Members indicates a likelihood of blockage of consensus, it is likely that the informal heads of delegation meeting would not occur on the 29th to give the troika the opportunity to work with those threatening blockage to attempt to achieve consensus. See October 9, 2020:  October 8th video discussion on WTO Director-General selection process following the announcement of two finalists, https://currentthoughtsontrade.com/2020/10/09/october-8th-video-discussion-on-wto-director-general-selection-process-following-the-announcement-of-two-finalists/ (video from WITA; see comments of Amb. Rufus Yerxa, President of the National Foreign Trade Council).

Under the procedures adopted in late 2002 for the selection of a Director-General if there is a failure to achieve consensus, Members could select the Director-General based on a vote. To date, voting has not been required. Hopefully, the same will be true in this selection as well. If so, it appears that Dr. Ngozi Okonjo-Iweala will be the next Director-General of the WTO.

China’s trade restrictive actions against Australia — what they say about China’s compliance with notification requirements and the importance of market-economy conditions in global trade

One of the challenges companies and trading partners of China have faced in having the global rules of trade actually honored by China has been the informal actions of China’s government at the central, provincial and local level which result in clear violations of WTO obligations as well as the fear of retaliation companies trading with China may face if specific examples of non-compliant actions are raised bilaterally or through dispute settlement.

In yesterday’s Global Business Dialogue TTALK entitled “China and Aussie Cotton,” the challenges that Australia’s cotton producers are facing in China are reviewed including apparent verbally communicated requirements to Chinese cotton purchasers not to buy Australian cotton. See Global Business Dialogue TTALK of October 22, 2020, “China and Aussie Cotton,” https://myemail.constantcontact.com/CHINA-AND-AUSTRALIAN-COTTON—-TTALK-FOR-OCTOBER-22.html?soid=1101547782913&aid=L4XRKbnPF_A. The post has links to various sources for the concerns raised in the post.

A good summary paragraph from the TTALK piece follows:

“All of that said, this has been a tense year for China-Australia trade, as China has taken aim at one Australian export after another to signal its displeasure with Australian policies. Australian barley, beef, and wine were hit with import restrictions earlier. Last week it was coal and cotton – what might be called Australia’s black and white exports to China. This time, though, China’s restricted policies were not in black and white. They were instead oral instruction to Chinese buyers of those products not to buy from Australia.”

As the WTO Members consider reforms needed to improve the functioning of the global trading system, the challenges Australian producers are facing in having access to the Chinese market should help inform some of the critical challenges and needs.

Obviously, there are transparency requirements on all WTO Members on actions taken that affect access to a Member’s market. It is unlikely that any of the non-written actions, policies or practices taken by the Chinese government at the central, provincial or local level that affect foreign goods or services or foreign investors are notified to the WTO. If so, this is a major problem in the third leg of the WTO structure – notifications and oversight. While similar problems may exist for other WTO Members, the Australia example is a clear instance where China has discriminated against products of a trading partner without formal notification or justification.

Similarly, the Australian example raises concerns about China using the influence of the state to distort trade outcomes. This is, of course, the core concern of the United States, Japan, Brazil and others that the global trading system is premised on market-economy conditions within WTO Members and that systems like that of China don’t fit well under existing global rules. The state directing companies not to purchase commodities like cotton from foreign suppliers is inconsistent with such market-economy conditions.

For any reform initiative to permit the WTO to ensure conditions of fair trade in the global market, state actors need to sit out the vast majority of trade actions involved in the production, sale, import and export of goods and services. There have been proposals to date to address some of the notification deficiencies that exist, but nothing really focused on informal actions of states. Similarly, the U.S., Japan and the EU have also identified a series of issues (industrial subsidies, forced technology transfer) where the existing rules of the WTO are inadequate to address some of the distortions caused by economic systems like that employed by China. It is unclear that the areas being considered deal with some of the distortions flagged in the Australian case or the issue of threats or acts of retaliation by a WTO Member against companies engaged in trading with the Member or who have invested in the Member. While China is certainly a Member where companies often complain privately about retaliation or threats, China is not alone in that regard.

Without serious reform to address these and other existing problems as well as update the rules to reflect 21st century trading realities, countries will need to increasingly look outside the WTO for tools to address the distortions created.

COVID-19 new cases over last 14 days pass 5,000,000 for first time on October 22.

According to data compile by the European Centre for Disease Prevention and Control, total new COVID-19 cases reported globally reached 5,042,415 for the last fourteen days on October 22, 2020 bringing the totals since data started to be gathered at the end of 2019 to 41.299 million cases. See European Centre for Disease Prevention and Control, October 22, 2020, COVID-19 situation update worldwide, as of 22 October 2020, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases. This is the first day where the two week total exceeded five million. The most recent two week total compares to 3,780,469 new cases for the two weeks ending on September 13; 3,019,983 new cases for the two weeks ending on July 19; 1,932,024 new cases for the two weeks ending on June 21; and 1,281,916 new cases for the two weeks ending on May 24.

While vaccines are available in China and the Russian Federation to some extent and emergency approval of two vaccines may be presented to the U.S. Food and Drug Administration in the second half of November 2020, countries is the Americas and Europe in particular are seeing sharp increases in the number of new cases as cooler weather and greater time indoors accompanies the start of Fall.

Here are all countries (13) that had 100,000 new cases or more in the last two weeks according to the ECDC report. They account for 3,605,666 of the cases in the last two weeks (71.5%). All but India and Brazil are increasing, most dramatically:

India – 871,291 (down from recent periods)

United States – 786,488 (increasing)

France – 303,912 (increasing)

Brazil – 298,078 (down from recent periods)

United Kingdom – 244,954 (increasing)

Russian Federation – 198,716 (increasing)

Argentina – 196,410 (increasing)

Spain – 169,394 (increasing)

Italy – 115,708 (increasing)

Czechia – 113,555 (increasing)

Colombia – 104,017 (increasing)

Netherlands – 103,024 (increasing)

Belgium – 100,119 (increasing)

Individual countries in Europe are reimposing some restrictions in response to the sharp spike in new cases, including lockdowns in Ireland and Czechia. See Politico, October 21, 2020, EU leaders to discuss Coronavirus on October 29, https://www.politico.eu/article/eu-leaders-to-confer-on-pandemic-oct-29/. The EU has made arrangements with three groups developing vaccines for early supplies and is reported to be close to arrangements with three more (and possibly with a fourth).

Different states in the United States are responding to the rising number of new cases in different ways reflecting in part the politicization of prevention measures like wearing masks and the continued mixed messages coming from government officials on the pandemic. Rural America which had escaped most of the early infections has been going through large surges, particularly in the middle of the country and in the northern states in the midwest. Hospitalizations have increased in many states and will likely continue to climb if predictions of worsening new case counts continue to play out. The U.S. has made arrangements with a number of pharmaceutical companies and groups for early access to vaccines that receive approval for distribution.

In a recent WTO TRIPs Council meeting, the U.S. and U.S. reportedly opposed a proposal from India and South Africa to waive certain intellectual property protections for a period of time to address getting vaccines and therapeutics to all peoples when available. See World Trade Organization press release, October 20, 2020, Members discuss intellectual property response to the COVID-19 pandemic, https://www.wto.org/english/news_e/news20_e/trip_20oct20_e.htm; Inside U.S. Trade’s World Trade Online, October 20, 2020, U.S., EU oppose WTO effort to waive IP protections amid pandemic, https://insidetrade.com/daily-news/us-eu-oppose-wto-effort-waive-ip-protections-amid-pandemic.

As the pandemic continues to rage with a shifting focus on hot spots back to more developed countries and as vaccines get close to approval and mass production, the question of distribution of vaccines and therapeutics to countries in need will become a more pressing issue. While there has been greater international cooperation (with the exception of the U.S.) in supporting groups focuses on getting vaccines to developing and least developed countries, there obviously remains a tension between the role of government in taking care of its citizens and its role in contributing to global outreach. See Nature, 24 September 2020, Who Gets a Covid Vaccine First? Access plans are taking shape, https://media.nature.com/original/magazine-assets/d41586-020-02684-9/d41586-020-02684-9.pdf While the WHO would like to see all countries pool vaccines and make them available to vulnerable groups globally before addressing other national needs, that is a highly unlikely scenario among major producing countries. Particularly for developed countries experiencing large surges in new cases, the political pressure to address the immediate needs at home will likely rule government actions. The good news is that some pharmaceutical companies involved in vaccine development have plans to produce or license production in multiple countries, including in countries for broader distribution to developing and least developed countries. This is in addition to the government and private sector support to GAVI and others for obtaining vaccines and therapeutics and making them available to countries in need.

Conclusion

The spread of the COVID-19 pandemic continues to accelerate and will likely worsen for the Americas and Europe in the coming weeks. If there are increased restrictions by countries in an effort to slow the spread of the coronavirus, that will slow the economic rebound in important parts of the world and will likely slow the rebound in trade in goods and services.

