European Union

Trade elements of EC President von der Leyen’s State of the Union address at the European Parliament Plenary on 16 September 2020

State of the union speeches in countries are typically a time for optimism with a review of the challenges that are presently being addressed and a host of policy initiatives to take the country in the direction the Executive believes is important. The European Commission’s President von der Leyen presented her State of the Union 2020 Address earlier this week before the European Parliament. The Address lays out the vision the Commission has for the road forward to “building the world we want to live in”.

The starting part of the address deals with COVID-19 and the EU response and actions needed to prevent the same type of challenges in the future. When the address turns to moving Europe forward, the first topic is the efforts to address climate change, focusing on the European Green Deal and various initiatives to make the Green Deal operative and effective. Other areas of focus include digital with attetion to data, technology and infrastructure.

President von der Leyen then turns to the need for collaboration to address global issues such as the pandemic citing both sharing of protective equipment to countries in need and the EU effort to set up fund “research on vaccines, tests and treatments for the whole world.” “Vaccine nationalism puts lives at risk. Vaccine cooperation saves them.”

The EU supports cooperating in international bodies whether the UN, the WTO or the WTO. The EC President recognizes the pressing need to “revitalize and reform the multilateral system” and wants the EU to lead reforms in both the WTO and WHO.

On China, EC President von der Leyen notes the complicated relationship and the need for China to live up to its commitments in areas like climate change. “There is still hard work to do on fair market access for European companies, reciprocity, and overcapacity. We continue to have an unbalanced trade and investment partnership.”

On the topic of trade generally, the EC President had this to say:

We will continue to believe in open and fair trade across the world. Not as an end in itself – but as a way to deliver prosperity at home and promote our values and standards. More than 600,000 jobs in Europe are tied to trade with Japan. And our recent agreement with Vietnam alone helped secure historic labour rights for millions of workers in the country.

We will use our diplomatic strength and economic clout to broker agreements that make a difference – such as designating maritime protected areas in the Antarctica. This would be one of the biggest acts of environmental protection in history.

We will form high ambition coalitions on issues such as digital ethics or fighting deforestation – and develop partnerships with all like-minded partners – from Asian democracies to Australia, Africa, the Americas and anyone else who wants to join.

We will work for just globalisation. But we cannot take this for granted. We must insist on fairness and a level playing field. And Europe will move forward – alone or with partners that want to join.

“We are for example working on a Carbon Border Adjustment Mechanism.

“Carbon must have its price – because nature cannot pay the price anymore.

“This Carbon Border Adjustment Mechanism should motivate foreign producers and EU importers to reduce their carbon emissions, while ensuring that we level the playing field in a WTO-compatible way.

“The same principle applies to digital taxation. We will spare no effort to reach agreement in the framework of OECD and G20. But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year.

I want Europe to be a global advocate for fairness.” [Emphasis in original]

The full text of President von der Leyen’s Address is embedded below.

State_of_the_Union_Address_by_President_von_der_Leyen_at_the_European_Parliament_Plenary

The State of the Union — WTO Reform Priorities for the EU and Potentially Problematic Priorities

While EC President von der Leyden indicates she wants the EU to lead reform in both the WTO and the WHO, there is no set of agenda items identified as such in the State of the Union. That said, there are many areas addressed within the State of the Union where WTO reforms could be helpful. One can start with keeping markets open for the movement of goods and services during pandemics. Other pandemic response issues are more relevant to possible reforms at the World Health Organization.

The EU has been an active participant in the plurilateral negotiations on digital trade at the WTO and the Address’s focus on digital issues supports the need for completing those negotiations.

Similarly, the central place of addressing climate change and implementing the European Green Deal suggest that the EU would support greater activity in the Trade and Environment Committee as well as its work on the Paris Agreement on emissions reductions. Moreover, the carbon tax issue mentioned in the Address may require WTO negotiations to ensure WTO consistency or result in serious WTO disputes and possible unilateral responses by trading partners.

EC President von der Leyen’s discussion of the EU’s bilateral relationship with China raises issues on “fair market access, reciprocity and overcapacity”. This presumably includes the EU’s efforts with the US and Japan to address industrial subsidies, state-owned enterprises, forced technology transfer and more.

Finally, the digital services tax issue, while potentially being addressed within the OECD and G20 has the potential to result in serious trade consequences with the United States if not resolved to the U.S.’s satisfaction.

Conclusion

The European Union is a critical global player in trade and many other areas. The State of the Union Address by EC President von der Leyen at the European Parliament Plenary given on Wednesday this week lays out a comprehensive set of objectives for Europe, many of which have trade implications.

While the EU has an important role in the WTO, time will tell whether its desire to lead the reform process plays out. While it views itself as having been a constructive player in the Appellate Body impasse, as viewed from the U.S., the EU is one of the largest reasons for the departure of the Appellate Body from its agreed-to mandate. While the EU led a number of Members to create an interim arbitration system, from the U.S. perspective, the interim system attempts to shift arbitration to being a pseudo Appellate Body and is more objectionable in some respects than the now dysfunctional Appellate Body.

With the need for comprehensive reform of the WTO understood by most delegations, constructive leadership by any of the Members is certainly welcome. Hopefully, the EU will be such a leader in 2021.

Race for WTO Director-General — additional material on The Rt Hon Dr. Liam Fox MP (United Kingdom)

The two month period for candidates for the position of Director-General of the World Trade Organization to make themselves known to the WTO Members ends today, September 7, 2020. The Chairman of the General Council along with the Chairs of the Dispute Settlement Body and Trade Policy Review Body will now start the process of holding “confessionals” with WTO Members to receive in confidence the four candidates whom each Member believes could generate consensus among the membership as part of the first round of reducing the candidates from eight to five. Two other rounds will follow to reduce the candidates from five to two and then from two to one.

Today I review some other press articles about the candidate from the United Kingdom to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. The other seven candidates were reviewed previously. Yesterday, I posted material about H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia), the day before on H.E. Amina C. Mohamed (Kenya), on September 4 on H.E. Yoo Myung-hee (Republic of Korea), on September 3 on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 6, 2020, Race for WTO Director-General – additional material on H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia), https://currentthoughtsontrade.com/2020/09/06/race-for-wto-director-general-additional-material-on-h-e-mohammad-moziad-al-tuwaijri-saudi-arabia/; September 5, 2020, Race for WTO Director-General – additional material on H.E. Amina C. Mohamed (Kenya), https://currentthoughtsontrade.com/2020/09/05/race-for-wto-director-general-additional-material-on-h-e-amina-c-mohamed-kenya/; September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

As noted above, today’s post looks at a few articles featuring The Rt Hon Dr. Liam Fox MP from the United Kingdom, the eighth and final candidate nominated for the position of Director-General.

  1. The Asean Post, September 5, 2020, Pandemic Is ‘Kiss of Death’ For Managed Trade, https://theaseanpost.com/article/pandemic-kiss-death-managed-trade.

“The coronavirus pandemic has heaped pressure on the troubled World Trade Organization (WTO), a WTO leadership candidate said, warning the crisis could spell the end of rules-based international trade altogether.

“Liam Fox, Britain’s first post-Brexit international trade secretary and one of eight candidates vying to become the WTO’s next director-general (DG), voiced concern that countries might turn their backs on its multilateral trading model.

“‘The reaction of some countries to the COVID emergency will be to seek solace in protectionism and to believe that they will get more resilience by … closing themselves off, if you like, from the global economy,’ he said Thursday in an interview.

“‘Exactly the opposite I believe is true,’ he explained during a conversation using the video link Zoom, insisting that countries will find more security by opening up and ensuring diversity of supply.

“‘For the rules-based trading system, COVID could be the kiss of life if we embrace the right policies – or the kiss of death if we don’t.'”

2. Government of the United Kingdom, Department for International Trade, 19 August 2020, Liam Fox pledges half his team will be women if he is the WTO DG, https://www.gov.uk/government/news/liam-fox-pledges-half-his-team-will-be-women-if-he-is-the-wto-dg.

“Dr Liam Fox has pledged that women will make up at least half of his senior leadership team if he is appointed the next Director General of the World Trade Organization (WTO).

“The UK has nominated former International Trade Secretary Dr Fox to be a candidate to replace current Director General Roberto Azevedo who stepped down this month after seven years.

“Dr Fox, the only elected politician in the running for the role, believes changes need to be made to attract more women into senior trade roles at the WTO. He states:

  • “Women’s economic empowerment through trade can only continue with widespread commitment to advancing the WTO and rules-based trading systems
  • “There is a need for the WTO to embrace the ‘talents, innovation and creativity’ of women to ensure it can lift another one billion people out of poverty
  • “Thirty years of progress is under threat from rising levels of unilateral actions and protectionism and those bearing the economic impact will disproportionately be women

“Dr Fox believes securing the input of women at a senior level at the WTO will help reduce the many barriers women face in accessing trading opportunities.

He said:

“‘As someone who trained and practised as a medical doctor I was used to half, and sometimes more, of my colleagues being female. But, despite real progress being made, women continue to face disproportionate barriers in accessing trading opportunities and markets due to discriminatory attitudes, poor conditions and harassment as well as unequal access to inputs such as credit and land.’

“‘And, as we look around us at the rising levels of unilateral actions and protectionism, we know that the remarkable achievement of the last three decades is under threat and that those bearing the brunt will be women.’

“Dr Fox believes the WTO and rules-based trading systems have created opportunities for women in both developed and developing countries which will be key to helping the global economy recover from the effects of the coronavirus pandemic.

“In 2016, McKinsey estimated that creating more opportunities for women to work, including in export-led sectors, could add $12 trillion to the global economy by 2025.

“Dr Fox said:

“‘What could be more counterproductive than failing to utilize the talents, innovation and creativity of half the planet’s population? Women’s economic empowerment through trade can and has played a key role in creating political stability and so the conditions for wider economic progress. This matters to all of us, wherever we are.’

“Currently, neither the Director General nor any of the four Deputy Director Generals at the WTO are female. The latest diversity breakdown of the WTO secretariat shows that of the 24 staff members in the most senior grades, only five were female.

Dr Fox said:

“‘To attract more women into the architecture of trade, we need to make changes at all levels.’

“‘We need more input for women, by women if the WTO is to play its part in taking another one billion people out of extreme poverty. That is why, if I am successful in my candidacy, women will account for at least half of my senior leadership team.'”

3. Inside U.S. Trade’s World Trade Online, September 2, 2020, Fox: Congress should leverage TPA renewal to resolve WTO appellate impasse, https://insidetrade.com/trade/fox-congress-should-leverage-tpa-renewal-resolve-wto-appellate-impasse.

The article reviews statements by Dr. Fox that his political thinking would identify outreach to the U.S. Congress after the upcoming election as a way to make progress in resolving the impasse on the WTO’s Appellate Body. Dr. Fox opines that the renewal of trade promotion authority (“TPA”) in the front half of 2021 gives Congress significant say on trade matters which could be used to find solutions on the Appellate Body impasse.

4.  Chatham House, 10 August 2020, In Conversation with The Rt Hon Dr Liam Fox MP: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/conversation-rt-hon-dr-liam-fox-mp-candidate-director-general-world-trade-organization.

Chatham House has conducted interviews with each of the candidates for Director-General. The session with Dr. Fox was held on August 10, 2020 and was on the record. My notes of some of the questions asked and of Dr. Fox’s responses are contained below.

Q:  You are a free trader.  Could you share your philosophy about international trade?  What is your vision of trade?

A:  One of the great benefits of international trade is its contribution to moving one billion people out of poverty in a generation, one of the greatest accomplishment in history.  We live in a very interdependent and interconnected world.  Trade is not an end in itself but a means to spread prosperity around the world which leads to security.  If countries try to block trade, there are consequences such as mass migration of peoples.

Q:  How do you deal with the view that many people in developed world feel that trade has undermined their prosperity?

A:  Such views flow from a failure to understand the benefits that come from free and open trade.  In developed countries we take benefits of trade for granted and simply look at the downside costs.  If you consider benefits to consumers from trade, the benefits include a much broader selection of goods and services at lower prices.  Countries always have the trade off between trade liberalization and protectionism.  Those seeking protection may have better lobbyists, but they don’t have better products.  Typically trade ministers don’t mention consumers at all when discussing trade policies.  Yet that is one of the basic advantages of trade – greater choice, lower prices.

Q:  What are the top three challenges you would face if selected as the next Director-General?

A: Dr. Fox views there are different types of issues facing the WTO.  The most important issue in his view is to get Members to reconnect with the vision of a shared endeavor.  One of the dangers of undermining the multilateral system is the resulting free-for-all that would result among countries which will hurt most countries including major countries like the United Kingdom and Germany.  Secondly, there are a host of practical issues – restoring the appellate body would be one. Without the ability to enforce rights and obligations, the WTO is denying Members one of the value added elements of membership. Other practical issues include dealing with and recovery from the COVID crisis and how we treat our members.  At the time of the webinar with Chatham House, Dr. Fox had done 72 bilaterals with Members. There is a common view that small members who are a nuisance get listened to as do the large members. However, the rest of the 164 Members don’t feel that they do get listened to. This is a big problem for the WTO.  For the organization to function well, the Members need trust among themselves. For Member who don’t feel that their views are being listened to, the trust breaks down.

Q:  Members will be much more involved in their own economies post-COVID.  What can WTO do to get ahead of this situation?

A:  Governments will be much more concerned with domestic issues in the post-COVID world.  The focus on domestic needs will potentially lead to more protectionism, greater subsidies and other trade distorting measures. The key point for Members and the WTO is the resilience of the multilateral system.  What we have learned during the COVID pandemic is that the way we have organized global value chains has shifted from a structure of resilience to one of efficiency. The world will likely get some rebalancing of global value chains to improve resilience. The role of the WTO is to make the case openly and constructively that resilience is to be found in greater diversity of supply, not from massive onshoring or attempting to go it alone.  If a country onshores everything, the country potentially will be more vulnerable in another crisis.  During the COVID pandemic, one can see many elements of global trade that have been disrupted.  Vessels ended up in the far east disrupting timing of the movement of goods. With far fewer passenger flights, there has been less air cargo which has raised costs. The lock down in countries has led to less government work on various trade related ares (e.g., certifications).  Yet all of these problems we have seen during the pandemic are not technical in nature but rather political.  That is the reason Dr. Fox believes that the next Director-General of the WTO needs to have a political background.  Many issues will be sorted out in capitals based on political will and not in technical discussions in Geneva.

Q:  How would you engage the big players, like the U.S., China and the EU?

A:  Engaging the major players is about getting the political commitment from them to wok within the system.  What their voters want is a successful economy. In Dr. Fox’s view, a successful economy is enhanced by open trade.  In terms of the US-China dispute, typically disputes end when costs become too great for the disputants to sustain.  In a global environment like existed in 2018 and much of 2019 where growth was occurring, costs may have been sustainable by the U.S. and China.  Dr. Fox believes that the costs are less likely to be sustainable in the post-COVID world.  If true, one would expect there would be increased internal pressures to come to a compromise in the two countries.

Q:  UNCTAD has confirmed a major contraction of trade during the pandemic. What is most important for the WTO to do to facilitate dismantling trade barriers?

A:  The first task for the WTO and the next Director-General is to deal with the COVID export-restriction measures.  In Dr. Fox’s view, nothing is as permanent as temporary measures entered during a crisis.  The WTO needs to improve notifications (export restrictions or other barriers). Dr. Fox is worried how existing export barriers on medical goods may apply to vaccines when they are developed.  Moreover, many countries are dependent on open trade to avoid starvation.  Must understand of where we differ from the end of the financial crisis.  During the financial crisis only 0.7% of G20 trade was subject to trade restrictions. In 2018 more than 10% of G20 trade was covered by trade restrictions.  This change is a major problem. The G20 countries have to lead by example in terms of eliminating trade restrictions.  Getting an understanding that we are in a bad place and likely to worsen is important.  We cannot have business as usual.

Q: As the next Director-General, if selected, would you try to pick a particular sector (e.g., digital trade) to make progress?

A:  Dr. Fox believes that the next Director-General needs to look at connected problems – trade crisis, COVID crisis and environmental crisis — and see where the crises intersect.  Fisheries subsidies is all about sustainability.  The WTO needs to get NGOs and the young people who are concerned to put pressure on their governments.  As stated before, it is not just what happens in Geneva that is important but what happens in capitals.  An Environmental Goods Agreement is another potentially important issue.

Q:  The EU has been talking about a border carbon tax/tariff.  Where should WTO stand on carbon border adjustment mechanisms?

A:  This is going to be a big issue for the WTO.  For developed countries, a price should be paid to achieve reduced carbon levels.  The difficulty will come in the concept of a green subsidy.  If the subsidy becomes distortive in areas like agriculture, that will be problematic for many Members.  Then again the question of a carbon border adjustment mechanism is a political issue.  If we want to see environmental objectives met there will be a price to pay.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Fox are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Race for WTO Director-General — additional material on H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about H.E. Amina C. Mohamed (Kenya), the day before on H.E. Yoo Myung-hee (Republic of Korea), on September 3 on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 5, 2020:  Race for WTO Director-General – additional material on H.E. Amina C. Mohamed (Kenya), https://currentthoughtsontrade.com/2020/09/05/race-for-wto-director-general-additional-material-on-h-e-amina-c-mohamed-kenya/; September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Mohammad Moziad Al-Tuwaijri from Saudi Arabia, the seventh candidate nominated.

  1. Inside U.S. Trade’s World Trade Online, August 17, 2020, Saudi DG candidate aims to quantify and deliver outcomes at the WTO, https://insidetrade.com/daily-news/saudi-dg-candidate-aims-quantify-and-deliver-outcomes-wto.

Inside U.S. Trade conducted interviews with each of the eight candidates for the Director-General position. The publication’s write-up of its interview with Minister Al-Tuwaijri was posted on August 17th. As reviewed in earlier posts, Minister Al-Tuwaijri brings a business approach to the position of Director-General if selected.

“‘My delivery-oriented approach is all about regaining trust and regaining confidence in the organization. And I am a great believer that if that’s the case, I think the big powers – the big countries – will go back to negotiation,’ he told Inside U.S. Trade in an interview on Monday.”

His first priority if selected as the Director-General would be to do a review of the challenges the WTO faces to identify priorities for addressing by the Members, but noted Members viewed fixing the dispute settlement system and bringing life back to the negotiating function as two broad agenda issues.

Minister Al-Tuwaijri views an approach that includes developing information that shows the effects of particular policies or actions on Members as critical to helping solve various problems including how special and differential treatment is applied and various Chinese practices that are causes of the U.S.-China tensions.

2.  Chatham House, August 17, 2020, In Conversation with H.E. Mohammad Maziad Al-Tuwaijri, https://www.chathamhouse.org/file/conversation-he-mohammad-maziad-al-tuwaijri.

Chatham House has done a series of webinars with each of the candidates vying for the WTO Director-General position. On August 17, Chatham House featured Minister Al-Tuwaijri of Saudi Arabia. What follows are my notes on some of the questions asked and Minister Al-Tuwaijri’s responses.

Q:  What is your overarching philosophy of international trade and your vision for the WTO as a 21st century organization?

A:  Recovery from COVID-19 will be different for each country and each region.  Minister Al-Tuwaijri has reviewed the stimulus programs put in place by various governments to cushion the economic effects of addressing the COVID-19 pandemic, and he designed the stimulus plan for Saudi Arabia. There are questions of whether the stimulus provided will be sufficient and how quickly economies will rebound.  The economic uncertainty and unpredictability is harmful to business activity and investment.  Looking at the WTO, there is no question that reform is needed.  But the question is what type of reform is needed.  Another question is what type of candidate is needed (an insider or someone with a fresh set of eyes).  Minister Al-Tuwaijri views himself as the right candidate.  The WTO faces many challenges. Digital trade is a game changer, but there are currently no WTO rules.  The WTO has accomplished relatively little in its first 25 years.  The WTO faces challenges on all three pillars — negotiations, disputes, and notifications and transparency.  There are increased tensions geopolitically.  The WTO must in Minister Al-Tuwaijri’s view go back to its core principles.  In G20 one of the objectives has been to gather political will of the G20 countries to support reform at the WTO. 

Q:  What are the three most important challenges that the WTO faces?

A:  For Minister Al-Tuwaijri, the three pillars of the WTO — negotiations, transparency, disputes — are interconnected.  However, the root cause of the WTO current situation is the failure of the negotiating function to provide results.  If the negotiating process can be improved, WTO Members can regain trust. As Director-General, Minister Al-Tuwaijri would start a process where the WTO can identify early warning signs that negotiations are not proceeding.  On transparency, the WTO needs to understand why countries are not as transparent as required by the WTO.  If the reason is technical, such as lack of infrastructure in certain Members, then the WTO need to address through technical assistance.  If the issue is really political, the Director-General needs to do outreach to capitals. Similarly, if rules need to be modified, the WTO needs to address that as well.  Minister Al-Tuwaijri believes the next Director-General needs to ask the tough questions to identify the root causes of issues before the WTO Members try to fix the issues.  The next Director-General can facilitate the WTO Members making some successes to show the organization can move forward and be relevant.  But unless the WTO adopts an holistic approach to the needs and causes, the WTO will be back to the same dysfunctional state in the future.

Q:  What would you do in the first 100 days?  You have mentioned creating a delivery unit in the Director-General’s office and shifting to annual Ministerials. Are these some of the actions you would take in the first 100 days?

A:  In Minister Al-Tuwaijri’s view, the intensity of trade-relevant events is happening frequently which requires more frequent Ministerial meetings.  But having more meetings is not an end in itself. The key is how to prepare for the meetings, how to make the meetings more impactful.  Minister Al-Tuwaijri would want to include voices of the business community within the Ministerial.  In his first 100 days as Director-General, Minister Al-Tuwaijri would engage with all members to understand their views on issues. For example, he would look at ideas around the appellate body impasse (Amb. Walker’s proposal, the MPIA) and discuss why these proposals haven’t resolved the impasse.  He would complete the deep dive into all matters pending before the WTO and potential reform issues and tracking the root causes. This would be important to do in the first 100 days.

Q:  On the politics of trade, re US and China, the U.S. Trade Representative Robert Lighthizer has said that it is important for the next Director-General to understand that large state-run economies aren’t adequately disciplined under existing WTO rules. Do you agree?

A:  Both the United States and China are important members of the WTO.  Minister Al-Tuwaijri was pleased to see that the two countries were able to reach a Phase 1 agreement which shows they can negotiate some of their differences.  The WTO needs both countries to go back to negotiations.  The WTO is a Member-driven organization, so what gets negotiated is a matter of Members agreeing.  It is clear that resolving the tensions between the two Members matters to businesses in both countries.  If selected as the next Director-General, Minister Al-Tuwaijri would encourage both countries to go back to negotiations within the WTO.

Q:  How do you plan to fold trade sustainable development goals (SDGs) into WTO reform program?

A:  Minister Al-Tuwaijri indicated that he was privileged to implement the SDGs in the Kingdom of Saudi Arabia.  He believes it would be helpful to have some unified definitions and fresh thoughts on the SDG issues.  There is ongoing work within the WTO on some of the SDGs, and many members are working on the issues.  Minister Al-Tuwaijri believes that addressing SDGs in the WTO, like many other issues, goes to how do Members implement objectives and measure progress.  Only way that progress was made in Saudi Arabia was to map SDGs and the Saudi 2030 program and connect the dots. Minister Al-Tuwaijri would look forward to working with WTO Members to address SDGs as appropriate in the WTO reform program.

