European Union

INTELLECTUAL PROPERTY AND INNOVATION: MAKING MSMES COMPETITIVE IN GREEN TECH

Climate change is a major global concern. Indeed, the UN has indicated there is less than a year for countries to get serious about saving the planet by getting their updated national climate action plans (NDCs) submitted. See Time, ‘If This Task Was Urgent Before, It’s Crucial Now.’ U.N. Says World Has 10 Months to Get Serious on Climate Goals, February 26, 2021,https://time.com/5942546/un-emissions-targets-climate-change/; UN Climate Change, Greater Climate Ambition Urged as Initial NDC Synthesis Report Is Published, 26 February 2021, https://unfccc.int/news/greater-climate-ambition-urged-as-initial-ndc-synthesis-report-is-published (“’2021 is a make or break year to confront the global climate emergency. The science is clear, to limit global temperature rise to 1.5C, we must cut global emissions by 45% by 2030 from 2010 levels.  Today’s interim report from the UNFCCC is a red alert for our planet. It shows governments are nowhere close to the level of ambition needed to limit climate change to 1.5 degrees and meet the goals of the Paris Agreement. The major emitters must step up with much more ambitious emissions reductions targets for 2030 in their Nationally Determined Contributions well before the November UN Climate Conference in Glasgow,’ said UN Secretary-General António Guterres.”).

While the largest polluters — China and the United States — haven’t submitted updated NDCs, the Biden Administration is planning on hosting a climate summit in the summer and plans on having more ambitious plans for the U.S. prepared by that time. See Roadmap for a Renewed U.S.-Canada Partnership, February 23, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/23/roadmap-for-a-renewed-u-s-canada-partnership/ (“The Prime Minister and the President expressed their commitment to have their two countries work together on cooperative action ahead of the US-hosted Leaders’ Climate Summit that will allow both countries to increase their climate ambition. The President, in addition to acknowledging Canada’s new strengthened national climate plan and its globally ambitious price on pollution, reiterated his aim to have ready the US nationally determined contribution (NDC) in advance of the Summit and welcomed the Prime Minister’s aim to announce the enhanced 2030 emissions target for its NDC by the Summit as well.”).

At the World Trade Organization, many countries are anxious to explore ways that trade can facilitate addressing the challenges from climate change. Because of the large share of employment around the world by micro-, small- and medium’sized businesses (MSMEs), such businesses are playing and will have to play a critical role in adopting technologies to permit reduction of pollutions threatening the planet.

On February 25, 2021 a group of WTO Members (largely developed countries) submitted a communication to the WTO membership outlining ways that MSMEs can use intellectual property to green their businesses. See INTELLECTUAL PROPERTY AND INNOVATION: MAKING MSMES COMPETITIVE IN GREEN TECH, COMMUNICATION FROM AUSTRALIA, CANADA, CHILE, THE EUROPEAN UNION, JAPAN, SINGAPORE, SWITZERLAND, THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU, THE UNITED KINGDOM AND THE UNITED STATES, IP/C/W/675 (26 February 2021). The paper lays out the purpose of the communication in its introduction copied below.

“1. Some of today’s critical global challenges include climate change, biodiversity loss, environmental degradation and food security. As an example, climate change matters to our health and increases the risk of infections and pandemics.1

“2. Several international efforts such as the Sustainable Development Goals (SDGs), the Convention on Biological Diversity, the UN Framework Convention on Climate Change and the Paris Agreement are designed to address these challenges. In this context, the role of Green Technology2 is important to provide new alternatives to address these challenges and create opportunities that have economic, social, and environmental benefits, as underscored by the framework of the SDGs. Of these, several underline the importance of Environmentally Sound Technologies (ESTs) for the accomplishment of the above objectives.

“3. Micro-, Small and Medium-sized Enterprises (MSMEs) can play a pivotal role in this change towards more sustainability. As they provide for more than 50 percent of employment (G20/OECD, 2015), they can constitute core engines of innovation and growth. MSMEs working in the green tech sector represent key economic actors in the effort towards finding solutions to address the abovementioned global challenges. The role of intellectual property rights (IPRs) to enhance the competitiveness of MSMEs should be looked at closely. IPRs enhance the dissemination and protection of innovations – which is key for MSMEs, including those in the green tech sector (Friesike, Jamali, Bader et al, 2009). This submission presents IPR approaches for making MSMEs more competitive in green tech.

“1 Harvard T.H Chan School of Public Health: https://www.hsph.harvard.edu/cchange/subtopics/coronavirus-and-climate-change/ (last consulted: 09.01.2021).”

The communication then provides information on international and national approaches to helping SMSEs obtain IP protection and/or obtain through license or otherwise existing IP technologies to address greening their businesses. For example, on international approaches, the communication reviews the role WIPO and WTO play in providing easy access to lots of information on intellectual property systems of many countries. WIPO has set up support through WIPO Green to facilitate collaboration on environmentally sound technologies (ESTs) including what technologies are available for licensing, etc.

“5. One important initiative to accelerate the development and dissemination of ESTs is WIPO GREEN, a marketplace designed to connect providers and seekers of ESTs. All technologies listed in the online database of WIPO GREEN are available for license, collaboration, joint ventures, and sale. In addition to establishing a network of various partners, WIPO GREEN contains a database of IP experts, supports acceleration projects in different countries and produces briefs and seminars for various green tech areas. It is thus particularly valuable for MSMEs, given that it facilitates the diffusion of their technologies and provides information to technology providers and seekers in all countries.”

The communication from the WTO Members also includes information on the Technology Mechanism provided by the United Nations Framework Convention on Climate Change and provides information on classification of green technology patents by WIPO, the European Patent Office (EPO) and US Patent and Trademark Office (USPTO).

On national approaches Members can take, the communication focuses on actions the national patent office can take.

“12. There are several ways for IP offices to assist MSMEs in making the best use of IPRs.

“• IP offices can provide basic guidance and assistance on various IPR aspects. By preparing reader-friendly IP material, including patent and trademark basics, examination overviews, information on patent searching and resources on legal assistance that could be used by inventors and businesses in the green tech sector, individual questions and needs may be met.

“• IP offices may provide support in the form of assisting applicants with patent searches, landscape analyses and also facilitate free legal assistance.

“• Specifically with a view to promoting ESTs, IP offices could consider accelerated patent examination procedures for such green tech patent applications. This process shortens the time between application and grant, enabling MSMEs to attain financial support more quickly.

“• Customized workshops, seminars, or awards for the best green tech inventions may also help to make MSMEs that are involved in the green tech sector more aware of the benefits that the IP system may hold for them.”

The complete communication is embedded below.

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Conclusion

While there are presently limited environmental negotiations going on at the WTO (fisheries subsidies), the global race to address a warming world requires greater focus by WTO Members on the role trade can play to improve the global response. Restarting the environmental goods negotiations is one obvious area for negotiations. Addressing carbon leakage through national laws and international negotiations is another. Encouraging collaboration to spread green technology requires no negotiations but is a potentially important component in the global response. Hence the February 25 communication is a valuable contribution to increasing the global focus on how to address the challenges of a warming planet.

WTO Director-General Ngozi Okonjo-Iweala’s first week on the job starts with a two day General Council meeting

While the WTO’s General Council, in special session, appointed Dr. Ngozi Okonjo-Iweala to be the next Director-General on February 15, 2021, her term starts on Monday, March 1. The challenges facing the WTO membership and the incoming Director-General are many and complex. At the same time, there is a lot of useful work that is done within the WTO including efforts of non-members to join the WTO (accessions).

In speaking to an informal Trade Negotiations Committee and Heads of Delegation meeting on February 25, Deputy Director-General Alan Wolff spoke in part on “The Ngozi Okonjo-Iweala Era”. See WTO, DDG Wolff calls on members to work with new Director-General to reform WTO, 25 February 2021, https://www.wto.org/english/news_e/news21_e/ddgaw_25feb21_e.htm. Part of the section of his statement on the new DG’s era is copied below.

“The Ngozi Okonjo-Iweala Era

“The landmark event of the last six months was the appointment of the new Director-General ten days ago after what turned out to be a lengthy process.  91 member delegations spoke last week to congratulate the new Director-General. The DDGs and the Secretariat join you in welcoming Dr Okonjo-Iweala’s appointment with great enthusiasm.

“Of course, member enthusiasm, optimism and hope need to be translated into concrete action.  

“There is much that needs to be done at this critical juncture for the WTO. World trade must contribute to a more effective pandemic response as well as a strong and sustainable economic recovery. Climate issues are demanding more urgent attention. WTO reform is overdue, having been called for repeatedly by you, by your ministers and by many heads of government. 

“The challenges are many but so are the opportunities. Dr Ngozi’s remarks at the Special General Council meeting last Monday, subsequently circulated to delegations in document JOB/GC/250, presented a worthy and ambitious agenda for the members of this organization.

“What did she say?

“To act with a sense of urgency to assist in controlling the COVID-19 pandemic through the nexus of trade and public health:

“First, by playing a more forceful role in exercising the WTO’s monitoring function. Part of this would involve encouraging members to minimise or remove export restrictions that hinder supply chains for medical goods and equipment. WTO monitoring suggests that as of yesterday, 59 members and 7 observers still had pandemic-related export restrictions or licensing requirements in place, mostly for personal protective equipment, disinfectants and to a lesser extent, for medicines and food. This represents a significant level of rollback compared to the 81 members and 10 observers that had implemented such measures over the past year. A welcome development — but there is much room to improve this record.  

“And second, by broadening access to new vaccines, therapeutics, and diagnostics by facilitating technology transfer within the framework of multilateral rules.

“Beyond these immediate responses to the pandemic, Dr Ngozi set out a number of other, also vitally important, challenges:

“To swiftly conclude the fisheries subsidies negotiations, and thus pass a key test of the WTO’s multilateral credibility while contributing to the sustainability of the world’s oceans.

“To build on the new energy in the multilateral trading system from the joint statement initiatives attracting greater support and interest, including from developing countries.

“To address more broadly the nexus between trade and climate change, using trade to create a green and circular economy, to reactivate and broaden negotiations on environmental goods and services, to take the initiative to address the issue of carbon border adjustments as they may affect trade.

“To level the playing field in agricultural trade though improving market access and dealing with trade distorting domestic support, exempting from export restrictions World Food Programme humanitarian purchases.

“To strengthen disciplines on industrial subsidies, including support for state-owned enterprises. 

“To defuse the divisions over Special and Differential Treatment (SDT).

“And to develop a work programme for restoring two-tier dispute resolution, to be agreed no later than MC12.

“I sense from my discussions with members that you chose this leader, Ngozi Okonjo-Iweala, because she has shown herself during her career to be fearless in the face of daunting challenges — and is experienced in knowing how to work with others to make progress toward solutions. 

“Each of the challenges the WTO faces, I am sure, can be met and overcome.  Echoing Dr Ngozi’s words, the trading system that we inherited, now only three-quarters of a century old, is about people.  This is inscribed in the opening section of the Marrakech agreement: ‘to raise living standards, ensure full employment, increase incomes, expand the production of and trade in goods and services, and seek the optimal use of the world’s resources in accordance with the objective of sustainable development.”’

DDG Wolff’s summation correctly lays out many of the issues needing to be addressed by the WTO membership. The vast majority of the issues are highly controversial among at least some Members.

The first major order of business is a two day General Council meeting on March 1-2 which has several agenda items that lay out controversies on important potential deliverables by the WTO in 2021. The agenda for the two day meeting contains sixteen items. See WT/GC/W/820 (26 February 2021) embedded below.

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General Council meetings deal with updates on ongoing work at the WTO and address issues teed up by particular Members for consideration at the meeting. This post does not take up all agenda items but highlights a few of possible interest. Because DDG Wolff’s statement on February 25 reviews many of the activities of the WTO in the last six months which shows some of the positive developments, the full statement is embedded below.

WTO-_-2021-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff-calls-on-members-to-work-with-new-Director-General-to-reform-WTO

The 12th WTO Ministerial Conference

Agenda item 4 deals with the 12th WTO Ministerial Conference. It is expected that there will be a decision on the timing and location of the twelfth Ministerial Conference at the General Council session on Monday-Tuesday. The 12th MC was postponed from June 2020 because of the COVID-19 pandemic. With the continued challenges from the pandemic the likely date will be the end of 2021. Kazakhstan which had offered to host the conference in 2020 and again in the summer of 2021 has recently indicated a willingness to host in December of this year as well. The ministerial had originally been scheduled for June because of challenging weather conditions in Kazakhstan in December. See TWELFTH SESSION OF THE MINISTERIAL CONFERENCE, COMMUNICATION FROM KAZAKHSTAN, 8 February 2021, WT/GC/229 (24 February 2021)(embedded below).

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Report on WTO Accessions

Deputy Director-General Wolff will provide a statement on the annual report on WTO accessions. The report is WTO ACCESSIONS, 2020 ANNUAL REPORT BY THE DIRECTOR-GENERAL, WT/ACC/38, WT/GC/228 (18 February 2021). Activity on accessions was challenged by the pandemic and inability to travel/hold in person meetings. More technical assistance and virtual meetings were held. Accessions are important for acceding governments in terms of promoting reforms at home and obtaining increased certainty in their international trade relations. Accessions are also an important benefit of membership for existing Members as acceding Members reduce tariffs and various non-tariff barriers to gain accession. The first eight paragraphs of the report provide an overview of activities in 2020 and are copied below.

Overview of activities in 2020

“1. 2020 was an unprecedented year in recent history due the COVID-19 pandemic outbreak and its consequences which have touched upon every single aspect of our lives in every corner of the world. It was a challenging year for the WTO, not least because the pandemic disrupted its core activities, especially during the first half of the year, and it also disrupted the international trade of Members, except for supplies of essential goods critical to combatting the health crisis as trade in these goods expanded dramatically. The difficulties and challenges arising from the pandemic were particularly pronounced in acceding governments due to the uncertainties of being outside of the multilateral trading system. In fact, the desire and urgency to be part of the WTO was never felt stronger than in the pandemic year. This was reflected in the level of accession activities in 2020, which was sustained vis-à-vis previous years, with a significant increase in technical assistance and outreach activities.

“2. The year for accessions started with the establishment of a new Working Party for the accession of Curaçao, a constituent country within the Kingdom of the Netherlands (WTO Member), following its application for an independent membership as a separate customs territory pursuant to Article XII of the Marrakesh Agreement. This constituted the 59th request by a state or separate customs territory for membership since the establishment of the Organization in 1995. In July, Turkmenistan was granted observer status in the WTO, with the understanding that it would apply for accession no later than in five years. This brought the total number of observer governments with the intention to accede to the WTO to 24, an increase by five since 2016 when Afghanistan and Liberia became the Organization’s most recent Members. The continuing interest to become part of the multilateral trading system is a testament to the attraction and relevance of its values and principles for all economies, regardless of their size or level of development.

“3. The COVID-19 pandemic undoubtedly hampered or delayed the technical work by acceding governments, Members and the Secretariat to prepare for, engage in and follow up on Working Party meetings. However, thanks to the firm commitment of the acceding governments to advance their work, four Working Parties met, including through the use of virtual platforms that connected the acceding governments which were unable to travel to Geneva. One acceding government had to cancel its already scheduled meeting due to the suspension of all WTO meetings in March. Out of the four accession Working Party meetings held in 2020, three were on LDC accessions (Ethiopia, Comoros and Timor-Leste). In two cases – the Working Parties of Ethiopia and Uzbekistan – this also represented the formal resumption of accession processes after several years of inactivity (8 and 15 years, respectively), signalling their desire to use WTO membership negotiations to drive domestic economic reforms, which have broader implications in the regions where they are located.

“4. When the pandemic halted planned missions, technical assistance, and outreach activities which required air travel, the Secretariat rapidly shifted the mode of operation to virtual format and took advantage of the opportunities provided thereby. In addition to the formal accession Working Party meetings which took place via Interprefy, the Accessions Division organised virtual technical meetings and briefing sessions with acceding governments, Working Party Chairpersons and partners in support of accessions. Moreover, the Division delivered a number of technical assistance, training and outreach activities in response to articulated needs of acceding governments, using various virtual platforms, such as MS Teams, Zoom and WebEx. In fact, the number of activities delivered by the Division and of participants who attended or were trained in 2020 exceeded considerably the numbers in previous years.