At the same time, the world is getting close to knowing whether a number of the vaccine trials underway by western pharmaceutical companies have been successful and whether vaccines from these companies will join those of China and Russia. As vaccines and some therapeutics become commercially available, there will be the important challenge of seeing that all peoples with needs are able to access the vaccines and therapeutics on an equitable and affordable basis. The jury is out as to how access will actually work and whether the roll out of vaccines and therapeutics will in fact be equitable and affordable.

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

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

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

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

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

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

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

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

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

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

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

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

It is certain to be an interesting end of October.

Reform at the WTO — fundamental divisions continue on key issues for U.S.

At the recent Informal Trade Negotiations Committee and Informal Heads of Delegation meeting on October 12 and the General Council meeting on October 13, WTO Members continued to line up on opposite sides of major reform proposals from the United States and others.

While the U.S. and other supporters of change in developing country status for special and differential treatment (“S&DT”) have not included least developed countries (where there is no dispute on the need for assistance), China, India, and South Africa hide behind a Doha Development Agenda item on S&DT on existing agreements and proposals put forward by the G90 in an effort to avoid their need to justify any special and differential treatment in new agreements or ongoing negotiations. The concept that Members who have advanced economically rapidly over the last twenty-five years are going to get additional S&DT benefits on existing agreements while not permitting a better differentiation of which WTO Members have actual needs is not one likely to move forward and will exacerbate the negotiating impasse at the WTO. There is a good summary of the S&DT debate at the General Council meeting on October 13 in the October 14 issues of Washington Trade Daily. https://files.constantcontact.com/ef5f8ffe501/7ce1179a-5882-4f55-96ce-84eea151fa27.pdf.

The U.S., EU and China statements at the General Council meeting and the U.S. and EU statements at the informal TNC and Heads of Delegation meeting the day before are available on each country’s WTO website.

Developing Counry criteria; Special and Differential Treatment

Below are excerpts from the October 13 General Council meeting on agenda item 6, “Procedures to strengthen the negotiating function of the WTO — Statement by the United States (WT/GC/W/757/Rev.10 and WT/GC/W/764/Rev.1).”

Statement by U.S. Amb. Dennis Shea:

“At the HODs meeting yesterday, I spoke about the paralysis of the WTO’s negotiating function.

“In our view, the root causes are complex and varied. They include:

“- Appellate Body overreach, which enticed many Members to disfavor negotiation and instead pursue litigation to achieve desired outcomes;

“- A chronic lack of transparency by many Members, especially some major players, which is distorting our grasp of key issues and undermining the foundation for negotiations; and

“- Certain Members’ unjustifed claim of automatic entitlement to blanket special and differential treatment (S&D), which ensures that ambition levels remain far too weak to produce negotiated outcomes. Members cannot find trade-offs or build coalitions when significant players use S&D to avoid making meaningful offers.

“As we’ve discussed our S&D reform proposal with Members, we have heard three criticisms.

“First, certain advanced, wealthy, or influential Members claim they have an automatic, permanent, and sacrosanct entitlement to blanket S&D. We disagree. Our approach to S&D eligibility can and must evolve to reflect the trade and development reality of today.

“Second, some Members argue for a different solution – the “case-by-case” approach, where each Member is asked to contribute to the full extent of its capabilities to a set of disciplines. But we know from experience—it’s called the Doha Round—that this approach does not work when some Members are not willing to take on obligations commensurate with their role in the global economy.

“- Some Members point to the Trade Facilitation Agreement (TFA) as a successful case-by-case approach to S&D, but the TFA is not a readily or generally applicable model moving forward. Recall that under the TFA, a Member may lose competitiveness if other Members fully implement the agreement and it does not. Most trade agreements operate differently, in that a Member is likely to believe it will be better off if other Members fully implement the obligations and it does not.

“Third, some Members say it is folly to try to create categories of Members. This is an odd criticism, given that categories already exist. Today, there are three categories – first, those Members to which all obligations apply; second, the LDCs that enjoy enhanced flexibilities; and third, the majority of Members – around 90 – that claim entitlement to blanket S&D as self-declared developing countries.

“So the starting point is not categorization, but what to do with this last category of Members that represent significantly divergent economies. These Members simply do not fit the same mold or have the same needs. The more economically advanced of these countries are clearly capable of negotiating the flexibilities they need, rather than availing themselves of blanket S&D.

“As just one example, China’s global merchandise exports are 14 times greater than the combined exports of all 49 countries that the UN categorizes as LDCs. Its economy is more than 11 times the economies of all 49 LDCs combined. China’s per capita income is more than five times higher than that of the LDC average – a remarkable development since 1995, when China’s per capita income was within $900 of the LDC’s average.

“China even admitted at the General Council meeting in July that China is not in the same position as Benin or Liberia. It is helpful that China recognizes that it should not receive the same flexibilities as LDCs. But does that mean that China believes it is in the same position as Pakistan or Kenya? Because today, China claims the right to seek the same blanket S&D as these and other lower-income countries.

“In 1995, China’s per capita income was nearly 20 percent smaller than that of Kenya and more than 25 percent smaller than that of Pakistan. Today, China’s per capita income is nearly four times that of Kenya, and more than triple that of Pakistan.

“The failure to differentiate some of this organization’s most advanced, wealthy, or influential Members from LDCs and others diminishes the value of special and differential treatment to those who need it most. It also imperils our ability to reach new agreements that could provide greater opportunities for the WTO’s poorest Members who are least integrated into the global trading system.

“This issue, and the need for reform, is not going away. We look forward to continuing our engagement with Members.”

U.S. Mission to International Organizations in Geneva, WTO General Council Meeting, October 13, 2020, item 6, https://geneva.usmission.gov/2020/10/13/statement-by-ambassador-shea-at-the-wto-item-6/.

Statement by EU Ambassador Joao Aguiar Machado:

“PROCEDURES TO STRENGTHEN THE NEGOTIATING FUNCTION OF THE WTO – STATEMENT BY THEUNITED STATES

“The EU reconfirms that development is a central pillar of this organisation.

“The current distinction between developed and developing countries no longer reflects the reality of the rapid economic growth in some developing countries. We should therefore continue to work on special and differential treatment with a view to ensuring that flexibilities are made available to those members who actually need them to enable them to fully benefit from their membership to this Organisation.

“The European Union firmly believes that if this organisation is to prosper, special and differential treatment must become much more granular, in function of an individual Member’s demonstrated needs and capacities. Future differentiation should be designed in terms of specific individual country needs at the sectoral or activity level rather than calling for a block exemption of a large category of Members. Furthermore, the EU considers that each developing country’s need for SDT should be assessed on a case-by-case and evidence-based basis. The notable exception should be the LDCs who deserve particular treatment and who in any case have graduation mechanism.

“We are open to looking into special and differential treatment (SDT) provisions in future agreements, such as the ongoing negotiations on fisheries subsidies. We expect to have a discussion with Members as to what development concern is raised by the provisions under discussion and what flexibility is necessary in order to eventually allow the affected Members to fully implement the agreement. It is only where special and differential treatment responds to a specific need that it can be truly effective. In this context, we call on advanced WTO Members claiming developing country status to undertake full commitments in ongoing and future WTO negotiations. As mentioned previously, this should particularly be the case for members of the G20, which represent the world’s most important economies.

EU Statements by Ambassador Joao Aguiar Machado at the General Council meeting, 13 October 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/86935/eu-statements-ambassador-jo%C3%A3o-aguiar-machado-general-council-meeting-13-october-2020_en

Statement of China Amb. Zhang Xiangchen on item 6:

“Thank you, Mr. Chairman.

“I have repeated many times that, the debate on criteria to differentiate developing members is totally meaningless, as it is a systematic and directional mistake. Development is one of the key objectives of the WTO, which is also an important attraction for many countries choosing to join in this Organization. As WTO members, our focus on development should be on how to translate the concept of development into practice rather than anything else.

“To be specific, our collective efforts should be focused on how to effectively enforce the existing special and differential treatment (S&DT) provisions, and negotiate meaningful S&DT for the developing members, for example in the fisheries subsidy negotiations. For the existing S&DT provisions, there should be assurance that developing members in need could truly benefit from and fully integrate into the multilateral trading system.

“Mr. Chairman, we did a preliminary review on the current 155 S&DT provisions contained in the 16 WTO agreements, finding that at least 105 provisions are too vague to operate, accounting for 67.7%; for the remaining 50 provisions, at least half of them are related to transitional period or technical assistance. So, there are only 25 S&DT provisions in existing WTO agreements that are directly linked to individual Members’ rights and obligations, accounting for 16.1% of the total. It is therefore fair to say, the overwhelming majority of current S&DT provisions are only pie in the sky. There has never been an almighty blank check.