Q:  on deglobalization, what are best steps DG can take to address the problem?  With export restriction measures and subsidy measures from Pandemic response, does this make WTO more relevant?

A:  Minister Al-Tuwaijri understands nations responding to the shock of the COVID-19 pandemic with panic and restrictive measures.  He believes that the pandemic provides the WTO membership a huge opportunity.  Every crisis teaches us something.  The pandemic provides an opportunity for the WTO to be more relevant.  The question is how.  Minister Al-Tuwaijri belives that the WTO needs to do an impact analysis of all the actions taken.  As Director-General, he would undertake that analysis.  Minister Al-Tuwaijri stated that the WTO is still needed.  He has seen that in the G20 process where the G20 countries have talked about the need for reform in the WTO and the G20 support for reform.  It is important to evaluate whether the reform ideas are doable and doable in a timely manner. Minister Al-Tuwaijri believes that there are many issues that can be resolved that can bring back trust and confidence in the organization. 

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Al-Tuwaijri are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for the last candidate, The Rt Hon Dr. Liam Fox MP (United Kingdom).

Race for WTO Director-General — additional material on H.E. Amina C. Mohamed (Kenya)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about H.E. Yoo Myung-hee (Republic of Korea), the day before on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Amina C. Mohamed from Kenya, the sixth candidate nominated.

  1. Financial Times, August 4, 2020, Leading WTO candidates back US bid for dispute system reforms, https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193.

“The two leading candidates to run the World Trade Organization have called for reform to address US criticisms that have paralysed the institution’s legal body and risk undermining the entire organisation.

“Kenya’s Amina Mohamed and Nigerian Ngozi Okonjo-Iweala are the favourites to be appointed WTO director-general after incumbent Roberto Azevedo steps down in September. In interviews with the Financial Times, both said that American criticisms of judical over-reach by the organisation’s dispute settlement system were valid.

* * *

“Asked by the FT whether the US criticisms were fair, Ms Mohamed, a former diplomat and trade minister, said: ‘Yes, I think that the US concerns are real.’

“She added: ‘The feeling in Geneva among very many members is that they [the appellate body] went outside the mandate that was granted to them.’

“WTO member governments should reassert their authority over rulemaking in the organisation, Ms Mohamed said.

“‘We need to make sure . . . that the appellate body members understand that is the only mandate that they can have, that they cannot add to or diminish the rights of parties. Those rights were negotiated by member states,’ she said. The body’s habit of deliberately creating legal precedent to apply to other cases involving other governments ‘was not right’, she added.”

2. Inside U.S. Trade’s World Trade Online, July 21, 2020, Kenya’s Mohamed says she has delivered at the WTO before and will again, https://insidetrade.com/daily-news/kenya’s-mohamed-says-she-has-delivered-wto-and-will-again.

As part of the publication’s interviews with all WTO Director-General candidates, Inside U.S. Trade interviewed Minister Mohamed in July. Minister Mohamed repeated views she has expressed at the WTO and in various webinars. The WTO has serious problems including a negotiating function that is stalled, the impasse on the dispute settlement system and more. As a member-driven organization, it is the Members who will have to set the reform agenda, though the Director-General can help facilitate Members’ efforts. Reform will require support from all Members including the largest, such as the U.S. and China.

Minister Mohamed noted that the issues the U.S. has raised, whether on the operation of the Appellate Body or other issues, are of concern to other Members as well and need to be addressed if the WTO is to maintain relevance. Both the U.S. and China have been major beneficiaries of the trading system. Tensions between the major players is in part due to lack of reform. The rule book needs to be updated and added to to ensure it reflects the realities of 21st century trade developments.

3.  Chatham House, 6 August 2020, In Conversation with Ambassador Amina Mohamed: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/conversation-ambassador-amina-mohamed-candidate-director-general-world-trade-organization.

Chatham House has conducted a series of webinars with each of the eight candidates for the Director=General position. The webinar with Minister Mohamed was held on August 6, 2020. My notes on some of the questions and Minister Mohamed’s responses follows.

Q:  what is your overarching philosophy for international trade?

A:  Following the Great Depression and World War II, the creation of the Bretton Woods institutions focused on multilalteral cooperation.  Multilateral cooperation and trade liberalization led to unprecedented growth and development.  Trade was a big part of the progress.  Minister Mohamed has seen the dynamism that trade can have to help countries  develop and integrate into the global economy.  However, there have been instances where countries haven’t had the ability to integrate, where assistance was needed

Multilateral trade rules have not kept up to  date.  There are many developments and challenges facing global trade — digital trade, environmental challenges, sustainable development, and now the pandemic.

The WTO will need reform, recovery, and renewal to play the role it needs to play.

Q:  Based on the economic effects from the COVID-19 pandemic, the WTO is predicting a huge trade decline in 2020 with a smaller recovery in 2021.  What does WTO need to do to help countries deal with the pandemic and recover?

A:  The WTO needs to do what the WTO does best, insist on transparency.  Out of  fear at the start of the pandemic. Members of  the WTO erected trade restrictions on the export of medical goods and some on agricultural goods.  Members were focused on national needs versus working on international cooperation.  The WTO must be sure  that the gateways of trade are open.  The WTO must  look at members’ responses  to the pandemic.  For outside observers, the WTO’s monitoring/transparency function is often overlooked.  In the pandemic, the transparency function of the WTO has become incredibly important.  The WTO must make sure the transparency mechanism works well.  If  WTO Members put in place trade facilitation measures, Members can get out of  the pandemic all together and quickly.  WTO Members must be sure medical supplies  and agricultural goods are available to all, particularly those who don’t produce medical goods and must import them.

Q:  There is a crisis in the WTO’s dispute settlement system.  How would you address?

A: In Minister Mohamed’s view, the whole WTO system is a complete system.  Negotiations, monitoring, disputes,  If you take one piece out, you create a gap which must be filled.  The WTO dispute settlement system is a two-tiered system.  If rules are not obeyed, you need an effective system or the rules lack legitimacy.  Based on Minister Mohamed’s outreach to Members, she knows that there is broad support for reform of the dispute settlement system.  If Members don’t  agree on and complete reform, Members will put in interim measures.  The way to  create reform is to get proposals out  on the table.  There are important questions such as why does the AB not exist any more?  Where did we get off  track?  How can we get it back on track?  Members are interested in getting dispute settlement back on track.  There have been a number of proposals.  One, from Amb. Walker, has  been gaining traction.  The process must include all Members in the discussion and get agreement on how to proceed.

Q:  Where is the aid for  trade initiative going?

A:  Minister Mohamed was at the WTO when the aid-for-trade initiative was adopted.  Members need such an initiative to permit integration of least developed  and some developing countries where capacity building is required to permit participation (e.g., developing standards).  The WTO came up with a program that attracted funding from countries that could  help.  It has worked really, really well.  If Minister Mohamed becomes the Director-General, she would work with other international organizations to increase financing.  She noted that all other multilateral organizations have trade desks.  A key objective is to ensure the aid-for-trade initiative has the resources to help as many countries as possible.  It is a critical initiative, but needs a lot  of support.

Q:  What role will sustainable development goals have on WTO moving forward?.

A:  Minister Mohamed noted that sustainable development has been an aspect of WTO work and will continue to be going forward..  She focused on this at the Nairobi Ministerial in 2015 and obtained an agreement on agricultural export subsidies which goes to reducing hunger by eliminating distortions in agricultural trade which should permit more food to be produced locally.  At the present time, the WTO has fisheries subsidies negotiations underway.  An agreement, when reached, is important for trade but also for sustainable development.  Other issues have effects on sustainable development as well – agricultural negotiations on domestic  support), plurilateral negotiations on digital trade (must be sure that benefits area shared on an MFN basis and have provisions that will help address the digital divide).  And the WTO looks at issues involving trade and the environment..

Q:  On climate change, as Director-General of the WTO how will you ensure WTO is engaged on climate change?

A:  At the WTO, there are a range of issues that look at trade and another topic.  Thus, the WTO has a Trade and Environment Committee.  When Minister Mohamed was Ambassador to the WTO, the Committee was very active and did  a lot  of work.  For example, the Committee started on a list  of goods and services that were environmental goods.  If Minister Mohamed becomes Director-General, she would try to  energize the Committee, update the list and ensure that the WTO is engaged in global discussion on environmental issues.

Q:  What  strategy do you have to build cooperation within WTO? 

A:  As Director-General, Minister Mohamed would deal with tensions in the system by addressing reform to deal with shortcomings in the rules.  Must update the rule book which Members feel is outdated.  The needs from the Pandemic, the rise of digital trade, sustainable development goals — all are topics where a review and revision of the rule book are required.  There are old issues that need new rules or updated rules. There are new issues that need new rules.   Without updated rules, the WTO will face continued tensions.  The Director-General can create the space  for  parties to negotiate, be an honest broker and help facilitate progress.

Q:  Looking at the tension between the US  and China, how can you convince the U.S. that multilateralism is in the U.S.’s interest?

A:  There is no real question that multilateral trade has been beneficial for all.  The purpose of GATT was to see that trade disputes were resolved according to agreed rules, without going to conflict.  At present, there are heightened tensions because the WTO rules are weak or are absent.  So must put in place the conditions to permit parties to confidentially meet and resolve matters.  The Director-General acts as an honest broker.   Tensions have existed in the past and have been resolved within the GATT and now the WTO.  Need to build confidence among Members and need to put issues on the table and discuss.  There is no doubt in Minister Mohamed’s mind that trade issues can be resolved within the WTO. 

Q:  Concerned about the Doha Round not being active.  This is a question of how we use  trade as a means of development?

A: This is a concern raised by a number of countries.  The Doha Development Agenda (DDA) was launched in 2001.  Followed 9-11 where needed to show international community could come together and achieve  something  significant.  DDA remains unfinished.  However at  the 2015 Nairobi Ministerial, WTO Members resolved the issue of export subsidies.  If the WTO can deal with domestic  support, market opening, fisheries subsidies will have resolved a number  of important  matters from the DDA.  So some DDA issues have been resolved already, others are under negotiation.  Need to see that the other two pillars of the agriculture package will be restarted again (domestic support, market liberalization).  Will try to get  agreement to reopen these at next Ministerial and move for progress on remaining agricultural issues (including  cotton).

Q:  The Trade Facilitation Agreement (TFA) is the only multilateral agreement since the start of the WTO.  What lessons for WTO going forward?

A:  TFA is a new generation agreement.  By that Minister Mohamed means that the agreement bases the flexibilities and the concessions on the abilities and needs of individual Members.  That approach of fashioning exceptions to obligations to the needs of specific Members is likely to be typical of future agreements. There may also be capacity building and other similar features.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Mohamed are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

WTO Director-General candidates — Nigeria’s Dr. Ngozi Okonjo-Iweala and the United Kingdom’s Dr. Liam Fox generate potential controversy

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala is Nigeria’s candidate to become the next Director-General. When she was put forward by the Nigerian government her biographical sketch submitted did not contain information on her having also become a citizen of the United States in 2019. Her biography as available from the WTO webpage is embedded below.

bio_nga_e

In the highly politicized atmosphere that characterizes the current dysfunction at the WTO, omitting her U.S. citizenship may become a liability to Dr. Okonjo-Iweala’s chances of becoming the next Director-General. Chinese and other news reports raise that very issue. See, e.g., South China Morning Post, September 4, 2020, Ngozi Okonjo-Iweala’s US passport will not help her chances in WTO leadership race, Chinese trade experts say, https://www.scmp.com/economy/global-economy/article/3100280/ngozi-okonjo-iwealas-us-passport-will-not-help-her-chances; Naija247News, September 2, 2020 (posting a Bloomberg News piece), WTO Hopeful Economist Okonjo-Iweala Balances Nigeria, U.S. Citizenships, https://naija247news.com/2020/09/02/wto-hopeful-economist-okonjo-iweala-balances-nigeria-u-s-citizenships/#.X1OeZ5PsZ9A.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

In an article earlier this week, Inside U.S. Trade reported that Dr. Fox had indicated that the next Director-General should prioritize the U.S. Congress over the U.S. Administration (President and USTR) to seek a resolution of the WTO’s Appellate Body impasse, seeking Congress to mandate a resolution as part of its consideration of renewal of Trade Promotion Authority. See Inside U.S. Trade’s World Trade Online, September 2, 2020, Fox: Congress should leverage TPSA renewal to resolve WTO appellate impasse, https://insidetrade.com/trade/fox-congress-should-leverage-tpa-renewal-resolve-wto-appellate-impasse.

Congress may well have an interest in the topic as part of trade promotion authority. However, for a candidate seeking to be selected as the next Director-General of the World Trade Organization to suggest the path to progress is by circumventing the U.S. Administration seems likely to raise concerns about his objectivity. Circumventing the U.S. Administration essentially indicates Dr. Fox’s belief that the problem at the WTO on the issue is U.S. intransigence. While that may be the European Union view, articulating such a position is unlikely to win friends at USTR. While Dr. Fox apparently believes he has the U.S. support, his statement on the approach he would take as Director-General may result in the U.S. supporting others. The Inside U.S. Trade piece quotes Dr. Fox as saying that when he is being frank, it usually gets him in trouble. Time will tell whether his recent comments repeat that self appraisal.

Race for WTO Director-General — additional material on H.E. Yoo Myung-hee (Republic of Korea)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Amb. Tudor Ulianovschi (Modolva), the day before on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Yoo Myung-hee from the Republic of Korea, the fifth candidate nominated.

  1. Hankyoreh, August 9, 2020, S. Korea’s candidate for WTO director-general emphasizes reform, http://english.hani.co.kr/arti/english_edition/e_international/957072.html.

“Speaking with reporters at the Government Complex in Sejong on Aug. 6, Yoo provided an explanation on the current situation with the director-general election.

* * *

“’What I detected from my conversations with dozens of ministers is that many countries are feeling disappointed and frustrated with the WTO’s inability to do its job. They all agreed that there need to be reforms to restore the WTO’s functions in terms of negotiations, disputes, and implementation,’ Yoo said. Regarding the methods of carrying out WTO reforms, she said she planned to ‘hold discussions involving several different approaches,’ noting that there were ‘large differences of opinion among member countries on the role and authority of the Appellate Body.’

“Yoo also stressed that the WTO ‘will need to guarantee free movements of products and services, particularly in the event of another future crisis like the COVID-19 pandemic, while ensuring that [such a crisis] is not abused as an opportunity for applying protective trade measures.’”

2. Inside U.S. Trade’s World Trade Online, August 5, 2020, Korea’s DG candidate on retoling the WTO: ‘Success breeds success,’ https://insidetrade.com/daily-news/korea%E2%80%99s-dg-candidate-retooling-wto-%E2%80%98success-breeds-success%E2%80%99.

As part of Inside U.S. Trade’s series of interviews with each of the eight candidates, Minister Yoo was interviewed in early August. In the August 5 write-up by the publication on the interview, Minister Yoo covered both her experience as a trade negotiator and her ability to close deals as strengths in her candidacy and stressed that achieving some successes at the next WTO Ministerial Conference was crucial to permit the organization to move forward and rebuild trust and be able to address the larger reform issues before the WTO.

Restoring the negotiating function is key to progress, to helping major members like the U.S. and China see that their concerns can be handled through the WTO and would take pressure off of the dispute settlement system.

On dispute settlement, all Members want an effective system, but there are wide differences on what that means. Minister Yoo would urge engagement by Members, outreach to capitals to encourage political will, and perhaps outside input for novel possible solutions.

3. Chatham House, 25 August 2020, In Conversation with Minister Yoo Myung-Hee:  Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/file/conversation-minister-yoo-myung-hee-candidate-director-general-world-trade-organization; https://www.youtube.com/watch?reload=9&v=8ebGAH4MYOM.

The webinar was part of Chatham House’s series talking to each candidate for the Director-General post. The event was an “on-the-record” event. Below are my notes on some of the questions posed to Minister Yoo and her responses

Q:  Tell us about your overarching view of international trade? 

A:  Minister Yoo stated that trade has been the engine for global economic growth and has contributed to a very large reduction of poverty.  Trade is a means not an end.  Since 1995 trade has increased from $5.2 trillion to over $19 trillion in 2018 with a significant reduction in global poverty occurring during the same time.  But the trading system must adapt, change and evolve.  The world has seen slowing economic growth, rising protectionism, and in the last year the emergence of the COVID-19 pandemic.  Global trade contracted last year for 1st time since the 2008-2009 financial crisis and will do so again this year.  At the same time, there has been concern among some as trade is affecting more aspects of our lives than ever before.

Minister Yoo believes that in a rapidly changing world, the WTO has not been able to pull its weight. The WTO has struggled with all three pillars of the system – negotiations, transparency, dispute settlement.  She states that the WTO needs to come out of the crisis stronger than before.  To do that, Minister Yoo believes the next Director-General must work with Members to achieve what she describes as her three Rs – relevance, resilience and responsiveness. First, the WTO must be relevant. To do that, the WTO rule book must evolve with the changing realities of 21st century trade. It is critical that the WTO reenergize its negotiating function and restore the two-tier dispute settlement system.  Second, the WTO must be resilient.  The WTO must address the needs of countries who haven’t gotten many benefits from WTO membership. Third, the WTO must be responsive to future emergencies.  In times of crisis, like the current COVID-19 pandemic, the WTO must be there to ensure stability and predictability.  Historically, in times of crisis, world collaboration has emerged to help the world move forward. This was true at the end of World War II with the creation of the Bretton Woods organizations and during the 2008-2009 financial crisis with the emergence of the G20.  So the current COVID-19 crisis could be an opportunity to move the global trading system forward.   

Q:  The U.S. led the Bretton Woods efforts, but today the U.S. is skeptical of global collaboration.  How can the WTO foster the role of global engagement?

A: The U.S. has shown continuing interest in the multilateral trading system as can be seen from their various proposals for WTO reform and their extensive materials on dispute settlement.  But over the last 25 years, there have been no major trade agreements at the WTO other than trade facilitation. This lack of ability to update the rule book has led to frustration and loss of trust in the WTO not just by the U.S. but by others as well.  So we need to use this moment to reform the WTO to revitalize the system. Such revitalization could provide an important reason for countries to handle problems through the WTO rather than outside of the system.  Minister Yoo, based on her conversations with trade ministers around the world and ambassadors in Geneva, sees the same frustration with the WTO from many Members.  However, Members are committed to the multilateral system.  COVID-19 provides an impetus for taking action.  Minister Yoo believes that the WTO needs successes. The WTO needs to go step by step; success will spur success and permit addressing larger issues over time.

Q:  You mentioned the slowing down of the global economy and the COVID-19 pandemic.  What role should the WTO play in COVID-19?  

A: Minister Yoo believes that the WTO can and should play many roles.  COVID-19 is both a health crisis and an economic crisis.  First, the WTO can enhance transparency of trade restrictive measures adopted and ensure that such measures are consistent with WTO obligations (e.g., targeted, temporary).  Second, the WTO needs to ensure the free flow of goods and services (during the pandemic this is basically medical and agricultural goods and services).  The WTO should review its rules to ensure that in a future crisis, the WTO can in fact ensure stability and predictability in the trade arena.  Third, the WTO can work with other multinational organizations to overcome both the health and the economic crises.  On the health crisis, the WTO should work with the WHO and other organizations dealing with availability and affordability of medical goods, on the promotion of R&D so we can have vaccines and therapeutics and so that there can be equitable and affordable availability to the people of the world.     On the economic crisis, the WTO should work with IMF, the World Bank, regional development banks and others to reduce the damage caused by the pandemic and to promote a quick recovery and build back better.  For vulnerable economies (and sectors within economies), there is likely ongoing needs for assistance from the WTO and other organizations to weather the pandemic.  Minister Yoo believes that there are also many other roles that the WTO could play.

Q:  There have been growing trade tensions between the U.S. and China, but specifically when it comes to industrial subsidies, S&D in the WTO, what role should WTO take to reduce tensions.

A:  In Minister Yoo’s view, the WTO must revitalize the multilateral trading system. This is important to permit countries to handle trade issues within the WTO versus taking action outside of the system.  On bilateral issues, such as industrial subsidies, the WTO should look at the spillover effects of such policies on other WTO Members and examine the existing rule book.  If rules address the specific problem, then the issue may be enforcement of existing obligations.  But if rules are unclear or don’t cover the policy involved, then Members need to be open to revising existing agreements or adopting new agreements consistent with basic principles of the WTO (e.g., fair competition).  While this is a member-driven organization, the Director-General plays the role of facilitator.

Q:  On WTO dispute settlement, what needs to be changed?

A:  Restoring a functioning dispute settlement system is a top priority issue for the next Director-General.  Why is there the current impasse at the WTO on the Appellate Body?  Minister Yoo believes that the impasse flows from longstanding different views of Members on the role of dispute settlement.  Some are concerned that the Appellate Body is creating rights or obligations — that is overreaching their authority — contrary to the limits in the Dispute Settlement Understanding.  Other Members say that the Appellate Body’s actions are necessary as the Appellate Body is tasked with finding a positive resolution to a case and that may lead to interpretations of gaps or silence or ambiguous language.  Minister Yoo believes that the lack of progress in negotiations may have led Members to overly rely on dispute settlement for issues that could have been resolved through negotiations.  Still, based on her extensive discussions with ministers and ambassadors, Minister Yoo understands that Members share the value of having an effective dispute settlement system.  There are some proposals for reform before the WTO. The Walker proposal addresses some suggestions on procedural and some substantive issues.  US has put forward their views on the problems.  But, as said before, there are very fundamental differences in the views of Members.  Minister Yoo believes that the next WTO Director-General needs to put all proposals on the table and have Members engage in discussions.  She believes that outreach to capitals will also be necessary to secure Members’ buy-in to resolving the current impasse.

Q:  What should WTO do to address the environmental crisis (e.g., coordinate carbon taxes)?

A;  COVID-19 has put a focus on the need for sustainable development.  The pandemic could wipe out economic progress over the last decade.  Thus, it is important to pursue sustainable development.  The question is how to achieve sustainable development in trade, or how to operationalize sustainable development goals in trade?  Minister Yoo started by reviewing what the WTO is currently doing. She noted that the fisheries subsidies negotiations are ongoing. A conclusion of the negotiations would advance sustainable development goals.  Similarly, the WTO has had a Committee on Trade and Environment.  WTO Members and the next Director-General should look at the Committee’s agenda and see if Members are open to updating the agenda. Finally, there used to be negotiations to liberalize trade in environmental goods. Hopefully, such negotiations can be resumed.

As to anti-carbon measures, Minister Yoo understands that the objective is to reduce carbon gases  It is important that trade agreements and environmental agreements be able to work together.  Some countries have expressed concerns about environmental objectives being applied to discriminate against trade from certain countries.  Minister Yoo states that it is important that any such measures be done on a nondiscriminatory basis.  If selected as the next Director-General, Minister Yoo hopes to help Members to find mutually acceptable solutions on these matters.

Q:  On developed and developing countries, should there be different obligations in the environmental area?