“5. One of the novel outreach programs developed in 2020 was two week-long activities which consisted of a series of webinars combining lectures, training and panel discussions. The first Accessions Week was organised from 29 June to 3 July, and the first edition of the Trade for Peace Week took place from 30 November to 4 December. These virtual events brought together a large number of resource persons and panellists from around the world and reached out to a larger number of participants, in a highly cost-effective manner, in comparison with traditional in-person activities. While the full values and benefits of in-person interaction cannot be replaced or replicated, the Accessions Week enabled the Secretariat to remain engaged with acceding governments and Members, experts and partners, beyond Geneva and around the world. The Trade for Peace Week provided an effective networking platform to expand the WTO’s partnership with the peace and humanitarian communities in support of fragile and conflict affected (FCA) countries in accession.

“6. The importance of collaboration and cooperation with partners was never felt more strongly than in 2020. The Secretariat made concerted efforts to enhance and expand the “Trade for Peace through WTO Accession” Initiative to support FCA countries in accession and those recently acceded to the WTO. In 2020, nine acceding governments were identified as being in a FCA situation according to the World Bank’s classification1, while conflicts emerged or resurged in some others. The pandemic hit hardest countries which had already been suffering from years of conflict, political crises, drought and other natural disasters, compounded by declines of the price of oil and other commodities. Nonetheless, some FCA acceding LDCs showed remarkable resilience in sustaining their engagement in accession. The Working Party on the Accession of the Union of Comoros resumed its work with determination to finalise the process as soon as possible. The Working Party on the Accession of Timor-Leste activated the Working Party by holding its first meeting nearly four years after its establishment, despite various challenges faced on the domestic front. Moreover, Somalia submitted its Memorandum on the Foreign Trade Regime, the base document to start its accession engagement with Members. Furthermore, the Secretariat continued to provide support to the g7+ WTO Accessions Group, which was coordinated by Afghanistan.

“7. The year 2020 marked the 25th anniversary of the WTO. The Secretariat used its annual flagship event, the China Round Table on WTO Accessions, to review the contributions made by accessions to the multilateral trading system since 1995. The event also provided an opportunity for an exchange of ideas to explore the future expansion of WTO membership towards universality, including through possible improvements in the accession process. The year also marked a significant anniversary milestone for five Article XII Members2 – Albania, Croatia, Georgia, Jordan and Oman which joined the WTO in 2000, the year with the largest number of new members to date. Other anniversary milestones included the fifth anniversaries of Membership of Kazakhstan and Seychelles and the fifteenth anniversary for the Kingdom of Saudi Arabia. In recent years, membership anniversaries have become an important occasion to reflect on the benefits and values of being part of the Organization.

“8. Finally, the thematic focus of the 2020 Annual Report was on the complementarities and synergies in negotiating WTO membership and regional trade agreements. Almost all acceding governments are involved in regional integration initiatives in parallel with their efforts to achieve WTO membership. The highlight of the year was the implementation of the African Continental Free Trade Area (AfCFTA) to which all African WTO applicants are signatories. The Report’s thematic section builds on the rich discussions held on the topic during the 2020 Regional Dialogues on WTO Accessions for Africa and for the Arab Region, as well as other meetings on Central Asia and Eurasia. It aims to explore key opportunities and challenges that may arise in a simultaneous pursuit of regional and global integration efforts and to provide a checklist of issues for trade negotiators to consider in maximising the benefits from the participation in multiple trade arrangements.”

The full report is embedded below.

WTACC38

Waiver of TRIPS Obligations During COVID-19 Pandemic

The sixth agenda item involves the effort from India and South Africa with a number of other developing or least developed countries to obtain a waiver from most TRIPS obligations on medical goods needed for the COVID-19 pandemic. This has been a very controversial issue with developed countries with pharmaceutical companies involved in the production of vaccines and other items opposing the waiver on the basis of existing flexibilities within the TRIPS Agreement and on the global efforts through the WHO, GAVI and CEPI to provide vaccines to low- and middle-income countries through COVAX with financial contributions from many countries, NGOs and others. See, e.g., February 19, 2021, COVAX’s efforts to distribute COVID-19 vaccines  to low- and middle income countries — additional momentum received from G-7 virtual meeting, https://currentthoughtsontrade.com/2021/02/19/covaxs-efforts-to-distribute-covid-19-vaccines-to-low-and-middle-income-countries-additional-momentum-from-g-7-virtual-meeting/

The TRIPS Council received the proposal back in October but has been unable to provide a recommendation to the General Council. A meeting of the TRIPS Council earlier this month continued the lack of agreement. Thus, the agenda item will simply result in the item being continued on the General Council’s future agendas until resolved or dropped. See WTO, Members discuss TRIPS waiver request, exchange views on IP role amid a pandemic, 23 February 2021, https://www.wto.org/english/news_e/news21_e/trip_23feb21_e.htm (” In this context and given the lack of consensus on the waiver request, members agreed to adopt an oral status report to be presented to the General Council at its next meeting on 1-2 March. The report indicates that the TRIPS Council has not yet completed its consideration of the waiver request and therefore will continue discussions and report back to the General Council.”); December 11, 2020, Council for Trade-Related Aspects of Intellectual Property Rights meeting of December 10, 2020 – no resolution on proposed waiver of TRIPS obligations to address the pandemic, https://currentthoughtsontrade.com/2020/12/11/council-for-trade-related-aspects-of-intellectual-property-rights-meeting-of-december-10-2020-no-resolution-on-proposed-waiver-of-trips-obligations-to-address-the-pandemic/; December 6, 2020, Upcoming December 11th Council for Trade-Related Aspects of Intellectual Property Rights meeting – reaction to proposed waiver from TRIPS obligations to address COVID-19, https://currentthoughtsontrade.com/2020/12/06/upcoming-december-11th-wto-council-for-trade-related-aspects-of-intellectual-property-rights-meeting-reaction-to-proposed-waiver-from-trips-obligations-to-address-covid-19/; November 2, 2020, India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

Fisheries Subsidies negotiations — Draft Ministerial Decision

The WTO has been pursuing negotiations on fisheries subsidies to address sustainable fishing concerns since the end of 2001. Conclusion of the negotiations were supposed to take place in 2020 but WTO Members were unable to get the job completed in part because of disruptions from the COVID-19 pandemic. While completing the negotiations remains a key objective of Members and the incoming Director-General and such completion is needed to fulfill the UN Sustainable Development Goal 14.6, WTO Members continue to face a large number of challenging issues. See, e.g., WTO press release, WTO members hold February cluster of meetings for fisheries subsidies negotiations, 24 February 2021, https://www.wto.org/english/news_e/news21_e/fish_24feb21_e.htm; February 22, 2021, An early test for the incoming WTO Director-General — helping Members get the Fisheries Subsidies negotiations to a conclusion, https://currentthoughtsontrade.com/2021/02/22/an-early-test-for-the-incoming-wto-director-general-helping-members-get-the-fisheries-subsidies-negotiations-to-a-conclusion/.

Agenda item 7 is entitled “Supporting the Conclusion of Fisheries Subsidies Negotiations for the Sustainability of the Ocean and Fishing Communities — Draft Ministerial Decision — Communication from Brazil (WT/GC/W/815. The draft Ministerial Decision is an effort by Brazil to highlight the critical aspect of the negotiations which is to address environmental sustainability and presumably reflects Brazil’s concerns with the efforts of so many Members to protect their subsidies versus ensuring sustainable fishing. The document is embedded below.

WTGCW815

An attack on Joint Statement Initiatives

As reviewed in the incoming Director-General’s statement on February 15 and the summary of her statement by DDG Wolff on February 25, an important aspect of ongoing work at the WTO is a number of Joint Statement Initiatives that were started at the end of the 11th Ministerial Conference in Buenos Aires, including on e-commerce/digital trade.

Agenda item 10 is a frontal attack on such initiatives by India and South Africa through their paper, “Legal Status of Joint Statement Initiatives and Their Negotiated Outcomes”, WT/GC/819. I had reviewed the submission in an earlier post. See February 20, 2021, Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/. The agenda item will like see many delegations take the floor to support the use of joint statement initiatives within the WTO or to oppose them. While there won’t be a resolution of the issue, the challenge to the process could significantly handicap some of the efforts envisioned by the incoming Director-General to help developing and least developed countries take advantage of the e-commerce/digital trade world and eventually participate in talks and/or in an agreement. WT/GC/W/819 is embedded below.

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Agenda item 8 is viewed as related to agenda item 10. India has been seeking to limit WTO consideration of e-commerce issues to the multilateral efforts over many years within the existing Councils and Committees of the WTO (but where limited progress has been made).

COVID-19 and possible future pandemics — addressing existing trade restrictions and improving the functioning of the WTO to better handle in the future

The incoming Director-General has as a high priority to work with Members to improve monitoring of export restraints on medical goods and agricultural goods during the pandemic and working with Members to see that the WTO helps Members recover and better handle any future pandemics. The Ottawa Group had put forward a trade and health initiative in November 2020. See COVID-19 AND BEYOND: TRADE AND HEALTH, WT/GC/223 (24 November 2020). The communication was made by Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland. The document contains an annex reviewing the types of actions Members could take to improve the response to the pandemic and improve conditions going forward. Included in the annex to the communication are sections on export restrictions; customs, services and technical regulations; tariffs; transparency and review; cooperation of the WTO with other organizations. Several paragraphs in the communication review the issue of possible export restrictions on vaccines and are copied below.

“9. We realize that the challenges related to the scarcity of essential medical goods, now alleviated to some extent by the response on the supply side, may be repeated at the moment of the development of a vaccine or new medical treatments. In this context, we welcome the COVID-19 Vaccine Global Access Facility (COVAX), a global pooled procurement mechanism for COVID-19 vaccines, managed by Gavi, the Vaccine Alliance, the Coalition for Epidemic Preparedness Innovations (CEPI) and WHO. This mechanism is critical in securing an equitable share of vaccines for all Members of the international community. As we strongly support the objective of this facility, we call on WTO Members to ensure that any export-restricting measures do not pose a barrier to the delivery of necessary supplies under the COVAX facility.

“10. We recognize the collaborative efforts of private and public stakeholders in the research and development of COVID-19 diagnostics, vaccines and treatments. We encourage the industry to take actions to ensure access at affordable prices to COVID-19 diagnostics, vaccines and treatments for vulnerable populations and support voluntary pooling and licensing of IP rights to accelerate the development of such diagnostics, treatments and vaccines and scaling up their production. We recognize the importance of the IP system in promoting R&D and innovation for access to effective treatments. We note that the flexibilities provided by the TRIPS Agreement and reaffirmed in the Doha Declaration on the TRIPS Agreement and Public Health remain available to protect public health and to promote access to medicines for all.”

The full document is embedded below.

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Canada will be providing an update on the initiative at the General Council meeting and will likely see many Members provide comments on the agenda item.

Agenda item 9 was added by Colombia, Costa Rica, Ecuador, Panama and Paraguay reflecting concerns by them (and presumably many other trading partners) about actions taken by the European Union to exert control over exports of vaccines from the EU in light of EU concerns about its own access to vaccines from manufacturers. See CALL TO PREVENT EXPORT RESTRICTIONS ON COVID-19 VACCINES, WT/GC/818 (18 February 2021). The document is embedded below.

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Since the EU is one of the Members who has pushed the trade and health initiative, there is concern by some WTO Members that its actions on vaccines run counter to the initiative it is supporting. Presumably the EU will argue that its actions are consistent with its rights under the WTO and is consistent with the language laid out in paragraphs 9 and 10 above.

The two agenda items are likely to show the concerns of many Members on equitable access to medical goods during the pandemic and the reluctance of at least some Members to reduce their flexibilities under the existing WTO rights and obligations.

Conclusion

DDG Wolff indicated that Members selected the incoming Director-General because she is “fearless in the face of daunting challenges”. There is no shortage of daunting challenges facing the WTO and its new Director-General. A few have been reviewed above.

Some good news is that the EU and the United States are supportive of many of the priorities laid out by DG Ngozi Okonjo-Iweala in her February 15 statement to the Special Session of the General Council as seen in the recent EU revised trade policy and the opening statement of USTR nominee Katherine Tai at yesterday’s Senate Finance Committee confirmation hearing See February 18, 2021, The European Commission’s 18 February 2021 Trade Policy Review paper and Annex — WTO reform and much more proposed, https://currentthoughtsontrade.com/2021/02/18/the-european-commissions-18-february-2021-trade-policy-review-paper-wto-reform-and-much-more-proposed/; February 25, 2021, U.S. Trade Representative nominee Katherine Tai confirmation hearing before the U.S. Senate Finance Committee, https://currentthoughtsontrade.com/2021/02/25/u-s-trade-representative-nominee-katherine-tai-confirmation-hearing-before-the-u-s-senate-finance-committee/.

The challenges the new Director-General and the WTO Members face will be made harder by the lack among Members of a common vision and agreed purpose of the WTO, by the current inability of the WTO system to address fundamentally different economic systems, by the structure of decision making, by the failure of obligations to be updated to match level of economic development and role in global trade and by the related issue of how special and differential treatment is used. These challenges have resulted in a negotiating function that is broken, in a dispute settlement system that has no checks on the reviewers for errors or failures to operate within the bounds of authority granted in the Dispute Settlement Understanding and in the underperformance of the monitoring and implementation function.

Hopefully, DG Okonjo-Iweala will develop a strong personal staff and group of DDGs to help her attempt the seemingly impossible — getting meaningful progress and reform from the 164 current WTO Members. See February 13, 2021, Leadership change at the WTO — with Dr. Ngozi Okonjo-Iweala’s arrival next week, what support team and early changes in the role of the Secretariat could help WTO Members move forward?, https://currentthoughtsontrade.com/2021/02/13/leadership-change-at-the-wto-with-dr-ngozi-okonjo-iwealas-arrival-next-week-what-support-team-and-early-changes-in-the-role-of-the-secretariat-could-help-wto-members-move-forward/

Director-General Ngozi Okonjo-Iweala will get her first reality check at the General Council meeting on March 1-2.


Roadmap for a Renewed U.S.-Canada Partnership — Implications for WTO initiatives

On February 23, 2021 President Biden and Prime Minister Trudeau had a virtual meeting to review a wide range of topics and released an agreed “Roadmap for a Renewed U.S.-Canada Partnership”. Major topics addressed included (1) combating COVID-19, (2) building back better (i.e., economic recovery after the pandemic), (3) accelerating climate ambitions, (4) advancing diversity and inclusion, (5) bolstering security and defense and (6) building global alliances. A number of these topics are relevant to the work of the World Trade Organization (ongoing or possible). See Roadmap for a Renewed U.S. Canada Partnership, February 23, 2021,https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/23/roadmap-for-a-renewed-u-s-canada-partnership/. This post reviews briefly some of the issues in the roadmap that resonate more broadly in a global trade context.

Combating COVID-19

For example, on combating COVID-19, several of the paragraphs in the roadmap review working together to help ensure equitable access to vaccines through COVAX. Whether sufficient vaccines can be made available to low- and middle-income countries is a matter of concern to many WTO Members including some who have been pushing for waiving TRIPS Agreement obligations during the pandemic. Many developed countries have viewed there being adequate flexibility within the TRIPS Agreement to address the present pandemic and have pointed to the collective efforts of the WHO, GAVI and CEPI in setting up COVAX to procure billions of doses of vaccines both for countries needing assistance and for other countries wanting to acquire vaccines through COVAX. The big issue for COVAX has been adequate funding. The U.S. is donating $2 billion in the near term and another $2 billion over the rest of 2021 and 2022. Canada has also made pledges of support to COVAX. Thus, the roadmap is both supportive of global efforts to get vaccines to countries in need and likely supportive of opposing efforts to waive TRIPS rights and obligations during the pandemic. Some excerpts from the combating COVID-19 section are copied below.

“The top priority of the President and the Prime Minister is to end the COVID-19 pandemic. They agreed to strengthen comprehensive and cross-sectoral efforts to control the pandemic, collaborate on public health responses, and build resilience against future outbreaks.

‘The Prime Minister and the President committed to working closely together to defeat the virus, including by surging the health and humanitarian response to the global pandemic, responding to new variants, following expert advice, and supporting global affordable access to and delivery of COVID-19 vaccines, including through the COVAX Facility.

“The leaders emphasized their strong support for the multilateral institutions that are on the front lines of COVID-19 response, including the World Health Organization (WHO) and UN development agencies, and committed to rapidly fulfilling national pledges to COVAX.”