“It is a long-standing consensus to make S&DT provisions more “precise, effective, and operational”, which is also a commitment across WTO Agreements. That is the very reason why developing members requested to discuss more than 200 ‘Implementation Issues’ aiming at rebalancing the imbalanced rules from the Uruguay Round, and G90 put forward their written proposals. I fully endorse the statement made by the Ambassador of South Africa. Actually, recalling the past 20 years, G90 has been compromising by reducing their 88 original requests, to 25 in Nairobi, and to 10 in Buenos Aires, demonstrating their utmost sincerity and restraint. Such reduction is not because their request was wrong, rather it is because they do hope all Members could be engaged and thus show flexibility.
For the current 10 proposals, some are to fill the loopholes of existing provisions, such as proposing procedural arrangement to invoke Article 18 of GATT; some are to restore good practices in multilateral rules, such as treating subsidies granted by LDCs and developing members facing certain constraints as non-actionable subsidies according to Article 8 of ASCM; some are to allow developing members to have longer time-frames for transitions or comments, such as granting 180 days for members facing capacity constraints to make comments on SPS measures notified by developed members, whereas the current practice is 90 days; some are to urge developed members to honor their already-committed obligations, including technology transfer. G90 has made comprehensive responses both orally and in writing to all questions from members on their proposals. However, no progress has been made due to certain Members’ reluctance to engage.

“Mr. Chairman, the WTO is a rule-based organization. If we want to win back people’s confidence in this organization, the most fundamental thing is to treat existing rules and implement promised commitments, with respect and awe. To make existing S&DT provisions “more precise, effective and operational” is the clear commitment and unfinished mission of all members, which is also the most urgent task in the area of development. I call upon all members to show our sincerity by meaningfully engaging in the discussion of the G90 proposal and carefully responding to practical concerns of developing members, rather than wasting time and resources on no outcome debates.

“Mr. Chairman, since China was mentioned specifically, I would like to make a comment to respond. China standing against to the differentiation of developing members does not mean we want to enjoy the same favorable treatment as small economies and LDCs. What we want is only to safeguard our institutional right of S&DT.

“In practice, according to our accession agreement, China has 14 specific S&DT provisions among all 155 articles, accounting only for 9%. Among the 14, 6 provisions are traditionally “obligations” of the developed members, such as providing translations of documents in WTO official languages upon request, only 8 provisions are so called meaningful “rights”, such as relatively higher tariffs for certain goods.

“Even in such circumstances, China always shows restraint in invoking S&DT provisions. Obviously, China did not request to have the same S&DT as Benin, Liberia, Kenya or Pakistan, which was proclaimed by the United States. On the contrary, as a large trading nation, we recognize the responsibility China should bear. Our approach is to address different issues according to their specific situations and make contributions within our capability. As we did in the ITA expansion negotiations, China is the largest contributor among all the participants. We will continue to do that in the future.

“Thank you, Mr. Chairman.”

Source: Ministry of Commerce website, Permanent Mission of the People’s Republic of China to the World Trade Organization, Statement by H.E. Ambassador Zhang Xiangchen of China at the General Council Meeting (Item 6 and 7) October 13, 2020, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202010/20201003007644.shtml.

The two documents that are the basis of agenda item 6 are embedded below.

W757R1

W764R1

Market-Oriented Conditions

The U.S. with support from Japan and Brazil and with concurrence of the EU put forward again the importance for market-oriented conditions to the global trading system. Not surprisingly, China led the opposition. Below are the formal statements of the U.S., EU and China on agenda item 7, “Importance of Market-Oriented Conditions to the World Trading System, Joint Statement by Brazil, Japan, and the United States (WT/GC/W/803/Rev.1)

Statement of U.S. Amb. Dennis Shea:

“The United States, Brazil, and Japan have requested this agenda item to continue addressing the importance of market-oriented conditions to the global trading system.

“As a result of our work together, Brazil, Japan, and the United States have released a joint statement (WT/GC/W/803/REV.1). The statement reflects the importance we attach to market-oriented conditions for the world trading system and further elaborates the draft General Council decision circulated earlier this year.

“The joint Brazil-Japan-U.S. statement reflects our shared belief in the core principles of the WTO, to include that market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system.

“We affirm a number of criteria that reflect the market-oriented conditions and disciplines to which our own enterprises are subject.

“And, we affirm that all Members’ enterprises should operate under these conditions to ensure a level playing field for our citizens, workers, and businesses.

“When Brazil and the United States first introduced the joint statement in July, we invited the support and engagement of Members who wish to become co-sponsors.

“We are pleased to report that, since that time, we have been able to hold consultations with a number of supportive Members. We were also pleased to welcome Japan’s decision to become a co-sponsor of the joint statement, and we are thankful for their efforts to engage with other Members on this important matter. The views that we have heard in small group discussions confirm that the joint statement reflects our shared values as WTO Members.

“We will continue to invite supportive Members to participate in one of our small groups as the discussions intensify.

“We see this discussion as necessary in the context of achieving meaningful WTO reform. To achieve such reform, WTO Members must continue moving toward – and not away from – more open, market-oriented policies and conditions.

“But as was made clear in recent G20 discussions, and reflected in the Riyadh Initiative Annex to the Trade Ministers’ Communique, not all WTO Members agree that “market-oriented policies” is a principle of the WTO.

“One Member in particular could not reaffirm the principles of the Marrakesh Declaration or even bring itself to reference the Declaration, and went on to dispute that its accession commitments tied it to any market-oriented policies.

“The usefulness of the recent G20 exercise was to clearly articulate this division in the Membership, and that some do not agree with the core values of the institution. This crystalizes for us the importance of reaffirming those core values.

“The Brazil-Japan-U.S. joint statement recalls that the WTO was established to promote Member economies’ participation in a world trading system ‘based on open, market-oriented policies and the commitments set out in the Uruguay Round Agreements and Decisions’.1

“The market-based reforms that GATT parties and acceding Members undertook during that process helped to ensure that their participation was indeed based on open, market-oriented conditions. These Members’ reform efforts demonstrated their commitment to an international trading system that depends on the operation of market-oriented conditions in each of our economies.

“Ensuring that market-oriented conditions exist for market participants is critical to realizing the benefits of the international trading system that come from our mutual commitment to these rules. This common foundation is necessary to ensure a level playing field for all Members.

“Some Members have argued that our efforts to affirm the importance of market-oriented conditions are a pretext for questioning Members’ choice of different economic models. They argue that the WTO provides no basis for discussing those choices.

“However, that is not the discussion we are proposing to have, and these Members may have misunderstood our purpose. What we have argued is that market-oriented conditions provide a level playing field and therefore are necessary conditions for fair trade. And, we have not heard any Member argue for a different position. Do any Members really believe that fair trade can result when special advantages are given to domestic entities under these conditions?

“Take, for example, the joint statement elements on financing and investment. Where a Member’s economic conditions generally ensure market-determined financing and investment decisions, it would mean that receipt of state-directed or politically-directed financing confers an
unfair advantage. This is not a question of debating different economic models, but rather reflects a shared understanding of fair play.

“To this end, the Brazil-Japan-U.S. joint statement affirms that Members’ enterprises should operate under market-oriented conditions and notes the elements that indicate and ensure those conditions for market participants. We encourage Members to review these elements in detail as our discussions advance.

“As we see it, the continued relevance of the WTO will depend on whether it can deliver on the promises of a world trading system based on open, market-oriented policies. The success of our reform efforts will depend on our ability to ensure the fundamental premise of free, fair, and mutually advantageous trade remains intact.

“1.Marrakesh Declaration of 15 April 1994, fifth preambular paragraph.”

U.S. Mission to International Organizations in Geneva, WTO General Council Meeting, October 13, 2020, item 7, https://geneva.usmission.gov/2020/10/13/statement-by-ambassador-shea-at-the-wto-item-7/.

Statement of EU Amb. Joao Aguiar Machado:

“IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINTSTATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES

“The EU has repeatedly stated that market-oriented conditions are central to allowing a level-playing field. EU has also repeatedly expressed its concerns with non-market-oriented policies and practices that have resulted in distortions to the world trading system.

“The role of the WTO – and therefore the role of all of us, as Members – is to ensure that there are effective rules in place to eliminate these distortions and to ensure a level-playing field. There are clearly gaps in the WTO rulebook that do not enable us to do so. These gaps must be addressed through the negotiation of new or updated rules to address the issues raised in the statement of the United States and its co-sponsors.”

EU Statements by Ambassador Joao Aguiar Machado at the General Council meeting, 13 October 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/86935/eu-statements-ambassador-jo%C3%A3o-aguiar-machado-general-council-meeting-13-october-2020_en.

Statement of China Amb. Zhang Xiangchen on item 7:

“Thank you, Mr. Chairman,

“It is true that the multilateral trading system is built on the basis of market economy, and all the WTO rules reflect the prevailing practices of market economy and are binding on all Members. There is also no doubt that in the past 40years, China persistently deepens its reform and opening up to the world in the direction of market economy, which is exactly the basis of our accession to the WTO and the reason for our firm support for the multilateral trading system.