A:  WTO Members understand that developing countries may need additional policy space when adopting various agreements.  So during negotiations, it is often the case that Members adopt flexibilities for developing and least developing countries.  In trade negotiations, Members negotiate those flexibilities.  The key in Minister Yoo’s view is to focus on the actual needs of Members. Those needs may be longer implementation periods, the need for technical assistance, the need for capacity building, etc.  The WTO should be able to provide technical assistance and capacity building where needed.

Q:  Currency in U.S.-China trade affects the value of other currencies in Asia and elsewhere.  How can you deal with these trade tensions?

A:  In many areas, there are tensions between U.S. and China.  At the WTO, Members can deal with trade-related tensions.  The WTO can provide a meaningful platform to address trade-related issues.  The WTO has not fully addressed currency issues as curency is largely in the IMF’s area of expertise.  Minister Yoo noted that the WTO has received no official proposal to address currency at the WTO.  It is an issue that can be addressed in some trade remedy cases.  But there is limited actual case law, so it is too early to consider the issue at the WTO.  On other issues, WTO can be part of the solution through both dispute settlement and by updating the rule book.  The WTO should provide a platform for the U.S. and China to address trade issues between them.  This could permit building up new rules.  Even small successes between the Members would permit addressing larger issues.

Q:  WTO must be able to deal with state capitalism.  Is there an inevitability of increased tension? 

A:   On state capitalism, rather than addressing the economic model itself, the WTO should look at specific government policies since those can have spillover effects on other countries. If the policies have negative effects on trade that are inconsistent with WTO principles, then WTO Members should review the rule book and see if Members need to be updated existing rules or if new rules are needed or if the question is simply enforcement of existing rules.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Yoo are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Amb. Tudor Ulianovschi (Moldova)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Mr. Abdel-Hamid Mamdouh (Egypt), the day before on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Amb. Tudor Ulianovschi from Moldova, the fourth candidate nominated.

  1. Inside U.S. Trade’s World Trade Online, August 24, 2020, Moldovan DG hopeful: WTO needs a ‘dynamic,’ courageous leader, https://insidetrade.com/daily-news/moldovan-dg-hopeful-wto-needs-%E2%80%98dynamic%E2%80%99-courageous-leader.

As part of Inside U.S. Trade’s series of interviews with candidates for the Director-General position, the publication published its summary of the interview with Amb. Ulianovschi on August 24. A good part of the article reviews Amb. Ulianovschi’s views on his strengths as a candidate and the need for reform for the WTO.

On substantive priorities, Amb. Ulianovschi is focused on deliverables for the next Ministerial to be held in 2021, mentioning a fisheries subsidies agreement and various plurilaterals (Joint Statement Initiatives) that were under negotiation among various members. He would also seek a Ministerial Declaration on the role of the WTO in alleviating the negative trade consequences from COVID-19.

Amb. Ulianovschi views the need for Members to address the challenges from COVID-19 as a means for building momentum to deal with other pressing issues like tightening rules on industrials subsidies or how special and differential treatment is handled for countries at different stages of economic development.

On WTO reform, Amb. Ulianovschi, in addition to updating the rule book to reflect 21st century trading reality, stated that deep reform is needed. He would encourage Members to review all WTO rules and decide which rules needed to be rethought and which ones have not been implemented properly.

2. Xinhuanet, August 8, 2020, Interview: Moldova’s WTO candidate urges new, inclusive digital trade rules, http://www.xinhuanet.com/english/2020-08/08/c_139273598.htm.

Amb. Ulianovschi stated in the interview that rulemaking on e-commerce was needed now and called for more inclusiveness for least-developed and developing countries in the digital economy. There are capacity issues for many least-developed countries and developing countries that need to be addressed. He pointed to the importance of digital trade during the COVID-19 pandemic and noted that further development of digital trade would improve resilience.

3. Chatham House, September 2, 2020, Webinar: In Conversation with Ambassador Tudor Ulianovschi: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/webinar-conversation-ambassador-tudor-ulianovschi-candidate-director-general-world-trade.

Chatham House has done a series of on-the-record webinars with the candidates for Director-General of the WTO. What follows are my notes on some of the questions posed and answers given by Amb. Ulianovschi.

Q:  What is your overarching attitude towards international trade?

A:  Amb. Ulianovschi is a strong advocate of free and fair trade; he favors multilateral trade.  He believes that the WTO has done good for its Members during its existence and that it will continue to do so.  However, any organization needs to adapt to 21st century realities (e.g, the COVID-19 pandemic, the rise of protectionism, the financial crisis, changing nature of trade).  Key issues for the WTO include how are rules negotiated; how are the rules followed; and how are disputes between Members handled.  Amb. Ulianovschi takes a very holistic approach to the WTO and its future.  He states that it is better to have a system than not to have a system.  So in Amb. Ulianovschi’s view, the question is how to adapt the WTO to the 21st century.  The WTO very clearly needs reform.  Pursuing reform must be an overarching priority for the next Director-General.  Amb. Ulianovschi believes that the WTO needs to help increase economic development of people who are lagging behind.  While the WTO and liberalized trade have helped many people get out of poverty, there remain many more who need help.  COVID-19 has highlighted the inequalities that exist today. In his view, the WTO is more necessary than ever to help address the inequalities and expand world trade for the benefit of all.

Q:  is free trade always fair trade?  Where are the limits?  If you remove all subsidies immediately, what would happen? Aren’t there problems with over-regulation and with under-regulation too?

A:  Amb. Ulianovschi stated that if governments go to extremes at either end of the spectrum, the WTO system won’t work.  The key for the WTO is finding the right balance.  How fast can you liberalize trade flows free?  Amb. Ulianovschi believes that the WTO must refocus the organization to integrate those Members who haven’t benefited to date from the WTO.  The WTO must help Members with capacity building needs and be sensitive to those concerned with potential adverse effects from opening up home markets to imports too fast. 

Amb. Ulianovschi noted that the COVID-19 pandemic has hurt industries in both goods and services.  The WTO must help strengthen least developed countries and developing countries and ensure that regional or plurilaterals help all nations (e.g., by providing benefits on an most favored nation basis).  Amb. Ulianovschi stated that micro-, small and medium businesses (MSMEs) should be the focus of the WTO as such entities make up some 95% of many developing countries’ and least-developed countries’ economies.  there should be a focus on trade facilitation measures for many of these countries.  This is the way to move forward.

Finally, on monitoring and notification requirements, every WTO Member must promptly notify any domestic measures taken. Prompt notifications will improve transparency which should help reduce the risk of spillover effects on other economies from actions taken.

Q:  what role precisely can the WTO play in avoiding the worst effects of a global recession and negative effects of COVID-19?

A:  According to Amb. Ulianovschi, COVID-19 should be seen as a wake-up call to Members for the need for greater transparency. The key role of the WTO during a pandemic is to keep trade flows open and non disrupted for goods and services because of global value chains.  Where there are disruptions, improved transparency will help focus on what is needed.  Amb. Ulianovschi believes that the WTO must work much closer with WHO and FAO to be sure there is a more holistic approach to dealing with COVID-19 effects and recovery.  On vaccines, Amb. Ulianovschi believes Members must avoid nationalization of vaccines.  The WTO must make sure there are as few barriers as possible on vaccines, so all peoples can receive vaccines.

In Amb. Ulianovschi’s view, COVID-19 has caught most or all countries off-guard.  Many governments focused initially on protecting their own citizens and their economies.  As required, restrictive measures should be notified to WTO promptly. Any such measures are not to be permanent. Governments must reduce and then eliminate such measures based on lack of continued need.

Q:  On climate change and environmental degradation – what is the connection between global trade and sustainable development?  Is there a tension?  Can they be connected?

A:  Trade doesn’t need to be at odds with sustainable development. There are multilateral negotiations ongoing on fisheries subsidies.  These negotiations are not only important for WTO Members but also for the achievement of one of the UN Sustainable Development Goals, 14.6. So trade can be connected to achieving sustainable development goals.

Q:  Where do you see US and EU aligned and where are the major differences?

A:  Amb. Ulianovschi noted that he has had discussions with major capitals in Europe, the Americas and Asia.  On a fundamental level, while there are concerns in the U.S. and the EU that the current system is not fully beneficial for them, they and China and other major countries are all in favor of a multilateral system.  This is a good starting point.  However, there is great mistrust within the organization among Members.  Some of the concerns expressed by both the EU and US on the dispute settlement system are important for the next Director-General to address at the political level to get Members willing to deal with reform of the dispute settlement.  On digital trade, the WTO must see that digital trade is made an empowering tool.  However, there are many regulatory issues (e.g., privacy, customs duties, localization, etc.) that need to be addressed in the discussions as these are important for businesses to be able to operate.  In Amb. Ulianovschi’s view, it is critical that WTO Members avoid a vacuum of rules in any area of importance (e.g., digital trade) .  Where there is a vacuum of multilateral or plurilateral rules, then conflict is likely.  The US is concerned about lack of rules and application of rules on different issues.

Q:  do you consider the challenges to be primarily technical or primarily in political?

A:  Amb. Ulianovschi has indicated that the current challenges are a bit of both, but he leans towards political as the most important.  The next Director-General must have both political and technical skills and background.  Looking at issues where both elements are needed, Amb. Ulianovschi identified unfinished business on agriculture as an example. Many items raised in the Doha Development Agenda remain unresolved after nearly 20 years. In Amb. Ulianovschi’s view, the WTO needs technicians to come forward with new approaches to moving elements forward, but the WTO also needs political will from Members to agree to forward movement.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Amb. Ulianovschi are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Mr. Abdel-Hamid Mamdouh (Egypt)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Dr. Ngozi Okonjo-Iweala (Nigeria) and the day before on Dr. Jesus Seade Kuri. See September 1, 2020:  Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Mr. Abdel-Hamid Mamdouh from Egypt, the third candidate nominated.

  1. Daily News Egypt, August 25, 2020, Reviving WTO role as guarantor for stable international trade is my priority: Director General Candidate, https://dailynewsegypt.com/2020/08/25/reviving-wto-role-as-guarantor-for-stable-international-trade-is-my-priority-director-general-candidate/.

“In an interview with Daily News Egypt, Mamdouh highlighted that,
should his election campaign prove successful, his priority will be to
revive the organisation’s role as the guarantor of stability and
predictability in international trade relations.

“Mamdouh noted that the WTO was created to promote the growth and
expansion of world trade through a rules-based system guaranteeing the
rights and obligations of its members.

“He added that the organisation has suffered from a serious breakdown in
its three vital functions, namely dispute settlement, negotiations, and its
monitoring and deliberative capacities. These three functions are closely
interconnected, and the system was designed to operate with balance
across these three pillars.

“’My first priority will be to revive the three functions, starting with the
negotiating function,’ Mamdouh said, ‘If we cannot bring people to the
table to negotiate solutions to problems, we will get nowhere.’

* * *

“Regarding the challenges facing the organisation, in my view, over the
past quarter of a century, the WTO has suffered from a chronic
imbalance across all its vital functions. That is, dispute settlement,
negotiations, and the transparency/deliberative functions.

“In any legal system, there needs to be a balance between the ‘legislative’
and the ‘judicial’ functions. For the WTO, these are the negotiating and
the dispute settlement functions. While dispute settlement has gained
strength due to the inherent automaticity of procedures, the negotiating
function has broken down. This has created an unsustainable imbalance.

“At the same time, the international trade landscape has dramatically
changed, and the WTO system has been unable to update its rule book.
This has caused unsustainable pressure on the dispute settlement
function, which produced the current breakdown in the Appellate Body,
and as the saying goes, if you cannot negotiate, you litigate.

“The world of trade has changed, and so have the dynamics within the
organisation. Whereas the General Agreement on Tariffs and Trade
(GATT) started its journey back in 1947 with merchandise trade across
borders, we have now expanded into trade in services and intellectual
property.

“Today, the way we trade links goods, services, ideas, capital, and
regulation. That requires a comprehensive and coherent approach by the
WTO, that leads to a ‘deal’ that is truly inclusive of all sectors and
interests of Members.

“For example, I see the role that digitalisation has played for many
industries across the economy, with technology-driven business models.
At the same time, I also see the rising tide of legitimate domestic
regulation in areas like privacy, consumer protection and cyber-security.
The interface between the two needs to be managed, to ensure the lowest
trade restrictiveness of regulatory measures, while not intruding on
regulatory sovereignty.

“To complete the picture of where we stand today, we must look at the
crisis caused by the novel coronavirus (COVID-19) pandemic, and make
sure that we retain the lessons we are currently learning. The world will
need a strong and stable WTO to support the post-crisis economic
recovery.

* * *

A lot of challenges await the WTO’s new head, including the
increasing US-China tensions. How do you evaluate these
challenges and how you will deal with them?

“In my view, the tensions between the US and China are, to a very large
extent, a result of the WTO malfunctioning. The organisation was
specifically designed to avoid such tensions, by providing a forum for
resolving trade problems, not only through discussions and deliberations,
but also by updating the rule book through negotiations.

“The WTO Director General should use his or her soft power to persuade
the two parties that the organisation could be part of the solution, not the
problem. The best way to resolve such tensions would be through
seeking multilateral rule-base solutions, as opposed to bilateral deals.

“Furthermore, such tensions also have serious implications that go far
beyond the two parties directly involved. They affect a very wide range
of other WTO Members. Similarly, resolutions of such tensions will also
concern other parties, and that should be considered. Therefore,
multilateral solutions of such problems will always be the best option.

“I don’t believe that we should look at such situations in terms of having
winners and losers, but rather in terms of how we can find win-win
outcome through good mediation and creative negotiating solutions that
involve trade-offs acceptable to all.”

2. African Business Magazine, 13 August 2020, ‘The honest broker’ — Egypt’s Abdel-Hamid Mamdouh sets out his WTO leadership bid, https://africanbusinessmagazine.com/in-the-news/the-honest-broker-egypts-abdel-hamid-mamdouh-lays-out-his-wto-leadership-bid/.

“Promising not to repeat the same mistakes, Mamdouh believes the difference between the ‘Doha Round’ and the successful ‘Uruguay Round’, which led to the creation of the WTO in 1995, was the lack of strategic balance that kept the latter moving forward.

“’In the Doha Round that is not what we did,’ he says.

“’We had a big agenda with balance inside it, but we did not actually preserve the integrity of the balance as we proceeded. What happened really was the collapse of the negotiating process.’

* * *

“’We really are facing a situation where the system is threatened to fall apart,’ he says.

“’But let’s not let this crisis go to waste. Let’s use this crisis to mobilise all the political will and to move forward.’

“The first step is to ‘recall and reconstruct’ the common purpose of the WTO, based around the principles that trade is important for economies and that the best way to benefit from trade is to ensure the predictability and stability of trading conditions.

“The next step is to reform the 1947 General Agreement on Tariffs and Trade; the WTO’s underlying treaty to eliminate trade barriers that was successfully built upon during the Uruguay Round and less so during the Doha Round.

“Moving towards the next ministerial meeting in Kazakhstan in 2021, specific areas of focus include negotiations on fisheries subsides, e-commerce, investment facilitation, domestic regulation services, trade and women empowerment and SMEs.

“To make the reforms possible the WTO must reimagine itself as an institution that can accommodate the demands of all its different members even though they often hold competing points of view.

“’What we need is a political vision that advances the different interests of different constituencies to bring everyone around the table, because the system can serve the interests of all,’ he says.

“’Successful relationships do not depend on how much we agree on, they depend a lot more on how we deal with our differences.’”

3. The National, August 13, 2020, WTO is in system meltdown according to the Egyptian who wants to run the body, https://www.thenational.ae/world/europe/wto-is-in-system-meltdown-according-to-the-egyptian-who-wants-to-run-the-body-1.1062808.

“Speaking at a webinar hosted by the London-based think tank Chatham House, Mr Mamdouh said the WTO had not been faced with comparable problems since it replaced the General Agreement on Tariffs and Trade (GATT).

“’The WTO is facing a stress test that reminds me of the stress test on the GATT when I came to Geneva in [1985], when the reform was necessary,’ he said.

“Mr Mamdouh explained that the systems within the WTO were now in a state of ‘complete breakdown’ because of ‘excessive pressure’ on its dispute settlement function.

“’That was not sustainable, so it failed as well,’ he said.

* * *

“The Egyptian nominee for the WTO’s top post has said it would be his goal to hit the ground running with the body’s 12th ministerial conference, which is scheduled for June 2021.

“’I would say that there are two sets of issues that I would have as my priorities. The first is to have a clear vision for a reform agenda and reform process. So we would agree that [the ministerial conference], what do we want to do with this organisation?’

“Secondly Mr Mamdouh said there were a number of crucial negotiations, foremost among which was fisheries subsidies negotiations, which needed to be concluded.

“’There are ongoing negotiations on eCommerce, investment facilitation, domestic regulation services, small and medium-sized enterprises, trade and women empowerment. We need to register concrete progress on those,’ he said.

“’We need to, we need to use the next ministerial to move the WTO into positive territory,’ Mr Mamdouh added.”

3. The Cairo Review of Global Affairs, July 29, 2020, The Race for the World Trade Organization (podcast of interview), https://www.thecairoreview.com/podcasts/the-race-for-the-world-trade-organization/. What follows are my notes on some of Mr. Mamdouh’s responses to questions

Mr. Mamdouh noted that there has been a Breakdown in negotiating function and in transparency/monitoring function. In his view, the first task is to get the negotiating function operating again.

In response to a question on how COVID-19 has affected world trade, Mr. Mamdouh distinguished between short-term and long-term issues.

Within the short-term, Mr. Mamdouh views that there has been a lot of panic analysis. The WTO system allows some restrictions to be applied, particularly export restrictions, and a number of countries have applied such restrictions. If such restrictions are imposed, they have to be transparent, notified to the WTO, used only to the extent necessary, and terminated when not needed. What the WTO needs to ensure now is that goods and services flow smoothly. Moreover, during the COVID pandemic, not all goods have been affected by restrictions. Rather, we are basically talking about medical products and food products. So the range of goods restricted by some Members is quite limited.

Mr. Mamdouh stated that once countries get past the short term, all will need a strong WTO to ensure predictability and stability to let trade serve its role in restoring growth.

On a question dealing with negotiating issues important to developing countries, Mr. Mamdouh responded that there are negotiating items on the table now that need to be resolved which support developing country development by securing stability and predictability and which should take account of special needs of developing countries. Mr. Mamdouh believes that the WTO Members need to ensure that all three legs of the organization (negotiations, transparency/monitoring, and dispute settlement) function properly, so the organization doesn’t find itself back in the dysfunctional situation Members now find themselves in. One of the important opportunities for developing countries is the issue of digital trade, but many developing countries are presently unable to take advantage of the technological developments. Stated differently, there is a digital divide. So an important issue is how can trade negotiations at the WTO and work by the WTO with other multilateral organizations support addressing the digital divide.

How trade has changed? Mr. Mamdough responded that the trend over the last 20 years has been towards a more global value chain model of trade which depends on the smooth cross-border movement of goods and services. WTO Members need a clear and predictable trade regime to permit the smooth movement of goods and services. Many developing countries have not focused on the growing importance of the role of services in global value chains (e.g., transport, logistics, electronic payments, R&D, production engineering, etc.). Governments need to look at their regulation of services to be sure they are competitive. The third way in which trade has changed, is the digitalization of trade. Thus, how we produce, trade and consume goods and services have all changed.

On dispute settlement, Mr. Mamdouh stated that the WTO needs reform. But major surgery is not needed. The concerns expressed are not about the rules as such but how the rules are applied. Moreover, in looking at reform of dispute settlement, WTO Members must keep in mind the role that the breakdown in the negotiating function and the monitoring/governance function has had in putting undue pressure on dispute settlement. Restoring balance among the key functions will reduce the pressure on dispute settlement.

4. Inside U.S. Trade’s World Trade Online, June 15, 2020, Egypt’s Mamdouh: WTO needs to find its ‘common purpose’ again, https://insidetrade.com/daily-news/egypt%E2%80%99s-mamdouh-wto-needs-find-its-%E2%80%98common-purpose%E2%80%99-again.

Inside U.S. Trade has conducted interviews with all of the eight candidates for the Director-General position. The interview with Mr. Mamdouh was an early one conducted by the publication in mid-June.

Mr. Mamdouh takes instruction from the reform success of the Uruguay Round which succeeded because the reform agenda was balanced such that all participants had items of importance to them in the negotiations. This resulted in Members having a common purpose. Mr. Mamdouh doesn’t believe Members currently have a common purpose and that has prevented there being a viable negotiating function.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Mr. Mamdouh are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest..

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Dr. Ngozi Okonjo-Iweala (Nigeria)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Dr. Jesus Seade Kuri. See August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Dr. Ngozi Okonjo-Iweala from Nigeria, the second candidate nominated.

  1. The Australian, August 17, 2020, Should WT address antai-dumping measures?, https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a_GGL&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusiness%2Fleadership%2Fshould-wto-address-antidumping-measures%2Fnews-story%2F995b960b1de450c1d983f4aabeca2351&memtype=anonymous&mode=premium&nk=1fc9f182863545ef2c82ab30edd82766-1598966889

The summary of the article states that “Ngozi Okonjo-Iweala says the WTO should investigate whether Australia was inappropriately using anti-dumping provisions to keep out foreign steel.” I am not a subscriber to the Australian and so the information provided above is limited.

2. Nikkei Asian Review, July 13, 2020, Good listener or strong negotiator? WTO candidates make case for top job, https://asia.nikkei.com/Editor-s-Picks/Interview/Good-listener-or-strong-negotiator-WTO-candidates-make-case-for-top-job.

Ngozi Okonjo-Iweala

* * *

Q: How would you go about navigating reforms at the WTO amid a rise of unilateralism and U.S.-China trade clashes?

A: This is the topical question of the hour, the growing nationalism, the divide. But if you listen carefully, you find that there’s some intersecting interests. After all, the same big powers that seem to have a big divide are sitting across each other at the table and negotiating some deals. 

“The WTO should work with all members including the big ones to find out what are those intersecting areas — however small they may be — how do we begin to deliver to make the two sides see their common interests that we can work on and build trust.

“It will take time, it will be challenging, there’s no magic wand to it, but you need someone with the energy, the passion, who is not a quitter, and who can deliver and work with these powers and listen — listen to them, because sometimes they feel they’re not even listening to the big powers.

Q: Could you talk about your visions for reforms?

A: First, updating WTO rules to the 21st century to take account of 21st-century issues, such as e-commerce and the digital economy, such as climate change, the green economy and biodiversity and circular economy … the issue of women and trade and micro-, medium and small enterprise. Even technology, what technology is doing to supply chains.

“Then you’ve got to look at existing rules and see whether they are serving the purpose. There are some members who feel that some rules may be leading to circumvention and disturbing the balance of rights and obligations of members. Issues like special and differentiated treatment, which developing countries feel very strongly about [but] developed countries have a different view.

“The dispute settlement system is paralyzed. You cannot have a rules-based organization, which is the sole place where people can take their grievances and complaints, but rules are not being followed. 

“A third area I would mention is transparency and notification. Transparency is so vital to the multilateral trading system, and notification for businesses. If something is going to be done in a country,  businesses  need to know that you’re willing to take one action or another, otherwise they can’t function.

“The WTO has to start achieving more outcomes. If it doesn’t do that then people continue to see it as irrelevant. 

Q: How should the WTO address Washington’s complaint about China’s state capitalism and developing country designation?