While not addressed in the roadmap document, both Canada and the U.S. at the WTO have been supportive of not imposing restrictions on agricultural exports and through the G-20 have been supportive of limiting the role of export restraints on medical goods. There is discussion in the building back better section of strengthening “Canada-U.S. supply chain security” which may have implications for whether some actions relevant to medical goods are adopted that will diversify supply or encourage more production within the U.S. and Canada.

The interest by the United States under the Biden Administration in supporting multilateral organizations like the WTO may also suggest that the U.S. will now be more amenable to working with the Ottawa Group (of which Canada is a member) on the Trade and Health Initiative that was introduced last December. See Government of Canada, Minister Ng announces tabling of Ottawa Group’s Trade and Health Initiative at WTO General Council, December 17, 2020, https://www.canada.ca/en/global-affairs/news/2020/12/minister-ng-announces-tabling-of-ottawa-groups-trade-and-health-initiative-at-wto-general-council.html (“Through this Trade and Health Initiative, Canada and the other 12 Ottawa Group member nations are calling for further cooperation among all WTO members to strengthen global supply chains and facilitate the flow of essential medicines and medical supplies, including vaccines, amid the current crisis. The Trade and Health Initiative identifies a range of actions that members are encouraged to adopt. These include implementing trade-facilitating measures in the areas of customs and services, limiting export restrictions, temporarily removing or reducing tariffs on essential medical goods, and improving transparency overall.”); December 18, 2020, The WTO ends the year with General Council and Dispute Settlement Body meetings, https://currentthoughtsontrade.com/2020/12/18/the-wto-ends-the-year-with-general-council-and-dispute-settlement-body-meetings/; November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/.

Building back better (recovery from the pandemic)

Much of the section on building back better addresses the collective needs to support groups that have been disproportionately affected by the pandemic including “women, youth, underrepresented groups and indigenous peoples.” Assistance to such groups and to small and medium-sized enterprises is an important component of building back better. It also reflects present WTO focus on helping women and micro-, small- and medium-sized businesses better participate in the global economy and in international trade in particular. Actions by Canada and the U.S. will be pursued in part under existing commitments within the USMCA but also will be supportive of WTO initiatives and UN Sustainable Development Goals.

Other agreed steps by Canada and the U.S. in this section deal with building supply chain for battery development and production which is consistent with the leaders’ objective of advancing reductions in greenhouse gases. The U.S. and Canada also encourage “international regulatory cooperation” to enhance “economic competitiveness” “while maintaining high standards of public health, safety, labor, and environmental protection.” As reviewed below, trade and climate change/environment are likely to be of greater interest within the WTO moving forward. The WTO SPS and TBT Agreements also encourage international regulatory cooperation to facilitate trade. Thus, U.S.-Canada actions are supportive of existing rights and obligations and leading the way on future needs.

Accelerating Climate Ambitions

With the U.S. having rejoined the Paris Agreement since President Biden took office, the U.S. position is now more aligned with Canada and with that of the European Union in terms of needing “to increase the scale and speed of action to address the climate crisis and better protect nature.” Of particular interest is the commitment to action against countries who don’t take adequate action to reduce greenhouse gases .

“The President also restated his commitment to holding polluters accountable for their actions. Both the President and the Prime Minister agreed to work together to protect businesses, workers and communities in both countries from unfair trade by countries failing to take strong climate action.”

The language in the roadmap suggests that the U.S. and Canada will be interested in exploring options similar to those being prepared by the European Union on a duty or tax on imported products produced with higher levels of greenhouse gases to prevent leakage. The incoming Director-General has acknowledged that Members are looking at how to make trade help address the climate crisis. See APPOINTMENT OF THE NEXT DIRECTOR-GENERAL, STATEMENT OF THE DIRECTOR-GENERAL ELECT DR. NGOZI OKONJO-IWEALA TO THE SPECIAL SESSION OF THE WTO GENERAL COUNCIL, 15 February 2021, JOB/GC/250 (16 February 2021)(para. 1.14, “1.14. We should also work to ensure that the WTO best supports the green and circular economy and addresses more broadly the nexus between trade and climate change. Trade and environmental protection can be mutually reinforcing, both contributing to sustainable development. It will be important for Members to reactivate and broaden the negotiations on environmental goods and services. This would help promote trust and encourage Members to explore further ways in which trade can contribute positively to an improved climate. Care must, however, be taken to ensure that any disciplines are not used arbitrarily or as a disguised restriction on trade, and that they take into account the need for developing countries to be assisted to transition to the use of greener and more environmentally friendly technologies.”); February 16, 2021, Special Session of the General Council at WTO appoints Dr. Ngozi Okonjo-Iweala as the seventh Director-General, https://currentthoughtsontrade.com/2021/02/16/special-session-of-the-general-council-at-wto-appoints-dr-ngozi-okonjo-iweala-as-the-seventh-director-general/.

Building Global Alliances

While much broader than just trade, the commitment to multilateralism announced by President Biden and Prime Minister Trudeau included “firm commitment to the United Nations, G7 and G20, as well as NATO, the WTO, and the Five Eyes community.” Both Canada and the United States support significant reform at the WTO. One can expect closer collaboration between the U.S. and Canada on many reform initiatives at the WTO.

This section of the roadmap also addresses the need to jointly address China. “They also discussed ways to more closely align our
approaches to China, including to address the challenges it presents to our collective interest and to the international rules-based order. This includes dealing with its coercive and unfair economic practices, national security challenges, and human rights abuses, while cooperating with China on areas where it is in our interest, such as climate change.” WTO reform to be meaningful will have to have elements that will address the noncoverage of various actions by state-capital countries like China that distort global trade flows, create massive excess capacity, force technology transfer, limit transparency and market access in fact. While some efforts can be through consultations by the U.S. with other trading partners like Canada and the EU, multilateral reform is also critical for the functioning of the global trading system.

Conclusion

President Biden’s efforts are restoring strong relationships with our neighbors and renewed engagement with multilateral organizations has been apparent during the first five weeks of his Presidency. Yesterday’s virtual meeting between President Biden and Prime Minister Trudeau reflects the strong bonds between the U.S. and Canada. The roadmap presents areas of joint interest and future activity to deepen our close partnership. The roadmap also has a number of signals of likely U.S.-Canada cooperation in global trade and on WTO reform which should attract support from a number of other major trading partners at the WTO.

The roadmap and joint press statements are embedded below.

Roadmap-for-a-Renewed-U.S.-Canada-Partnership-_-The-White-House

Remarks-by-President-Biden-and-Prime-Minister-Trudeau-of-Canada-in-Joint-Press-Statements-_-The-White-House

An early test for the incoming WTO Director-General — helping Members get the Fisheries Subsidies negotiations to a conclusion

Dr. Ngozi Okonjo-Iweala in her statement to the WTO membership during the virtual Special Session of the General Council on February 15 after the Members appointed her the next Director-General made clear that an early deliverable for the WTO was completion of the Fisheries Subsidies negotiations which have been going on since the end of 2001 and were due to have been completed in 2020. See February 16, 2021, Special Session of the General Council at WTO appoints Dr. Ngozi Okonjo-Iweala as the seventh Director-General, https://currentthoughtsontrade.com/2021/02/16/special-session-of-the-general-council-at-wto-appoints-dr-ngozi-okonjo-iweala-as-the-seventh-director-general/.

The Chair of the Negotiating Group on Rules, Amb. Santiago Wills of Colombia, has held two sets of meetings so far in 2021, one in January and one just last week. See WTO Negotiations on Fisheries Subsidies, WTO members resume work on fisheries subsidies negotiations using latest revised text, 22 January 2021, https://www.wto.org/english/news_e/news21_e/fish_22jan21_e.htm; Inside U.S. Trade’s World Trade Online, Fisheries talks chair: Divides remain, but members have what they need for a deal, February 19, 2021, https://insidetrade.com/daily-news/fisheries-talks-chair-divides-remain-members-have-what-they-need-deal. The press releases following the meetings indicate that there has been little movement in fact in 2021 on the host of major issues that remain for Members to resolve. A review of the second revision of the draft text that was released on December 18, 2020 and the Chair’s explanatory note that accompanied the second draft make clear that Members remain divided on a huge array of issues. See RD/TN/RL/126/Rev.2 and RD/TN/RL/126/Rev.2/Add.1.

For example, there is still no agreement on whether the scope of the agreement will cover fuel subsidies (Article 1.2).

Similarly there is not currently agreement on whether the definition of “fishing related activities” in Article 2(c) include coverage of provisions “of personnel, fuel, gear and other supplies at sea”.

Article 3 which deals with the “prohibition on subsidies to illegal, unreported and unregulated fishing” (IUU) consists of nine sub-articles, many of which remain bracketed whether it revolves around which entity can make a finding of IUU activity, whether leniency will be provided for non-serious violations and which violations will always be addressed, the length of sanctions, the level of transparency and obligations of Members, and whether there are exceptions (special and differential treatment (S&DT)) from the prohibitions on IUU. As is true throughout the revised draft, there are deep divides on the special and differential treatment provisions reflecting the concerns expressed by Members like the U.S. and EU on the overbreadth of Members seeking such treatment and the views of Members like India who view such S&DT as applicable to all who claim developing country status.

Article 4 addresses prohibition on subsidies concerning overfished stocks, there continues to be disagreement, inter alia, on when a fish stock is overfished (two alternatives provided) and on what S&DT will be provided.

Article 5 addresses the prohibition on subsidies concerning overcapacity and overfishing contains. Article 5 contains seven sub-articles, a number of which maintain brackets including on “non-recovery of payments under government-to-government access agreements” (Art. 5.3.2), for subsidies provided to a vessel “not flying the flag of the subsidizing member” (Art. 5.4) on whether there will be a provision for “capping” (Art. 5.5) or a “list of non-harmful subsidies” (Art. 5.6) or for S&DT language (Art. 5.7). Art. 5.3 also deals in part with subsidies for fishing or fishing activities outside of a Member’s territory, obviously a very important and contentious issue.

Article 6 dealing with “specific provisions for LDC Members” has not been discussed and remains in brackets but reflects the proposal put forward by LDC Members.

Article 7 is for technical assistance and capacity building. While bracketed, the proposal has not received significant opposition at this point and appears to be largely non-controversial.

On Articles 8-10 (notification and transparency, institutional arrangements, dispute settlement), discussions are ongoing as to what needs to be notified and ability of Members to request additional information. Articles 9 and 10 depend on whether the fisheries subsidies agreement is treated as a stand-alone Agreement or is treated as an Annex to the Subsidies and Countervailing Measures Agreement. If an Annex, dispute settlement is already provided for; if treated as a stand alone Agreement, then there will need to be an article providing for dispute settlement.

Article 11 covers final provisions and addresses issues such as whether Members will “exercise due restraint” when providing subsidies to fishing or fishing related activities for stocks where the status of the stock (overfished or not) is unknown (Art. 11.2). It also lays out possible exceptions for responding to disasters (and what limits such response shall have)(Art. 11.3) The article also makes clear that the Agreement (or Annex) is not germane to issues of “territoriality or delimitation of maritime jurisdiction” (Art. 11.4).

While the revised draft consolidated text could result in meaningful reform and limitations on harmful subsidies, much of the ongoing debate amongst Members seems to be about how to create exceptions that will permit continued subsidy practices for many Members both within territorial waters and outside of them. The perennial problem within the WTO that reform should be undertaken by others, not by me, is present in the fisheries subsidies negotiations. Can Members demonstrate the ability to come together for the common good? Hard to know as WTO Members have been negotiating for twenty years on fisheries subsidies reform. The Sustainable Development Agenda item 14.6 is designed to help save fishing for all peoples for generations to come. The WTO and the incoming Director-General have an important opportunity to show that global trade can promote sustainability. Let’s hope that a meaningful agreement is yet achievable.

Afterthought

While the revised draft consolidated text provided to Members on December 18, 2020 is clearly a Chairman’s draft, like many drafts in other areas that have routinely be released publicly, the WTO has been slipping into an increased pretense that such texts are “unofficial room documents” and hence not released publicly. While both documents (RD/TN/RL/126/Rev.2 and RD/TN/RL/126/Rev.2/Add. 1) can be found on the internet for those trying to understand the ongoing negotiations, the WTO does not promote transparency and public understanding by pretending that core negotiating documents or draft texts are “unofficial room documents”. Hopefully, the chairs of Committees and leadership within the WTO will correct course and improve transparency in fact and end the misuse of room documents, job documents and other “unofficial” documents which often are the core documents in a negotiation or Committee work.

Will India and South Africa (and others) prevent future relevance of the WTO?

The WTO has struggled to remain relevant as global technology and trade issues evolve from where they were in the 1980s. Part of the challenge flows from the widely divergent interests of a growing membership (currently 164 countries) which coupled with the consensus principle for decision making means any Member can shut down or prevent progress. Part flows from the failure/inability to update commitments based on changing stages of economic development and share of global trade. Part flows from the increased importance of Members whose economic systems are not market-premised under rules which assume such a market orientation. Part flows from the effort of some to seek new rights through dispute settlement and by ineffective controls to prevent excesses by the panels and Appellate Body system adopted in 1994. Part flows from the crises of the COVID-19 pandemic and climate change and the glacier pace of deliberations within the WTO.

All of these forces have led WTO Members to focus energies on bilateral and plurilateral trade agreements and to start a process of so-called Joint Statement Initiatives to let countries desiring to address new or uncovered issues do so.

With the WTO finally having appointed a new Director-General whose priorities include addressing longstanding issues, but also achieving progress on the Joint Statement Initiatives — including digital trade/e-commerce and others — and with the European Union’s 18 February trade policy paper and Annex dealing with WTO reform and indicating the importance of flexibility for bringing open plurilaterals into the WTO, India and South Africa have filed a communication for discussion at the March 1-2, 2021 General Council meeting challenging the “legal status of Joint Statement Initiatives and their negotiated outcomes”. See WT/GC/W/819, 19 February 2021. The Indian and South African paper is embedded below.

WTGCW819

The paper from India and South Africa raises interesting points about existing WTO provisions for modifications of existing agreements and for adding plurilateral agreements and other issues. But the real question for the WTO is whether updating of rules and coverage of technological change and global developments will happen within or outside of the WTO. No issue describes this better than digital trade. Existing WTO rules don’t really address digital trade which has become increasingly important for all countries. While the WTO has had digital trade on its radar since 1998, there has been no meaningful progress within the WTO on multilateral rules. See WTO, Electronic commerce, https://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm. The Joint Statement Initiative on digital trade started in Buenos Aires in late 2017 is an effort by some WTO Members to develop rules for those willing to participate that address important issues affecting digital trade today. See WTO Ministerial Conference, New initiatives on electronic commerce, investment facilitation and MSMEs, https://www.wto.org/english/news_e/news17_e/minis_13dec17_e.htm; JOINT STATEMENT ON ELECTRONIC COMMERCE,WT/MIN(17)/60, 13 December 2017, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/MIN17/60.pdf&Open=True. The JSI on e-commerce presently has 86 WTO Members participating in the negotiations and is making progress towards potential results as early as the 12th WTO Ministerial Conference in late 2021. See, e.g., Joint Statement on E-Commerce, 18 December 2020, Coordinators of joint initiatives cite substantial progress in discussions, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.htm. Embedded below is the 2017 Joint Statement Initiative, the December 2020 Joint Statement on E-Commerce and the December draft text.

60

jsec_18dec20_e

wto_plurilateral_ecommerce_draft_consolidated_text

Conclusion

The paper from India and South Africa may reflect a desire to have an early discussion of what additional flexibilities are needed in the WTO to permit easier inclusion of plurilateral agreements within the WTO. The paper could also be an effort to add leverage to obtaining focus on issues of importance to India and South Africa. It could also be a signal that two Members who historically have had problems with many liberalization efforts are simply looking to lock the WTO down from timely reform and rule updates at least among the willing. If so, the WTO’s drift to irrelevance will continue and solutions outside of the WTO will become the main focus of global trade rules.

COVAX’s efforts to distribute COVID-19 vaccines to low- and middle income countries — additional momentum from G-7 virtual meeting

With the COVID-19 pandemic affecting populations around the world with more than 110 million people having been infected and with more than 2.4 million deaths, the world is anxiously awaiting vaccines to permit vaccinations for vulnerable populations. The Coalition for Epidemic Preparedness Innovations (CEPI), Gavi, the Vaccine Alliance (Gavi) and the World Health Organization (WHO) are co-leads of the COVAX initiative which seeks to provide equitable global access to COVID-19 vaccines. More than 2 billion vaccine doses have been or are being contracted to supply to 92 low- and middle-income countries as well as other countries who have agreed to buy vaccines through COVAX.