“However, the challenge we are facing is not what Marrakesh Declaration says, but what some Members are doing. By the way, with regard to Marrakesh Declaration, when we talk about open and market-oriented policies, we should not forget Article 5, which I quote “Ministers recall that the results of the negotiations embody provisions conferring differential and more favorable treatment for developing economies, including special attention to the particular situation of least-developed countries”. Those words are equally important. Unfortunately, now some Members have selective amnesia.

“I have no intention to repeat what I have said at the previous meeting that ‘common sense issues like market orientation do not need to be discussed at the General Council’, and simply dismiss the whole discussion. Albert Einstein, a scientist who had worked in Bern, once said, ‘Success is equal to hard work plus correct method plus less empty talk’. Chinese people have also believed in ’empty talks harm the country’ since ancient times. So, my questions are: what is the purpose of this proposal? what are the follow-up measures to be taken in the next step? What puzzles me even more is that, at this moment, if we cannot prevent a Member’s government from forcing foreign companies to sell their equities and technology to its national companies in any way, how can we sit here comfortably and discuss and tell the world what the market orientated conditions are?

“Mr. Chairman, we need to bear in mind that for more than three years, we have failed to take effective actions to stop unilateralist and protectionist measures that undermine the market rules from raging around the world, and this organization we work for has been widely criticized for falling short of such actions. We should feel ashamed. However, at least, we could still argue that it is not because we do not want to, but because we are not capable enough. But now, why should we talk empty about the market-oriented conditions to give more reasons for the international community to laugh at us, for being not only incapable, but also naive?

“When a principle or a system is broken, what we should do is to take concrete actions to try to fix it rather than verbally repeating the importance and correctness of the rules to show the innocence of someone who broke the rules.

“Ambassador Shea once said that ‘when the state puts its thumb – or even its fist – on the scale to distort competition and drive preferred outcomes to benefit certain domestic actors, that is unfair.’ I couldn’t agree with him more about that. But it is a common sense that if you ask others to do something, you should do it first.

“Let me give you some specific examples. When a country, on the grounds of national security, arbitrarily and frequently imposes tariffs on foreign goods or deprives foreign services of market access, that is unfair. When a country uses tariffs as a leverage to force its trading partners to concede in trade negotiations, the market is distorted. When a country blatantly violates fundamental trade rules and at the same time blocks the independent and neutral adjudications, the level playing field is gone. Instead of chanting the empty slogan of ‘market-oriented conditions’, it’s better for us to take concrete actions to address the above wrongful practices which undermine the fair competition and market-oriented conditions.

“Thank you, Mr. Chairman.”

Source: Ministry of Commerce website, Permanent Mission of the People’s Republic of China to the World Trade Organization, Statement by H.E. Ambassador Zhang Xiangchen of China at the General Council Meeting (Item 6 and 7) October 13, 2020, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202010/20201003007644.shtml.

The joint document discussed is embedded below.

W803R1

Conclusion

The WTO is in crisis. None of its three core functions are operating as intended. The negotiating function is barely operational for various reasons including the move by many Members to try to achieve through litigation what they haven’t pursued or achieved through negotiations. The excesses of the Appellate Body has led to its temporary inoperability.

Moreover, the changing reality of competition internationally is that many WTO Members who have claimed developing country status have rapidly developed yet have not generally denounced special and differential treatment nor have they taken up greater liberalization commitments commensurate with their level of economic development. S&DT is treated as a perpetual right versus a temporary assist for Members with demonstrable needs. Self-selection is not the norm in other international organizations and makes no sense where not rooted in factual criteria which are reviewed over time with countries which advance accepting full obligations as appropriate.

The rise of countries like China which have many aspects of their economies which create distortions not covered by existing WTO rules calls out for leadership by those countries to work within the system to adopt new rules so that all trade distorting practices are addressable within the system. China appears intent of ensuring that the WTO is not able to address its acts, policies and practices which distort trade but which are not presently addressable by WTO agreements.

Similarly, the functioning of the WTO Committees in terms of notifications and review is problematic in at least many of the Committees. Without timely, complete and accurate information, trading partners are unable to understand how other Members are conducting themselves and where potential problems may exist. Subsidies notifications have been an area of particular concern but it is not the only area.

The recent General Council meeting showed the continuing deep divide of core reform concerns of the United States and others. A WTO incapable of reform will drift into irrelevance.

With the selection process of the next Director-General starting the last round of consultations on Monday, October 19, WTO Members not only need to decide who will lead the Secretariat but whether the WTO is important enough to have Members come together on the common vision of the organization and develop a willingness to find a road forward. The odds of success seem small at the moment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WTGCM185

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

Dr. Ngozi Okonjo-Iweala (page 26):

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

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

Minister Yoo Myung-hee (page 60):

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

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

Conclusion

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

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

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

The effect of COVID-19 on the operation of WTO dispute settlement panels — Australia and others raise at the September 28 Dispute Settlement Body meeting

While most attention on the WTO’s dispute settlement system has focused on the operation of the Appellate Body, the timeliness of disputes is often driven by the actions of the panel. Under Article 12 of the Dispute Settlement Understanding (DSU), panels are to render their reports within six months (3 months in urgent matters) and no longer than nine months after the panel is composed. Few if any panels in recent years have remotely come close to meeting a nine month report deadline.

With the COVID-19 pandemic and the resulting limitations on in person meetings at the WTO and travel restrictions, the panel process has been further complicated. At the recent Dispute Settlement Body (DSB) meeting of September 28, Australia had put on the agenda the issue of “COVID-19 and dispute settlement”. Agenda item 9 of Proposed Agenda for the 28 September 2020 Dispute Settlement Body meeting, WT/DSB/W/670.

The subsequent press release on the DSB meeting contained the following description of the discussion of Australia’s issue on COVID-19 and dispute settlement.

Statement by Australia on COVID-19 and dispute settlement

“On behalf of 14 members (Australia; Brazil; Canada; Ecuador; Guatemala; Hong Kong, China; Mexico; New Zealand; Norway; Peru; Singapore; Switzerland; Ukraine; and the United Kingdom), Australia made a statement expressing concern about delays in dispute settlement proceedings resulting from the COVID-19 pandemic.

“While it is encouraging that DSB meetings have been able to resume at the WTO, ongoing restrictions affecting international travel and immigration place in question the feasibility of physical participation of panelists and capital-based delegates at meetings in Geneva into the future, Australia noted. During 2020, various governments, private sector organizations, and domestic and international adjudicative bodies worldwide have adapted their usual ways of working to continue operating in these difficult conditions; WTO members must ensure the dispute settlement system does the same.

“Australia urged panels to consider, in consultation with parties, flexible, alternative arrangements to ensure dispute proceedings can continue to progress in a timely manner despite the challenge of current restrictions. Australia recalled that Article 12.1 of the WTO’s Dispute Settlement Understanding (DSU) affords panels discretion in the working procedures they adopt in individual disputes, and that panels, after consulting in parties, may determine alternative arrangements that would best serve the satisfactory settlement of the matters. Some panels have already adjusted their procedures to hold substantive meetings virtually through video conferencing technology; Australia welcomed these developments but, to ensure the equitable operation of the dispute settlement system, WTO members must find solutions to enable all current and future matters to move forward in one way or another.

“Several delegations took the floor to comment. Japan said that while virtual meetings are an option, face to face meetings were preferable, and that each panel should consult with parties on how to proceed in order to strike an appropriate balance between prompt settlement of disputes and protection of due process. India said oral hearings were an intrinsic aspect of due process rights guaranteed by the DSU and that panels cannot truncate these rights without the agreement of the parties in a dispute.

“The United States encouraged each panel to consult with the parties on how to proceed, bearing in mind the views of the parties and the relevant provisions of the DSU. China said it was fundamental to provide certainty in dispute settlement in order to avoid any undue delay; it noted some panels have adopted flexible procedures as a response. The EU said that the discretion of panels is not completely unfettered and that they must ensure the prompt settlement of disputes, a principle that was valid for all disputes. Both South Africa and Nigeria (for the African Group) noted the asymmetrical impact of the COVID-19 pandemic on developing country members.”

WTO Dispute Settlement, 28 September 2020, Panel established to review China’s compliance with farm subsidy ruling, https://www.wto.org/english/news_e/news20_e/dsb_28sep20_e.htm.

The fact that Australia and others raised the issue at the DSB is certainly welcome, although the comments of Members at the DSB meeting indicates that there are both an array of problems facing different Members and arguably mixed motives for some in concerns about alternative approaches to in person meetings.