A: Those are some critical issues that members will need to discuss and debate on. But let’s put it this way, we must make sure that all members of the WTO feel that the balance of rights and obligations for all members of the WTO is about a fair system. So, that’s why it’s important to listen to who feels it’s not fair and then restore that balance of rights and obligations that members need to undertake.”

3. Nairametrics, August 12, 2020, WTO Job: Okonjo-Iweala reveals how to resolve rift between US and China, https://nairametrics.com/2020/08/12/wto-job-okonjo-iweala-reveals-how-to-resolve-the-rift-between-us-and-china/.

“On healing the rift between the US and China, Okonjo-Iweala admitted that it is going to be challenging and not be easy. She said:

“‘Well this is not going to be easy, if it was easy, it could have been done a long time since. So it would be very challenging but it is not an impossible job. It is very clear that both the US and China have been helped and benefitted from the multilateral trading system in the past. Hundreds of millions have been lifted out of poverty. They have experienced shared prosperity in the economies and their countries.’

“The Nigerian candidate pointed out that it is important to remind the US and China of this shared prosperity. She then disclosed that she would listen to both countries to find out what really are the issues causing distrust among them. She said that she will not want to be involved in the larger political problems, but will rather separate the trade issues and focus on them and build this trust.

“Going further on how to settle their rift, Okonjo-Iweala said, ‘You need to begin to find areas where there can be confidence-building and trade. Building trust is not talking about it, you have to have areas where both can work together and agree and we have a golden opportunity in the fisheries subsidies negotiations that are going on now because the US is a party to it, China is a party, the EU, all other members.’

“‘It is a multilateral negotiation, so if they can sit around the table with others to negotiate this and have a successful outcome, that is one thing that will be shared in common between the 2. So that will begin to build confidence. Then reaching out both in the US and in China to talk to the policymakers, go where the decisions are made, talk to congress also in the US and begin to show the benefits of the system again.’

“She also said they will look at reasons why they need to work together because their rift may be causing negative externalities for other members. She is of the opinion that exposing all of these, working with them, and listening carefully will begin to build confidence.

“She believes that while achieving this will be difficult, focusing seriously on trade issues can create room for a breakthrough.”

4. P.M. News, August 4, 2020, Okonjo-Iweala: My priorities as WTO chief, https://www.pmnewsnigeria.com/2020/08/04/okonjo-iweala-my-priorities-as-wto-chief/.

“’I would be focusing, if I get the job, on the dispute settlement system. Because this is the fundamental pillar of the WTO,’ Okonjo-Iweala said.

”If you have a rules-based organisation, you must have a place where rules are arbitrated and that’s what happens with the dispute settlement system. So restoring that will be a top priority as well.’

* * *

“The candidate showed her confidence to ‘find a way to unlock the seeming division’ on the trade side, between China and the United States, underlining that finding areas of mutual interest and to build trust within the WTO trading system would be important.

“’Actually, if you listen to the two members, they have some things in common,’ Okonjo-Iweala added.

“’The dispute settlement system of the WTO is valued by both, they want it to reform, they don’t want it to disappear.’

“Okonjo-Iweala also noted that she hopes China will play the role of an economic growth engine in the current COVID-19 pandemic as it did during the 2008 global financial crisis.

“’I think the best thing China can do is to recover quickly. Because it’s one of the engines of growth in the world and it’s almost a quarter of world trade,’ she told Xinhua.

“’So if it recovers quickly, it means that it can help the rest of the world recover. So that’s the role I would see for China.’”

5. Financial Times, August 4, 2020, Leading WTO candidates back US bid for system reform, Amina Mohamed and Ngozi Okonjo-Iweala say American criticisms of over-reach are valid, https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193.

Article also reviews Dr. Okonjo-Iweala’s view that the WTO should be taking a lead on COVID-19 and should take steps to see that the early introduction of export restraints on medical goods and medicines is not repeated.

6. Inside U.S. Trade’s World Trade Online, July 22, 2020, Nigeria’s candidate: Technical skill won’t solve WTO problems, https://insidetrade.com/daily-news/nigeria%E2%80%99s-candidate-technical-skill-won%E2%80%99t-solve-wto-problems.

Inside U.S. Trade has conducted interviews with each of the eight candidates. In its July 22 write-up of Dr. Okonjo-Iweala’s interview, the publication noted that Dr. Okonjo-Iweala would see who is behind on notifications and see if the problem is due to a lack of technical capability which is a real but solvable problem for many developing countries. For those with the ability to provide notifications but who haven’t, she would see what could be done including some proposals where “sticks” have been suggested to address non-compliance.

On U.S. concerns about China’s state-run economy, Dr. Okonjo-Iweala noted that the WTO doesn’t comment on Member’s economic systems but should address the consequences to the global trading system of different economic systems. She believes the WTO should start by establishing a definition of “public body” and look at improving rules on industrial subsidies and would urge the U.S., EU and Japan to table their proposal in that regard.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Okonjo-Iweala are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.).

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Dr. Jesus Seade Kuri (Mexico)

The eight candidates for the Director-General spot at the World Trade Organization have just eight days left in their efforts to get themselves known to the WTO Members before the phase three process of finding the candidate most likely to achieve consensus within the membership starts.

In prior posts I have provided a summary of statements made at the General Council meetings during July 15-17 and the press conferences that followed and then did a series of posts looking at each candidate’s publicly expressed views on four issues of importance drawing from the same two sources as well as a series of webinars hosted by the Washington International Trade Association and the Asia Society Policy Institute. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/; August 10, 2020 [updated August 27],  The race to become the next WTO Director-General – where candidates are on important issues:  reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/10/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-reform-of-the-appellate-body/; August 13, 2020 [updated August 27], The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/; 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/; 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 23, 2020 [updated August 27], The race to become the next WTO Director-General – where the candidates stand on important issues:  fisheries subsidies and e-commerce/digital trade, https://currentthoughtsontrade.com/2020/08/23/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-fisheries-subsidies-and-e-commerce-digital-trade/.

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. There is no intention to be exhaustive and the research has been limited to press pieces in English. Today’s post looks at a few articles featuring Dr. Jesus Seade Kuri from Mexico, the first candidate nominated.

  1. CNBC, August 26, 2020, China needs to make ‘a greater, clear contribution’ to solve trade disputes, WTO hopeful says, https://www.cnbc.com/2020/08/26/china-has-to-make-greater-efforts-in-trade-disputes-wto-hopeful-says.html.

The press excerpt from the interview states that Dr. Seade indicated that “China must make greater efforts to overcome trade disputes with its World Trade Organization (WTO) partners.”

“There are issues with China that China needs to make a greater, clear contribution to resolve those issues between them and everybody else.”

“He argued that there needs to be progress over a price mechanism and over technological differences, adding that in 19 years of membership, there have been 44 disputes initiated against China. ‘That’s a lot,’ he said, although he noted that ‘at the same time, China has been very engaged in many other respects.'””

The video interview of Dr. Seade on CNBC is available at the following link, https://www.cnbc.com/video/2020/08/27/china-is-very-important-to-the-wto-say-director-general-candidate.html.

2. Successful Farming (Reuters article), August 17, 2020, Time for Forceful Leader to Fix WTO, Not a “Butler,” Mexico’s Pick Says, https://www.agriculture.com/markets/newswire/time-for-forceful-leader-to-fix-wto-not-a-butler-mexicos-pick-says.

“To restore U.S. faith in the dispute resolution body that Washington accuses of overreach, he said members could consider a stronger supervisory mechanism to make sure the powerful appellate body did not stray beyond its mandate.”

3. The Jamaica Gleaner, August 11, 2020, Jesus Seade Commentary, Caribbean’s Place at the World Trade Organization, http://jamaica-gleaner.com/article/commentary/20200811/jesus-seade-caribbeans-place-world-trade-organization.

“POSSIBLE TO SUPPORT SVEs (small and vulnerable economies)

“Later on, during my time with the International Monetary Fund, the World Bank, and the WTO, I gained invaluable experience working with many Caribbean countries. From that involvement, I believe that it is possible to support SVEs with developing risk-management programmes and cooperative schemes to mitigate the impact of external shocks, supporting faster recovery, and promoting economic diversification. As the only candidate to have the honour of having served at senior positions in all three Bretton Woods organisations, I believe that I fully understand the intertwined interaction among trade, development, and finance and how comprehensive policies can solve problems in different areas.

“Back to the WTO. The organisation is facing important challenges itself. It has failed to achieve significant progress in much-needed negotiations since its creation 26 years ago, its Appellate Body is in a state of disrepair, and the organisation will now have to face the severe dislocation of world trade caused by the pandemic. Staying as it is now, the WTO will fail to offer the support SVEs need. The Caribbean, in particular, has been struggling in recent years with the weakness of global trade, compounded by the region’s economic dependence on the trade of a limited array of goods and services, and its fragility vis-à-vis climate change. Those issues require suitable flexibilities and support from the WTO. Moreover, they require the scaffolding that goes beyond stop-gap measures.

“As members recognise, there is a need to reignite our work at the WTO and engage in a true 21st-century agenda, with development at the core. In that sense, CARICOM will play a vital role in improving the WTO’s work on small developing economies, with emphasis on special and differential treatment. It is imperative to enhance the work at the councils and committees. Moreover, the WTO must invest more in training and technical assistance, possibly leveraging resources with assistance in kind from member countries and other partner agencies.”

4. Inside U.S. Trade’s World Trade Online, July 31, 2020, Seade: Transparency could help break WTO divide on industrial subsidies, https://insidetrade.com/trade/seade-transparency-could-help-break-wto-divide-industrial-subsidies

Inside U.S. Trade has done a series of interviews with the candidates for the WTO Director-General position. The Seade interview is summarized in the July 31 article cited above. Dr. Seade highlighted the potential importance of transparency in helping WTO Members forge a path forward on industrial subsidies and other issues.

There has been a serious concern by the U.S., EU and others on inadequate transparency of subsidy programs provided by some Members (including China and India) as is clear from counternotifications filed by the U.S. in the past.

The article indicates that Dr. Seade viewed the issue of industrial subsidies as “perhaps the most serious” one before WTO Members. As Dr. Seade has commented in other settings, it is up to those seeking changes in industrial subsidies (U.S., EU, Japan) to work with China to see what package of issues need to be addressed for China to be at the table.

5. Archyde, August 2, 2020, Candidate for the presidency of the WTO, Jesus Seade wants to revive international trade, https://www.archyde.com/candidate-for-the-presidency-of-the-wto-jesus-seade-wants-to-revive-international-trade/.

What do you propose to overcome the blockade of the United States which prevents the appointment of new judges to the Appellate Body (OA) and cripples the dispute settlement mechanism?

J. S. : These problems are not insurmountable. The United States complains not about the trade agreements, but about their interpretation by the AB. This is autonomous and must remain so. In order to move forward, I propose the creation of a supervisory committee of the OA, made up of five ambassadors and three lawyers. It is up to him to determine whether the appeals body is confined to applying the agreements or whether it has exceeded its powers. We could thus reassure the Americans and relaunch the WTO.”

6. CGTN, 24 July 2020, WTO ‘in a very serious situation’: Leadership candidate Jesus Seade urges reform, https://newseu.cgtn.com/news/2020-07-24/WTO-in-a-very-serious-situation-Leadership-candidate-urges-reform-SkWda4vrDq/index.html.

“He stressed that the WTO had to provide more space for new negotiations on international trade to adapt to the demands of contemporary geopolitics, especially the rise of emerging economies.

“‘Now you have major new players on the block. China was not a member; now, it is formidably important.’ 

“He warned that the WTO had to overhaul the ‘broken’ system for dispute resolution to accommodate such shifts. But in spite of its challenges and shortcomings, Seade described the organization as ‘a fundamental piece of global architecture.'”

7. Nikkei Asian Review, July 13, 2020, Interview, Good listener or strong negotiator? WTO candidates make case for top job, https://asia.nikkei.com/Editor-s-Picks/Interview/Good-listener-or-strong-negotiator-WTO-candidates-make-case-for-top-job.

Jesus Seade

Q: How do you see the situation of trade at this moment?

“A: I feel bad that an organization I helped to create is now in a situation that needs a serious fix. I think I can provide that fix.

“The crisis in the WTO is in good measure a crisis between the United States and Europe, not China, for dispute settlement.

“For Europe, the dispute settlement system had to be like a “court” who decides things and establishes jurisprudence, whereas the United States always wanted a more basic approach for facilitation of the solutions.

“The United States is very uncomfortable about how things have happened and has taken extreme measures, strong measures. That is why the appellate body now is no longer functional. So that’s a crisis as important as COVID or as differences with China.

“We need to fix that, urgently. It is a very complicated process it’s not one country versus another country. There are many parties in many aspects. This is a very complex crisis. That is why we need a real expert. 

“Q: How will you become the bridge between the U.S. and China?

“A: The United States and China are not talking. The director general has to get involved and lead the discussions. What they need is a strong personality, a strong leader to call them to discussions and be engaged on that discussion.

“For the [director general] position, you need to be a top trade negotiator. Because if you come from a background in finance and politics, you can have fantastic leadership and leadership is very important, but at the first difficult discussion between the United States and China, or between the United States and Europe, what will happen?

“I don’t think we should have a director general only encouraging [the parties] to discuss. He has to be part of that, he has to lead the discussion.

“Q: How would you enable the appellate body to function again?

“A: What I have in mind is taking measures that diverse countries — most of them, except the United States — have proposed, which is called the Walker Principles, a package of measures [put forth by New Zealand’s Ambassador to the WTO David Walker] that basically reinforce the measures that already exist. The United States is not rejecting the proposal, just saying that’s not enough.

“So what I’m saying is that I will propose those proposals and then two other measures I have in my mind that would have to be developed in detail, but the fundamental idea is already in my mind and would be additions to those proposals. I see no reason why Japan or the European Union or China would reject my extra proposals. What I hope is for the United States to say, ‘Ah! With those extra proposals maybe, this is going to be interesting,’ and then we’ll hear from the United States.

“It’s not a very complex thing because nobody — not the United States, not Japan, not Europe — nobody is saying that it’s necessary to change the dispute settlement understanding. I think there is something we should be able to solve in the matter of the weeks.”

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Seade are a small sample of what is out there. The excerpts have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.).

Future posts will look at additional materials for other candidates.

WTO Dispute Settlement Body Meeting of August 28, 2020 — How disputes are being handled in the absence of reform of the Appellate Body

No forward movement has been made on resolving the impasse of the WTO’s Appellate Body which effectively ceased to operate for new appeals after December 10, 2019 when the number of active Appellate Body members fell below the minimum of three needed to hear appeals. At every monthly Dispute Settlement Body meeting, one of the Members presents the proposal to start the process of selecting new Appellate Body members and the U.S. indicates it is not in a position to agree to that action.

While the impasse continues, Members are dealing with how to proceed on specific disputes that have been filed and how to deal with panel decisions that get issued. For the EU and 22 other Members who are parties to the multi-party interim appeal arrangement (MPIA), disputes involving two members of the MPIA are handled through the MPIA after a panel decision if one or both parties are dissatisifed with the panel decision. Current members of the MPIA are Australia, Benin, Brazil, Canada, China, Chile, Colombia, Costa Rica, Ecuador, the European Union, Guatemala, Hong Kong (China), Iceland, Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Singapore, Switzerland, Ukraine and Uruguay. This means that more than 110 WTO Members are not parties to the MPIA including the United States, Japan, Korea, India, Indonesia, Malaysia, Argentina, Peru, Egypt, South Africa, Saudi Arabia, the Russian Federation and many others.

Disputes between all other WTO Members or between other Members and one of the MPIA members require the parties to the dispute either before the panel decision or afterwards to decide how they will proceed. Concerns of many WTO Members is that a party dissatisfied with a panel decision will take an appeal which will effectively stop resolution of the matter as an appeal cannot be heard while there is no functioning Appellate Body.

MPIA members can take appeals where they are in a dispute with a non-MPIA member instead of seeking resolution through other means. For example, the Russian Federation is not a member of the MPIA. Their dispute with the EU on its antidumping methodology resulted in a panel decision that the EU found problematic. The EU filed an appeal on August 28, 2020. See WTO, Dispute Settlement, EU appeals panel report on EU dumping methodologies, duties on Russian imports, https://www.wto.org/english/news_e/news20_e/ds494apl_28aug20_e.htm. When raised at the August 28 dispute settlement body (DSB) meeting, Russia provided the following comment:

“The Russian Federation made a statement regarding the European Union’s appeal of the panel ruling in in DS494 (https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds494_e.htm) (EU —
Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia). Russia said it was disappointed with the EU’s decision and that that the EU’s action, in the absence of a functioning Appellate Body, essentially meant that the matter was being appealed “into the void.” The EU was seeking to escape its obligations by not trying to resolve the dispute,
Russia said.” https://www.wto.org/english/news_e/news20_e/dsb_28aug20_e.htm.

Interestingly, the EU has been working to be able to retaliate on any WTO Member who is not a party to the MPIA who appeals from a panel decision where the EU is a party. Presumably they understand that their action will encourage countries like the Russian Federation to take unilateral action against the EU where the EU appeals a panel decision instead of seeking a mutually agreeable solution.

The United States has reviewed at prior DSB meetings that there are many ways for Members to resolve disputes between themselves. At the recent DSB meeting, the U.S. in its prepared statement, after reviewing its ongoing concerns with the Appellate Body and the need to understand why the Appellate Body ignored the clear limits on its authority under the Dispute Settlement Understanding, provided examples of how Members are resolving disputes since December 10, 2019:

“ As discussions among Members continue, the dispute settlement system continues to function.

“ The central objective of that system remains unchanged: 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.

“ As noted at prior meetings of the DSB, Members are experimenting and deciding what makes the most sense for their own disputes.

“ For instance, in Indonesia – Safeguard on Certain Iron or Steel Products (DS490/DS496), Chinese Taipei, Indonesia, and Vietnam reached procedural understandings that included an agreement not to appeal any compliance panel report.3

“ Similarly, in the dispute United States – Anti-Dumping Measures on Certain Oil Country Tubular Goods from Korea (DS488), Korea and the United States agreed not to appeal the report of any compliance panel.4

“ Australia and Indonesia have agreed not to appeal the panel report in the dispute Australia – Anti-Dumping Measures on A4 Copy Paper (DS529).5

“ Parties should make efforts to find a positive solution to their dispute, consistent with the aim of the WTO dispute settlement system.

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

“3 ‘Understanding between Indonesia and Chinese Taipei regarding Procedures under Articles 21 and 22 of the DSU’, (WT/DS490/3) (April 11, 2019), para. 7 (‘The parties agree that if, on the date of the circulation of the panel report under Article 21.5 of the DSU, the Appellate Body is composed of fewer than three Members available to serve on a division in an appeal in these proceedings, they will not appeal that report under Articles 16.4 and 17 of the DSU.’) and ‘Understanding between Indonesia and Viet Nam regarding Procedures under Articles 21 and 22 of the DSU’, WT/DS496/14 (March 22, 2019), para. 7 (‘The parties agree that if, on the date of the circulation of the panel report under Article 21.5 of the DSU, the Appellate Body is composed of fewer than three Members available to serve on a division in an appeal in these proceedings, they will not appeal that report under Articles 16.4 and 17 of the DSU.’).

“4 ‘Understanding between the Republic of Korea and the United States regarding Procedures under Articles 21 and 22 of the DSU’, (WT/DS488/16) (February 6, 2020), para. 4 (‘Following circulation of the report of the Article 21.5 panel, either party may request adoption of the Article 21.5 panel report at a meeting of the DSB within 60 days of circulation of the report. Each party to the dispute agrees not to appeal the report of the Article 21.5 panel pursuant to Article 16.4 of the DSU.’).

“5 Minutes of the Meeting of the Dispute Settlement Body on January 27, 2020 (WT/DSB/M/440), paras. 4.2 (‘Indonesia also wished to thank Australia for working together with Indonesia in a spirit of cooperation in order to reach an agreement not to appeal the Panel Report’ and 4.3 (‘Australia and Indonesia had agreed not to appeal the Panel Report and to engage in good faith negotiations of a reasonable period of time for Australia to bring its measures into conformity with the DSB’s recommendations and rulings, in accordance with Article 21.3(b) of the DSU.’).”

Statements by the United States at the Meeting of the WTO Dispute Settle- ment Body, Geneva, August 28, 2020 at 14, https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug28.DSB_.Stmt_.as-deliv.fin_.public.pdf.

Thus, there are ways for WTO Members to resolve disputes between themselves even with the Appellate Body inoperative. Some countries, like Australia, have sought positive resolutions where the other disputing party is not a member of MPIA. To date, the European Union has not sought resolution with members who are not party to the MPIA but have rather filed appeals so cases will sit in limbo until such time as the impasse is resolved.

Concluding comments

While each of the eight candidates to become the next Director-General of the WTO believe resolution of the dispute settlement system impasse is an important priority for the WTO, they differ in how quickly they believe Members will be able to overcome the impasse — Dr. Jesus Seade (Mexico) believes it can be resolved in the first 100 days. Amb. Tudor Ulianovschi believes that the challenges presented will not be resolved ahead of the 12th Ministerial Conference in 2021 but will be resolved sometime thereafter. Most other candidates hold out hope that the impasse can be resolved by the next Ministerial in 2021. Thus, the current situation of no functioning Appellate Body may continue for some time.

The U.S. Trade Representative Robert Lighthizer in an Op Ed last week in the Wall Street Journal suggested that reform of the dispute settlement system is critical but may involve changing the system from its existing two-tiered configuration under the DSU to a one-tier process more like commercial arbitration. If that is the path that the United States pursues, resolution of the current situation will take years. 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/.

Similarly, if dispute settlement reform is lumped into the broader WTO reform being discussed, the timing will be significantly delayed if reform of the WTO is to be meaningful and return the organization to a place of relevance in the 21st century.

With the queue of panel decisions that are yet due this year involving some high profile issues (e.g., national security actions by the United States on steel and aluminum and retaliation taken by many trading partners) and with the recent panel report on the U.S. countervailing duty order on Canadian softwood lumber, pressure will likely build on WTO Members to find a lasting solution to the current impasse. Increased pressure suggests heightened tensions in an organization already suffering from distrust among Members and, as a result, largely nonfunctioning pillars of negotiation, notification/monitoring, dispute settlement. In short, 2021 promises to be a challenging environment for the WTO Members and the incoming Director-General.

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

[Updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova at a WITA webinar held on August 26.]

In a post on August 17, I provided background on a group of issues that are important to various Members though opposed by some that for shorthand will simply be referred to issues surrounding WTO rules’ applicability to economies operating differently than market economies. See 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/.

What follows is a review by candidate of his/her prepared statement to the General Council (Juy 15-17, 2020), my notes from the press conference for each candidate which followed immediately after his or her meeting with the General Council and my notes on each candidate’s webinar organized by the Washington International Trade Association (WITA) and generally also by the Asia Society Policy Institute (ASPI).

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade did not in his prepared comments address directly any of the issues surrounding the question of compatibility of different economic systems with the WTO rules, or whether changes in rules to address some of the distortions perceived to be caused by economic systems which vary widely from market-economy structures are needed. Dr. Seade did include at the end of his prepared statement an indication of neutrality to all Members.

“All along my career I have worked with Ministers and legislators, often Heads of State. I present myself to you with my fullest energy, passion and experience, at a difficult time for the WTO. My commitment is to achieve with you the reform and restoration of a WTO back at the center of global governance for the benefit of world economic growth. My solemn commitment to you is to be an effective DG and interlocutor, close to all members north and south, east and west, and indeed fully equidistant from you all.”