The World Health Organization’s Director-General Dr Tedros Adhanom Ghebreyesus has expressed concern about “vaccine nationalism” as large and wealthier countries have contracted for large amounts of vaccines. In a joint statement with the UNICEF Executive Director on February 10, the WHO DG laid out what is needed in 2021 to achieve vaccine equitable distribution. See In the COVID-19 vaccine race, we either win together or lose together, Joint statement by UNICEF Executive Director Henrietta Fore and WHO Director-General Dr. Tedros Adhanom Ghebreyesus, 10 February 2021, https://www.who.int/news/item/10-02-2021-in-the-covid-19-vaccine-race-we-either-win-together-or-lose-together. The joint statement is embedded below.

In-the-COVID-19-vaccine-race-we-either-win-together-or-lose-together

The problem of vaccine availability can be traced to a number of sources including the inability to predict which development efforts would succeed, efforts by governments to support development through funding and advance contracts which do not always support the early vaccine successes, challenges of approval processes in different countries and more. However, it is clear that in the early days of the vaccine rollout, a handful of countries have been able to obtain the largest amount of vaccine doses and to provide vaccinations to citizens. For example, the Financial Times has an update of its “Covid-19 vaccine tracker: the global race to vaccinate” published today (February 19) that looks at data for 99 countries or territories where vaccinations are reported through mid-February. Of a global total of 194.4 million vaccinations, 91.6% are reported by the following 10 countries or groups of countries: United States, 57.2 million; China 40.5 million; European Union, 24.7 million; United Kingdom, 17.0 million; India, 10.2 million; Israel, 7.1 million; Brazil 6.2 million; Turkey, 5.9 million; United Arab Emirates, 5.4 million; Russian Federation, 3.9 million. Of the 99 countries or territories, 24 reported vaccinations of at least 10/100 residents, an additional 30 reported vaccinations of at least 5.0-9.9/100 residents and an additional 10 reported vaccinations of at least 3.0-4.9/100. Gavi views 3% as the percent of population needed to be vaccinated to address health care workers. See Financial Times, Covid-19 vaccine tracker: the global race to vaccinate, February 19, 2021, https://ig.ft.com/coronavirus-vaccine-tracker/?areas=gbr&areas=usa&areas=eue&areas=ind&cumulative=1&populationAdjusted=0

At today’s G-7 virtual meeting, there were new pledges from G-7 countries to contribute to COVAX to permit the purchase of vaccine doses contracted and with some countries agreeing to share surplus vaccine doses with the world’s poorest countries. The Gavi press release of today is embedded below.

G7-backs-Gavis-COVAX-Advance-Market-Commitment-to-boost-COVID-19-vaccines-in-worlds-poorest-countries-_-Gavi-the-Vaccine-Alliance

In the December 2020 stimulus package, Congress authorized some funding for COVAX. President Biden outlined the U.S. contributions in a Fact Sheet posted on the White House webpage yesterday and at the G-7 virtual meeting today. See White House, Fact Sheet: President Biden to Take Action on Global health through Support of COVAX and Calling for Health Security Financing, February 18, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/18/fact-sheet-president-biden-to-take-action-on-global-health-through-support-of-covax-and-calling-for-health-security-financing/; New York Times, Biden Declares ‘America is Back’ on International Stage: Live Updates, February 19, 2021, https://www.nytimes.com/live/2021/02/19/world/g7-meeting-munich-security-conference#global-leaders-chart-a-new-course-in-post-trump-era. The fact sheet is embedded below and reports the U.S. will be contributing $2.0 billion quickly and $2.0 billion more over the remainder of 2021 and 2022.

Fact-Sheet_-President-Biden-to-Take-Action-on-Global-Health-through-Support-of-COVAX-and-Calling-for-Health-Security-Financing-_-The-White-House

Conclusion

Much of the activity at the WTO over the last year has focused on the trade challenges flowing from the COVID-19 pandemic. Trade restrictions on exports of medical goods and agricultural goods have been tracked with various efforts to minimize scope and duration. Efforts at expediting the movement of medical goods and agricultural products have also been pursued, and debates have occurred on whether TRIPS rights should be waived during the pandemic to improve access to medical goods during the pandemic. Most advanced countries with pharmaceutical producers have argued that there are sufficient flexibilities within the WTO TRIPS Agreement to handle the current challenges. At the same time over recent years there have been efforts through the WHO, CEPI and GAVI and with the assistance of UNICEF to provide the infrastructure to permit collective purchasing of vaccines and other medical goods and the collection of funds to permit assisting low- and middle-income countries in terms of vaccine availability. COVID-19 is a truly global pandemic. The pressure on governments to find solutions is obviously enormous. Actions like those by the G-7 today and by other governments, NGOs and others to address the COVID-19 challenge are along the lines of what is needed to have more equitable distribution of vaccines. As the UN and WHO keep saying, no one is safe until all are safe.

The challenges for COVAX are huge and the goal for 2021 is to get 20% of the populations part of the program vaccinated. Developed countries and others able to do so need to continue to cooperate to see that these goals for 2021 are met and that further help is available moving into 2022. A study commissioned by the ICC estimates the global costs of not moving quickly to get all people in the world vaccinated at being more than $8 trillion — a figure that dwarfs the costs to get the vaccines produced, distributed and shots given. Hopefully, the world will cooperate and do what is needed to see that all countries can recover from the current pandemic in a timely manner.

The European Commission’s 18 February 2021 Trade Policy Review paper — WTO reform and much more proposed

In a 23 page communication from the European Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions dated 18 February 2021 [COM(2021)66 final] with an accompanying 19 page Annex that looks at WTO reform, the European Commission lays out its vision for EU trade policy moving forward. The communication, at pages 1-3 lays out the background and global trends leading to the trade policy proposals presented. The discussion is copied below (any emphasis in quotes is from the original text unless otherwise noted).

“Trade is one of the EU’s most powerful tools. It is at the centre of Europe’s economic prosperity and competitiveness, supporting a vibrant internal market and assertive external action. As a result of the openness of our trade regime, the EU is the world’s largest trader of agricultural and manufactured goods and services and ranks first in both inbound and outbound international investments. Thanks to the common commercial policy, the EU speaks with one voice on the global scene. This is a unique lever.

“With new internal and external challenges and more particularly a new, more sustainable growth model as defined by the European Green Deal and the European Digital Strategy, the EU needs a new trade policy strategy – one that will support achieving its domestic and external policy objectives and promote greater sustainability in line with its commitment of fully implementing the UN Sustainable Development Goals. Trade policy must play its full role in the recovery from the COVID-19 pandemic and in the green and digital transformations of the economy and towards building a more resilient Europe in the world.
Making the right policy choices in designing a trade policy for the world of 2030 means taking into account recent political, economic technological, environmental and social shifts and the global trends emerging from them1.

Global uncertainty is on the rise fuelled by political and geo-economic tensions. Instead of international cooperation and multilateral governance, there is growing unilateralism, with the consequent disruption or bypassing of multilateral institutions. These trends have their roots in several developments.

“First, globalisation, technological evolutions and the build-up of global value chains have had a dichotomous impact on economies and societies. On the one hand, they have created massive efficiency gains, fuelling sustained, trade-led economic growth in many parts of the world. This has helped to lift millions of people out of poverty. On the other hand, these developments sometimes have had a strong disruptive effect leading to growing inequalities and leaving some individuals and communities behind. What were expected to be transitory adjustment costs have sometimes turned into permanent losses in living standards, employment opportunities or wages and other working conditions. In many cases, governments are perceived to have been insufficiently responsive to economic adjustments and mitigating their negative impacts2. This has led to calls for de-globalisation and to the rise of inward-looking and isolationist reactions.

“Second, the rapid rise of China, demonstrating global ambitions and pursuing a distinct state-capitalist model, has fundamentally changed the global economic and political order. This poses increasing challenges for the established global economic governance system and affects a level playing field for European companies competing globally and at home.3

“Third, the acceleration of climate change, together with biodiversity loss and environmental degradation, paired with tangible examples of their devastating effects have led to the recognition of the green transition as the defining objective of our time.

“The European Green Deal is the EU’s new growth strategy which facilitates resetting our economic policy to better correspond to the challenges of the 21st century. Its overarching objective is the transition towards a climate neutral, environmentally sustainable, resource efficient and resilient economy by 2050, with the ambition to reduce GHG emissions by at least 55% by 2030 as well as the protection, conservation and enhancement of the EU’s natural capital. As such, it will be the driving force behind our competitiveness and will lead to a progressive but profound transformation of our economies, which in turn will have a strong bearing on trade patterns.

“The green transition needs to go together with social equity. A serious decent work deficit persists in global supply chains in many parts of the world4, from serious violations of freedom of association to poor working conditions5. Depriving workers of their fundamental rights puts downward pressure on social conditions globally and fuels people’s disenchantment with globalisation and open trade.

“Fourth, the digital transformation is another key enabler of sustainable development, but also a space of competition and inadequate multilateral governance. As it embarks on its Digital Decade, supporting Europe’s digital transformation is a priority both in internal and external policies including trade policy and instruments. At the same time, the nature of trade will continue to evolve. It will become more innovation-driven, supported by intellectual property (IP) protection, with an increasing role of services trade compared to goods.6 Services not only contribute directly to the value chain (financial services, telecommunication, IT, transport and logistics) but – often even more importantly – they contribute by being incorporated in manufacturing products. The servicification of the economy and the rise of digital technologies have created well-paid and high quality jobs and have fuelled economic growth.

“The COVID-19 pandemic has accelerated and focused attention on these shifts, while creating challenges of its own. It has highlighted the interconnected nature of economies, which rely on stable and predictable international rules and resilient transportation channels. It has exposed the risk of a breakdown of global cooperation and trust. It has also raised questions regarding the right policy mix in terms of diversification of domestic and external sources of supply and the build-up of strategic production capacities and reserves. It has also shown the importance of expanding production of health products in a crisis situation and the need for cooperation to ensure equitable access for the more vulnerable populations. Moreover, it has led to a significant increase in government support and involvement in the economy, which is necessary to rescue healthy companies and protect jobs, but may not be sustainable in the long-run and may generate tensions.

“Finally, the economic outlook across the globe needs to be factored in. The EU will remain a global economic power and a leader on sustainable growth. The latest OECD long-term forecasts indicate that real GDP in the euro area will increase by 1.4% annually (compounded annual growth rate) over the next 10 years7. Nevertheless, these growth prospects will be eclipsed by developments in other regions, and Europe’s relative position in the international economy will change. Already in 2024, 85% of the world’s GDP growth is expected to come from outside the EU. The continued rise of China will impact heavily on global economic developments over the next 10 years – the OECD predicts Chinese GDP will grow by 4.7% annually.

“EU trade policy has to take into account these global trends and challenges to reflect the political ambition of ‘a stronger Europe in the world’8. It should also respond to the expectations of stakeholders as signalled in discussion with Member States, the resolution adopted by the European Parliament9 and the views expressed in the public consultation10.

“1 The Commission’s 2020 Strategic Foresight report analyses the impact of the COVID-19 pandemic on the dynamics of some relevant megatrends, COM(2020) 493 final. The Commission’s 2021 Strategic Foresight Report will focus on open strategic autonomy.

“2 At the EU level, the European Globalisation Fund aims at making a contribution to deal with such adjustment costs; cf Regulation (EU) No 1309/2013 of the European Parliament and of the Council of 17 December 2013 on the European Globalisation Adjustment Fund (2014-2020) and repealing Regulation (EC) No 1927/2006. A new regulation is being adopted, allowing the Fund to continue supporting workers and self-employed persons whose activity has been lost.

“3 This challenge is particularly visible in the area of energy intensive industries and notably the steel sector, where global solutions are needed to address the immense imbalances on the world market negatively affecting European companies and undermining the successful green transition of this ecosystem.

“4 According to the International Labour Organization (ILO), an estimated 25 million people remain in forced labour, 152 million are victims of child labour and 2.78 million workers around the world die from work-related accidents or diseases every year; Sources: Global estimates of modern slavery: forced labour and forced marriage, ILO (2017); Global Estimates of Child Labour, ILO (2017) and ILO website.

“5 Commission Staff Working Document: Promote decent work worldwide, SWD(2020) 235 final.

“6 In 2016, taking both goods and services into account, 80% of EU imports and 82% of EU exports were generated by the IP-intensive industries. IPR-intensive Industries and Economic Performance in the European Union, Industry-Level Analysis Report, joint EPO/EUIPO study, 3nd edition, September 2019.

“7 OECD (2020), Real GDP long-term forecast (indicator).

“8 Political guidelines for the next European Commission 2019-2024.

“9 European Parliament resolution on the EU Trade Policy Review (2020/2761(RSP).

“10 https://trade.ec.europa.eu/consultations/index.cfm?consul_id=266&utm_source=dlvr.it&utm_”

The European Commission then lays out its vision of how the proposed trade policy supports the EU’s open strategic autonomy, identifies “[t]hree core objectives for trade policy for the medium term” which are (1) “supporting the recovery and fundamental transformation of the EU economy in line with its green and digital objectives,” “shaping global rules for a more sustainable and fairer globalisation,” and “increasing the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed”. Communication at 9-10. The communication then lays out “six areas that are critical to achieving the EU’s objectives in the medium term”, Id. at 10. The six areas are listed on page 11 and then described in significant detail in the remainder of the communication:

  1. “Reform the WTO
  2. “Support the green transition and promote responsible and sustainable value chains
  3. “Support the digital transition and trade in services
  4. “Strengthen the EU’s regulatory impact
  5. “Strengthen the EU’s partnerships with neighbouring, enlargement countries and Africa
  6. “Strengthen the EU’s focus on implementation and enforcement of trade agreements, and ensure a level playing field”.

The communication is embedded below.

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The Annex provides a detailed explanation of what the European Commission intends to pursue as part of the WTO reform area but lists two “Headline actions” in the communication (id at 11).

“The Commission will:

“1. Seek the adoption of a first set of reforms of the WTO focusing on enhancing the WTO’s contribution to sustainable development, and launch negotiations on reinforced rules to avoid distortions of competition due to state intervention. It will
give priority to enhancing transatlantic cooperation on WTO reform.

“2. Work to restore a fully-functioning WTO dispute settlement with a reformed Appellate Body.”

For the other five actions listed above, the European Commission outlines areas for focus. Several include actions to be pursued at the WTO — including environment, sustainable development and digital trade (actions 2, 3 above).

On the action of strengthening the EU’s focus on implementation and enforcement, The European Commission reviews a range of action steps dealing with enforcing existing agreements, also reviews the FDI screening regulation, a modernized export control regulation and then identifies some new tools that need to be developed “to confront new challenges” and lists four such potential new tools (id. at 20-21):

“Nevertheless, the EU needs to develop its tools to confront new challenges and protect European companies and citizens from unfair trading practices, both internally and externally.

“ The Commission will propose a new legal instrument in the area of trade policy, to protect the EU from potential coercive actions of third countries.

“ The Commission will propose a legal instrument to address distortions caused by foreign subsidies on the EU’s internal market.

“ To enhance reciprocal access for EU operators in public procurement the Commission will seek to advance the International Procurement Instrument and calls on the Council to finalise its work as a matter of urgency.

“ Finally, to ensure a better level playing field for EU businesses on third country markets, in which they increasingly have to compete with the financial support foreign competitors receive from their governments, the Commission will explore options for an EU strategy for export credits. This will include an EU export credit facility and enhanced coordination of EU financial tools. In line with the Green Deal objective to phase out fossil fuel subsidies, it will also incentivise climate friendly technology projects and propose to immediately end support for the coal-fired power sector, and to discourage all further investments into fossil fuel-based energy infrastructure projects in third countries, unless they are fully consistent with an ambitious, clearly defined pathway towards climate neutrality in line with the long-term objectives of the Paris Agreement and best available science.”

These issues will generate significant interest among trading partners (either supportive, such as the U.S. for tools to deal with coercive actions and possibly ability to address distortions on the domestic market by foreign subsidies to U.S. businesses, or in opposition, such as China on the same two items).

Annex

The Annex is entitled “Reforming the WTO: Towards a Sustainable and Effective Multilateral Trading System” and reviews the challenges in all three pillars of the WTO (negotiations, dispute settlement and monitoring of trade policies) as well as the U.S.-China trade conflict. The European Commission reviews the lack of a common purpose among the WTO Members and the multiple challenges posed by multiple crises including the pandemic, climate change, increased unilateralism and more. The EC’s view on how to restore trust and a sense of common purpose is presented in part 2 of the Annex (portion copied below from pages 3-4).