First, panels have regularly used the existence of the pandemic as a justification for a lengthy delay in the likely release of a panel report. See, e.g., India – Additional Duties on Certain Products from the United States, WT/DS585/4 (4 June 2020)(panel composed on 7 January 2020, because of pandemic, report to parties not before the second quarter of 2021); India – Measures Concerning Sugar and Sugarcane, WT/DS579/9; WT/DS580/9; WT/DS581/10 (29 April 2020)(complainants are Guatemala, Australia and Brazil)(panels composed on 28 October 2019, report to the parties not before the second quarter of 2021).

Thus, the issue of delay caused by the pandemic is an important one to address to maintain the timely operation of panels. While many developing countries may have greater challenges in terms of internal infrastructure for alternative means of handling disputes remotely, the claim of due process concerns at least for some Members is suspect particularly if the functioning of administrative and judicial activities in-country are being handled remotely/virtually as is true in many countries. For example, in the United States, arguments at federal courts are handled remotely, including at the highest court in the land. No Member should be allowed to delay panel proceedings on due process grounds where their own administrative and court proceedings are handled remotely during the pandemic. The Secretariat should seek transparency from Members on how their agencies and courts are handling matters during the pandemic.

Certainly, WTO Members should identify challenges they face to being able to engage in remote/virtual hearings if in person events are not possible. Where problems exist, the WTO Secretariat in conjunction with other organizations should look to see what technical assistance can be provided to permit active participation. Similarly, if issues affect the ability of panelists to handle matters remotely, there should be a review of options that may exist to facilitate panelists ability to participate. Again, the Secretariat should seek information from Members on challenges they face in participating in dispute proceedings and should have information on potential panelists on the same types of issues.

While the basic premises that panels should consult with parties is clearly the correct path to follow (contrary to the current practice of many panels and that reviewed in detail about the Appellate Body), there is the question of what happens when there is a difference among the parties as to how to proceed. The good offices of the Director-General can be used to possibly bridge the differences. Delay should only be permitted when the concerns of the party objecting to proceeding cannot be reasonably overcome.

It will be interesting to see if Members press for a prompt resolution to the concerns raised at the last DSB meeting, or if they simply let the problems continue to fester and delay the proper operation of panels.

It is time for the U.S. and EU to resolve the longstanding disputes on subsidies to Airbus and Boeing

On October 13, the arbitrator in the European dispute against the U.S. — United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint) — issued the decision on what amount of retaliation the EU is entitled to take based on the failure of the United States to bring itself into compliance with earlier panel and Appellate Body reports. See WT/DS353/ARB, 13 October 2020. The arbitrator found that the EU can take retaliation up to USD 3,993,212,564 each year. Retaliation can be taken on goods, under the SCM Agreement and/or under GATS. The arbitration report is embedded below.

arbitrator-decision-on-retaliation-authorized-for-EU-re-Boeing-subidies-wher-US-not-in-compliance

The U.S. had been authorized to retaliate against goods and services (other than financial services) from the EU and certain member states to the tune of USD 7,496.623 million in late 2019, which retaliation is in place. WT/DS316/ARB, 2 October 2019.

The two disputes are the longest running active disputes in the history of the WTO extending over 15-16 years. The US case against the EU and certain member states goes back to 6 October 2004 with the EU case against the U.S. going back to 27 June 2005. The cases have soaked up a huge amount of the capacity at the WTO for disputes over the years and led to large delays for other disputes.

Most outside observers assumed that the ultimate resolution of the disputes would be a reworking of the Agreement on Trade in Civil Aircraft. Sixteen years since the first request for consultations was filed (by the U.S.), it is possible that the U.S. and EU may finally be ready to work through their differences in bilateral talks.

The EU is seeking a removal of the U.S. retaliatory tariffs on EU goods to speed the process, and believes such action is appropriate in light of actions by EU member states to address the subsidies not previously addressed after retaliation was authorized. See European Commission, Directorate-General for Trade, Boeing subsidy case: World Trade Organization confirms EU right to retaliate against $4 billion of U.S. imports, 13 October 2020, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2192.

The United States has a different view of the arbitration decision and notes that the arbitrator did not address the removal of the subsidies in April 2020 — six months before the arbitration decision — by Washington state which subsidies constitute the full basis for the $4 billion retaliation calculation. USTR claims the EU has no basis to retaliate in light of the removal of subsidies and indicates action by the EU would “force a U.S. response.” But the U.S. has also indicated a willingness to find a resolution to the disputes and has put forward a proposal to the EU. See USTR, October 13, 2020, EU Has No Legal Basis to Impose Aircraft Tariffs; WTO Award Relates Only to Now-Repealed Tax Break, Rejects EU Request on Other Measures, https://ustr.gov/node/10267.

The two press releases from today are embedded below.

Boeing-subsidy-case_-World-Trade-Organization-confirms-EU-right-to-retaliate-against-4-billion-of-U.S.-imports-Trade-European-Commission

EU-Has-No-Legal-Basis-to-Impose-Aircraft-Tariffs-WTO-Award-Relates-Only-to-Now-Repealed-Tax-Break-Rejects-EU-Request-on-Other-Measures-_-United-States-Trade-Representative

Thus, despite the public posturing by the EU and the U.S., the stage at last seems to be set for the U.S. and EU to see if they can reach agreement on the road forward with revised agreed rules on subsidization for civil aircraft.

Unlike during the Uruguay Round when the U.S. and EU had the field to themselves at least for large civil aircraft, there are additional players at present and changing market dynamics. Thus, any bilateral agreement between the two, if intended to embrace subsidization rules for civil aircraft by all producers, will need at some point to bring in other WTO Members.

Time will tell whether the long duration of the disputes and the failure to bilaterally resolve the issues years ago will complicate the ability of the U.S. and the EU to achieve a result that each can live with and, as important, which will achieve discipline on other Members’ producers.

Selection of WTO Director-General — Second Round of Consultations Ends Today, October 6

October 6 marks the last day of the second round of consultations by the Chairman of the General Counsel and his facilitators (Chairs of the Dispute Settlement Body and Trade Policy Review Body) with the WTO Members. Each WTO Member has been providing the troika of Chairs with the names of two of the five remaining candidates that constitute the Member’s preference in the second round. While the date of the Heads of Delegation meeting has not yet been announced, it will likely be Thursday morning. At that time, the two candidates advancing to the final third round of consultations will be identified.

In a prior post, I had noted press articles that indicated EU members were looking to back the candidacies of the Nigerian and Korean candidates — Dr. Ngozi Okonjo-Iweala and Minister Yoo Myung-hee. An article from Bloomberg yesterday confirmed that at yesterday’s meeting in Brussels, EU countries had agreed to back the two candidates. See Blomberg, October 5, 2020, EU Throws Its Weight Behind Nigerian, Korean WTO-Head Contenders, https://eur04.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.bloomberg.com%2Fnews%2Farticles%2F2020-10-05%2Feu-throws-its-weight-behind-nigerian-korean-wto-head-contenders&data=02%7C01%7C%7Cc25bd1089e95463bd6e108d8699846db%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C637375450027528387&sdata=Lbn5YOaH6ZIm9m4b1ES91psH6rUAMz2PyfO7GomVre8%3D&reserved=0.

Hungary, which had earlier indicated it would back Minister Amina C. Mohamed of Kenya and Dr. Liam Fox of the United Kingdom, reportedly agreed to join with the other EU members. Thus, the EU is understood to have expressed preferences as a block for the Nigerian and Korean candidates.

While Africa has two candidates among the five in the second round, African nations are split on support. The six members of the East Africa Community support Kenya’s Minister Amina Mohamed while countries in west Africa (Economic Community of West African States (ECOWAS)) support Nigeria’s Dr. Ngozi Okonjo-Iweala.

It is unclear if African Members of the WTO will list their two preferences as Okonjo-Iweala and Mohamed or will split their preferences by including one of the three other candidates along with one of the African candidates. With the EU 27 supporting the Korean candidate, lack of solidarity in Africa for its two candidates would increase the challenges for Minister Mohamed to be one of the two finalists making the third round of consultations.

There are, of course, large numbers of WTO Mrmbers in the Americas and in Asia and the Pacific, and there are European countries besides the EU’s 27. It has been assumed that each of the five remaining candidates would garner some support in each of these other areas. Block voting can deny some candidates geographical coverage in some parts of the world which can be a factor the troika consider in reducing the field from five to two.

it is nail biting time for the candidates.

Thoughts on the Geneva Trade Week session entitled “WTO Dispute Settlement – Where Do We Stand?”

The Graduate Institute of Geneva and other groups have organized an ambitious week of programs that started on September 28 and carries on through October 2 with both various plenary sessions and with breakout sessions where multiple events are happening during the same time period.