During the press conference held after his meeting on July 15 with the General Counsel, Dr. Seade was not asked a question dealing with any of the issues surrounding different economic systems.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade was asked several questions that dealt with U.S.-China tensions. My notes on Dr. Seade’s responses (and on at least one of the questions) follow.

The animosity between the United States and China in a way is understandable.  The hardest part of negotiations during the Uruguay Round for GATT Contracting Parties to conclude was not the agriculture negotiations or the negotiations on intellectual property but rather the negotiations on antidumping.  To simplify, the antidumping negotiations pitted the U.S. and EU against the Asian tigers who were excessively competitive and creating problems in world markets.  But the Asian tigers were much smaller in size than China is today and were much more market oriented than China is today.  So the chasm in the system was much smaller than what exists today   So it is not surprising that there is a big challenge today.  But challenges are there to be met and solutions found. Dr. Seade is convinced that China will want to respond to avoid chaos in the system.  Once they view the U.S. as serious about engaging, China will want to know what they need to do to get the WTO functioning again.  The same question should apply to the U.S. and the EU.  So we should be able to save the system.

Question on the U.S.-China dynamic: USTR Lighthizer has indicated he has three criteria for next DG – he or she must support a robust reform agenda; he or she must acknowledge that the current system doesn’t adequately deal with China’s economy and state trading practices; he or she can’t have a “wiff” of anti-Americanism.  China may have a different set of priorities.  How do you get US and China to do business in the WTO? 

Dr. Seade response:  on the US-China conflict, how do you handle China?  One way is through dispute settlement.  To date there have been 44 cases brought by WTO Members against China.  This is a good way to address problems a Member has with another Member, and it has worked.  We have to resolve the problems with the dispute settlement system and make it work better. At the same time, there are initiatives that have been begun by the US (e.g., EU, Japan and US) on industrial subsidies.  Dr. Seade believes that it is really for US to work out with China how to incorporate more disciplines on industrial subsidies or other issues. This will likely require the U.S. and others to add items of interest to China to make negotiations more acceptable to China.  While China is a tough negotiator, China will not risk bringing down the WTO.  In Dr. Seade’s view, the most important thing China has done in last fifty years other than the start of the reform process back in 1978 was joining the WTO.  So we need to amend the dispute settlement system which would be a good starting point to helping address existing problems.  Dr. Seade agrees with the U.S. that there have not been real negotiations on most agreement areas in the last 25 years. As China was not part of WTO in the 1990s, there can be little question that rules need to be updated both to reflect changing trade realities and to incorporate China in the process and resulting rules.   

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Okonjo-Iweala in her prepared statement reflected that Members have differenting views on “new or enhanced rules” identifying state-owned enterprises (SOEs) but by implication including industrial subsidies.

“Members’ views differ on a number of fundamental issues, such as special and differential treatment or the need for the WTO to tackle new issues and develop new or enhanced rules to deal with SOEs and agricultural subsidies, for example. Trade tensions among the membership have flared up, threatening the fundamental architecture of the MTS. With all these, the WTO, unfortunately, is now perceived by some as an inefficient organization that has failed to keep abreast of developments in the global economy.”

Her prepared statement goes through a range of issues that need to be addressed by the WTO but does not include in that list any of the issues flowing from different economic systems. Dr. Okonjo-Iweala does link being able to renew the WTO to getting Members to recall core objectives and principles. The objectives and principles to many would be understood to require updating rules so that different economic systems are subject to effective rules to eliminate or minimize distortions.

“Renewing and improving the organization will require recalling the core objectives and principles on which the MTS was built – the value of open trade, competition and non-discrimination, security and predictability of market access, and transparency. These principles have contributed to economic growth and development and will continue to do so if Members renew their commitment to them.”

During the press conference on July 15th after Dr. Okonjo-Iweala had met with the General Council, she was asked one question about what she would say to the U.S. about staying in the WTO. The question doesn’t directly address different economic systems, but concerns about U.S. staying in the WTO are generally understood to reflect U.S. problems with many aspects of the WTO including rules which do not effectively address distortions created by non-market economies. My notes on Dr. Okonjo-Iweala’s answer to the question are provided below.

On the question of why the U.S. should stay in the WTO, Dr. Okonjo-Iweala indicated she would communicate to the U.S. that the WTO delivers for all Members. The GATT and WTO have provided shared prosperity which has lifted millions of people out of poverty. Where the trading system is not working, Members need to fix the problems. Peace, security and stability are needed now just as they have been over the last decades. These are what the WTO rules-based system provides. If we didn’t have the WTO, we would need to invent it.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. During the webinar, Dr. Okonjo-Iweala was asked a number of questions that resulted in answers that touched on tension between the U.S. and China, industrial subsidies and more. My notes on Dr. Okonjo-Iweala’s responses and to some of the questions follows:

Q: On the important issue of building trust between Members, there are major differences between the U.S. and China, including (for the U.S.) whether existing WTO rules adequately discipline Chinese policies and (for China) whether US is abiding by the rules.  What do you see to be the main challenges to building trust among Members to permit a reform agenda to move forward?

A:  Dr. Okonjo-Iweala noted that building trust between the Members is critical.  When developed countries bring an agenda item to the WTO, developing countries may view the issue as not in their interest (and vice versa) because of a lack of trust.  On the conflicts between the U.S. and China, we need to find areas of common interest for the two Members. We are used to looking at what are the differences between the Members, but we should be looking for common interests among Members. If we can use those common interests to accomplish incremental progress, that will help build trust..  You build trust negotiation by negotiation (using the issue of special and differential treatment as example).  If we can solve any problem, it helps build trust.  Another way to build trust between developed and developing Members is to conclude the fisheries subsidies negotiations taking into account the needs of individual Members.  If the WTO Members can wrap up those negotiations, the success will start to build trust. 

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.

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh in his prepared statement to the General Council on July 15 made only one reference to the issues pertaining to differences in economic systems when he acknowledged that addressing industrial subsidies should be a priority.

“Reviving the built-in agenda of agriculture and services must be a priority because WTO Members agreed on this, and it has not happened. Trade distorting subsidies, both agricultural and industrial, will also be a priority.”

During Mr. Mamdouh’s press conference on July 15 after his meeting with the General Council, Mr. Mamdouh was asked one question about the U.S.-China conflicts. My notes on his response to the question are provided below.

A question was asked on what should be the role of the US and China in the new WTO. Mr. Mamdouh responded that the role of these two Members is to engage in the WTO. Start from the point that bilateral disputes should be resolved in the WTO. Since we all believe in the multilateral process, Members must keep in mind that bilateral disputes and solutions have effects on other Members. Moreover, bilateral solutions are less likely to be effective and are likely to be short lived.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. During the webinar, Mr. Mamdouh was asked various questions that dealt with the U.S.-China conflicts, need for better rules on industrial subsidies, state-owned enterprises and more. My notes on Mr. Mamdouh’s response and to some of the questions follows.

Q:  Why are you well suited to deal with the deep and potentially ruinous conflicts between US, China, EU?  How would you get these big powers to do business with each other?

A:   Mr. Mamdouh responded that this issue is the first frontier for a new Director-General.  The key is to have the right attitude toward the conversation (less political).  The types of problems that Members face deal with noncompliance and with inadequacy of rules.  Both need to be handled. The issues must be addressed in an intellectually honest and politically courageous way if there is to be progress.  In the past, reform occurred at the GATT when there was a perceived threat to the survival of the system.  Mr. Mamdouh believes that the WTO is facing such a threat now.  Do WTO Members have a common purpose?  Do Members need a WTO?  If the answer to the latter question is no, the conversation among Members has nowhere to go.  It is in everybody’s interest to have the answer to the question be “yes”.  For progress, the Director-General needs to bring the players to the table to identify problems with the current system.  The system needs more transparency.  For progress, it is important to keep the conversation at the level of looking at the contract and whether the contract adequately addresses the problems identified.  If the contract is not adequate to the current needs, then WTO Members must modify the contract.

Q:  is the near death experience the WTO is experiencing now an opportunity to move to a meaningful reform agenda?

A:  Mr. Mamdouh responded that yes the current crisis can lead to a meaningful reform agenda, if there is the political will of the Members.  But political will can only be generated if there is a common purpose. 

The WTO needs to address issues of interest to Members, including those raised by the US (e.g., e-commerce, SOEs, forced technology transfer).  Increasingly, the WTO is facing complex issues that go beyond simple trade liberalization but also deal with regulatory objectives. In these complex areas, such as e-commerce, the WTO Members need to find ways to accomplish differing regulatory objectives in a least trade restrictive manner. That can only be accomplished if there is a thorough discussion of the regulatory needs and development of factual information on possible trade options that can be taken back to capitals for review and for negotiation.  Unfortunately, the deliberative function has nearly died at the WTO. To address the increasingly complex issues of importance to Members, the WTO needs to restore the deliberative function.

Amb. Tudor Ulianovschi (Moldova)

Amb. Ulianovschi’s prepared statement that he provided to the General Council on July 16 doesn’t contain direct reference to any of the issues dealing with different economic systems. Amb. Ulianovschi does indirectly reference the need to address other important issues through negotiations.

“In terms of immediate priorities for the future Director General of the WTO, the following should be considered (including in the preparation process for MC12): * * *

“3. Facilitating dialogue with Members regarding on-going negotiations on the remaining and other important issues.”

During the July 16th press conference following Amb. Ulianovschi’s General Council meeting, Amb. Ulianovschi was asked a question about U.S.-China conflict and how he, as Director-General, would be able to reduce tensions. My notes on his response to the question are provided below.

On the question of how he would use the role of Director-General to ease tensions between U.S. and China, Mr. Ulianovschi responded that this topic had been discussed with Members during his meeting with the General Council. In his view, the role of the Director-General is to be an honest broker between WTO Members. The Director-General must be able to listen to concerns with a view to using his offices to engage Members involved in a dialogue process. At the same time, the Director-General is not there to impose a solution but to listen and raise awareness of the impact of actions on the larger organization and to mitigate harm to others. The next Director-General needs to engage in talks both in Geneva and in capitals and see that any outreach is transparent and inclusive.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020, https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi was asked several questions where answers dealt with some aspect of the U.S.-China conflict, differences in economic system, need for improved rules, etc. My notes on the questions and responses from Amb. Ulianovschi follow.

Q:  How important is it to have a reform agenda, and how can you convince the major Members to agree on a common agenda?

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system. 

Q:  US-China relations and how it affects the WTO.  Amb. Lighthizer says he is looking for a Director-General who recognizes that the current system doesn’t address Chinese trade practices and that changes need to be made.  Do you agree?  There has been some work done by the U.S., EU and Japan on industrial subsidies and other topics.  Would you support improving industrial subsidies?

A:  Amb. Ulianovschi believes that the topic has to be of priority for the next Director-General.  The Director-General can provide his/her good offices to the U.S. and China to take up any issue, but such discussions must be consensual.  Based on Amb. Ulianovschi’s conversations with the broader membership, he knows that there is interest by many on the spillover effects on other economies from the US-China conflict.  Having said that, Amb. Ulianovschi reiterated the need for the organization to have a Director-General with political experience not to politicize the organization but to reach out to the decision makers and raise awareness of the concerns of the larger membership and encourage the two Members to sit down and discuss issues they consider appropriate.  On industrial subsidies and other issues, we need to have more indepth discussions at the WTO to have a better understanding of the issues, coverage of the current rules and the existing situation.  As a member driven organization, the incoming Director-General will have to see whether the membership is willing to move to more discipline on industrial subsidies.  Amb. Ulianovschi also believes  that a review of transparency and notifications could be useful.  An open, sincere dialogue based on timely and full information would lead to a better understanding of the issues of concern and then lead to a better decision making process to address the issues.

H.E. Yoo Myung-hee (Republic of Korea)

Minister Yoo included a general reference in her July 16 prepared statement to the General Council to “sensitive” proposals for reform which presumably include the U.S. proposal on non-market economies and the efforts by the European Union, Japan and United States to tighten disciplines on industrial subsidies.

“I am well aware of the proposals that Members have put forward on WTO reform. I also know how sensitive these issues can be to individual Members. A high degree of trust among Members must be the starting point in exploring cooperative solutions.”

Minister Yoo was not asked a question during her press conference that dealt with different economic systems or distortions flowing therefrom.

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. Minister Yoo was asked some questions on how she would address the U.S.-China conflicts and the U.S. view that the current WTO rules don’t adequately address the market distortions caused by the Chinese economic model. Below I provide my notes on the questions and Minister Yoo’s responses.

Q: In prepared statement you mention you can serve as a bridge between US and China.  Please elaborate.  Second, Amb. Lighthizer is looking for a Director-General who recognizes that current rules don’t adequately discipline China. Do you agree there is a problem in terms of adequacy of WTO rules for China’s policies?

A:  On the first issue of serving as a bridge, Minister Yoo believes that the WTO can provide a good place for US-China issues to be addressed if the negotiating function is working.  In her view, part of the problem which has led to actions outside of the WTO has been the lack of progress on negotiations.  Thus, Minister Yoo believes WTO Members need to revitalize the negotiating function, so Members will use the WTO to ensure adequacy of rules in an evolving world.  Minister Yoo believes the next Director-General needs to engage in dialogue with the U.S. and China to find and understand the real issues between them.  Minister Yoo reviewed that she has done negotiations with both the United States and China.  She believes that she can use that experience to engage in dialogue with each country and find commonalities between them among the real issues.  By focusing on commonalities, Minister Yoo believes that one can find a path forward to achieve a negotiated success, even if small, and build trust.  After finding small successes, the Members then move forward to address the more challenging issues.

On the second question relating to Amb. Lighthizer’s concern that current rules are not sufficient to discipline China’s practices, Minister Yoo believes one needs to look at the rule book.  In her view, all policies adopted by governments can have spillover effects on trade.  If policies do have such spillover effects and are not covered by existing WTO rules, one needs to evaluate whether the policies are consistent with WTO principles (fair competition, nondiscrimination, etc.).  If a policy is not consistent with WTO principles and has spillover effects on trade, one must determine if current rules can be used to address the policy. If not, then the WTO needs to look at whether modifications to existing rules or the addition of new rules are needed.  Minister Yoo believes Members will need to be willing to engage in this type of process.

H.E. Amina C. Mohamed (Kenya)

Like other candidates, Minister Mohamed didn’t directly address the issue of different economic models reflecting the conflicting positions of some major Members. Rather, Minister Mohamed acknowledged that there were different reform priorities for different Members and that Members needed to get past the challenges in current negotiating approaches. The following four paragraphs from Minister Mohamed’s prepared statement to the General Council on July 16 provides some general comments on the road forward which can be viewed as applicable to differing economic models and many other contentious issues.

“12. You do not all share the same reform priorities. This makes it essential to work together for convergence around elements that all can support. We need to break the cycle of despair and enter into a new phase of hope and realism.

“13. Renewal has to start with facing up to the defects that have weakened the system in recent years: the inability to update rules to reflect the changing realities of how trade is conducted; the sterility of ideological standoffs; the retreat into defensiveness; and the sense of the benefits of trade not being equitably shared.

“14. The WTO has to engage again in good faith negotiations, and this means openness to change and to new ideas, within a culture of inclusiveness and transparency.

’15. Renewal should also build upon the WTO’s core values and achievements. Trade has been transformational. It has helped to lift close to 1 billion people out of poverty and facilitated the attainment of higher living standards in countries at all levels of development. These successes were possible because Members did not see trade as a zero-sum game. They understood that trade-offs were needed to produce outcomes. All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.”

During Minister Mohamed’s press conference on July 16 after her meeting with the General Council, she received two general questions about how she would work with major players to resolve trade tensions. Below is my summary of the questions asked and her response.

Q: If selected as the next Director-Generaly, will you be more engaged in resolving trade tensions between major players? If yes, what tactics would you use?

A: Minister Mohamed reviewed the types of powers that a Director-General has to work with Members. For example, the Director-General has engagement powers and can encourage members to consult, to use the good offices of the Director-General. So while the Director-General has only limited powers, those powers ca be used effectively by a Director-General to help Members to use the WTO system to resolve differences.

When asked what her approach would be to deal with trade tensions between US and China, Minister Mohamed stated that she would encourage all members to resolve their trade differences within the WTO rules.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed addressed briefly the rise of China as a major trading nation and was asked about whether current WTO rules adequately address distortions that flow from China’s policies. My notes from Minister Mohamed’s comments follow.

Minister Mohamed stated that since the WTO was set up in 1995, new and powerful players have emerged onto the trade scene, in particular China.  The resulting tensions with the United States have fed the dysfunction within the WTO.  Minister Mohamed believes that to address the tensions, the WTO needs to pursue reform.  However, governments don’t share the same reform priorities.  The WTO needs to identify issues all can support if reform is to move forward. 

Q: Amb. Lighthizer has raised his concern that the current WTO rules are not capable of disciplining conduct of non-market economies, particularly China.  Do you agree?  How would you go about finding common ground?

A:  Minister Mohamed’s response was that one needs to start by looking at the existing rule book.  The rule book is outdated in some cases.  Moreover, some rules are weak and are being circumvented.  If you have candid discussions with WTO Members, you will find the problems are with the adequacy of the rules.  If the rules are inadequate, WTO Members need to address them to achieve modifications or new rules.  For example, the U.S.-EU-Japan effort on industrial subsidies is potentially important.  If Minister Mohamed becomes the next Director-General she would urge the U.S., EU and Japan to table their proposal, so all WTO Members can discuss what are being raised as the real issues.  It is important to understand what conduct is driving up the tension between Members.

H.E. Mohammad Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri was the first candidate the General Council met with on July 17. In his prepared statement, Minister Al-Tuwaijri did not directly address the issue of different economic systems and the potential distortions created by non-market economies. Rather he indicated that any negotiating agenda would work only where all Members view the agenda as including items of interest to them. Applied to different economic systems, this would suggest that for negotiations to occur on the topic it would have to be part of a larger package of issues of interest to those Members (like China) who would potentially perceive themselves the target of the industrial subsidies issue or the differing economic systems issue.

“Concerning working together through negotiations, I believe that Members will participate in negotiations when they are convinced that the agenda includes an incentive for them to participate. Therefore, in order to have a successful multilateral negotiation, the agenda needs to be balanced – it needs to include something for everyone.”

At the press conference after his meeting with the General Council, Minister Al-Tuwaijri was not asked any questions dealing with the issue of differing economic systems or on industrial subsidies.

WITA had a webinar with H.E. Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar, Minister Al-Tuwaijri was asked several questions dealing with the relationship between some of the major trading Members (U.S., China, EU) and specifically whether he supported negotiations on industrial subsidies to address U.S. concerns that existing rules don’t discipline the policies of China. Below are my notes on the questions asked and answers provided.

Q: Can you have a successful launch of a reform agenda if the leaders in key Members (China, US, EU) aren’t committed to help you make it work?  In the first six months as the new Director-General if selected, how would you get these Members to buy into a reform ageanda?

A:  Minister Al-Tuwaijri started his response by noting his involvement in working with G20 countries where the major WTO Members are involved. He noted that one of the issues G20 countries have supported is engaging in reform at the WTO.  Individual countries may have different views on reform — how, when, and what — but all agree reform is needed.  Minister Al-Tuwaijri believes that six-months is too long a period to determine if there is support among the major Members for a reform initiative.  He believes that within the first two – three months of becoming the next Director-General he should know if the intent of the major Members is to support reform or not.  He would reach out with a specific set of questions (e.g., here are top five issues for reform discussions) and seek input on where Members are on a willingness to address the issues.  Minister Al-Tuwaijri has the ability to reach out to the major Members and be viewed as an honest broker.  Saudi Arabia has always been a neutral country and has been serving as President this year in the G20. 

Q:  On China, Amb. Lighthizer is looking for a candidate to be the next Director-General who understands that the current WTO rules don’t discipline China.  Do you agree that the current rules don’t adequately discipline China?  Would you support efforts to improve disciplines on industrial subsidies?

A:  Minister Al-Tuwaijri supports all efforts of WTO Members to engage in negotiations.  China is a major country and major trading nation.  He believes that the more that is done to promote negotiations and promote timely resolution of issues, the better it is for restoring the negotiation function.  He believes that the U.S. and China should bring all of their issues with each other to the table.  He knows that there are many.  But WTO Members need to move the negotiating process forward to ensure rules are adequate.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

Dr. Fox was the last of the candidates to meet with the General Council and the second candidate who met on July 17. His prepared statement talks about the array of issues likely to be addressed heading into the twelfth Ministerial Conference in 2021 and the agreed need for broader reform. However, he does not mention in his prepared statement the issues surrounding different economic systems or the need for revised rules on industrial subsidies.

During Dr. Fox’s press conference on July 17, he was asked one question that was broad but fairly did include the U.S. effort to address non-market economies (how would you deal with the broad U.S. concerns with the WTO). Dr. Fox viewed the main U.S. concerns as being with the Appellate Body and limited his remarks to that issue.

He was asked a different question on why the multilateral trading system is important to large parties. My notes on his response are provided below.

Q: Why is the multilateral trading system important to the large parties?

A: Dr. Fox indicated that he viewed the Director-General position to not be one of taking sides in bilateral disputes but to maintain the international trading system. If Members don’t enforce what currently exists, what is the credibility of new rules signed onto later? He stated that all Members have benefited from the multilateral trading system. The alternative to a rules- based system is not acceptable. That is true for most countries, not just smaller countries. He used the examples of the 4th and 5th largest economies, Germany and UK, for whom global trade is a major component of their economies.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. During the webinar, Dr. Fox was asked several questions about China, including whether existing rules adequately discipline China’s policies and whether new negotiations on industrial subsidies are needed. My notes on the questions asked and Dr. Fox’s responses are provided below.

Q:  USTR Lighthizer has indicated there are three factors he is looking for in considering candidates for the Director-General post: (1) no anti-Americanism; (2) a belief that there is a need for broad reform at the WTO; and (3) someone who understands that the current WTO rules don’t adequately discipline China’s policies.  Do you agree with Amb. Lighthizer’s last point on the need for new rules to address Chinese policies?

A:  Dr. Fox’s answer dealt with all three factors including that he is not anti-America. He also believes there is a need broad-based reform.  In Dr. Fox’s view, the reform needed is both internal at the Secretariat as well as in changing the rule book.  For example, Dr. Fox had had dozens of meetings by the time of the webinar with WTO Members. Many countries felt that if you weren’t a large Member or a squeeky wheel, your voices were not heard.  In Dr. Fox’s view, the next Director-General needs to review the operation of WTO Secretariat to be sure all Members can be heard and improve the outreach to all Members and listening to their views and concerns.   Dr. Fox believes that there is also a need to reform how the WTO operates during negotiations.  He used the example of the fisheries subsidies negotiations. He opined that better outreach to NGOs and other groups about the negotiations and encouraging their engagement with Members would help constituencies better understand that the WTO is engaged in issues that are importance to them. The failure to have such engagement can undermine the concept of shared endeavor which is important to forward movement at the WTO.  So different forms of reform are needed at the WTO.