2. Restoring trust and a sense of common purpose: the WTO’s contribution to sustainable development

“The collapse of the Doha Development Agenda in 2008 exemplified the lack of common purpose of the WTO membership. Despite the success in concluding the Trade Facilitation Agreement at the 9th WTO Ministerial Conference in Bali and the Decision on agricultural export competition at the 10th WTO Ministerial Conference in Nairobi, the WTO membership has become increasingly divided as to what it expects from the WTO. While part of the membership has argued that the ‘centrality of development’ in the WTO means that there should be a focus on exceptions and flexibilities from agreed and future commitments, another part has grown increasingly frustrated at the failure of progress in WTO negotiations and shifted its attention to bilateral trade agreements. Without a sense of common purpose, it has been extremely difficult to find a way forward for any initiative and to ensure that the WTO evolves in line with the changes in global trade.

“However, the vast majority of the membership remains committed to the idea of multilateralism, fully cognizant of the benefits of a rules-based system for global trade and development. The instability of the last few years, the climate and environmental crisis, the increased use of unilateral measures and now the COVID-19 pandemic have led to a clear realisation that the WTO is a vital component of healthy global economic governance but that reform is necessary. The G20 Leaders’ statement4 in Riyadh contains the strongest commitment to reform yet, at the highest political level.

“As global challenges proliferate, WTO members should be able to coalesce around the objective of addressing the most pressing problems they face: economic recovery and development, free from competitive distortions, as well as environmental and social sustainability as part of the green transition of economies. Addressing these problems would be in line with the objectives of the UN Sustainable Development Goals (the ‘SDGs’), to which all WTO members have committed. Such a focus could offer the sense of common purpose that the WTO has lacked in recent decades and rebuild trust among the membership. It could generate the confidence needed to modernise the WTO rulebook in a manner that isresponsive to the challenges of digitalisation and greening, as well as preventing and defusing conflicts caused by trade-distorting state intervention in the economy.

“4 Leaders’ Declaration G20 Riyadh Summit November 21 – 22, 2020.”

The EC mentions completing the fisheries subsidies negotiations, taking action on the trade and health initiative put forward by the Ottawa Group and developing a trade and environment work program. The EC also addresses issues of importance to many countries including the United States, such as revising how special and differential treatment (S&DT) is handled, and developing new rules to address distortions to competition from state intervention. However, the EC’s approach calls for a case by case approach on S&DT though recognizes that various countries should not be eligible for S&DT including many of the groups identified by the Untied States and doesn’t seek a convergence approach for non-market economic systems but rather seeks an approach to address distortions flowing from the different systems.

Not surprisingly, the EC places a high priority on restoring the full functioning of the WTO dispute settlement system. Throughout the communication and Annex, the EC calls for increased outreach to the United States and finding common approaches. On dispute settlement, the EC is waiting for a signal from the U.S. that it will address its concerns and seek solutions. In other communications, the EC has seemed to acknowledge that U.S. concerns on overreach and a need to limit the Appellate Body to the parameters of the Dispute Settlement Understanding could be addressed by the EU. I have previously posted my belief that with the extensive record compiled by the prior Administration, it would be appropriate for the U.S. to pursue modifications to the WTO dispute settlement system under the Biden Administration. See, e.g., December 12, 2020, The Incoming Biden Administration and International Trade – Katherine Tai, nominee for U.S. Trade Representative, https://currentthoughtsontrade.com/2020/12/12/the-incoming-biden-administration-and-international-trade-katherine-tai-nominee-for-u-s-trade-representative/ (“The U.S. has been correct in my view in insisting that the problems flagged with the WTO Appellate Body’s operation need to be fixed before the U.S. releases its blockage of appointment of new members. What has been lacking to date has been a specific set of proposals from the U.S. that would address their concerns and rebalance rights and obligations. While it will likely take the Biden Administration time to determine how to proceed on the Appellate Body issue, the U.S. can and should indicate that it will be providing its proposals for reform of the Appellate Body hopefully during the first half of 2021.”). Hopefully the U.S. will engage on reform needs later this year after the full trade team is in place for the new U.S. Administration.

The EC also identifies modernizing WTO rules to cover digital trade, services and investment, “addressing imbalances between members’ market access commitments,” and moving forward at least selected agricultural issues (domestic support reform).

The EC also makes a push for “integrating open plurilateral agreements in the WTO” by making it easier to add such agreements without needing consensus and avoiding free-ridership. In previous posts, I have argued for permitting plurilaterals that are open to all but where benefits are limited to the signatories. See, e.g., January 18, 2021, Revisiting the need for MFN treatment for sectoral agreements among the willing, https://currentthoughtsontrade.com/2021/01/18/revisiting-the-need-for-mfn-treatment-for-sectoral-agreements-among-the-willing/ Section 4.2 of the Annex (pages 11-12) is copied below.

“Although the WTO cannot regain its credibility and effectiveness without modernising its rules, it is abundantly clear after 25 years that such modernisation cannot be achieved through multilateral agreements based on a single undertaking. In parallel, a great number of bilateral or regional trade agreements are being negotiated, including on issues for which the WTO has so far failed to produce multilateral outcomes, for example on digital trade or on state-owned enterprises. The most positive development in recent years has been the interest of a growing number of countries to develop such rules in the WTO framework through open, plurilateral negotiations. If no effective formula is found to integrate plurilateral agreements in the WTO, there would be no other option than developing such rules outside the WTO framework.

“The WTO Agreement provides for plurilateral agreements to be incorporated into the legal architecture of the WTO in Article X:9, whereby the Ministerial Conference may decide by consensus to add trade agreements concluded by a group of WTO members to the list of WTO plurilateral agreements in Annex 4. However, Article X:9 has not been used since the WTO’s establishment. Reaching consensus on adding a plurilateral initiative to Annex 4 has been perceived to be an insurmountable difficulty, even if the rights of non-participants were not diminished by the plurilateral commitments taken by a group of WTO members. The methodology used to integrate plurilateral agreements in the WTO architecture so far has been for every participant to incorporate the additional commitments unilaterally into their schedule of commitments, as was done for the Understanding in Financial Services Commitments and the Reference Paper on Telecommunications. However, this has its drawbacks. Not every additional commitment fits neatly into a schedule of commitments. In addition, non-participants could bring dispute settlement proceedings against a participant for breach of these additional commitments, even if they, as non-participants, are not bound by such commitments.

“Meaningful WTO reform will have to recognise this reality and the Commission will call for a reflection on how to create an easier path for plurilateral agreements to be integrated in the multilateral architecture. The EU would favour an inclusive approach to open, plurilateral agreements that facilitates participation by developing countries and allows them to decide whether they wish to join the agreement, leaving the door open for them to join in the future. That is not to say that the WTO should accommodate all plurilaterals. Discussions could identify certain principles that plurilaterals should comply with in order to be incorporated into the WTO framework. These principles could relate to openness to participation and future accession by any WTO member, facilitation of the participation of developing countries, transparency of the negotiating process, as well as means of protecting the existing rights of non-participants while avoiding free-riding.”

The EC makes various proposals for the improvement of the functioning of the WTO system including “Reinforcing the monitoring and deliberative functions of the WTO” (an issue with strong support from the U.S. and others), “The role of the Director-General and the WTO Secretariat,” and “More effective stakeholder engagement: Business and civil society.”

The EC recognizes that reform at the WTO requires alliance building and that objectives for the next Ministerial Conference (likely in December 2021) have to be realistic. Section 6.2 of the Annex lays out the EC’s views on what can be achieved by the next Ministerial (MC12)(pages 17-18). The section is copied below (emphasis is in original).

6.2 What can be achieved by MC12 – the next steps

“The agenda for WTO reform must be ambitious, but it must also be realistic. The different work strands of WTO reform need to be properly sequenced. Not all elements can or should be deployed simultaneously, but rather different components will follow different processes and be brought forward in different configurations – be it multilateral or plurilateral – and with different groups of members. The next WTO Ministerial Conference will be key for the WTO reform process, both in terms of delivering a potential package of outcomes and in launching new processes and areas of work that can serve as a springboard for the reform agenda.

“Three areas where work should intensify prior to MC12 are trade and health, fisheries subsidies and the reform of the dispute settlement system.

“In addition, the following outcomes could be achieved by MC12:

“1. An agreement should be reached to reinvigorate WTO work on trade and environment in view of mainstreaming sustainability issues in the WTO’s work. Ideally, this should be done multilaterally, although certain elements may only be pursued by subgroups of interested WTO members, such as the liberalisation of selected climate-mitigating goods and environmental services.

“2. Work should be launched amongst interested countries on the development of rules on competitive neutrality, including modernised rules on industrial subsidies.

“3. Substantial progress should be recorded on the plurilateral initiatives on e-commerce and investment facilitation. The Joint Statement Initiative on services domestic regulation could be concluded at MC12.

“4. The renewal of the multilateral e-commerce and TRIPS moratoria should be ensured at MC12.

“5. Improvements to the WTO’s regular work function, through agreements on the horizontal transparency in notifications and trade concerns proposals.

“6. On agriculture, a package of transparency improvements across the board and on export restrictions could be agreed at MC12. The initiative on the exemption of the World Food Programme humanitarian purchases from export restrictions could also be part of such an outcome. The EU is open to discuss how to progress after MC12 on the main aspects of the negotiations, in particular on trade distorting domestic support.

“Beyond these outcomes, a Ministerial Declaration articulating a political commitment to reform would be a significant additional element to support future work. This Declaration could focus on issues such as improvements of the negotiating, monitoring and deliberating functions of the WTO; and look into institutional improvements in the functioning of the Organization. The Ministerial Declaration could establish a Working Group on WTO Reform to consider these issues and guide the membership towards delivering outcomes. MC12 should thus set the agenda for further work on the medium to long-term areas of reform, some of which should be completed before the subsequent Ministerial Conference (MC13).”

The text of the Annex is embedded below.

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Conclusion

The European Commission’s communication and Annex lay out a thoughtful and interrelated set of objectives and action steps to try to achieve EU objectives. The Annex is an excellent document in laying out EC’s objectives for WTO reform and articulating priorities for the rest of 2021.

The Biden Administration in its first month in office has indicated support for many of the areas of interest contained in the European Commission’s trade policy, including addressing climate change, working to help the world come through the pandemic and restore economic growth. Many of the WTO reforms identified by the European Commission are consistent with where the U.S. and many other countries would like to see reform occur, although some take a more practical (and more limited) approach than the approach teed up by the Trump Administration (S&DT, need for convergence by state capitalist economies). While dispute settlement reform will be complicated, hopefully the WTO membership can coalesce around modifications that address the full array of U.S. concerns including the failure of the Appellate Body in fact to respect its limited role, the creation of rights and obligations through disputes contrary to the express limitations which of necessity upset the balance of rights and obligations agreed to during the Uruguay Round, and will address correcting major overreach situations from the first 25 years. While one would expect much greater cooperation between the U.S., the EU and other countries in the coming months ahead of MC12, meaningful progress at the WTO is far from certain. A number of the issues raised by the EU (and supported by others) are controversial and actively opposed by some Members. However, the proposals reflect the reality of a changed global economy from 1995 when the WTO commenced operations.

The incoming Director-General should find the EC’s Annex a useful document for understanding EU priorities and objectives. It should also help many other Members decide to compile their own lists to help move the WTO reform process forward.

The amended European Union enforcement regulation — hypocrisy or a reasonable move?

The amended EU enforcement regulation took effect on February 13, 2021. The amendment was pursued within the EU following the collapse of the Appellate Body at the WTO and is designed to give the EU the ability to impose retaliation whenever it perceives it has won some part of a panel proceeding at the WTO but the other party has filed an appeal where the Appellate Body is not functioning. The amended regulation also permits such action against trading partners under other agreements where dispute settlement is blocked or there is no dispute settlement. The announcement by the European Commission is embedded below and is followed by the amended regulation..

Strong_EU_trade_enforcement_rules_enter_into_force_-1-1

CELEX_32021R0167_EN_TXT

The EU presents itself as simply ensuring that it receives the benefits of the agreements it is a party to. The challenge of disputes at the WTO being appealed to a non-functioning WTO Appellate Body is a real one as reviewed in a prior post and as can be seen from the WTO webcite. See January 14, 2021, First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel, https://currentthoughtsontrade.com/2021/01/14/first-dispute-settlement-cases-of-2021-at-the-wto-costa-rica-requests-consultations-with-panama-for-various-restrictions-on-agricultural-products-viewed-as-violating-sps-obligations-and-more-eu-re/; WTO, Dispute Settlement, Appellate Body, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm. The following cases have been appealed to the WTO Appellate Body but are not currently being heard because of the lack of any Appellate Body members:

Current Notified Appeals 

  • 22 January 2021:  Notification of Appeal by Korea in DS553: Korea — Sunset Review of Anti-Dumping Duties on Stainless Steel Bars (WT/DS553/6)
     
  • 17 December 2020:  Notification of Appeal by Indonesia in DS484: Indonesia — Measures Concerning the Importation of Chicken Meat and Chicken Products (Article 21.5 — Brazil) (WT/DS484/25)
     
  • 26 October 2020:  Notification of Appeal by United States in DS543: United States — Tariff Measures on Certain Goods from China (WT/DS543/10)
     
  •  28 September 2020: Notification of Appeal by United States in DS533: United States — Countervailing Measures on Softwood Lumber from Canada (WT/DS533/5)
     
  •  28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7)
     
  •  28 July 2020: Notification of Appeal by Saudi Arabia in DS567: Saudi Arabia — Measures Concerning the Protection of Intellectual Property Rights (WT/DS567/7)
     
  •  18 December 2019: Notification of Appeal by the United States in DS436: United States — Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (Article 21.5 — India) (WT/DS436/21)
     
  • 6 December 2019: Notification of Appeal by the European Union in DS316: EC and certain member States — Large Civil Aircraft (Article 21.5 — EU) (WT/DS316/43)
     
  • 19 November 2019: Notification of Appeal by India in DS541: India — Export Measures (WT/DS541/7)
     
  • 9 September 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines II) (WT/DS371/30)
     
  • 15 August 2019: Notification of Appeal by the United States in DS510: United States — Certain Measures Relating to the Renewable Energy Sector (WT/DS510/5)
     
  • 4 June 2019: Notification of Appeal by Canada in DS534: United States — Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada (WT/DS534/5)
     
  • 25 January 2019: Notification of Appeal by the United States in DS523: United States — Countervailing Duty Measures on Certain Pipe and Tube Products from Turkey (WT/DS523/5)
     
  • 9 January 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines) (WT/DS371/27)
     
  • 14 December 2018: Notification of Appeal by India in DS518: India — Certain Measures on Imports of Iron and Steel Products (WT/DS518/8)
     
  • 20 November 2018: Notification of Appeal by Panama in DS461: Colombia — Measures Relating to the Importation of Textiles, Apparel and Footwear (Article 21.5 — Colombia)(Article 21.5 — Panama) (WT/DS461/28)
     
  • 21 September 2018: Notification of Appeal by the European Union in DS476: European Union and its member States — Certain measures Relating to the Energy Sector (WT/DS476/6)

Hypocrisy or a reasonable measure

The action of the European Union can be viewed as “reasonable” as an effort to maintain a right to binding dispute settlement. However, the unilateral action by the EU obviously invites mirror actions by trading partners which could quickly spiral out of control.

Moreover, the amended regulation looks only at actions by trading partners and fails to recognize similar actions by the EU that are identical to those they are objecting to by others. In fact, three of the seventeen cases listed above where appeals have been filed but are not presently being heard were filed by the European Union including two when the Appellate Body had either ceased to have at least three members and hence could not handle the appeal or was just four days from that situation. As there are many ways to resolve a dispute besides taking an appeal, what is the justification for the EU filing appeals into the void where they are on the losing side of a dispute at the panel report stage but complaining about trading partners doing the same? Is the EU position not hypocritical?