On Monday, September 28, after an opening plenary on rethinking trade at 1 p.m., there were three ninety minute breakout sessions at 3:00 p.m., including a session on WTO Dispute Settlement – Where Do We Stand? The dispute settlement session was organized by Gabrielle Marceau of the WTO Secretariat and the University of Geneva. The current Chair of the Dispute Settlement Body, H.E. Dacio Castillo of Honduras served as moderator of a panel that included five other Ambassadors/Permanent Representatives to the WTO and two highly respected international trade professionals. Specifically, the panel consisted of EU Ambassador Joao Aguiar Machado, Canadian Ambassador Stephen de Boer, U.S. Ambassador Dennis Shea, Mexican Ambassador Angel Villalobos Rodriguez and Chinese Ambassador Zhang Xiangchen. Ms. Claudia Orozco who had been part of the Colombia Mission, the most frequently selected panelists in WTO disputes and now an arbitrator in the MPIA (Multi-Party Interim Arbitration Arrangement to which 24 WTO Members have signed up pending the resolution of the WTO impasse) was a sixth panelist. Mr. Jorge Miranda, a Senior International Trade Adviser for Cassidy Levy Kent LLP in Washington, D.C., a past Rules Division official and a frequent writer and speaker on WTO dispute settlement was the seventh panelist.

It was an impressive panel with certain understandable limitations. WTO Members at a public event like this will provide a good overview of their existing positions on the topic but are not going to provide clarity of where solutions may be if different from what has been presented previously by their government. Not surprisingly, none of the Ambassadors deviated from that expected framework of comments. Similarly, the observations of panelists who are not speaking for WTO Members can be helpful in identifying possible paths forward but obviously only if Members opt to proceed in one or more of the suggested routes.

I start this post by looking at the positions stated by each panelist in their opening statement, their comments about other statements and their answers to questions. I then present some observations about the positions taken and whether Members are merely talking past each other or testing their priorities against the practical realities that surround the WTO dispute settlement system.

Opening Statements

H.E. Stephen de Boer, Canada

The first panelist to speak was Ambassador de Boer of Canada. He identified three themes to his comments: (1) the key role played by the dispute settlement system in the WTO; (2) the importance of the Appellate Body (AB) in that system; and (3) the role of the Multi Party Interim Arbitration Arrangement (MPIA) at the current time.

Amb. de Boer reviewed the elements of the Dispute Settlement Understanding (DSU) adopted as part of the Uruguay Round package that came into force in 1995 when the WTO commenced. The DSU provided for binding dispute settlement absent a negative consensus. This was a major improvement over the GATT dispute settlement approach where the losing party could block adoption of a panel decision. Canada is a very strong supporter of the rule of law. Amb. de Boer commented that it is not surprising that panels may err. The two-tier dispute settlement process is designed to address possible erroneous panel interpretations by appeal to the Appellate Body.

At the present time, the lack of a functioning Appellate Body makes the WTO system more uncertain. First, a party or parties unhappy with a panel decision can file an appeal which, with the AB not having three members, means the appeal is into a void where no outcome is possible until the restoration of the AB. If one is left with just panel decisions, there is a higher risk of erroneous decisions which in turn makes the system more uncertain for business. In Canada’s view, the fact that a Member may disagree with specific decisions is not a reason to undermine the dispute settlement system. As the saying goes, justice delayed is justice denied. Hence timeliness of the dispute settlement system is important.

On timeliness, Canada would note that much more of the delay in disputes is at the panel stage. Delays flow from increased complexity of case. Canada believes that dispute settlement reform needs to include a review of timeliness of both panels and the AB.

Canada’s priority is to find multilateral solutions to the dispute settlement system which would of course include the United States.

Canada was pleased to participate in the creation of the MPIA, which now has 24 Member participants.

H.E. Joao Aguiar Machado, European Union

Amb. Machado started by noting that the WTO’s dispute settlement system is not in a good place and is essentially paralyzed. While all Members do not agree on how we got here, we need to agree on where we go from here.

The top priority for the EU is to find a solution to the impasse. The EU supported the Walker proposal (Amb. David Walker, NZ, serving as a facilitator to the General Council in 2019). It proved not to be sufficient. The EU is open to meaningful reform. However, Members need to move forward not backwards in terms of the type of reform considered.

It is important that agreed rules of the WTO are enforceable. This is critical for predictability and certainty in the system.

For the EU, any reformed dispute settlement system must be binding, two-tiered, and guarantee impartiality of adjudicators.

The EU agrees that panels and the Appellate Body are not courts and that panelists and AB members are not judges. It is the role of WTO Members, not adjudicators, to establish new rules.

On the MPIA, it is the intent of the 24 Members participating to establish an interim mechanism to preserve a second-tier dispute settlement step while the AB is inoperable. The MPIA is open to the participation of all Members, is temporary in nature and is not an attempt at reform of the WTO AB which would require involvement of all Members. However, there are enhancements including the use of a pool of arbitrators.

H.E. Dennis Shea, United States

Amb. Shea reviewed that there is little doubt where the United States stands on the dispute settlement system. Over three years in Dispute Settlement Body meetings, the U.S. has reviewed how the Appellate Body has violated the DSU both procedurally and substantively. Then USTR in February of this year put out a 174 page report on the Appellate Body of the WTO [https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf] which pulled the U.S. concerns together in a single document.

The U.S. was very active in the Walker process in 2019. Unfortunately, very little of what the U.S. offered in comments on the draft proposal was taken on board in what was presented to the General Council. The U.S. has raised questions about the utility of the proposals since much of the language put forward was simply a repetition of what is already in the DSU which has been disregarded by the AB. We don’t have answers to why the AB disregarded the specific DSU language limiting the role of the AB or why it felt free to disregard the limits on its authority.

The AB is not an international court, and AB members are not judges. Role of the AB is not to create a body of jurisprudence but rather simply to make recommendations to help the Dispute Settlement Body (DSB) resolve a given dispute. The AB’s role is limited.

Unfortunately, some Members see the AB as an independent international court and the AB members as judges who have the ability to create jurisprudence.

On the MPIA entered into by Canada, the EU, China and others, they have incorporated into an arbitration process some of the worst aspects of the AB practices including awards that are precedential, arbitrators engaging in fact finding and more.

The U.S. fundamentally differs on the role of the Appellate Body from that approach and from the approach of those viewing the AB as a type of court.

In a recent Wall Street Journal piece by USTR Robert Lighthizer, he proposed a single-stage dispute process similar to commercial arbitration with a process to put aside erroneous decisions. What do other panelists think of that approach?

In the meantime, the WTO dispute settlement system continues to function. There have been eight panel requests made in the last five DSB meetings. Parties are considering how to handle panel reports, such as by agreeing not to appeal panel reports. The central objective of the dispute settlement system remains the same — to resolve a dispute between Members.

H.E. Angel Villalobos Rodriguez, Mexico

Amb. Villalobos’s comments were short and quite dispirited. He indicated that he was not optimistic for the future of the WTO dispute settlement system based on Amb. Shea’s comments. Amb. Villalobos feels that the dispute settlement system has become a “zombie”.

In talking about efforts in 2019 to address U.S. concerns with the Appellate Body, Amb. Villalobos noted that a large number of Members had come forward with proposals to deal with various aspects of U.S. concerns and that had resulted in the Walker proposal in late 2019 to the General Council which the U.S. had prevented from being adopted to address a range of U.S. concerns.

The impasse on the Appellate Body has led many countries including Mexico to come together in the MPIA. But the MPIA is intended to be temporary only.

Amb. Villalobos believes the WTO will have a more difficult road in the future to restore the two-tiered dispute settlement system.

While the dispute settlement system has been viewed by many as the crown jewel of the WTO, the present situation may be the beginning of the end for the crown jewel.

H.E. Zhang Xiangchen, China

Amb. Zhang views the Appellate Body and the WTO’s dispute settlement system as being on shaky ground. He is not optimistic that Members can reach agreement on substantive issues. However, that doesn’t mean that Members can’t work at improving the system.

When he looks at some of the concerns raised, such as issuing reports/decisions in 90 days, the problem is not entirely the fault of the Appellate Body. There have been a large number of appeals, many more than was envisioned when the WTO was created. Appeals are much more complicated. Thus, Members share some of the “blame”.

Is overreach a problem? Yes for many countries including China. Amb. Zhang cited the cases involving export duties where the Appellate Body viewed China did not have the right to put forward Art. XX defenses. In his view, Amb. Zhang believes that all negotiators know that there are ambiguous provisions in many agreements. These ambiguities have to be addressed in appeals and obviously are problems for the AB.

No matter how serious problems may be with the Appellate Body, the AB has solved many problems for parties which have improved certainty and predictability.

Going back to the system as it was in the 1990s would be problematic as rules will have no enforcement teeth. This lack of enforceability will hurt negotiations going forward.

Ms. Claudia Orozco, International Trade Law Advisor and Arbitrator for MPIA

Ms. Orozco believes that there is a serious crisis, not of the Appellate Body only, but of the dispute settlement system at the WTO and therefore of the rule of law.