On the question about whether rules adequately discipline the policies of China, Dr. Fox stated that reform is not about focusing on any one country.  He stated that, of course, all Members must comply with the existing rules.  In his view, Members need an effective dispute resolution system to ensure such compliance.  Beyond that, the question is how do WTO Members take forward and address common challenges (e.g., e-commerce).  The key for the WTO is to bring the rule book up to date with the changing commercial realities.  Up-to-date rules and getting all Members to comply are the main objectives of reform.

Q:  what about industrial subsidies.  Is this an area that needs to be updated.

A:  Dr. Fox indicated that WTO Members have a lack of trust in each other.  One way to improve trust is to improve transparency.  Dr. Fox used as an example, efforts by the OECD to quantify subsidies to aluminum producers around the world. He had visited the OECD recently and heard from them about the extraordinary efforts they went to to make up for a lack of available data on items like production capacity and production. The efforts undertaken were both expensive and time consuming.  The example of aluminum indicates that it is important to improve objective data that are provided by Members to the WTO.  If WTO Members want improved transparency and improved accuracy of information provided, the WTO also will need to find better ways to verify data submitted.

Conclusion

The question of whether non-market economies or state-directed economies or state-capitalist economies properly fit within the WTO Agreements was not addressed by any candidate, though Dr. Okonjo-Iweala took the position that the nature of the economic system of any Member was not an issue for the WTO to consider.

On whether the current rules of the WTO adequately discipline the policies of China (and more broadly other non-market economies), candidates generally were of the view that the reform process should permit an evaluation of the changing global landscape and developments and where issues were not addressed or inadequately addressed by current rules, Members should consider what changes would be appropriate. Dr. Seade noted that since China was not part of the GATT in the 1990s during the Uruguay Round negotiations, with all the change that has occurred in the first 25 years of the WTO and limited update of rules, there is little doubt that rules need to be updated both to address practices of new Members and to incorporate their views on needed updates. Minister Yoo suggested a somewhat similar approach.

On the question of the need for an update to the rules on industrial subsidies, Minister Mohamed and Dr. Okonjo-Iweala were of the view that the proposal being worked on by the U.S., EU and Japan should be tabled in Geneva so all Members could start the process of understanding the concerns and appropriateness of the approaches recommended to address. Mr. Mamdouh included updating industrial subsidies rules as one of the priority issues to be addressed by the WTO.

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

Background

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

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

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

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

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

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

2019_Report_on_Chinas_WTO_Compliance

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

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

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

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

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

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

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

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

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

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

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

Section-301-FINAL

301-Report-Update

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

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

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

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

Proposed General Council decision submitted by the United States

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

WTGCW796

Conclusion

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

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

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

Stay tuned.

The race to become the next WTO Director-General — where candidates are on important issues: reform of the Appellate Body

[Post updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova made at the WITA webinar on August 26. The post was previously updated on August 11 to incorporate comments by Minister Yoo Myung-hee of Korea at the WITA webinar that morning]

With less than a month to go before the last phase of the selection process begins for the next Director-General of the World Trade Organization, the eight candidates have engaged in large numbers of meetings (in person or virtually) with Missions in Geneva, with trade officials in capitals and have done outreach to the media and have participated in webinars put on by various organizations. These meetings and outreach are part of Phase 2 of the selection process where candidates make themselves known to the WTO Members. This phase ends on September 7.

All candidates are understandably guarded on specifics about many issues, all recognizing the WTO is a member driven organization. Similarly, with sharp divisions within the WTO membership, candidates are also careful not to express support for any of the major Members as a general rule. At the same time, all candidates have been asked about current pressing issues before the WTO and the topic of overall WTO reform.

Today’s post looks at how candidates have positioned themselves on one such issue — the impasse over the functioning of the Appellate Body.

Presentations to the General Council and Later Press Conferences

During the three days of meetings of the General Council in mid-July, each candidate was able to provide a statement of his/her vision for the WTO, answer questions posed by WTO Members and also had a thirty minute press conference. In a prior post, I had summarized the prepared statements and the press conferences. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/. In addition to prepared statements and press conferences after meeting with the General Council, I am also including selected comments made by the candidates during webinars held by the Washington International Trade Association (WITA) and the Asia Society Policy Institute (ASPI) with six of the candidates (through August 6; a seventh is scheduled for August 11).

On the topic of the Appellate Body, the eight candidates had the following public comments:

Dr. Jesus Seade Kuri (Mexico):

From his prepared statement to the General Council, Dr. Seade made it clear that a top priority for him if selected as the next Director-General would be to get the Appellate Body refunctioning, something he would work to see happened in the first 100 days he was Director-General: “It is also necessary to give back to the dispute settlement mechanism its strength and certainty.” (Google translation from Spanish) “Within the first hundred days: I will work closely with members in seeking to * * * ii. restore the second instance of the dispute settlement system.” (Google translation from French).

In the press conference, Dr. Seade was asked how he would address the Appellate Body impasse. My notes on his answer are as follows:

On the question of the Appellate Body impasse, Dr. Seade noted that none of the Members were denouncing any provision within the Dispute Settlement Understanding. Rather concerns had been voiced on how DSU provisions had been applied. Dr. Seade believes that what is missing is the way to operationalize the role of the Dispute Settlement Body (all WTO Members sitting as the DSB) which is organizationally above the Appellate Body but for which there are currently no procedures for communications from the DSB to the Appellate Body to address issues generally (vs. in specific disputes). Such procedures were needed. He also had other ideas for how to resolve the impasse that he was interested in reviewing with Members to see if there could be movement. On the question of the interim arbitration arrangement, Dr. Seade thought a temporary arrangement made sense as it provided Members a second stage to dispute settlement as provided in the DSU. Key is finding a solution to the impasse so the two-tier dispute settlement system is restored for all.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade addressed the need to get the Appellate Body functioning again. In pointing out why he would be the right person to be the next Director-General, Dr. Seade reviewed the importance of bringing to the table a knowledge of the underlying Uruguay Round negotiations and the purpose of the provisions in the agreements. He asked “Why is the U.S. frustrated with the Appellate Body?” It is because of the history of the negotiations and what was actually agreed to. Dr. Seade also viewed restoring the dispute settlement system as important to address problems other Members are having with China (in addition to negotiations on issues like industrial subsidies). He stated that the U.S. points about problems with the Appellate Body are good. The U.S. is not challenging the Dispute Settlement Understanding (“DSU”), but rather is arguing that the provisions of the DSU are not being respected by the Appellate Body. Thus, the problem is with the application of the DSU not the terms of the DSU as such. Dr. Seade believes that it is possible to find solutions that all Members can live with. He noted that the Appellate Body issue reflects different views of the DSU by the EU and the U.S.

Dr. Ngozi Okonjo-Iweala (Nigeria):

From her prepared statement, Dr. Ngozi Okonjo-Iweala had relatively short statements about the Appellate Body: “A refreshed WTO must find solutions to the stalemate over dispute settlement. It is clear that a rules-based system without a forum in which a breach of the rules can be effectively arbitrated loses credibility over time.” “I would also prioritize updating the rulebook, unlocking the dispute settlement system, working on transparency and notification, enhancing the work of regular bodies, and strengthen the Secretariat.”

While Dr. Ngozi Okonjo-Iweala was asked many questions at the press conference, none dealt with the Appellate Body.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/

Dr. Ngozi Okonjo-Iweala noted that addressing the Appellate Body impasse was a priority for the next Ministerial and repeated her view that a WTO without effective dispute settlement would lose its legitimacy over time.

In response to a question on how she would restore dispute settlement, Dr. Ngozi Okonjo-Iweala noted that there is a common desire among WTO Members to have the dispute settlement system work and function. The question is how. There is a common belief that the panel process has been working well, so that places the focus on the Appellate Body. To address the various issues that have been raised by the United States, the WTO has the work product of the Walker process (note: Amb. Walker (NZ) was a facilitator to the General Council in 2019 to see if he could work with Members to find a solution to issues raised by the U.S.). Some of the proposals made by Amb. Walker can be used to move the process forward. The U.S. is seeking to go back to what the existing Dispute Settlement Understanding requires — 90 days for decisions, not creating rights or obligations (“overreach”), Appellate Body members working on appeals after their terms have expired, etc. We should take them up one at a time and find solutions that work. Can Members agree that appeals should be resolved in 90 days? Very likely. Can Members agree that the Appellate Body is limited to reviewing issues of law and not reviewing fact finding by panels? Very likely.

Mr. Abdel-Hamid Mamdouh (Egypt):

Mr. Mamdouh in his prepared statement reviewed the challenge to the WTO from the imbalance resulting from growing importance of dispute settlement while the negotiating function has been reduced in effectiveness:

“In my view, over the past quarter of a century, the WTO has suffered from a chronic imbalance across all its vital functions. That is, dispute settlement, negotiation, and the transparency/deliberative functions

“In any legal system, there needs to be a balance between the ‘legislative’ and the ‘judicial’ functions. For the WTO, these are the negotiating and the dispute settlement functions. While dispute settlement gained strength due to the inherent automaticity of procedures, the negotiating function has broken down. This created an unsustainable imbalance.” (Page 3)

During the press conference, Mr. Mamdouh was asked about how to bring the Appellate Body back. My notes on his answer are as follows:

Asked what he would do to revive the Appellate Body, Mr. Mamdouh responded that he would build off of the work already done. Most logical and productive first step is to build on that work and see what else is needed. And there is a need to look deeper into causes which he believes are rooted in differences in legal and regulatory systems. Mr. Mamdouh has not heard any suggestions that rules within the Dispute Settlement Understanding need to be changed. He concluded by saying that the size of the problem needs to be put into perspective and one needs to remember that on this issue, the WTO Members are not starting from zero.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. There were no specific questions asked on dispute settlement, but Mr. Mamdouh provided some introductory thoughts on the genesis of the crisis in the WTO. He noted that the WTO has been suffering from a chronic imbalance between the negotiating function and the dispute settlement function.  He indicated that the negotiating function has underperformed miserably.  Dispute settlement system, being automatic adoption at the end of disputes absent a negative consensus has grown in importance and hence has created imbalance.  Mr. Mamdouh views that there is a critical need to reboot the negotiating function to help restore better balance.

Amb. Tudor Ulianovschi (Moldova):

Amb. Ulianovschi, in his prepared statement, had reform of the Appellate Body as a top priority for the incoming Director-General:

“Dispute Settlement

“The reform of the dispute settlement mechanism and particularly the reform of the Appellate Body will be one of the main priorities for the next Director General. This process needs to be open, inclusive and constructive. We need to find a way for all members to accept a two-step binding independent Dispute Settlement system.

“I believe that the issues and concerns were clarified by the members already and now they have to be addressed.

“I am aware of the on-going consultations on this important matter among the Members. In my opinion, there is a general common understanding on fundamentals of the DSU, which is already a good start.

“The least a DG can do is to facilitate discussions among Members to agree together on how to move forward and eventually agree on a roadmap and mechanisms – ‘agree on how to agree’ on this sensitive but crucial issue and devise a process of further engagement to reach an acceptable solution.”

During the press conference following his appearance before the General Council, Amb. Ulianovschi was asked several questions about the Appellate Body impasse. Below are my notes on Amb. Ulianovschi’s answers.

There were several questions on the Appellate Body including how Mr. Ulianovschi would reactivate the Appellate Body and whether reform of the dispute settlement system should be broader than getting the Appellate Body back functioning. Mr. Ulianovschi indicated that on the provisions of the Dispute Settlement Understanding, all Members agree on the provisions as written. With the application of the DSU by the AB, there are concerns raised by the U.S. and others. The Director-General can provide a process to help Member’s discuss. Solutions to the concerns raised need to be found, but the parameters of the solutions need to be found by members themselves. In his view, the Director-General’s role is to help Members identify how to move forward on the Appellate Body impasse with resolution by the next Ministerial Conference. On the question of breadth of action on the dispute settlement system, Mr. Ulianovschi stated that Members are not looking for a complete redrafting of the Dispute Settlement Understanding. What is needed is a targeted approach to address issues raised by certain members on the operation of the Appellate Body.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. Amb. Ulianovschi referenced the impasse on the Appellate Body (dispute settlement system) both in his opening statement at the webinar and in answer to a number of questions. My notes on his statements are provided below.

In his opening statement, Amb. Ulianovschi noted that as a member driven organization, the WTO needs Members to negotiate to move forward.  He believes that a diplomatically active Director-General can help the WTO move forward, and he can help address lack of trust which he believes is largely psychological primarily based on unfinished business but also on the dispute settlement impasse on the operation of the Appellate Body, Special and differential treatment and other issues.

Q:  How important is it to have a reform agenda, and how can you convince the major Members to agree on a common agenda?

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system.  Also the impasse on dispute settlement and the concerns raised by the United States and the EU position on an interim arbitration agreementwith MPIA.  He sees a positive signal that major players are putting forward proposals; this should be starting point for discussions.  He would invite those who have put forward proposals to start discussions.  The process will require political will, and members will need to agree on how to proceed).  Amb. Ulianovschi believes he can get Members to that point.  On dispute settlement, Members have the paper from Amb. Walker which can be used to move forward.  Will have to see how deep reforms will be.

Q:  If you are the next Director-General, what would be your priorities for the 2021 Ministerial Conference and how would you define success?

A:  In Amb. Ulianovschi’s view, the next Ministerial must show some results.  He believes the top priority would be completing the ongoing negotiations on fisheries subsidies, which is important to fulfill U.N. Sustainable Development Goal 14.6.  He believes that the Members are close to getting language agreed to.  Completing the fisheries subsidies agreement Is just the first step, but it is an important one.  On the current impasse on the Appellate Body (and hence the lack of a second-tier dispute settlement stage), Amb. Ulianovschi doesn’t see a clear cut resolution of the reform needed by the next Ministerial but rather hopes the Members will have a road map of how to proceed by the Ministerial. 

Q:  On dispute settlement, it is becoming quite clear that the divergences are growing between the Trump Administration and some of our trading partners.  Many Members have shared the view that there have been problems with the Appellate Body engaging in overreach in certain situations.  The recent Op Ed in the Wall Street Journal by USTR Lighthizer suggests that Amb. Lighthizer is looking to eliminate the Appellate Body and change the system so that panels’ role is limited to helping resove specific disputes between Members, more like commercial arbitration, without broader effect of the decisions.  Is it realistic to go back to a system without an Appellate Body?

A:  Amb. Ulianovschi responded that understand the U.S. concerns at the WTO on the Appellate Body both procedural (e.g., decisions within 90 days; Appellate Body members not involved in appeals after their four year term expires) and substantive (e.g., overreaching).  He recognizes that the U.S. concerns are shared by other members of the organization.  Amb. Ulianovschi believes that this is the moment to put forward different opinions on both problems and how to proceed, but all issues have to be negotiated.  The role of the Director-General is to put Members together to permit Members to present the details of their proposals.  In Amb. Ulianovschi’s view, the Recent Op Ed by Amb. Lighthizer is another idea put forward to find a solution to the ongoing problem at the WTO.  He has talked with all of the major Members on how to deal with the broader issue of Appellate Body reform.  The Director-General is there to encourage members to put forward proposals but also to use his/her good offices to encourage discussions.  Having said that, Amb. Ulianovschi noted that some Members have undertaken different initiatives under Rule 25 of the Dispute Settlement Understanding, such as MPIA, to provide a second-tier of review.  These initiatives are interim efforts.  Such actions don’t have to distract the Members from the main task of finding a common understanding on the purpose of the dispute settlement understanding or on a sustainable solution.  So the WTO Members have to identify the consensual solution and how we can ensure a compliance mechanism so that the system works as intended and agreed to.  This should be a top priority of the next Director-General.

H.E. Yoo Myung-hee (Republic of Korea):

In her prepared statement, Minister Yoo includes one paragraph on the Appellate Body impasse:

“Another urgent, pressing issue is restoring the dispute settlement system. We need a stable and fully-functioning dispute settlement system which would effectively contribute to the prompt and satisfactory resolution of the disputes. I will act as an honest broker to facilitate constructive discussions to find an effective and permanent solution.”

During the press conference, Minister Yoo was asked two questions about dispute settlement, one dealing with resolving the impasse on the Appellate Body and the other on the Multi-Party Interim Arbitration Agreement. My notes of Minister Yoo’s responses to these questions follows:

On the issue of The Appellate Bidy impasse, Minister Yoo was asked how she would solve the impasse. She indicated that Members have very divergent views on the role of the Appellate Body. All members understand the need for a two-tier dispute settlement system. If selected as the next Director-General, Minister Yoo would accelerate members’ consultations to resolve the issue.

On the interim arbitration mechanism adopted by the EU, China and about 20 other Members, Korea is not a party. Does Minister Yoo have any concerns that the interim arrangement (MPIA) might become permanent? Minister Yoo responded that the MPIA was being used by some Members to overcome the current vacuum with the Appellate Body being shut down. The key for the WTO is to focus on finding a permanent solution, and she would do that if selected as the next Director-General.

WITA had a webinar with H.E. Yoo scheduled on August 11,https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. My summary of Minister Yoo’s comments on dispute settlement follow.

from her opening comments: Restoring dispute settlement system is an urgent need.

Questions asked on Dispute settlement – do you share assessment of US and others that there have been problems of overreach by AB?  Secondly, there are procedural flaws that need to be addressed?  What can a DG do about it?

Minister Yoo’s response: Clearing impasse on the Appellate Body is a top priority.  The WTO needs a prompt resolution to restore the two-tier dispute settlement system.  There are divergent views of the proper role of the Appellate Body.  Some countries, like the United States, have said the Appellate Body has gone too far — overreaching by creating or diminishing rights and obligations of Members.  However, some members say that the Appellate Body has been working to clarify of the provisions of Agreements to provide stability to the multilateral trading system.  So there are competing views of what the role of the Appellate Body is supposed to be.  The Walker process has put forward certain ideas.  Still the gap is very wide between the two views.  If we look at three pillars of WTO (negotiations, notifications, dispute settlement), over the first 25 years of the WTO, there have been no major agreements from negotiations other than Trade Facilitiation Agreement. This failure of the negotiating function to work has put much strain on the dispute settlement system.  Members are resorting to dispute settlement to address issues not handled by negotiations.  So, lacking periodic updates through negotiations, it is easy for the Appellate Body to engage in creating obligations to fill gaps.  So Minister Yoo agrees to some extent with US (and others) about of overreach.  The question for the WTO and the incoming Director-General is how to move forward to find solutions acceptable to all.  There have been very divergent views within the WTO for a long time.  If Minister Yoo becomes the Director-General, she would try to increase communication with missions in Geneva and ministers in capital.  Need some political involvement to resolve the impasse.  Minister Yoo would also look at some ideas floated by academia as well to see if those views might provide different approaches that would be of interest of Members.  Several examples would include strengthening qualifications of AB members and what role of Appellate Body Secretariat should be, etc.  I would encourage Members to engage in open, transparent and inclusive discussions on these issues. 

Minister Yoo wanted to highlight importance of revitalizing negotiating function. If there is a more active negotiating functions, Members would be able to address needs to update and clarify agreements which should be done by Members and not the dispute settlment system.

H.E. Amina C. Mohamed (Kenya):

Minister Mohamed in her prepared statement reviewed the need for a functioning dispute settlement system:

“The WTO’s dispute settlement function is key to the credibility and effectiveness of the rules. We need to find a way through its problems to make it once again an instrument that all Members can use with confidence.”

During the press conference, Minister Mohamed was asked about the Appellate Body impasse. My notes on her response are as follows:

On the issue of how to remove the impasse on the Appellate Body, Minister Mohamed indicated that Members need to consult and negotiate. The WTO needs members to find solutions to permit the second-tier of dispute settlement to be restored. A Director-General DG can offer technical assistance and process to help Members find the solutions.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. Minister Mohamed had a number of comments about the Appellate Body impasse.

Restoring the Appellate Body is an important priority for the incoming Director-General.

The WTO dispute settlement process is key to the credibility and effectiveness of the WTO.  Members have been working for some time on finding solutions.  Minister Mohamed takes seriously US concerns about the operation of the Appellate Body. If she becomes Director-General, she will use her skills at building consensus to help Members find solutions.  Finding solutions is important so that the WTO Members can get back to a dispute settlement system that all can use.

Minister Mohamed was Chair of the Dispute Settlement Body in 2004.  She made sure that there was continuous flow of information from the Dispute Settlement Body to the Appellate Body.  She had lunch with the Appellate Body quarterly.  Issues she had been raising back in 2004 as of concern to Members remain unresolved today. 

WTO Members designed a system that was complete from negotiations to dispute settlement.  In Minister Mohamed’s view the system was designed really well.  Now there is a gap in the system with the inoperability of the Appellate Body.  The WTO needs to fill the gap quickly. Absent a resolution, some Members will comie up with an interim system (MPIA).  Thus, Minister Mohamed believes the WTO needs to deal with the issues raised by the United States urgently.  She agrees with some of the issues raised by the U.S.  Many of those same concerns were around in 2004 when she chaired the Dispute Settlement Body.  In her quarterly meetings with the Appellate Body, Minister Mohamed told the Appellate Body members that they had a specific mandate laid out by Members in the Dispute Settlement Understanding.  It was not the role of the Appellate Body to add to or diminish the mandate.  Minister Mohamed believes that Members need to see where the Appellate Body veered off of the mandate.  She believes that the new Director-General should look at te Walker process (note: Amb. Walker (NZ), as facilitator to the General Council in 2019 had met with Members to see if solutions to the U.S. concerns could be found) and see how to move forward.  But it is critical for the WTO to resolve the issues raised by the U.S. to permit the Appellate Body to resume.

H.E. Mohammad Mazaid Al-Tuwaijri (Saudi Arabia):

In his prepared statement, Minister Al-Tuwaijri referenced the challenges in the dispute settlement system but did not identify any specific approach to addressing Appellate Body reform if selected as the next Director-General other than his overall approach reviewed in the statement on all issues. Several quotes from his prepared statement follow:

“As you all know, the WTO has three main functions for monitoring trade issues, settling disputes, and negotiations, which include improvements to existing rules, new rules and market access.”

“We also need to recognize the consequences for the WTO of over-performance in litigation, while neglecting the negotiating and monitoring functions. A system out of balance cannot move forward.”

During the press conference, Minister Al-Tuwaijri was asked what his plan was to address U.S. concerns with the Appellate Body. My notes on his response are provided below.

On the Appellate Body, what is your plan to addressing U.S. concerns and do you plan to get it back functioning? Minister Al-Tuwaijri’s approach is the same as reviewed elsewhere. Determine what is the root cause of AB not functioning. He believes it is because negotiations are not functioning well. Therefore, he wants to get the negotiating process to improve and to gain data to improve the system. For example, he believes it is important to be able to quantify the effect of delay of even one month in resolution of disputes.

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/.

Minister Al-Tuwaijri provided some comments in his opening statement and responded to a question on the dispute settlement system.

The structure of the organization is not functioning – negotiations, dispute settlement, notifications.  Key is what type of change is needed to help organization be fit for the 21st century.

Minister Al-Tuwaijri believes the correct analysis for any issue is: what is the problem, what needs to be done, consult with the Members for possible solutions.

Does Dispute Settlement reform need to be taken up as a condition precedent to broader WTO reform?