In addition, the dispute settlement system of the WTO is premised on Members awaiting a final dispute settlement decision and providing a trading partner a reasonable period of time to come into compliance before retaliation is permitted (and is then limited by arbitration if, as is almost always the case, the party seeking retaliation puts forward retaliation far out of line with actual harm — e.g., EU’s $12 billion requested retaliation on Boeing dispute compared to $4 billion authorized (WT/DSB353/ARB, 13 October 2020)). But the EU has at least in one case opted to retaliate before a panel case had been completed (EU challenge of US Section 232 national security action on steel and aluminum). The U.S. has not retaliated against the unilateral EU retaliatory action but rather pursued consultations and panel proceedings at the WTO. See WT.DS559: European Union — Additional Duties on Certain Products from the United States, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds559_e.htm. Retaliating by creating a self-serving description of the action of a trading partner (safeguard vs. national security) is hardly faithful adherence to the obligations the EU has undertaken with trading partners in the WTO. Is the amended enforcement regulation in light of such flouting of agreed obligations not a sign of hypocrisy by the EU?

Reform of the WTO Dispute Settlement System, particularly the Appellate Body, is a high priority for Members and for the incoming Director-General. As reviewed in a prior post, the EU is finally making sounds like it will address U.S. concerns about overreaching by the Appellate Body (exceeding its limited mandate). Hopefully, the Biden Administration will be working within the WTO for meaningful reform of the Appellate Body to limit the Appellate Body to its originally envisioned limited role. The EU amended regulation will not contribute to an early resolution of the impasse and could make resolution more difficult depending on how it is used.

U.S. decides not to modify retaliation list of goods from WTO dispute with EU on Airbus subsidies

The Biden Administration has continued its efforts at greater international outreach and collaboration by deciding, in consultation with the U.S. civil aircraft industry, not to modify the retaliation list of EU goods as the U.S. and the EU look to find a resolution to the long-running Airbus-Boeing dispute hopefully by mid-year. The Federal Register notice of today is copied below. See USTR, Notice Regarding Periodic Revision of Section 301 Action: Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute, 86 FR 9420 -9421(February 12, 2021).

SUMMARY: The U.S. Trade Representative together with the affected United States industry have agreed that it is unnecessary at this time to revise the action in the Section 301 investigation involving the enforcement of U.S. rights in the World Trade Organization (WTO) dispute involving Large Civil Aircraft subsidies provided by certain current or former member States of the European Union. The U.S. Trade Representative will continue to consider the action taken in the investigation.

DATES: This exception to periodic revisions is applicable as of February 8, 2021.

FOR FURTHER INFORMATION CONTACT: For questions about the investigation or this notice, contact Associate General Counsel Megan Grimball, at (202) 395– 5725, or Director for Europe Michael Rogers, at (202) 395–3320.

SUPPLEMENTARY INFORMATION

“A. Proceedings in the Investigation

“For background on the proceedings in this investigation, please see the prior notices issued in the investigation, including: Notice of initiation (84 FR 15028 (April 12, 2019)); notice of determination and action (84 FR 54245 (October 9, 2019)); and notices of revision of action (85 FR 10204 (February 21, 2020), 85 FR 50866 (August 18, 2020), and 86 FR 674 (January 6, 2021)).

B. Periodic Revisions and Exceptions Thereto

“Section 306(b)(2)(B)–(F) of the Trade Act of 1974, as amended, provides for periodic revisions of the list of goods subject to additional duties imposed in response to the failure of a U.S. trading partner to implement a WTO Dispute Settlement Body (DSB) recommendation. The statute includes exceptions to the periodic revisions. As relevant here, section 306(b)(2)(B)(ii)(II) provides that no revision is required if the U.S. Trade Representative and the U.S. industry affected by the noncompliance with the DSB recommendation agree that a revision of the list is unnecessary.

“The most recent revision to the list of goods subject to additional duties was effective on January 12, 2021. See 86 FR 674 (January 6, 2021). In light of the recent revision, the U.S. Trade Representative has agreed with the affected U.S. industry that it is unnecessary at this time to revise the action. The U.S. Trade Representative will continue to consider the action taken in this investigation.

William Busis,

“Deputy Assistant USTR for Monitoring and Enforcement and Chair, Section 301 Committee, Office of the United States Trade Representative

Both the U.S. and EU have been interested in finding a resolution to the seventeen year dispute on subsidies to Airbus and Boeing. See, e.g., Bloomberg, EU Looks Past Trump to Defuse Transatlantic Trade Conflict, January 11, 2021, https://www.bloomberg.com/news/articles/2021-01-11/eu-looks-past-trump-to-defuse-transatlantic-trade-conflict; Reuters, EU trade official wants swift engagement with Biden on aircraft, digital taxes, WTO, January 15, 2021, https://www.reuters.com/article/us-usa-trade-eu/eu-trade-official-wants-swift-engagement-with-biden-on-aircraft-digital-taxes-wto-idUSKBN29K1X5. The action by the United States is one of a series of actions demonstrating an interest by the Biden Administration in finding resolutions to transatlantic issues and reengaging in multilateral organizations.

On his first day as President, President Biden sent notices of the U.S. rejoining the Paris Climate Agreement and of its revoking its withdrawal from the World Health Organization. These actions were obviously positive steps by the U.S. in the eyes of many countries including the European Union member states. See White House, January 20, 2021, Paris Climate Agreement, https://www.whitehouse.gov/briefing-room/statements-releases/2021/01/20/paris-climate-agreement/; President Biden, Letter to His Excellency António Guterres, January 20, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/01/20/letter-his-excellency-antonio-guterres/.

Similarly Treasury Secretary Janet Yellen in communications with some of her European counterpart has indicated the U.S. interest in finding a resolution within the OECD/G-20 process to the issue of digital services taxes, an issue where 301 investigations under the Trump Administration found various EU member state actions as unfair to U.S. interests. Yellen has indicated that resort to 301 duties remain on the table if there isn’t a resolution. Obtaining an international agreement on taxes has been an objective of many countries, including the European Union. International Tax Review, Yellen picks notable experts to join the US Treasury’s digital tax talks, February 5, 2021, https://www.internationaltaxreview.com/article/b1qfh1hw0xy7z2/yellen-picks-notable-experts-to-join-the-us-treasurys-digital-tax-talks. Resolution by the end of June 2021 is the current timeline being pursued by parties.

Similarly, while the Biden Administration doesn’t have its full trade team in place as yet, USTR issued a release last Friday that, following the announcement that the South Korean Trade Minister Yoo Myung-hee was withdrawing from the contest for the Director-General of the WTO position, the U.S. was throwing its support behind Dr. Ngozi Okonjo-Iweala. Dr. Okonjo-Iweala is the candidate that pursuant to the procedures being followed in the selection process had been identified as the candidate most likely to attract a consensus back in October before the U.S. had indicated its unwillingness to join a consensus behind her. With the special General Council meeting scheduled for February 15 at 3 p.m., the WTO will have a new Director-General in a matter of days. Nearly all WTO Members, including the EU and its member states, have been anxious for a resolution to the selection of the next Director-General.

And as the Reuters article cited above reviews, the European Union has been looking at WTO reform including the possibility of agreeing to a limiting of the role of dispute settlement and is looking to engage with the U.S. on solving the longstanding U.S. concerns of the WTO dispute settlement system, particularly the operation of the Appellate Body. Assuming the Biden Administration will move in the coming months once its trade team is in place to identify modification in the DSU or needed elements of a General Council decision, the EU has been sending signals that it may be willing to address core U.S. concerns which could lead to the resolution of a core WTO Member concern — the existing impasse on getting the Appellate Body refunctioning.

There is an additional major trade dispute between the U.S. and the EU dealing with the application of additional tariffs on steel and aluminum products following Commerce investigations under Section 232 of the Trade Expansion Act of 1962, as amended, and action by President Trump. It is less clear what the off ramp for the parties is here. The EU and a number of other WTO Members have WTO disputes pending panel reports that will be released at the earliest in the second half of 2021. Similarly, the U.S. has disputes with the EU and others who imposed duties on U.S. exports allegedly because countries were treating the national security law used by the Trump Administration as essentially a safeguard law. Decisions in those cases are now due in the second half of 2021. The EU would like the U.S. to simply terminate the duties. There are steel using industries that support such possible action. However, the global excess capacity problems created by China and others in steel and aluminum remain and have no obvious solution particularly in light of China’s refusal to address the massive capacity increases in the sectors which has destabilized global markets. U.S. steel companies, primary aluminum producers and workers support maintaining the duties.

But all in all, the United States in the first weeks of the Biden Administration is working to reengage multilaterally and to see if there are solutions available to resolve a range of long standing conflicts. USTR during the Trump Administration did an admirable job in identifying and documenting problems with WTO dispute settlement and providing approaches under U.S. law to deal with vexing problems where multilateral approaches were not progressing or were inadequate. The Biden Administration has the opportunity now to hopefully find solutions that work for America and restores greater cooperation in Transatlantic relations. With the efforts being made by the Biden Administration, one is seeing interest within the EU to resolve all or many of the major disputes with the U.S. and work on pressing issues of interest to the EU and the U.S. including.recovery from the pandemic, climate change, WTO reform and more.

Better transatlantic relations is an important element in moving the global economy forward in ways that reflect democratic and market-based principles. Let’s hope that win-win solutions are possible on the existing challenges so long delayed momentum on existential issues can be generated.

COVID-19 agricultural fall out — higher prices for many consumers and greater food insecurity

The World Bank’s President David Malpass in a February 1st posting on Voices flagged the challenges for many of the world’s poorest people flowing from the COVID-19 pandemic — higher food prices, greater hunger, more people pushed into extreme poverty. See World Bank blog,COVID crisis is fueling food price rises for world’s poorest, February 1, 2021, https://blogs.worldbank.org/voices/covid-crisis-fueling-food-price-rises-worlds-poorest. The post was originally published in the Guardian. The post is copied in its entirety below (emphasis in the original webpost).

“Over the last year, COVID-19 has undone the economic, health and food security of millions, pushing as many as 150 million people into extreme poverty. While the health and economic impacts of the pandemic have been devastating, the rise in hunger has been one of its most tangible symptoms. 

Income losses have translated into less money in people’s pockets to buy food while market and supply disruptions due to movement restrictions have created local shortages and higher prices, especially for perishable food.  This reduced access to nutritious food will have negative impacts on the health and cognitive development of COVID-era children for years to come.

“Global food prices, as measured by a World Bank food price index, rose 14% last year. Phone surveys conducted periodically by the World Bank in 45 countries show significant percentages of people running out of food or reducing their consumption. With the situation increasingly dire, the international community can take three key actions in 2021 to increase food security and help prevent a larger toll on human capital.

“The first priority is enabling the free flow of food. To avoid artificial shortages and price spikes, food and other essential goods must flow as freely as possible across borders.  Early in the pandemic, when perceived shortages and panic generated threats of export bans, the international community helped keep food trade flows open. Credible and transparent information about the state of global food inventories – which were at comfortable levels pre-COVID – along with unequivocal free-trade statements from the G20, World Trade Organization, and regional cooperation bodies helped reassure traders, and led to helpful policy responses. Special rules for agriculture, food workers and transport corridors restored supply chains that had been briefly disrupted within countries.

“We need to remain vigilant and avoid backsliding into export restrictions and hardened borders that make food – and other essentials – scarce or more costly.

“The second priority is bolstering social safety nets. Short-term social safety nets offer a vital cushion for families hit by the health and economic crises. In Ethiopia, for example, households that experienced problems in satisfying their food needs initially increased by 11.7 percentage points during the pandemic, but participants in our long-running Productive Safety Net program were shielded from most of the negative effects.

“The world has mounted an unprecedented social protection response to COVID-19. Cash transfers are now reaching 1.1 billion people, and innovative delivery mechanisms are rapidly identifying and reaching new groups, such as informal urban workers. But ‘large scale’ is not synonymous with ‘adequate’. In a review of COVID-19 social response programs, cash transfer programs were found to be:

“–Short-term in their duration – lasting just over three months on average

“–Small in value – an average of $6 (£4.30) per capita in low-income countries

“–Limited in scope – with many in need remaining uncovered

“The pandemic has reinforced the vital imperative of increasing the world’s investments in social protection systems. Additional measures to expedite cash transfers, particularly via digital means, would also play an important role in reducing malnutrition.

“The third priority is enhancing prevention and preparedness. The world’s food systems endured numerous shocks in 2020, from economic impacts on producers and consumers to desert locust swarms and erratic weather.  All indicators suggest that this may be the new normal. The ecosystems we rely on for water, air and food supply are under threat. Zoonotic diseases are on the rise owing to growing demographic and economic pressures on land, animals and wildlife.

“A warming planet is contributing to costlier and more frequent extreme weather events. And as people pack into low-quality housing in urban slums or vulnerable coastal areas, more are living in the path of disease and climate disaster.

“Development gains can be wiped out in the blink of an eye. Our experience with hurricanes or seismic events shows that it is more effective to invest in prevention, before a catastrophe strikes. That’s why countries need adaptive social protection programs – programs that are connected to food security early warning systems and can be scaled up in anticipation of shocks.

“The time is long overdue to shift to practices that safeguard and increase food and nutrition security in ways that will endure. The to-do list is long and urgent. We need sustained financing for approaches that prioritize human, animal and planetary health; restore landscapes and diversify crops to improve nutrition; reduce food loss and waste; strengthen agricultural value chains to create jobs and recover lost incomes; and deploy effective climate-smart agriculture techniques on a much greater scale.

“The World Bank Group and partners are ready to help countries reform their agriculture and food policies and redeploy public finance to foster a green, inclusive, and resilient recovery.

Focusing on food security would address a basic injustice: almost one in 10 people live in chronic hunger in an age of food waste and plenty.  This focus would also strengthen our collective ability to weather the next storm, flood, drought, or pandemic – with safe and nutritious food for all.”

Food insecurity is an issue for all countries although most pressing for the poorest countries

The challenges noted by the World Bank President also face most other countries. For example, in the United States, there has been a massive increase in the number of people getting food from food banks and estimates are that one in seven Americans needs food assistance. Feeding America, The Impact of Coronavirus on Food Insecurity, October 2020, https://www.feedingamerica.org/research/coronavirus-hunger-research (“Combining analyses at the national, state, county, and congressional district levels, we show how the number of people who are food insecure in 2020 could rise to more than 50 million, including 17 million children.”) The challenges for schools not being able to have in school education has complicated the challenge in the United States as millions of children receive food from their schools but need alternative sources when schools are not able to provide in school classes. See, e.g., Brookings Institution, Hungry at Thanksgiving: A Fall 2020 update on food insecurity in the U.S., November 23, 2020, https://www.brookings.edu/blog/up-front/2020/11/23/hungry-at-thanksgiving-a-fall-2020-update-on-food-insecurity-in-the-u-s/ (reviews the increase in food insecurity and the various safety net programs in the U.S. attempting to address).

World Trade Organization involvement in addressing the problem

The World Trade Organization is directly involved in addressing the first priority identified by World Bank President Malpass — enabling the free flow of food. However, the WTO also monitors government support efforts and has the ability to be tackling trade and environment issues which could affect the third priority by reducing climate change.

WTO Members under WTO rules can impose export restraints under certain circumstances and in the first half of 2020, a number of members imposed export restraints on particular agricultural products and many imposed export restraints on certain medical goods. At the same time, the lockdown of countries had significant effects on the movement of goods and people. Many WTO Members have urged limiting such restraints and the WTO Secretariat has monitored both restraints imposed, when such restraints have been lifted (if they have), and trade liberalization efforts to speed the movement of important goods. See, e.g., WTO, COVID-19 and world trade, https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm; WTO, COVID-19 AND AGRICULTURE: A STORY OF RESILIENCE, INFORMATION NOTE, 26 August 2020, https://www.wto.org/english/tratop_e/covid19_e/agric_report_e.pdf; WTO, COVID-19: Measures affecting trade in goods, updated as of 1 February 2021, https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. The August paper on COVIDE-19 and Agriculture is embedded below.

agric_report_e

There have been a number of proposals by certain WTO Members to forego export restraints on agricultural products during the pandemic. None have been acted upon by the membership as a whole, but the communications often reflect commitments of certain Members to keep agricultural markets open during the pandemic. See, e.g., RESPONDING TO THE COVID-19 PANDEMIC WITH OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS, STATEMENT FROM: AUSTRALIA; BRAZIL; CANADA; CHILE; COLOMBIA; COSTA RICA; ECUADOR; EUROPEAN UNION; GEORGIA; HONG KONG, CHINA; JAPAN; REPUBLIC OF KOREA; MALAWI; MALAYSIA; MEXICO; NEW ZEALAND; NICARAGUA; PARAGUAY; PERU; QATAR; KINGDOM OF SAUDI ARABIA; SINGAPORE; SWITZERLAND; THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU; UKRAINE; UNITED ARAB EMIRATES; UNITED KINGDOM; UNITED STATES; AND URUGUAY, WT/GC/208/Rev.2, G/AG/30/Rev.2, 29 May 2020. The document is embedded below.