The WTO dispute settlement system is intended to ensure that commitments under WTO Agreements are binding on all parties and that disputes are resolved by third party adjudicators.

The current challenges around the Appellate Body are a serious risk to the dispute settlement system and is leading to reduced use of the dispute settlment system.

A second consequence is likely to be erosion of the monitoring function within the WTO if Members can’t resolve the Appellate Body issues. The purpose of monitoring is to understand actions of trading partners. Greater information on actions can result in disputes if problems can’t otherwise be resolved. Where there is no binding dispute settlement system, Members will likely be less focused on notifications.

The third consequence of the AB impasse will be the erosion of the negotiating function, as there will less interest in new rules if they cannot be enforced.

In short, the impasse if not resolved, will affect the credibility and relevance of the WTO.

Are there solutions? Ms. Orozco believes Members need to look at the history of the WTO over the last twenty-five years. In her view, the AB’s role needs to be narrowed down as 25 years of history show that panels typically don’t make major errors of interpretation which was the intended function of the AB. Thus, questions for Members should include:

— how to narrow the focus of the AB;

— what changes are needed to permit the AB to meet the 90 day deadline;

— based on problems in the first 25 years, what type of experience should AB members have (e.g., experience with disputes in the WTO; experience in implementation of agreements);

–should more than three members of the AB participate in appeals where issues are of first impression;

–what is the role of the AB Secretariat vs. the role of AB members (e.g., should there be rotation of AB Secretariat staff).

The WTO dispute settlement system is critical to commercial players where predictability and certainty are key. Lack of predictability and certainty harm willingness to invest and to trade.

Mr. Jorge Miranda, Senior International Trade Adviser, Cassidy Levy Kent LLP

Mr. Miranda stated that the Appellate Body has made some outstanding achievements but has made major errors in the trade remedy area. The errors coupled with the AB refusal to reconsider legal issues. Without a change in approach, it is hard to see progress.

Mr. Miranda’s comments reflect his views as a co-author in a paper [Jorge Mirand and Manuel Sanchez-Miranda, “How the WTO Appellate Body Drove Itself Into a Corner,” https:ssrn.com/abstract=3596217].

Mr. Miranda reviewed two of the five cases reviewed in the paper showing the serious errors by the Appellate. The first was the fasteners case [European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011] where the AB addressed an issue that was not part of the terms of reference and had not been briefed by the parties. This was a major problem as the issue addressed would potentially be subject to a dispute at the WTO.

A second case was a subsidy case and involved the interpretation of the term “public body” [United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted 25 March 2011]. Mr. Miranda’s comments focused on the fact that most public bodies in the context of countervailing duty investigations are commercial enterprises. The AB’s decision requires the existence of governmental powers to regulate, control or supervise, but ignored the entrepreneurial functions mentioned in the Subsidies and Countervailing Measure Agreement (Art. 1.1(a)(1)) where no other authority is required.

While Mr. Miranda recognizes the fact that all adjudicators can err, the problem with the WTO AB is its inflexibility and refusal to reconsider interpretations in later cases regardless of arguments put forward.

Mr. Miranda reviews the U.S. system of stare decisis and ability of court’s to reconsider prior decisions in certain circumstances. He also reviews the Mexican system where there need to be multiple decisions on the same issue before there is precedent.

By contrast, the Appellate Body views its interpretation as cast in stone at the first decision. He believes the AB needs to be more flexible in how it views prior decisions/interpretations.

Reactions to Opening Statements of Other Panelists

H.E. Joao Aguiar Machado, European Union

Amb. Machado reiterated the EU view that the AB is not a court. The EU view is that it is in the interest of the WTO membership that rulings are of high quality and that the rulings have consequences. Thus, to the EU, it is important to have a two-tier dispute settlement system so parties can address legal errors in any panel report. The EU is open to discuss how best to get a two-tier system back.

Amb. Machado believes that it is unfair to claim that the MPIA incorporates the worst elements of the AB. The MPIA results in arbitration decisions. The MPIA is not an attempt to create AB reform. Since the MPIA is an interim arbitration process while awaiting the return of the AB, it is understandable that the parties to the MPIA drew on the AB, which is the only second-tier system that has existed over the last 25 years. While the MPIA parties have introduced efficiencies in how MPIA operates, this is not an attempt to reform the AB as any reform would need all Members.

At end of the day, the EU needs a system that is efficient, binding, independent and of the highest quality.

H.E. Angel Villalobos Rodriguez, Mexico

Amb. Villalobos sees fragmentation of approach facing the WTO dispute settlement system — the MPIA for some; other approaches for others. The fragmentation may last a long time. If so, such fragmentation will weaken the appetite to negotiate, and the increased uncertainty and unpredictability will weaken investment and trade.

Amb. Villalobos noted that a large percentage of disputes are resolved at the consultation stage and that a sizeable portion of cases that do go forward to the panel stage are resolved without appeal.

There are typically not good alternatives for Members to WTO dispute settlement. Regional trade agreements often don’t have dispute settlement on trade remedies (though USMCA between the U.S., Mexico and Canada does) and typically don’t have strong Secretariats.

H.E. Zhang Xiangchen, China

Amb. Zhang noted that the paralysis of the AB is a major challenge to the trading system. Binding rulings from impartial adjudicators are important for predictability and certainty. Regional free trade agreements and any dispute settlement contained therein cannot replace the WTO.

In looking at the path forward, the accountability of the AB can be addressed through peer review and oversight by the WTO Members.

Mr. Jorge Miranda, Senior International Trade Adviser, Cassidy Levy Kent LLP

Regional agreements can’t compete with the WTO dispute settlement system. None have an Appellate Body.

The fact that there are problems with the WTO dispute settlement system, in Mr. Miranda’s opinion, is not a major issue.

On the issue of oversight, there should be a way to address without affecting the independence and impartiality of the AB.

H.E. Stephen de Boer, Canada

It is important to go back to first principles. Members placed great importance on certainty. Fact that any Member believes it didn’t get the right result in a given dispute is not a basis to abandon the system. In a November 2016 statement by then Chairman of the Appellate Body, Thomas Graham, he noted that overreach is in the eye of the beholder. [Thomas Graham, 22 November 2016, Speaking Up: The State of the Appellate Body, https://www.wto.org/english/news_e/news16_e/ab_22nov16_e.pdf%5D. The dispute settlement system is different than individual disputes or cases.

The fact that there continue to be some disputes filed is not a sign that the system is well. The impasse will have an effect on negotiations.

Canada is willing to talk about change but needs an effective and enforceable system.

Ms. Claida Orzco, International Trade Law Advisor and MPIA Arbitrator

There is agreement that the crisis is very problematic. We must remember that everything the WTO does is for the private sector which needs certainty and predictability.

It is important to solve the problem. That includes looking at how to achieve decisions within 90 days, limiting the role of the AB to focus on issues relevant to a dispute’s resolution, identifying the relevant the credentials for AB Members.

As the AB was created to correct manifest errors in legal interpretations, history over the last 25 years shows that is not a significant problem. This implies, Members can reduce the role of the AB.

H.E. Dennis Shea, United States

The WTO membership needs to understand that there is a problem with the operation of the dispute settlement system. Efforts of the U.S. over the last three years has finally gotten a recognition by many that there are problems. So that is some progress.

Some Members view the role of the AB as that of a court with the ability to establish rules. The U.S. does not view the AB as a court and views rule making as the sole responsibility of the WTO Members.

While Canada has talked about the need for certainty, the U.S. views certainty as the AB completing its work in 90 days, not investigating facts, and not creating obligations.

While some view the current situation as undermining the ability to negotiate, the United States has viewed the operation of the Appellate Body as leading Members to litigate rather than negotiate.

On the issue of precedent, in 1996, the AB indicated its decisions were not precedential. Twelve years later in 2008, it viewed its decisions as precedential absent cogent reasons.

The U.S. disagrees that the AB is a higher source in dispute settlement. The AB has a limited role only.

In 2020, Thomas Graham gave his farewell speech as an Appellate Body member at Georgetown and listed areas where in his experience the Appellate Body was acting like a court. [see https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.wto.org%2Fenglish%2Ftratop_e%2Fdispu_e%2Ffarwellspeechtgaham_e.htm&data=02%7C01%7C%7C892aebd466894f3d774908d86571205c%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C637370883824924668&sdata=QPkC0ep1OHLIwTtUPpDgTAWV9cfx%2FoDB812iMg%2FrTKk%3D&reserved=0]

Answers to Questions

H.E. Joao Aguiar Machado, European Union

In responding to a question about why a two-tier system of dispute settlement is necessary since other organizations make due with a single tier, Amb. Machado stated that a two-tier system of dispute settlement is important in the WTO since disputes are often dealing with national legislation. The second level of review is needed to review potential errors of law, so Members can go back to their legislatures for domestic changes to bring themselves into compliance with WTO obligations.