In Minister Al-Tuwaijri’s view, the role the Director-General can play is resolving the impasse on the Appellate Body is somewhat limited. Can the Director-General help with a procedural question?  Yes. Is there an interpretation issue that the Director-General may be able to assist in resolving?  Yes.  In 2019, the General Council had Amb. Walker, acting as a facilitator, work with Members to see if solutions could be found to the issues raised by the U.S. So that work product is available.  The EU has also pursued a multi-party interim arbitration agreement to help at least some Members handle a second stage dispute process while the Appellate Body is not functioning.  Despite these efforts, there is the question why resolution of the impasse is not happening.  Minister Al-Tuwaijri believes that the answer goes back to his core point, the WTO must fix its negotiating function.  If Members want to change the rules on the operation of the Appellate Body, that is for the Members to decide.  As Director-General, Minister Al-Tuwaijri would encourage Members to think differently about the impasse and the options for finding solutions.

The Rt Hon Dr. Liam Fox MP (United Kingdom):

Dr. Fox’s prepared statement talked about many topics, including WTO reform, but did not speak specifically about the impasse on the Appellate Body or needed reforms to permit reactivating the second stage of dispute settlement.

During the press conference, Dr. Fox was asked about how he would address U.S. concerns with the WTO. My notes on his response are provided below:

A question was asked of how Dr. Fox would address the broad concerns of U.S. with the WTO. Dr. Fox noted that the U.S. has some very specific concerns with the WTO, particularly with regards to the Appellate Body. Dr. Fox stated that the WTO has the Appellate Body because countries felt panels in GATT disputes went too wide. The Appellate Body was set up with a limited mandate. He is aware that there are different views of the role of Appellate Body and whether it has engaged in mission creep or handled incomplete texts by filling them out. If WTO Members are able to get back to a more narrow definition of the function of the Appellate Body, there may be some concept of precedent being set. Dr. Fox asks the question, does everyone want the AB to be functioning properly or not. If not, the multilateral trading system is under threat as obligations can’t be enforced. Believe there is room for compromise.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. His comments on dispute settlement from the webinar are summarized below.

A rules-based system must have a functioning dispute settlement system, a top priority for the incoming Director-General.  To have a rules-based system without a functioning dispute settlement system is nonsensical.  For many countries, the dispute settlement system is the value added that membership in the WTO brings.

All members need to focus on adhering to the rules that they have already agreed to.  The WTO needs an effective dispute settlement system for that.  The WTO needs all Members to adhere to all rules they have signed up for and not decide that some rules don’t apply to them.

Questions asked of Dr. Fox: There have been some problems with the Appellate Body overreaching.  Do you agree we need a more realistic approach by Appellate Body where there is ambiguous language in an agreement?  How would you resolve the impasse on the Appellate Body?

Resolution of the Appellate Body impasse is the most urgent task facing the incoming Director-General.  Dispute Settlement is the value-added to many Members of joining the WTO.  Many members view the Appellate Body as having gone beyond the Dispute Settlement Understanding.  Moreover, the excessive length of time to render an appeal decision undermines the system by itself — Members violating their obligations can get a three-year free ride.  The WTO needs to tighten up the parameters and limit the areas that the Appellate Body examines.  While the Appellate Body can’t create binding precedent, the need for consistency supports the ability to review how issues have been handled in other cases.  Thus, looking at prior disputes makes sense, but the Appellate Body can’t create law through the process.

On any negotiation there are technical, political and timing issues. WTO Members are not going to see any concessions from the U.S. before the presidential election.  It may be possible for the U.S. to make compromises, but the timing of major political events affects the ability to do so.    

Conclusion

One of the major current challenges for the WTO and its Members is finding solutions to the impasse on the Appellate Body. The eight candidates for the Director-General post have all expressed views on the importance of resolving the issue and where in the hierarchy of issues to be addressed by an incoming Director-General the impasse is found. Presumably, most Members will be carefully considering each candidate’s views and suggested approach on all key issues, including resolving the Appellate Body impasse.

The fundamental disconnect between the EU (which has been reluctant to recognize any deviation from the Dispute Settlement Understanding by the Appellate Body) and the United States (which has focused on the limited role of the Appellate Body as laid out in the Dispute Settlement Understanding) remains. The role of honest broker and consensus builder that the incoming Director-General will assume later this year will be tested by the gulf in positions of two of the WTO’s major Members.

USTR Lighthizer on WTO dispute settlement, answers to Congressional questions from June 17 hearings

At the June 17 hearings before the U.S. House and Ways Committee and the U.S. Senate Finance Committee, the U.S. Trade Representative Robert Lighthizer testified about the Trump Administration’s 2020 trade agenda. While there were few questions during the hearing that were addressed to dispute settlement at the WTO, the Committees forwarded follow-up questions to Amb. Lighthizer for responses. Several dealt with WTO dispute settlement, in particular, reform of the Appellate Body (“AB”).

For example, Senate Finance Chairman Chuck Grassley (question 4) and Ranking Member Ron Wyden (question 16) each inquired about the next steps by the U.S. to achieving AB reform. Both Chairman and Ranking Member are strong supporters of achieving Appellate Body reform and limiting the Appellate Body to the role envisioned in the Dispute Settlement Understanding. Amb. Lighthizer’s answer to them was the same. Both questions asked and Amb. Lighthizer’s answer are provided below.

Chairman Grassley, Question 4
“I’m a strong supporter of reforming the WTO Appellate Body, but I’m worried that we still have not made any concrete proposal of our own for reforming dispute settlement. A number of allies who have been supportive of WTO reform have told me that they are discouraged by the continued lack of a proposal from the United States. Unfortunately, many of these countries are now signing up for the EU’s alternative: the Multiparty Interim Arbitration Arrangement.

“I believe we need to do more than identify problems. We need to propose and build consensus for solutions that will carry out what Congress understood it approved in 1995: binding dispute settlement on certain rules carefully negotiated by Members, not discovered by appointed judges. Accordingly, we need solutions that address overreach and other problems like the AB’s failure to follow the 90 day rule.

What efforts are you taking to develop a proposal that we can rally our allies around, and will you commit to working with Congress on it – as is required by the constitution and the law?

Ranking Member Wyden Question 16

“For more than a year, this Administration blocked approval for new Appellate Body Members in an effort to draw attention to concerns regarding the WTO dispute resolution system. I share these concerns, and I want them to be addressed. Last December these concerns captured the world’s attention when the Appellate Body became unable to hear new cases after the retirement of two judges left only one remaining judge. The United States has yet to put forward a reform proposal despite opposing other WTO members’ reform suggestions.

What are the next steps in addressing the problems at the WTO?

“Amb. Lighthizer Answer: The Administration is committed to working with any interested WTO Member to find solutions to the failure of the Appellate Body to follow WTO rules. This means first understanding what is the root of the problem: Why has the Appellate Body consistently broken WTO rules – that is, those rules agreed by WTO Members in the Uruguay Round and approved by the Congress in the Uruguay Round Agreements Act – despite every effort by U.S. Administrations to get it to stop.

“By exercising our right not to approve new members to the Appellate Body, the Administration has forced the WTO to engage in a long-overdue debate on this problem. My office also comprehensively detailed the Appellate Body’s pervasive rule-breaking in its Report on the Appellate Body earlier this year.1 The Report details the concerns expressed by the United States for more than 20 years and the repeated failure of the Appellate Body to apply the rules of the WTO agreements in a manner that adheres to the text of those agreements. The Report also highlights several examples of how the Appellate Body has altered WTO Members’ rights and obligations through erroneous interpretations of WTO agreements.

“Appellate Body overreaching has unfairly taken away U.S. rights and advantaged China. Through a series of deeply flawed reports, the Appellate Body has eroded the U.S. ability under WTO rules to counteract economic distortions caused by China’s non-market practices that harm our workers and businesses. For example, the Appellate Body’s erroneous interpretation of “public body” threatens the ability of WTO Members to counteract trade-distorting subsidies provided through state-owned enterprises, favoring non-market economies at the expense of market economies.

“The dispute settlement system should support, rather than weaken, the WTO as a forum for discussion, monitoring, and negotiation. The Appellate Body has facilitated efforts by some Members to obtain through litigation what they have not achieved – and could not achieve — through negotiation. If WTO Members believe in a rules-based trading system, then we must ensure the dispute settlement system follows the rules that WTO Members established. Without understanding the problem of why the Appellate Body has not followed the rules Members agreed to for it, simply writing new rules or affirming the existing rules in whatever form will not fix the problem. This is why we have continued to insist that Members need to understand why the Appellate Body does not consider itself bound by the rules so that we can find real, lasting solutions.

“Unfortunately, some of our trading partners – prominently, the EU and China – continue to deny that the Appellate Body has broken the rules. Rather than seeking reform in the areas of concern raised by the United States and other WTO Members, the EU and China have pursued an arbitration arrangement that incorporates and exacerbates some of the worst aspects of the Appellate Body’s practices. The numerous departures from agreed WTO rules in the EU-China arrangement highlight a fundamental difference among WTO Members: Some Members prefer an appellate “court” with expansive powers to write new rules and impose new obligations on the United States, instead of the more narrow appellate review as agreed to by Members in the DSU.

“The United States continues to engage with our trading partners and remains committed to working with any WTO Member that acknowledges U.S. concerns and is willing to work together to find real solutions and reform. I look forward to continuing to work with you and the Committee on these important issues.

“1 United States Trade Representative, Report on the Appellate Body of the World Trade Organization, February 2020, available at: https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf.”

In the questions from the House Ways and Means Committee members, one question dealt with WTO reform, and the answer from Amb. Lighthizer included not only reform of the WTO generally but also the needs for addressing Appellate Body overreach. See question 1 from Rep. Jason Smith:

“Rep. Jason Smith

“1. The World Trade Organization (WTO) is in urgent need of reform and modernization. For too long, the WTO has been left stagnant, unable to adapt to the challenges presented by a rapidly changing global economy. As a result, American manufacturing and other critical U.S. industries have suffered the consequences of a body that has time and again, sought to diminish US. sovereignty. I am pleased that you and President Trump have taken on this task and have put forth a vision for a reformed WTO that will better serve the interests of America and our allies. With that in mind, what steps are you and your team taking this year to advance the necessary solutions the WTO system desperately needs?

“Answer: We continue to engage extensively with WTO Members to pursue meaningful reform of the WTO. The United States is pleased that Brazil, Costa Rica, Korea, and Singapore have responded to our reform initiatives by agreeing to forego special and differential treatment in future WTO negotiations. We are continuing to work to ensure all countries are contributing to the WTO commensurate with their role in the global economy. The United States is also leading an effort to bring the WTO back to upholding its core principle of market orientation to ensure a level playing field for U.S. workers, farmers, and businesses. We have also advanced work on transparency, ensuring timely notifications that can help get the WTO back to its core function of negotiating new trade rules.

“Additionally, we cannot allow overreaching by the Appellate Body to continue to weaken our ability under WTO rules to address the harm to our workers and businesses caused by non-market practices such as China’s economic distortions. WTO Members must come to terms with the failings of the Appellate Body and understand the causes if we are to achieve lasting and effective reform of the WTO dispute settlement system. The United States will continue to engage with any WTO Member in order to restore the WTO dispute settlement system to the role given to it by WTO Members and to ensure that dispute settlement supports, rather than weakens, the WTO. The United States led a group of 11 Members to issue a statement calling for transparency in dispute settlement through open meetings and public submissions, and we will continue to work to persuade Members who did not join the statement (such as the EU, China, and India) to support greater transparency.”

No movement at the WTO

Now that the Appellate Body has been without three members for nearly eight months, one would have expected that negotiations would be intense to find a solution acceptable to the United States and the membership. But other than certain Members seeking at each Dispute Settlement Body meeting to get agreement to start looking for new Appellate Body members (which is blocked by the United States), there is no indication that any meaningful activities are being pursued in 2020 to resolve the longstanding concerns of the United States.

With Director-General Azevedo’s announcement on May 14 that he would step down as the Director-General at the end of August 2020, much attention within the WTO in recent months has understandably been focused on finding a new Director-General. The selection process will likely continue until early November. This makes it unlikely that any major effort to address U.S. concerns will happen in the remainder of 2020.

Similarly, as we are less than three months from U.S. Presidential elections, many WTO Members will likely prefer to wait to see the results of the election before engaging with the U.S. on its core concerns.

Some major Members, like the EU, keep talking about looking for permanent solutions. See August 3, 2020, European Commission, Directorate-General for Trade, The WTO multi-party interim appeal arrangement gest operational, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2176. “Commissioner for Trade Phil Hogan said: ‘With the agreed pool of arbitrators, the interim appeal arrangement for the WTO disputes is now up and running. * * * It shows that participating WTO members are willing to take concrete action to preserve an independent dispute settlement system with an appeal function. We can now turn our attention to finding a solution to the underlying problems through reform of the WTO Appellate Body and other aspects of the WTO system that need improvement.'” (emphasis added).

However, it has been the EU’s failure to recognize the departure of the Appellate Body from its limited role and the EU’s embrace of an Appellate Body creating rights and obligations that are not part of existing agreements that have significantly contributed to the problems identified by the United States. While Europe has shown some flexibility on addressing process issues, it has not acknowledged the serious overreach problems that the U.S. and many other Members have identified over the years. Thus, the EU concept of permanent solutions to the Appellate Body reform effort ignores core concerns of the U.S.

Conclusion

The U.S. has documented over the last several years the pervasive problems with the WTO’s dispute settlement system, particularly the actions of the Appellate Body. Since the Dispute Settlement Understanding already makes clear the proper role for the Appellate Body and the limitation on panels and the Appellate Body not to create rights or obligations, the U.S. insistence on Members focusing on why the Appellate Body has felt free to ignore the limits on its authority is understandable as a first step to determining what needs to be done to get the dispute settlement system back to what was agreed to by Members at the creation of the WTO. The U.S. concerns also explain its lack of support for a mere reaffirmation of the original Dispute Settlement Understanding language.

In prior posts, I have put forward thoughts on how one could make the original language self-executing or enforceable by Members to a dispute and hence address U.S. concerns if other countries will not focus on why the Appellate Body has been willing to ignore limits on its authority. 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/.

Absent an agreement among Members as to the reasons for Appellate Body departure from its limited role, Members will need to make modifications to the Agreement or to what is contained in binding interpretations that actually prevent future departures from the correct, limited role of the Appellate Body.

Don’t hold your breath that Members will find solutions any time soon.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

Selecting an acting Director-General for the World Trade Organization — the road forward

At tomorrow’s informal meeting of the Heads of Delegation in Geneva, the hoped for agenda would include both finalizing the process for phase three of selecting a new Director-General and, if progress were made in consultations with Members, reviewing selection of an acting Director-General to serve after current Director-General Roberto Azevedo steps down on August 31 until a new Director-General is in place (likely November 7 or later). If the issue of the acting Director-General is resolved at the informal Heads of Delegation meeting, then a General Council meeting would be called, presumably tomorrow afternoon, to formally select the acting Director-General by consensus.

News articles indicate that the consultation process appears at an impasse with the United States wanting Deputy Director-General Alan Wolff to serve as the acting Director-General but facing opposition from both the EU and China. Mr. Wolff is from the United States. Apparently the other Deputy Director-General being actively considered is Karl Brauner who is from Germany. See, e.g., Reuters, July 29, 2020, Exclusive: WTO unlikely to get interim leader as U.S. insists on its candidate, causes impasse, https://www.reuters.com/article/us-trade-wto-usa-exclusive/exclusive-wto-unlikely-to-get-interim-leader-as-us-insists-on-its-candidate-causes-impasse-idUSKCN24U2P2. The article suggests that Members may be considering simply leaving the WTO organization without a Director-General until the selection process is completed. But the end game won’t be known until the meeting tomorrow morning.

Efforts by WTO Members to avoid blockage of selection process

The WTO Members agreed to a process for selecting a new Director-General at the end of 2002 to try to avoid the deep divisions and chaos that had characterized the 1999 selection process where there was a deadlock over two candidates, a delay in picking a Director-General and ultimately a decision to give the position of Director-General to each of the two candidates but at reduced time periods of three years each. In 1998-1999 there were no agreed-to procedures for either the selection of the next Director-General or for choosing an acting Director-General.

The 2002 procedures adopted by the General Council were intended to address both issues, although the vast majority of the procedures pertain to the selection of the Director-General while only one sentence of one paragraph addresses the selection of an acting Director-General. See Procedures for the Selection of Directors-General, adopted by the General Council on 10 December 2002, WT/L/509 (20 January 2003), para. 23 (“In the event of a vacancy in the post of Director-General, the General Council shall designate one of the existing Deputy Directors-General to serve as Acting Director-General until the appointment of a new Director-General.”). The 2002 procedures are embedded below.

WTL509

The lack of leadership by the U.S., EU and China

If the news articles are correct that the impasse flows from the views of the United States, the EU and China, then one can only shake one’s head in disappointment at each of the three for lack of leadership. In a prior post, I reviewed that the selection of an acting Director-General should be an easy job for the WTO membership. Each of the four Deputy Directors-General are well known to the Members and each is obviously qualified. The job of acting is temporary and has been described as administrative in nature. See July 24, 2020, WTO Director-General’s farewell address to the General Council while Members can’t agree on an acting Director-General, https://currentthoughtsontrade.com/2020/07/24/wto-director-generals-farewell-address-to-the-general-council-while-members-cant-agree-on-an-acting-director-general/.

Alan Wm. Wolff is an exceptionally talented individual who has probably had the largest public presence of any Deputy Director-General in the history of the WTO. His speeches which are available from the WTO news archives should be collected and released as a book by the Secretariat. They reflect Mr. Wolff’s deep commitment to the multilateral trading system, his deep knowledge of history and cover a broad array of topics. For example, he speaks eloquently on the role of the World Trade Organization in maintaining peace and stability, the history of the WTO, the values undergirding the organization, the hope that the WTO provides to countries seeking accession and the work ahead to keep the organization serving its core purposes. He would be a very interesting candidate for Director-General if the United States had put him forward. He certainly would be a competent acting Director-General.

But the same can be said for each of the other Deputy Directors-General. Each will be able to handle the interim task of being the acting Director-General pending the selection of a new Director-General.

So it is obviously disappointing to see the impasse which reflects poorly on each of the major players involved.

A possible solution

While the WTO Members can obviously ignore the procedures they adopted in 2002 for selecting an acting Director-General and proceed without a Director-General, there are different paths to a possible solution that could be taken.

Obviously, Members could opt to overcome the impasse and get behind one of the four Deputy Directors-General. That is the best possible outcome.

Absent the Members fulfilling their role and finding consensus, the Deputy Directors-General who are under active consideration could withdraw their names from consideration by indicating that they would not serve if selected. While WTO Members may be unable to look out for the best interest of the organization, there is little doubt that each of the Deputy Directors-General has the best interests of the WTO at heart.

While the impasse could be solved by just Alan Wolff withdrawing, it would be a stronger message if both Messrs. Wolff and Brauner withdrew. There would still be two individuals to choose from. And a needless problem for the organization would be solved by the Secretariat leadership despite the narrow thinking of some of its Members.

The above suggestion is just a thought for the good of the WTO and its Members.

Pascal Lamy’s recent comments on the challenges facing the WTO

Pascal Lamy is a former Director-General of the WTO (2005-2013) and former European Commission Trade Commissioner (1999-2004). He is President emeritus of the Jacques Delors Institute. As one would expect, he is a frequent speaker on trade matters. Two events in the last several months presented some thoughts on the challenges for the WTO moving forward.

Mr. Lamy was interviewed by the Lowy Institute in Australia in early July on their COVIDcast addressing the future of globalisation. See The Interpreter, July 3, 2020, COVIDcast: The future of globalisation, https://www.lowyinstitute.org/the-interpreter/covidcast-future-globalisation. Similarly, on June 17, 2020, he and Robert Zoellick (former President of the World Bank and former U.S. Trade Representative) participated in a Peterson Institute for International Economics Trade Winds program, What future for the global trading system?, https://www.piie.com/events/what-future-global-trading-system.

Below are some of my notes on points made by Mr. Lamy I thought were of interest along with my commentary.

globalization vs. deglobalization

On the future of gobalization, Mr. Lamy is of the view that the next few years will be a period of more obstacles for trade and investment. These obstacles will change the speed of globalization but won’t lead to broad scale deglobalization. There will be some onshoring to address fragility of supply chains. However, the clamor for onshoring will be “more bark than bite”.

In the United States both the Administration and parts of the Congress have called for onshoring production of medical equipment. There has been some utilization of the Defense Production Act by the Trump Administration to get producers to use facilities to produce needed equipment. Many U.S. industries and unions have urged the government to take action to permanently reshore production of various medical equipment. See Joint Statement on Policy Objectives for Reshoring and Safeguarding Domestic PPE Manufacturing (embedded below).

joint-statement-of-reshoring-of-PPE-production

However, the U.S. has not entered into long-term contracts to support significant reshoring efforts, possibly supporting Mr. Lamy’s prediction of “more bark than bite”.

precautionism

Efforts by countries to recover from the economic damage caused by COVID-19 will be complicated by what Mr. Lamy called “precautionism” (governments protecting people from risk) and which he distinguished from protectionism (protecting producers from international competition). In Mr. Lamy’s view, protectionism can be addressed by eliminating restrictions or other obstacles. Precautionism involves risk profiles which will differ among Members and possibly may differ among issues being considered and hence will be much more difficult to address to achieve a level playing field. Mr. Lamy in the Trade Winds program used the example of the tourism sector which has been devastated by governments’ efforts to control the spread of COVID-19 and noted that there are a number of different initiatives by countries to get some reopening of tourism (e.g., nonessential air travel) between particular countries, but that there isn’t a common approach which in his view reflects differing risk profiles of countries.

I would note that precautionism is not limited to the response to the COVID-19 pandemic. The WTO’s Sanitary and Phytosanitary Agreement and the Technical Barriers to Trade Agreement both recognize the right of Members to take measures to protect their populations at such level as is deemed appropriate by the Member although encouraging use of international standards.

To the extent the aftermath of the COVID-19 pandemic is a more cautious risk profile for major trading nations, recovery will likely be slower and more fragmented.

Borrowings during the pandemic to lessen the economic collapse

Mr. Lamy made several points on the massive amounts of stimulus funds being provided by certain governments to limit the economic challenges being faced from efforts to slow the spread of COVID-19.

His first point is that the size of the government programs will necessarily distort trade and create a playing field that is not level. Rescue plans for companies or industries, subsidies provided, increased state ownership are all elements of the distortions that he sees occurring. He believes countries will have to come to grips with the emergency needs and see that markets return to their proper role with reduced government involvement.

The second point is that only a few countries are positioned to provide this type of financial assistance because of the inability for most countries to borrow huge amounts of money for such stimulus activities. Hence the north-south divide is growing according to Mr. Lamy. While this point is certainly true, multilateral organizations like the IMF and World Bank and regional development banks are working to provide debt forgiveness and other financial assistance to some developing and to least developed countries to provide some greater flexibilities.

WTO reform — U.S.-China tensions

Mr. Lamy views the WTO as weaker today than it was ten years ago. He attributes the main source of the weakened situation of the WTO to the growing divergence between the United States and China. In his view, the tension between the two has prevented convergence on a range of issues.