208R2-3

More can and should be done, including a WTO-wide agreement to forego agricultural export restraints during the current pandemic or future pandemics. However, there are strong objections to any such limits from a number of WTO Members including large and important countries like China, India and South Africa.

Indeed, efforts to get agreement at the December 2020 General Council meeting that countries would not block agricultural exports to the UN’s World Food Programme for humanitarian purposes was blocked by a number of countries. While 79 WTO Members in January 2021 provided a joint pledge not to prevent agricultural exports to the UN World Food Programme, it is a sign of the sensitivity of food security to many countries that a very limited humanitarian proposal could not obtain the agreement of all WTO Members in a period of hightened need by many of the world’s poorest countries. See January 23, 2021, WTO and the World Food Programme – action by 79 Members after a failed December effort at the General Council, https://currentthoughtsontrade.com/2021/01/23/wto-and-the-world-food-programme-action-by-79-members-after-a-failed-december-effort-at-the-general-council/.

Conclusion

The COVID-19 pandemic has extracted a huge cost from the world economy, has pushed tens of millions of people into extreme poverty, has cost hundreds of millions people employment (full or partial), is complicating the education of the world’s children with likely long lasting effects, has exposed potential challenges to achieving global cooperation on a range of matters including the desirability of limiting or not imposing export restraints on agricultural and medical goods.

While the focus of countries and the media in the last several months has shifted to access to vaccines and ensuring greater equitable distribution of such vaccines at affordable prices, there remains much that needs to be done to better address food insecurity during the pandemic. International organizations like the World Bank, IMF and WTO, countries, businesses and NGOs need to se that both core issues are addressed in the coming months.


Early trade action by Biden Administration — reinstating aluminum duties on imports from the United Arab Emirates

On February 1, 2021, President Biden revoked an action by the Trump Administration on aluminum products from the United Arab Emirates (UAE). The UAE’s exports of aluminum had been subject to additional duties as a result of an investigation of global imports of aluminum under Section 232 of the Trade Expansion Act of 1962, as amended, where the Secretary of Commerce found that imports were a threat to national security and President Trump had imposed additional duties of 10%. Countries with security relationships with the United States were able to seek alternative approaches to addressing U.S. concerns.

The United States and the UAE have a security relationship of importance to the U.S. Specifically, the United States had worked with the UAE in its efforts to secure greater recognition for the state of Israel. The Abraham Accords Peace Agreement: Treaty of Peace, Diplomatic Relations and Full Normalization Between the United Arab Emirates and the State of Israel was agreed by the UAE and Israel on August 13, 2020, signed at the White House on September 15, 2020 and ratified by the two governments in mid-October 2020.

Shortly before leaving office, on January 19, 2021, President Trump through Proclamation 10139 indicated that tariffs would be lifted on imports of aluminum from the UAE with an effective date of 12:01 a.m. on February 3, 2021. In their place, quotas at “historic levels” were agreed to on aluminum exports to the U.S. from the UAE. The Trump Proclamation is found at 86 FR 6,825-31 (January 25, 2021) and is embedded below.

2021-01711

By proclamation on February 1, 2021, President Biden revoked President Trump’s Proclamation 10139. The discussion contained in President Biden’s Proclamation indicates that his Administration views Section 232 as an important tool, that the aluminum industry is critical to U.S. national security and that the tariffs that were imposed on aluminum were having the desired effect prior to the pandemic and were worth maintaining. The Biden Proclamation is reproduced below. While it is not yet published in the Federal Register, the Proclamation can be found on the White House website in the briefing room. See A Proclamation on Adjusting Imports of Aluminum Into the United States, February 1, 2021, https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/01/a-proclamation-on-adjusting-imports-of-aluminum-into-the-united-states/.

BRIEFING ROOM

A Proclamation on Adjusting Imports of Aluminum Into the United States

FEBRUARY 01, 2021 • PRESIDENTIAL ACTIONS

ADJUSTING IMPORTS OF ALUMINUM INTO THE UNITED STATES

BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

A PROCLAMATION

  1. Proclamation 10139 of January 19, 2021 (Adjusting Imports of Aluminum Into the United States), amended Proclamation 9704 (Adjusting Imports of Aluminum Into the United States), as amended, with respect to tariffs on certain imports of aluminum articles proclaimed under section 232 of the Trade Expansion Act, as amended (19 U.S.C. 1862). Proclamation 10139 provides that those amendments will not take effect until 12:01 a.m. on February 3, 2021.
  2. I consider it is necessary and appropriate in light of our national security interests to maintain, at this time, the tariff treatment applied to aluminum article imports from the United Arab Emirates (UAE) under Proclamation 9704, as amended, as they are currently in effect as of this date. Accordingly, and as provided for in clause (6) of Proclamation 10139, I am terminating the modifications contained in that proclamation before they take effect.
  3. Proclamation 9704 applied tariffs to help ensure the economic viability of the domestic aluminum industry — an industry that the Secretary of Commerce had previously identified as essential to our critical industries and national defense. Because robust domestic aluminum production capacity is essential to meet our current and future national security needs, Proclamation 9704 aimed to revive idled aluminum facilities, open closed smelters and mills, preserve necessary skills, and maintain or increase domestic production by reducing United States reliance on foreign producers.
  4. In my view, the available evidence indicates that imports from the UAE may still displace domestic production, and thereby threaten to impair our national security. Proclamation 9704 authorized the Secretary of Commerce to grant exclusions from the aluminum tariffs based on specific national security considerations or if specific imported aluminum articles were determined not to be produced sufficiently in the United States, such that the imports would not diminish domestic production. Tellingly, there have been 33 such exclusion requests for aluminum imported from the UAE, covering 587,007 metric tons of articles, and the Secretary of Commerce has denied 32 of those requests, covering 582,007 metric tons. This indicates the large degree of overlap between imports from the UAE and what our domestic industry is capable of producing.
  5. Since the tariff on aluminum imports was imposed, such imports substantially decreased, including a 25 percent reduction from the UAE, and domestic aluminum production increased by 22 percent through 2019, before the coronavirus pandemic began. In light of that history, I believe that maintaining the tariff is likely to be more effective in protecting our national security than the untested quota described in Proclamation 10139.
  6. Section 232 of the Trade Expansion Act of 1962, as amended, authorizes the President to adjust the imports of an article and its derivatives that are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.
  7. Section 604 of the Trade Act of 1974, as amended (19 U.S.C. 2483), authorizes the President to embody in the Harmonized Tariff Schedule of the United States the substance of statutes affecting import treatment, and actions thereunder, including the removal, modification, continuance, or imposition of any rate of duty or other import restriction.
    Now, Therefore, I, Joseph R. Biden Jr., President of the United States of America, by the authority vested in me by the Constitution and the laws of the United States of America, including section 232 of the Trade Expansion Act of 1962, as amended, section 301 of title 3, United States Code, and section 604 of the Trade Act of 1974, as amended, do hereby proclaim that Proclamation 10139, including the Annex, is revoked.
    IN WITNESS WHEREOF, I have hereunto set my hand this
    first day of February, in the year of our Lord two thousand twenty-one, and of the Independence of the United States of America the two hundred and forty-fifth.

JOSEPH R. BIDEN JR.

___________________________________________________________

Pending WTO disputes; UAE does not have a pending dispute with the U.S.

While China, India, the European Union, Norway, the Russian Federation, Switzerland and Turkey all have ongoing panel proceedings at the WTO challenging the U.S. imposition of duties on steel and aluminum pursuant to Section 232 investigations, the UAE is not a country that has filed a request for consultations on the additional duties on aluminum on its exports to the United States. See WT/DSB 544 (China), WT/DSB547 (India), WT/DSB/548 (European Union), WT/DSB/552 (Norway), WT/DS554 (Russian Federation), WT/DS556 (Switzerland) and WT/DS564 (Turkey); challenges by Canada and Mexico were withdrawn after agreement with the United States (WT/DS550 (Canada) and WT/DS551 (Mexico). The panel reports were to go to parties in the fall of 2020 and released to the public once translations into the official languages was accomplished. But no report has been released to date. With the impasse on the Appellate Body, it is unclear if the Biden Administration will opt to file appeals should the panel reports not recognize the U.S. national security concerns. Thus, absent a decision by the Biden team, should it lose the WTO cases and not appeal, to eliminate the additional duties on imports from all countries, the UAE’s exports will continue to face the additional 10% duties for the foreseeable future.

Broader interest in Biden Administration approach to Section 232

A recent article in Politico reviews contact by the EU with the Biden team last week seeking an immediate end to tariffs on imports from the EU of both steel and aluminum with a corresponding withdrawal of EU retaliatory tariffs if accomplished. As noted in the Politico article, the tariffs are supported by steel producers, unions (e.g., the USW has many workers in both the steel and aluminum industries) and the primary aluminum producers. Politico, Biden, in first trade move, reimposes a Trump tariff, February 1, 2021, https://www.politico.com/news/2021/02/01/biden-aluminum-tariff-uae-464794.

Conclusion

It is unlikely that the U.S. will agree to withdraw the 232 duties at the present time. The Biden team doesn’t have its trade people in place; there are pending WTO disputes; the underlying problems of global excess capacity in both steel and aluminum continue on with no resolution in sight. The main driver of the excess capacity has been China (though others have contributed). There are no WTO rules that permit effective addressing of such problems, and China has largely ignored calls by its trading partners to address the problem in a meaningful manner.

Still the reversal of President Trump’s January 19, 2021 Proclamation is an interesting first step in the trade arena by the Biden Administration to emphasize that restoring economic health to the U.S. economy is an important component of his starting game plan (along with meaningfully addressing the pandemic). Trade issues will likely be seen through that prism even as the U.S. works within multilateral organizations and with allies on a host of issues of common interest and concern.

The EU’s export authorization requirement for COVID-19 vaccines — contrary to their oft repeated position of maintaining open markets during the pandemic

If one ever needed confirmation that WTO Members can easily fall out of supporting open markets and working together during a global crisis, the European Union’s actions over the last week to come up with an implementing regulation “making the exportation of certain products subject to the production of an export authorization” provide a glaring example.

Faced with the receipt of fewer doses of vaccines by the three manufacturers approved (with one only approved last week) for distribution within the EU, the EU faced harsh criticism from member states over the inadequate supplies of vaccines in the December – February period to vaccinate their populations. Harsh criticism was also reflected in press coverage. See, e.g., New York Times, Vaccine Shortages Hit E.U. in a Setback for Its Immunization Race, January 27, 2021, https://www.nytimes.com/2021/01/27/world/europe/europe-covid-vaccinations.html; Der Spiegel, Europe’s Vaccine Disaster, Commission President Ursula von der Leyen Seeking to Duck Responsibility, 29 January 2021, https://www.spiegel.de/international/europe/europe-s-vaccine-disaster-commission-president-ursula-von-der-leyen-seeking-to-duck-responsibility-a-1197547d-6219-4438-9d69-b76e64701802; Financial Times, Shortage of coronavirus shots heaps pressure on European leaders, 29 January 2021, https://www.ft.com/content/fe851440-abcb-43e0-a7c9-a86a05d275db.

The response was to resort to a form of export restraints on vaccines and inputs for vaccines where the European Union and its member states would decide whether shipments to certain third countries (largely wealthier countries around the world) would be allowed. Some statements made by the European Commission and the implementing regulation are embedded below.

CELEX_32021R0111_EN_TXT

Commission_statement_on_the_vaccine_export_authorisation_scheme

Opening_remarks_by_Executive_Vice-President_Valdis_Dombrovskis_at_the_press_conference_on_the_transparency_and_authorisation_mechanism_for_exports_of_COVID-19_vaccines

Opening_remarks_by_Commissioner_Stella_Kyriakides_at_the_press_conference_on_the_transparency_and_authorisation_mechanism_for_exports_of_COVID-19_vaccines

Questions_and_Answers__Transparency_and_authorisation_mechanism_for_exports_of_COVID-19_vaccines-1

The action of the European Union last week is in sharp contrast to the joint initiative from the Ottawa Group, of which the EU is a member. In a post last November, I reviewed a text put forward by the Ottawa Group which called for limiting the use of export restraints during the pandemic. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/. Several excerpts from the earlier post are provided below.

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

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

“Similarly the European Commission press release stated that –

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

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

Needless to say, the reaction from trading partners to the imposition of export controls on vaccines was swift and negative. See, e.g., Financial Times, EU faces global criticism over curbs on vaccine exports, 31 January 2021, https://www.ft.com/content/5c15d7ea-aaf6-46f4-924e-30f168dd14dd (“Brussels faces an international backlash over its new controls on vaccine exports as European Commission president Ursula von der Leyen struggles to quell a firestorm over the EU’s handling of vaccine shortages. Canada and Japan raised concerns over export rules requiring manufacturers to obtain permission before shipping Covid-19 jabs outside the EU. South Korea also warned governments against a grab for more vaccines than they need.”); BBC News, Coronavirus: WHO criticises EU over vaccine export controls, 30 January 2021, https://www.bbc.com/news/world-europe-55860540. Because the EU action seemed largely aimed at discontent with news from the British-Swedish company AstraZeneca’s announcement of a sharp contraction in likely shipments to the EU in the first quarter, the Commission’s initial draft of the implementing regulation had the EU creating problems for the Brexit agreement in terms of inspecting goods flowing from Ireland and Northern Ireland to prevent circumvention of products to the U.K. The EC retreated almost immediately on that front. See, e.g., NPR, EU Reverses Move To Restrict Export Of COVID-19 Vaccines To Northern Ireland, January 30, 2021, https://www.npr.org/sections/coronavirus-live-updates/2021/01/30/962454276/eu-reverses-move-to-restrict-export-of-covid-19-vaccines-to-northern-ireland (“The European Union reversed a brief decision to try to restrict the export of COVID-19 vaccines across the border from Ireland into Northern Ireland. European vaccination campaigns have been struggling as supplies of vaccines on the continent have run low. The decision to invoke an emergency protocol of the Brexit deal was seen as an effort to keep supplies from going from the EU to Britain. But within hours of the decision, which could have put checks on the border between the EU member the Republic of Ireland and British-controlled Northern Ireland, Irish and British officials condemned the move.”).

One concern for the global trading system from the EU action, of course, is retaliatory or mirror actions by trading partners. Such concerns are real. See, e.g., Politico, UK weighs vaccine export restrictions, January 29, 2021, https://www.politico.eu/article/uk-weighs-coronavirus-vaccine-export-restrictions/ (“The U.K. government has sought legal advice on preventing coronavirus vaccines or their ingredients being exported, suggesting that ministers are actively considering countermeasures they could deploy if other countries start restricting cross-border movements of vaccines.”).

The WHO and WTO have been advocating for cooperation among nations and businesses to ensure that all peoples are able to be vaccinated in a timely and cost affordable way. The phrase, “no one is safe until all are safe” typifies the call and is supported by research that indicates global GDP will be seriously restricted if that approach is not followed. See January 27, 2021, Recent WTO report on services trade and January 2021 International Monetary Fund World Economic Outlook Update — the future growth depends on vaccinations of peoples around the world, https://currentthoughtsontrade.com/2021/01/27/recent-wto-report-on-services-trade-and-january-2021-international-monetary-fund-world-economic-outlook-update-the-future-growth-depends-on-vaccinations-of-peoples-around-the-world/ (“The WHO’s Director-General references a report from the International Chamber of Commerce Research Foundation. The report and a press release can be accessed here: ICC, The Economic Case for Global Vaccinations, https://iccwbo.org/publication/the-economic-case-for-global-vaccinations/. The press release from the ICC describes the report as follows. ‘A study commissioned by the International Chamber of Commerce (ICC) Research Foundation has found that the global economy stands to lose as much as US$9.2 trillion if governments fail to ensure developing economy access to COVID-19 vaccines.'”).