In looking at the length of time to resolve disputes, Amb. Machado noted that disputes have become very complex which has contributed to the delays. Members need to take some responsibility to reduce the number of issues in appeals versus the historic approach.

While the EU will discuss reforms, the EU will not agree to have the dispute settlement go back to the GATT system.

H.E. Angel Villalobos Rodriguez, Mexico

Amb. Villalobos responded to a question on likely effect of the current impasse by stating that with no Appellate Body, the appetite of Members for new rules will be reduced.

H.E. Stephen de Boer, Canada

Amb. de Boer indicated that Canada doesn’t view the AB as a court or members as judges.

Canada believes any reforms to the dispute settlement system can only look forward; specifically, reforms of the dispute settlement system can’t look at past decisions.

Amb. de Boer reiterated his opening statement point that delay in the dispute settlement system is not limited to the AB process and so reform should look at the entire dispute settlement system to ensure timely reports and decisions.

Looking at USTR Liighthizer’s Wall Street Journal article, Amb. de Boer stated that it appears to be the first expression of what U.S. wants. Going back to the GATT system seems to be Amb. Lighthizer’s objective.

H.E. Zhang Xiangchen, China

Amb. Zhang stated that a two-tiered system of dispute settlement was adopted in the Uruguay Round as a response to problems with the GATT system of resolving disputes. Amb. Zhang indicated that 90% of Members believe the WTO needs a two-tier system for disputes.

On the question of the recent panel decision on U.S. tariffs imposed on China pursuant to a section 301 investigation, China agrees with the panel report that the U.S. actions violated MFN obligations. China urges the U.S. to bring its actions into conformance with its obligations.

H.E. Dennis Shea, United States

In response to an inquiry about why Members would negotiate new rules where enforcement is not guaranteed, Amb. Shea noted that the U.S. (and many other Members) are actively engaged in negotiations, whether multilateral (fisheries subsidies) or plurilateral (e-commerce). Thus, it is possible for negotiations for new rules to proceed in the current circumstances.

Ms. Claudia Orozco, International Trade Law Advisor and MPIA Arbitrator

Ms. Orozco noted that the concern if rules are not enforceable is that there would be less interest in negotiating new rules. Her hope was that that concern would not materialize.

On a question about the Secretariat, Ms. Orozco noted that some reforms, like rotation of personnel at senior position, time limits for Secretariat personnel might be useful as in the past the head of the AB Secretariat had served longer than any AB member. The WTO also needs oversight of the AB by Members and some form of response where a problem arises and repeats itself (e.g. repeated failure to complete reports in 90 days).

Mr. Jorge Miranda, Senior International Trade Adviser, Cassidy Levy Kent LLP

Mr. Miranda took the view that any type of adjudicatory system would have the adjudicators looking back at what they had done previously. Key, in his view, is to have more flexibility than the AB has shown as to relevance of prior decisions.

Observations

As an outside observer, I provide some comments for what they are worth.

  1. While stating that they don’t view the AB as a court or AB members as judges, the EU and Canada do not identify how that point of agreement with the United States translates into a view of AB reports. If not a court, presumably the AB is not to create law or rules. Yet that is what the AB has repeatedly done. Should the prior reports of the AB have any value? Any value other than their pursuasiveness would seem inappropriate.

2. Wouldn’t the issue of overreach be addressed in part by clarifying what is meant by creating rights or obligations? For example, many of the overreach issues of concern to the U.S. (and possibly others) flow from gap filling, construing silence or adopting a single interpretation on ambiguous language. Clarifying the language in DSU 3.2 and 19.2 to indicate that examples of creating rights or obligations would include gap filling, construing silence or providing a single interpretation of ambiguous language would thus increase certainty and predictability and leave rulemaking to the WTO Members as intended.

3. Ms. Orozco stated that the AB role should be reduced as typically panels have not made manifest errors in legal interpretation based on a review of the first twenty-five years of decision. The AB was done at the end of the Uruguay Round negotiations and was largely a safeguard against wildly erroneous decisions by a panel if adoption of reports was to be automatic. Does the experience of the first 25 years reduce the need for a two-tier system? Reasons for wanting a two-tier system going forward include automaticity of adoption, independence of adjudicator, opportunity to correct errors from a panel report. But automaticity need not be tied to having a two-tier system. Particularly where purpose of dispute settlement is to help find a resolution to the dispute between parties versus an effort to create law through “clarifying” agreements, a single level could be made automatic. There is nothing about a single level of dispute settlement that doesn’t permit independence (whether panels are staffed as they are now or through a different approach as has been suggested by some). Even the opportunities to correct errors could be addressable in a single-tier if there were a process (such as suggested by USTR Lighthizer) for addressing erroneous decisions.

4. Both Canada and the European Union talk about any reform process as being forward looking only and not addressing the harm caused by the long history of AB deviation from obligations. Since the entire purpose of the dispute settlement system is to resolve disputes to permit a restoration of rights and obligations of Members, the notion that a system which has changed the rights and obligations of Members over 25 years cannot be addressed as part of reform is at least bizarre. There is no question that it is easier to simply adopt changes to the DSU and move forward but that basically legitimizes a wide range of erroneous decisions which have significantly changed the balance of rights and obligations for many Members. While the challenge of finding a path to address the past as part of the reform is real, there are undoubtedly ways to do so. I had suggested one approach in a prior post. See July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

5. The concern about wrongly decided Appellate Body reports is real and not really addressed by most of the panelists. Amb. Lighthizer in his Wall Street Journal piece has a proposal which would change the system to one-tier resembling commercial arbitration and with an ability of Members to correct erroneous decisions. This proposal may reflect U.S. concerns that other WTO Members haven’t meaningfully addressed the problem of erroneous AB decisions (whether overreach or faulty legal analysis). See August 24, 2020:  USTR Lighthizer’s Op Ed in the Wall Street Journal – How to Set World Trade Straight, https://currentthoughtsontrade.com/2020/08/24/ustr-lighthizers-op-ed-in-the-wall-street-journal-how-to-set-world-trade-straight/. If one looks at Mr. Miranda’s paper, there is little doubt that there are decisions from the AB that are pretty clearly wrongly decided. Efforts in the AB reform process to confirm that there are no precedents doesn’t move the ball very far where prior decisions remain as a body for review without means to get the AB to recognize its mistakes in subsequent cases, for the WTO Membership to correct the AB or through other means.

6. The concept that the current situation will adversely affect willingness of Members to negotiate is interesting particularly when juxtaposed with the last twenty-five years of very limited success in negotiations at the WTO. So while there may be some merit in the concern (which is a supposition at this point), it is hard to imagine a less productive negotiating function than what has existed with a functioning dispute settlement system over the last 25 years. The U.S. view that the current system and willingness of the AB to create rights that can’t be found in the agreements is factually the more compelling. I have travelled to Geneva over the last thirty years and have been told in private by virtually every major WTO Member that they know there are issues that before the WTO they would have teed up for negotiations, but because of the activity of the AB, they chose to see if they could get through dispute settlement even though knowing their trading partners had never agreed to what was being sought. So in my mind, there is no doubt that a major contributor to the dysfunction of the negotiating function at the WTO has been the willingness of the Appellate Body to create rights and obligations that cannot be found in the Agreements that sovereign states agreed to.

7. On the MPIA, while there is understanding by all Members that the MPIA is intended to be temporary, there is little doubt that the MPIA includes aspects of the AB that the U.S. has viewed as very problematic. While the EU professes that there is no effort at reform in the MPIA, the MPIA includes aspects that the EU may want as reforms to the dispute settlement system. Finally, other Members have found other approaches to handle disputes in an era when the AB is not functioning. While that is not true for all disputes, the Members choosing to appeal into a void include the EU, a participant of MPIA, on a panel decision adverse to its interests brought by the Russian Federation. See August 29, 2020,  WTO Dispute Settlement Body meeting of August 28, 2020 – how disputes are being handled in the absence of reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/29/wto-dispute-settlement-body-meeting-of-july-28-2020-how-disputes-are-being-handled-in-the-absence-of-reform-of-the-appellate-body/.

Conclusion

The program on WTO Dispute Settlement – where do we stand? was an interesting update from a number of the major WTO Members, the Chairman of the Dispute Settlement Body and two well respected private sector advisers.

While all seem to recognize that the United States has serious concerns that it has articulated for decades but has spelled out in detail in the last three years, there has been little movement on the substantive issues during the last fifteen months. The gap between having a binding system that resolves disputes between parties but doesn’t create jurisprudence and a binding system that creates jurisprudence is wide. While many talk the talk that the Appellate Body is not a court and its members are not judges, there hasn’t been an apparent active effort to translate that into a framework to compare with the U.S. view of the role of the system.

Without a willingness to actually have the Appellate Body serve the very limited role for which it was created, the future for the WTO dispute settlement system will likely look like the hodgepodge of approaches that are presently in play.