Because the world has changed so much over the years, the WTO rulebook must be updated. China’s state capitalism economic system is creating significant problems for the world trading system. China’s trading partners are concerned about the high level of state ownership (30% for China) and the government support to the state-owned sectors. These facts lead to conflict with partners both in terms of market access in China and in terms of Chinese competition in other markets. Mr. Lamy notes that the WTO’s rules on state aid are weak. He doesn’t believe one can coexist with China in the WTO if rules on state aid are not toughened (what he describes as achieving “competitive neutrality”). Even with new rules, the geopolitical rivalry between the U.S. and China will remain.

Mr. Lamy agrees with the United States that the current WTO rules do not constrain China’s state capitalism practices which distort competition. He believes that China was making good progress on moving towards a market economy until the 2008-2009 financial crisis. China had lowered state ownership to 15% of the economy. With the financial crisis, China poured huge sums into the economy, including through state-owned enterprises. With the change in political leadership, the country shifted away from a convergence model and has continued to bolster its state capitalism model, now 30% of the economy. For the foreseeable future, the WTO will not be able to achieve convergence by China to a market-economy model, but will have to work on whether coexistence can be made to handle at least many of the distortions.

The Untied States has been pushing the WTO to come to grips with the fact that the WTO set of rules was created for market economies, and to recognize that such rules don’t work for large state capitalism economies. One of the WTO’s Deputy Directors-General, Alan Wolff, in a speech earlier this year, in reviewing principles that undergird the WTO identified convergence, not coexistence, as one of the core principles. See DDG Wolff: “There can be no permanent retreat from what has been created,” 10 June 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_11jun20_e.htm (“Of necessity, the WTO is about convergence, not coexistence”)

In his comments during the Peterson Institute’s Trade Winds webinar, Mr. Lamy indicated that coexistence is possible if there are strong state-aid rules and reviewed the ability of Germany and France to work together in the EC despite France having had relatively high state ownership (around 15%) in the early years. The ability to work with a country with significant state-control was due to stringent state aide rules. The U.S., Japan and EU have been working to pull together improved disciplines on industrial subsidies, action that China has already indicated it will not accept. Mr. Lamy is of the view that China can be brought to the table by parties seeking “competitive neutrality” and by indicating to China that China will not gain additional market access without agreeing to new rules on state aid.

In a post last week, I reviewed an opinion piece by Peter Carl, a former EC Director General for Trade. His take on the same situation was that the EU, US and others should pursue improved disciplines on state aid but when such efforts are rejected by China, the EU and others should leave the WTO and start a new organization without China where convergence would be possible. See July 25, 2020, A new WTO without China?  The July 20, 2020 Les Echos opinion piece by Mogens Peter Carl, a former EC Director General for Trade and then Environment, https://currentthoughtsontrade.com/2020/07/25/a-new-wto-without-china-the-july-20-2020-les-echos-opinion-piece-by-mogens-peter-carl-a-former-ec-director-general-for-trade-and-then-environment/.

Mr. Lamy also reviewed how a functioning WTO is very important for developing and least developed countries. Trade and investment is a big lever for such countries in their development efforts. Thus, if the WTO continues to weaken, it is these countries that will be most hurt. Similarly, these same countries are likely most adversely affected by the trade and economic fallout from the COVID-19 pandemic.

WTO agenda

During the Peterson Institute’s Trade Winds program in June, Mr. Lamy indicated that proponents of open trade were in for a difficult time. He listed five issues of concern. Three were dealt with above (precautionism, government infusions to address COVID-19 pandemic, deglobalization/onshoring). He also reviewed the weaponization of trade, citing both the Trump Administration’s actions and the dispute between Japan and the Republic of Korea, and new forms of protectionism citing investment controls and new instruments.

Mr. Lamy believes that the WTO agenda needs to be looked at in two stages. The first or short term involves finding a new Director-General, and needs to include a cooling down period. My understanding of the cooling down period is to have governments who have poured trillions of dollars into their economies back out of such increased state involvement and permit reestablishment of a level playing field. This period will be a few years and will permit some increase in trust through small steps. He believes there will be a coalition for open trade and that the EU will be the leader depending on the outcome of the upcoming Presidential election in the U.S.

Longer term, Mr. Lamy believes that the WTO must go back to dealing with the big problems:

coexistence with China as long as China has 30% of its economy state-controlled; will require improved rules on state aid;

dealing with the trade and environment nexus; issue keeps rising on the global agenda; EU planned global carbon tax will be important issue;

around the challenge of precautionism, the world will need a new effort to level the playing field possibly similar to prudential rules in the finance system.

EU role in the WTO during the US-China tensions

The EU is serving as a stabilizing force in the WTO. Indeed, the more U.S.-China tensions increase, the more the EU will step in to provide stability. Mr. Lamy states that many WTO members want the EU to be a shield to protect them from having to pick sides with either the U.S. or China. This is a big role for the EU. If EU comes out of the COVID-19 pandemic stronger, it will bolster the role that the EU can play in the WTO to maintain stability.

Mr. Lamy cited the Appellate Body crisis as one where the EU by creating the multi-party interim arbitration agreement took the lead to maintain stability in the organization and got many countries to follow.

Conclusion

Mr. Lamy paints a picture of a challenging time for the world trading system in the coming years. He agrees that the WTO rules do not adequately address distortions that flow from China’s state capitalism economic system. His proposed solution is to coexist but work on obtaining stronger rules on state aid. While the U.S., Japan and the EU agree such improved rules are needed, there is a certain irony in his recognizing the need for stronger rules on state aid, as it was the EU, among others, who pushed for weaker subsidies disciplines during the Uruguay Round.

Mr. Lamy also paints a bleak picture of distortions created by countries’ efforts to stem off economic collapse as countries impose shutdowns to try to control the COVID-19 spread. His argument is from 30,000 feet and is conclusory – the introduction of such huge amounts of money necessarily distorts competition. My own view is that while the question of whether there are distortions is an important one, large parts of the funding don’t increase manufacturing or production but rather form a safety net under employers, employees and state and local governments dealing with an extraordinary situation that doesn’t reflect market forces. Of more use would be agreeing on identification of outcomes that are viewed as distortive versus those outcomes which simply offset the economic fallout from the pandemic. Many industries will end up much smaller after the pandemic than before and any rescue funds provided will reflect an effort to address the extraordinary event of governments mandating closure of markets. Presumably such funding should be agreed to be nonobjectionable. Whereas if an industry in a country expands with government assistance to take advantage of the closure of competitors because of restrictions flowing from efforts to address the pandemic, presumably such subsidies would be problematic.

The longer term issues Mr. Lamy raises will certainly take center stage at some point, but his list does not include any of the large number of pending issues before the WTO where progress will hopefully be made in the coming next year or so – fisheries subsidies, electronic commerce, etc.

What is clear is that the next Director-General will face a very challenging landscape with fundamental differences among many Members that will make forward movement by the WTO and its Members a challenging undertaking.

A new WTO without China? The July 20, 2020 Les Echos opinion piece by Mogens Peter Carl, a former EC Director General for Trade and then Environment

The WTO is an organization in crisis in part because of a system of rules created by market economy countries that doesn’t adequately deal with large economies with different economic systems. China is the largest and most obvious example but by no means the only WTO Member operating economic systems that are not consistent with market economy principles. While China engaged in significant changes to its system in its efforts to join the WTO and had undertaken commitments for further changes that would move China towards a market economy, changes in political leadership led to a reversal in direction, with emphasis on state planning, state-owned and state-invested enterprises to pursue the government’s objectives and massive government subsidies to take over global economic sectors. While China views opposition to its system as a means of trying to hold China back from achieving the economic growth it pursues, many trading partners view China’s approach to global trade and investment as highly disruptive and inconsistent with basic principles of reciprocity and the disciplines of the WTO on market economies.

The Trump Administration has changed the U.S. approach for trying to deal with China by its pursuit of a section 301 investigation and resulting tariffs when it could not get China to change its policies and actions. The U.S.-China Phase 1 Agreement was an effort to find a way to address at least some of the challenging practices and address resulting trade distortions through purchase objectives. Many trading partners have been concerned that the U.S. approach, at least as it involves purchasing objectives, constituted managed trade. A phase two U.S.-China negotiation to deal with remaining major concerns has not started and apparently won’t before the November 2020 U.S. elections.

The European Union and Japan have been working with the United States to put together proposed modifications to existing WTO agreements to deal with some of the aspects of the Chinese economic system (but also relevant to other Members) that cause massive distortions — industrial subsidies, excess capacity, state-owned and state-invested enterprises. China has repeatedly indicated that any efforts to address these issues at the WTO will be blocked by China as such efforts are viewed as aimed at restricting China’s rise.

Earlier this week (July 20), a former EC Director General for Trade, Peter Carl, penned an opinion piece in Les Echos with the provocative title, “A new WTO is needed without China” (literally A new WTO must see the day without China). https://www.lesechos.fr/idees-debats/cercle/opinion-une-nouvelle-omc-doit-voir-le-jour-sans-la-chine-1224748.

Mr. Carl indicates in the opinion piece that “Europe’s trade policy has stagnated for twenty years. It no longer meets the demands of today’s world and the European public attributes the loss of millions of jobs to China.” (all quotes from the opinion piece are informal translations by Google Translate ). The opinion is remarkable as it comes from a former senior EC trade official.

“Our policy is outdated and based on an outdated ideology that is identical to what it was before the arrival of China on the world state, after its accession to the WTO in 2001. Its centralized economy, its powerful industrial policy in all the key sectors, its enormous state subsidies, combined with a government apparatus and a political repression as powerful as those of the ex-USSR, swept large swathes of European and American industry. However, we act as if we were in the heyday of the 1990s, when our main competitors were other market economies, Japan, Korea, the United States. Our inaction resembles the ostrich policy and unilateral pacifism of the 1930s. We know the results. We must therefore protect our liberal economies and our open societies against adversaries. This requires a fundamental review of the trade policy of the European Union and the WTO.”

Mr. Carl calls for a complete reform of the WTO with the EU teaming up with the U.S. and other like-minded Members but recognizes that meaningful reform will be blocked by China. “The solution: withdraw from the WTO and create a new international trade organization without China. Most countries would follow our example. We would return to an open world economic order between market economy countries sharing the same ideas, on the basis of clear and reinforced principles in favor of the free market.” Mr. Carl advocates for the adoption of rules that would deal with “abuses” of the China model including improved subsidy disciplines and “rules against social, environmental dumping and inaction on climate change.” Such new rules are needed to permit the EU to green its economy.

Mr. Carl, addressing concerns that his proposal represents a turn to managed trade, says simply that “This is what we already have, although only China manages it, and we are suffering the consequences.”

That Mr. Carl felt the need to publish such a strongly worded opinion shows the underlying and growing tensions felt by major trading partners from a major economic power with a fundamentally different economic system than that pursued by the historic major players in world trade.

For WTO Members and their businesses and workers, the rising discontent by many with the functioning of the WTO and its ability to achieve meaningful reform should be a wake-up call. The WTO to be relevant must have rules that address the world in the 21st century. The WTO must also be able to have Members assume increased responsibilities as their stage of economic development evolves. Similarly, the WTO must confront whether existing rules can be modified to generate greater coverage of practices by different types of economic systems. If not, the WTO must consider whether it can survive where all Members don’t follow similar economic systems.

Unfortunately, there appears little likelihood that many of these critical reforms will be addressed in the coming years. China has objected to WTO Members trying to modify existing agreements to address distortions caused by China’s economic system. China has also objected to the U.S. effort to have Members consider whether WTO rules require Members to operate market-economy based systems. China and others have objected to U.S. efforts to define “developing country” and effectively have Members take on obligations commensurate to their stage of economic development. Stated differently, China is working hard to defend the status quo and prevent consideration of reforms that would achieve greater balance among all WTO Members.

While USTR Lighthizer and others have said that if the WTO didn’t exist, it would have to be created, Mr. Carl’s opinion suggests that one option that may take on greater appeal is the withdrawal from the WTO and the creation of a new international trade regime among countries with similar economic systems. Such a move away from the WTO would certainly involve enormous economic upheaval and political tensions. The more desirable course of action is to achieve timely reform of the WTO so that all Members feel the system achieves reasonable reciprocity.

Time will tell whether WTO Members find a path forward or whether the WTO becomes less and less relevant and even ceases to function. In a Member driven organization, the answer lies with the membership.

COVID-19 — the United States continues to spin out of control, with increasing shortages of medical goods; sharp increases in developing countries in the Americas and parts of Asia

The last two weeks have seen the case count of new COVID-19 cases in the United States surge out of control across much of the country with a staggering number of new cases reaching 871,922 cases between July 6 and July 19, up from 584,423 cases in the prior two-week period — an increase in new cases of 287,499 or 49.2% in just two weeks. The U.S. accounted for more than half of the global spike in new cases from the last two week period examined (June 22-July 5) from less than 2.5 million new cases for the world to 3,018,993 through July 19. Growth in new cases is occurring in many developing countries as well, but no developed country other than the United States has been unable to cap the level of new cases and, in most instances, bring the number down sharply over time (Russia’s number of new cases has declined but not sharply like other developed countries).

The consequences for the U.S. and the world of the continued rapid growth in new cases are significant. The U.S. is finding many states needing to slow down or reverse the reopening of the economy which will hurt the economic recovery in the United States, result in a continuation of exceptionally high unemployment, threaten hundreds of thousands of businesses with survival, put in jeopardy the ability of schools at all levels to open safely and put downward pressure on global trade based on reduced U.S. demand, restrictions on various major service sectors and production of goods at below optimal levels. Moreover, there are many states facing sharp increases in hospitalizations putting stress on the health care system in many parts of the country and returning states and local communities to scramble for medical goods, including personal protective equipment. There are news articles of some hospital systems facing the same types of shortages that were harming care in the March-April period. Congress is facing the need in the coming days and weeks to provide substantial additional support to the unemployed, to health care systems, to state and local governments, to certain sectors of the economy particularly hard hit. Thus, the U.S. drag on the global economy will likely continue while the U.S. will be chasing medical supplies at a time of growing demand in the developing world, likely making access to many medical goods more expensive and harder to find.

While the Administration has focused on reopening the U.S. economy regardless of the actual situation and has dismissed the increase in new cases as simply the result of increased testing and has claimed that the U.S. has the lowest mortality rate, the facts on the ground indicate the crisis will continue for some time. The United States has just 4.3% of the world’s population but has had 26% of the world’s cases and 23.3% of the world’s deaths from COVID-19. So the bottom line is that the U.S. has a massive and growing health crisis that is far from being under control.

On the question of the death rate and how the U.S. compares to other countries, the table below presents some data which are self-explanatory. Using the daily data from the European Centre for Disease Prevention and Control, I reviewed 42 countries and territories who collectively have accounted for 90.88% of all cases since December 31 and 91.93% of all deaths recorded as due to COVID-19. Through July 19, the U.S. had the sixth highest mortality rate looking at deaths per hundred thousand population (France, Italy, Spain, the United Kingdom and Chile had worse rates ). If one looks at the period since April 11 (three months and eight days, roughly half of the total period), the U.S. had the forth worst mortality rate (deaths per hundred thousand population; Peru, the United Kingdom, and Chile had worse rates). The U.S. death rate is worse than our neighbors, Canada and Mexico. It is worse than that of most European countries, Australia, New Zealand, Japan, South Korea, Singapore and Taiwan. And much worse than China, India, Pakistan, Indonesia, South Africa and many other countries. The U. S. rate of deaths/cases has remained unchanged at 3.78% over the total period and for the period since April 11th. It has been in the more recent period that U.S. testing has expanded significantly, but without any change in rate of death.

While the U.S. ranking of deaths as a percent of total confirmed cases of COVID-19 is better than its ranking based on the number of deaths per 100,000 population, the death rate/100,000 provides the best measure of the relative cost in deaths to each country/territory. Thus, the U.S. death rate is 3.9 times higher than the rate in Germany, 1.8 times the rate in Canada, 54.5 times the rate in Japan, 5 times the rate in Russia, 73.4 times the rate in South Korea, 133.1 times the rate in China, 1419.3 times the rate in Taiwan and 4.5 times the rate of the total of the 42 countries/territories (including the U.S.).

Countrydeaths/100,000 pop.
Dec. 31 – July 19
deaths/100,000 pop.
Aprill 11 – July 19
United Kingdom67.9354.49
Spain60.5526.80
Italy58.0626.82
France44.9925.30
Chile44.0443.70
United States42.5836.87
Peru39.9839.46
Brazil37.3236.82
Mexico30.4830.30
Ecuador30.4028.69
Panama25.2225.08
Canada23.6322.11
Bolivia18.2918.12
Iran16.8611.76
Colombia12.9412.79
Germany10.947.88
Kuwait9.679.65
Iraq9.399.21
Honduras9.148.90
Dominican Republic9.047.87
Russia8.468.40
South Africa8.458.41
Guatemala8.248.22
Saudi Arabia7.187.00
Turkey6.685.45
Oman6.196.13
Qatar5.445.23
Argentina4.924.74
Egypt4.234.10
United Arab Emirates3.463.30
Afghanistan3.063.02
Pakistan2.582.55
India1.961.95
Philippines1.641.45
Bangladesh1.581.57
Indonesia1.481.37
Japan0.780.71
South Korea0.580.17
Singapore0.470.36
Nigeria0.390.38
China0.320.08
Taiwan0.030.01
Total of 42 countries9.517.95

Growth in new cases among developing countries

With the world total confirmed cases of COVID-19 standing at 14.267 million on Sunday, July 19, there were large numbers of new cases over the last two weeks from a large number of countries. Brazil had another 497,856 cases; India had 404,453 new cases; South Africa an additional 162,902 cases; Russia 97,031 new cases; Mexico an additional 86748 cases; Colombia an additional 77,311 cases; Peru 50,420 new cases; Argentina 46,515 new cases; Saudi Arabia an additional 42,487 cases; Bangladesh 42,387 new cases; ten countries each had between 20,000 and 40,000 new cases (Indonesia, Iran, Iraq, Israel, Kazakhstan, Oman, Pakistan, Philippines, Bolivia, Chile); seven countries had between 10,000 and 19,999 new cases (Panama, Kyrgyzstan, Turkey, Guatemala, Ecuador, Dominican Republic, Egypt) with all other countries/territories having less that 10,000 new cases each.

Of the forty-two countries/territories that account for more than 90% of cases and deaths, besides the U.S., there were fourteen where the last two weeks were new highs for the country/territory, that is where the virus is continuing to expand: India, Mexico, South Africa, Argentina, Bolivia, Colombia, Dominican Republic, Ecuador, Guatemala, Panama, Indonesia, Iraq, Oman and the Philippines.

In the last two weeks, the forty-two countries listed in the table above increased their rate of new cases by 22.66%. All other countries increased by 17.46% while the total for all countries increased by 22.22%.

So just as was true in prior posts on the COVID-19 pandemic, the pandemic continues to grow rapidly and is affecting an increasing number of developing and least developed countries. This puts increased pressure on the global supply of medical goods including personal protective equipment. As noted in previous posts and as reviewed on the WTO website, many countries have introduced export restraints particularly for medical goods, but also for some agricultural products. Many have also introduced liberalizing measures to reduce the cost of imports of needed medical goods and to streamline the importing process for such goods.

Vaccines and therapeutics – developments and challenges for access

As reviewed in a prior post, “There have been extraordinary efforts to ramp up research and development around the world to address COVID-19. Through the WHO and other efforts, there have been greater efforts at coordination of R&D and at the identification of gaps in knowledge and research. Large sums are being committed by some countries and NGOs to help ensure that all countries will have access to vaccines and therapeutics that get developed and that such access will be at affordable prices.” July 5, 2020, COVID-19 – the sharp expansion of new cases will put increased pressure on finding vaccines and therapeutics and complicate global economic recovery, https://currentthoughtsontrade.com/2020/07/05/covid-19-the-sharp-expansion-of-new-cases-will-put-increased-pressure-on-finding-vaccines-and-therapeutics-and-complicate-global-economic-recovery/.

A number of vaccines are moving into the stage 3 testing of large numbers of humans in the coming weeks/months. There is hope that one or more products in tests will result in vaccines that get approved for distribution by the end of the year or early in 2021. This week’s Bloomberg Businessweek has a cover article on the University of Oxford COVID-19 vaccine that, if approved, will be distributed by AstraZeneca who has arranged global manufacturing of what could be more than two billion doses. See July 20, 2020, Bloomberg Businessweek, The Front-Runner, pages 42-47. While the University of Oxford has led in the development and testing of the hoped-for vaccine, AstraZeneca has made arrangements with a number of companies around the world to produce the vaccine if approved and has agreements with the United Kingdome for 100 million doses, with the U.S. for 300 million doses and an arrangement with an Indian company to produce 1 billion doses for developing and middle income countries. Id at 46. There are other developmental vaccines that are also making progress through testing stages though their timing for eventual approval (if found efficacious) may be a few months behind the University of Oxford program. The good news, if vaccines get developed quickly which are efficacious, is that the major producers in the west are putting in place plans to provide global production which should go a long way to ensuring equitable access for all at affordable prices. Hopefuly, the University of Oxford/AstraZeneca model will be followed by all. China also has vaccines in test mode, although it is less clear what their approach would be to production and distribution if products are approved.

While the world has seen a very large collective scientific effort to find vaccines and therapeutics, in the last week there have also been claims by three governments (the United Kingdom, Canada and the United States) of cybersecurity attacks from Russia on COVID-19 research programs. See, e.g., CNN, UK, US and Canada alleged Russian cyberattacks on COVID-19 research centers, July 17, 2020, https://www.cnn.com/2020/07/16/politics/russia-cyberattack-covid-vaccine-research/index.html. The link to the UK advisory is here. https://www.ncsc.gov.uk/news/advisory-apt29-targets-covid-19-vaccine-development.

Conclusion

Nearly seven months into the pandemic, the continued growth in the number of new COVID-19 cases is continuing to put pressure on health care systems in many parts of the world and dampen prospects for the global economy’s rapid recovery.

The United States has been unable to get the pandemic under control within its borders and has been leading the growth in new cases. The rapid rate of growth of new cases across much of the United States has led to backtracking by many U.S. states on opening measures taken in the last two months. With the growing challenges in the United States, the U.S. will be a drag on global economic recovery.

While there is more global production of many of the medical goods needed to address COVID-19 ahead of the development of vaccines and therapeutics, the enormous growth in the number of cases and the continued spread in developing and least developing countries along with the United States will continue to test the balance between demand and supply. While the WTO is monitoring developments on export restraints and liberalization measures based on country notifications, large numbers of export restraints on medical goods continue and will likely remain in place for months to come complicating the ability to maximize utilization of scarce supplies.

It has been known that the ultimate return to normal conditions for the world would have to await the development and distribution of vaccines and therapeutics that are efficacious to all peoples on an equitable and affordable basis. But the new “normal” of living with COVID-19 while we await vaccine developments is being frustrated in some countries, like the United States, by an inability to communicate the challenges with a single voice, by the politicizing of basic disease prevention steps like mask wearing and social distancing, by the failure to ramp up testing and tracing sufficiently based on the level of COVID-19 spread and by the lack of support from the body politic (which flows both from the lack of a single message from federal, state and local leaders and from lockdown fatigue). Thus, for the United States and perhaps others, we are seemingly unable to slow the spread through steps many other countries have adopted and that have been known by medical experts for decades if not centuries.

Fortunately, there is positive news coming from the research and development efforts of many companies, universities and research institutes. Let us hope that vaccines and cures are found quickly. The drag on the global economy and the enormous toll on populations will likely continue until then.