The worrying actions by the European Union and the continued struggle to get vaccines to the world’s poorest countries led to a joint statement today by the WTO’s four Deputy Directors-General calling for heightened cooperation to get vaccines to all peoples of the world. WTO press release, WTO DDGs call for heightened cooperation on vaccine availability, 1 February 2021, https://www.wto.org/english/news_e/news21_e/ddgra_01feb21_e.htm. (“‘The pandemic is a global problem. This challenge calls for heightened international cooperation, including ensuring the global availability of vaccines. Recalling the joint statement by the Directors-General of the WHO and WTO on 20 April 2020, we call upon Members to work together towards making vaccines available to all. Moreover, the war against the pandemic can only be won when universal coverage in vaccination is achieved.’”). The press release includes a link to the 20 April 2020 joint statement by the Directors-General of the WHO and WTO (embedded below).

WTO-_-2020-News-items-Heads-of-WTO-WHO-cite-importance-of-open-trade-in-ensuring-flow-of-vital-medical-supplies

As the world enters the month of February, there are 69 countries that report vaccinating at least some people by the end of January. The list, number of vaccinations and number of vaccinations per 100 people are tracked by the Financial Times in its “Covid-19 vaccine tracker: the global race to vaccinate” last updated on February 1, 2021. https://ig.ft.com/coronavirus-vaccine-tracker/. While there are many vaccines in late stage of trials or going through approval processes by the WTO or individual countries, the world is a long way from ensuring equitable access to vaccines at affordable prices at the beginning of February. Hopefully, with production ramp up and more vaccines approved in the coming months, that situation will change by the second quarter of 2021.

Conclusion

While export restraints are not prohibited by the WTO, the world has struggled during the COVID-19 pandemic to keep markets open and ensure availability of medical products to all nations. The EU had early challenges with export restraints that member states were imposing on medical goods including personal protective equipment. However, the EU has attempted to provide leadership in limiting those restraints and supporting the COVAX mechanism for getting vaccines to the poorest countries as well as others participating in the COVAX approach.

The combination of a greater than expected second surge of COVID-19 cases in the fall and the rapid spread of more contagious variants in the last several months has posed significant challenges to many countries but including those within the EU. Some internal challenges and different approaches to vaccine contracting led the EU to sign contracts later and to approve vaccines for use later than some other countries. With manufacturing challenges for a number of suppliers, the EU has found itself in a situation where member states were extremely unhappy with the inability to get more people vaccinated sooner. The European Commission’s efforts to improve its vaccine situation has generated a great deal of negative press, led to the imposition of export restraints that could lead to a significant breakdown in supply chains and potential retaliation by trading partners adversely affected and harms the EU’s efforts to be a leader for global unity in addressing the pandemic.

The WTO Informal Ministerial of January 29, 2021 — hope for progress at the WTO in 2021

Switzerland typically hosts an informal ministerial meeting of WTO trade ministers on the sidelines of the World Economic Forum’s January Davos event. This year both were handled remotely.

The informal ministerial was summarized in ten points by the Swiss Confederation President Guy Parmelin at the end of the event. President Parmelin’s statement is available here, https://www.newsd.admin.ch/newsd/message/attachments/65098.pdf, and is copied below.

Virtual Informal WTO Ministerial Gathering, 29 January 2021

Personal Concluding Remarks by the Chair, President of the Swiss Confederation and Head of the Federal Department for Economic Affairs, Education and Research, Guy Parmelin, Switzerland

“29 Ministers and high officials representing a broad spectrum of the WTO membership attended this year’s Informal World Trade Organization (WTO) Ministerial Gathering in virtual format. In concluding and with warm thanks to all participants for their contributions, I would like to summarise the main points from our discussions as follows:

“• Ministers stressed the urgency of the swift appointment of a new WTO Director-General as well as the confirmation of the date and venue of the 12th Ministerial Conference (MC12).

“• Ministers reiterated their determination to maintain a credible multilateral trading system and to restore a climate of mutual trust.

“• Ministers expressed their concerns about the enormous social and economic impact of the COVID-19 crisis. They highlighted the relevance of trade and the role of the WTO in containing the pandemic and promoting recovery. Many Ministers underlined the importance of ensuring the development of as well as an equitable and affordable access to medical goods, including vaccines. They addressed ways and means to achieve these goals, including the implementation of measures facilitating trade, the role of intellectual property and transparency.

“• Ministers regretted that the negotiations on fisheries subsidies could not be completed in accordance with the end-2020 deadline foreseen in SDG 14.6. In light of the significance of this process for the sustainability of global fisheries, Ministers concurred that a comprehensive and effective agreement on fisheries subsidies should be concluded as soon as possible. Ministers agreed to step up efforts with a view to finding mutually acceptable solutions consistent with all the elements of the negotiating mandate.

“• Ministers highlighted the importance of restoring a fully functional WTO dispute settlement system, which is a key pillar of the rules-based multilateral trading system.

“• Many participants argued for further progress in agricultural trade policy reform at MC12 and asked for an outcome on domestic support and other issues. The issues of public stockholding and the special safeguard mechanism were highlighted by several Ministers.

“• Many Ministers called for tangible outcomes, by MC12, on the Joint Statement Initiatives. Inter alia finalizing the process on Services Domestic Regulation and making substantial progress on E-commerce and Investment Facilitation as well as on Trade and Women’s Economic Empowerment.

“• The need to reform the WTO was widely acknowledged. A number of Ministers insisted on advancing diverse issues related to the special and differential treatment of developing and least developed countries. Some participants proposed to adjust WTO rules to present-day economic and competitive conditions.

“• Several Ministers supported new initiatives launched in response to global challenges such as the structured discussions on Trade and Environmental Sustainability.

“• Ministers reaffirmed their commitment to engage in the preparations for MC12 in order to advance key issues.”


The participants at this year’s informal ministerial included officials from Argentina, Australia, Brazil, Canada, Chad (coordinator for LDC Group), Chile, China, Egypt, European Union, India, Indonesia, Jamaica (Coordinator ACP Group), Japan, Kazakhstan, Kenya, Korea, Mauritius (Coordinator African Group), Mexico, New Zealand, Norway, Russian Federation, Saudi Arabia, Singapore, South Africa, Switzerland (Chair), Thailand, Turkey, United Kingdom, United States and three officials with WTO roles — H.E. Mr. David Walker (New Zealand), WTO General Council Chair; H.E. Mr. Santiago Wills (Colombia), WTO Chair of the Negotiating Group on Rules, H.E. Mr. Alan Wolff, WTO Deputy Director-General. The full list with titles is embedded below.

List-of-participants-at-virtual-informal-ministerial-1-29-2021-65099

The good news for the informal ministerial was the position taken by the United States representative who reportedly indicated that the United States was actively reviewing the issue of the next Director-General and was intent on actively working on WTO reform. See, e.g., Inside U.S. Trade’s World Trade Online, Biden administration strikes ‘constructive’ tone in first word on WTO approach, January 29, 2021, https://insidetrade.com/daily-news/biden-administration-strikes-%E2%80%98constructive%E2%80%99-tone-first-word-wto-approach; Politico, Biden administration joins call for ‘swift appointment’ of new WTO head, January 29, 2021, https://www.politico.com/news/2021/01/29/biden-world-trade-organization-463820. Under the Trump Administration, the United States had blocked the formation of consensus around Dr. Ngozi Okonjo-Iweala based on the U.S. view that Dr. Okonjo-Iweala did not have a sufficient trade background. See, e.g., January 26, 2021, Letter from variety of former U.S. officials to President Biden urges U.S. support for Dr. Ngozi Okonjo-Iweala as next WTO Director General, https://currentthoughtsontrade.com/2021/01/26/letter-from-variety-of-former-u-s-officials-to-president-biden-urges-u-s-support-for-dr-ngozi-okonjo-iweala-as-next-wto-director-general/. Hopefully, the current review of the issue by the Biden Administration, even ahead of President Biden’s trade team being confirmed by the U.S. Senate, will result in the U.S. joining the support for Dr. Okonjo-Iweala, permitting the WTO to approve a next Director-General.

It was also reported that the United States, consistent with the Biden Administration’s focus on the COVID-19 pandemic and climate change, expressed interest in promoting recovery from the COVID-19 pandemic and concluding an ambitious fisheries subsidies agreement. See Inside U.S. Trade’s World Trade Online, Biden administration strikes ‘constructive’ tone in first word on WTO approach, January 29, 2021, https://insidetrade.com/daily-news/biden-administration-strikes-%E2%80%98constructive%E2%80%99-tone-first-word-wto-approach. Fisheries subsidies negotiations have been going on for some twenty years, and many Members have remained more concerned with keeping their subsidies in place than agreeing to disciplines that would create conditions for sustainable fishing going forward. The Interest in the Biden Administration in working within the WTO on joint steps to promote recovery from the pandemic is different from the approach pursued by the Trump Administration which didn’t want to look at actions possible within the WTO (other than limits on export restraints on agricultural goods) while the world was dealing with the pandemic. The U.S. statement should mean more interest in exploring issues like those raised by the Ottawa Group. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/.

Other issues flagged in the Swiss President’s concluding remarks are issues of particular interest to some or many countries but not topics of clear agreement. For example, while it is likely that the United States will look for ways to resolve its concerns about longstanding problems in the WTO’s dispute settlement system, particularly around the Appellate Body, it is unlikely that there will be a swift resolution of the U.S. concerns, and hence there will likely be a continued impasse for at least much of 2021 on the return of a functioning two-stage dispute settlement system.

Similarly on domestic support in agriculture and other agriculture issues flagged, certain WTO Members have not supported further liberalization in agriculture while pushing for limits on domestic subsidies and rollback of liberalization commitments undertaken in the Uruguay Round. It is unlikely that there will be forward movement on these issues without greater balance in terms of tariff reductions on major agricultural products. Moreover, as noted in a recent post, other major distortions in agriculture that are not presently identified as domestic subsidies include widespread use of child and forced labor on many agricultural products. See January 25, 2021, Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, https://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/; January 24, 2021, Forced labor and child labor – a continued major distortion in international trade for some products, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/. Such practices should be quantified and the level of potential distortion identified so WTO Members can decide how to address them in ongoing agriculture negotiations.

Progress is being made on Joint Statement Initiatives including e-commerce, services domestic regulation, investment facilitation and women’s empowerment. An open issue for these and topics in the sphere of trade and the environment (e.g., environmental goods agreement) is whether benefits provided by participants will be made available on an MFN basis or limited to participants, with the option of other Members to join in the future. See January 18, 2021, Revisiting the need for MFN treatment for sectoral agreements among the willing, https://currentthoughtsontrade.com/2021/01/18/revisiting-the-need-for-mfn-treatment-for-sectoral-agreements-among-the-willing/. For many Members liberalization could be speeded up if benefits in sectoral agreements go to those participating only while leaving the door open for other Members to join later when they see the value for them.

And on the important topic of WTO reform beyond the items listed above, there is little current agreement on how to deal with industrial subsidies and other practices that lead to massive global excess capacity, or on how to address access to special and differential treatment and many other areas of importance to some or many WTO Members.

Deputy Director-General Alan Wolff provided a statement during the virtual informal ministerial urging WTO Members to make 2021 a year of accomplishments. The WTO press release can be found here. WTO News, DDG Wolff urges WTO ministers to address the pandemic and make 2021 a year of action, 29 January 2021, https://www.wto.org/english/news_e/news21_e/igo_29jan21_e.htm. DDG Wolff’s statement is copied below.

“My thanks to our Swiss hosts and to President Parmelin both for his remarks today and for his very thoughtful address on the occasion of the 25th anniversary celebration of the WTO last November.

“Ministers, you can make 2021 a year of substantial accomplishments at the WTO.

“There has already been a beginning.  In the first action of the year, Members accounting for most of the world’s agricultural exports committed to refrain from imposing export restrictions on purchases made by the World Food Program.

“The anticipated appointment of a new Director-General will bring needed leadership in moving toward concrete results.  But she can succeed only with your active engagement.

“I urge you not to wait for the Twelfth Ministerial Conference, delayed by the pandemic, to move negotiations forward to positive outcomes. 

“There is no reason why the twenty-year negotiation on fisheries subsidies cannot be concluded successfully — without a sacrifice of ambition — in the next few months.  Success hinges on Members’ willingness to accept a significant level of discipline on their own subsidies.  Political decisions and your active engagement will be required to bring about success.

“I urge you to address ‘trade and health’ forcefully and immediately.  Last year, trade made a vitally important contribution in supplying needed medical supplies to deal with COVID-19.  Proposals as to what more can be done must be deliberated now.  Cooperation on trade can accelerate access to vaccines.  There can be no higher priority.

“Consider how the WTO can further contribute to the economic recovery.  Members can take steps to ensure enhanced transparency, work to eliminate unnecessary barriers and agree that new restrictions will not be imposed.  Trade finance must be restored.  The WTO convened the major international financial organizations and banks to address this need in the aftermath of the financial crisis and it can do so now again.

“’Trade and climate’ must be on the WTO agenda.  Carbon border adjustment measures will likely result in conflicts unless Members engage in joint efforts to find mutually beneficial solutions.  The heightened interest of Members in a broad range of other environmental issues such as plastics pollution and the circular economy can be reflected in new agreements.   The WTO can be more visible as a steward of the planet by reviving and concluding the Environmental Goods Agreement

“The Joint Statement Initiatives on e-commerce, investment facilitation, and services domestic regulation can bear fruit this year, building on what was achieved with respect to small businesses last year.  In addition, more progress can be made on the economic empowerment of women through international trade.  

“Concerns over income inequality have been growing.  The WTO’s rules-based system needs to be seen not only among countries but also within countries, as responsive to the needs of workers, farmers and all who wish to engage in international trade.  But international trade rules cannot substitute for domestic policy actions to make growth more inclusive.  When large numbers of people are unhappy with how the economy is working for them, trade will often receive undeserved blame.  The WTO is about fairness.  Its work will never be done in pursuit of that objective, but further progress can be made this year.

“There can be an outcome on agriculture — at least a down-payment and a defined work program going forward.

“During 2021, the WTO can likely welcome new WTO Members, as it continues to move towards universal coverage.  Comoros and Bosnia-Herzegovina may be ready, and over a dozen others are making progress.

“Last but not least, ‘WTO reform’ can become a reality, with actions taken to —

“- facilitate rule-making with wide participation,

“- achieve heightened enforcement through binding dispute settlement in a manner agreed by all, and

“- provide a strong mandate for a Secretariat to deliver all needed support to Members and to achieving the mission of the WTO. 

“We should greet this year with optimism and re-dedication.  With your strong engagement, 2021 can be a year to remember for what is achieved.

“Thank you.”

A presentation from the WTO Secretariat to Ministers needs to be positive, forward looking, aspirational and inspirational. DDG Wolff’s statement yesterday provides all of that. The first item mentioned, the joint pledge from 79 WTO Members not to restrict agricultural exports to the UN World Food Programme for humanitarian purposes is a positive for the world but follows the December failure of the WTO General Council to agree to the same by all WTO Members. See January 23, 2021, WTO and the World Food Programme – action by 79 Members after a failed December effort at the General Council, https://currentthoughtsontrade.com/2021/01/23/wto-and-the-world-food-programme-action-by-79-members-after-a-failed-december-effort-at-the-general-council/.

The challenge for the WTO in 2021 will be whether Members can come together in fact to achieve many of the important opportunities and needs in front of the Membership. While the history of the WTO since 1995 and the major divisions among Members at the present time would strongly suggest that 2021 will not achieve many of the things that are needed and possible, hope springs eternal.

U.S. perspective

The Trump Administration did an excellent job of identifying problems with the operation of the WTO whether from the longstanding failures of the dispute settlement system, to the existential challenges to the viability of the WTO from major Members whose economies have not converged to a full market orientation, to the out-of-date rules around special and differential treatment to all who claim developing country status regardless of economic development of individual members, to the need for greater transparency in many areas, including importantly subsidies, to the failure of the WTO to update rules to address changing technology and trade issues.

The Biden Administration has indicated its intention to work within multilateral institutions, including the WTO. Early action by the United States on the Director-General selection issue could provide positive energy to WTO Members in the coming months. There are topics where success can be made in 2021 either multilaterally or plurilaterally. But a lot of what is needed for meaningful WTO reform will be difficult, if not impossible, to achieve in the short term. Hopefully, the Biden team will stay the course to achieve reform that both returns the WTO playing field to the level agreed at the time of concluding the Uruguay Round, finds ways to deal with the massive distortions not presently covered by WTO rules, works with others to bring the WTO into the 21st century and addresses the critical issues for global prosperity and sustainable development.

Malaysia files request for consultations with the European Union and Certain Member States on certain measures concerning palm oil and oil palm crop-based biofuels at the WTO on January 15

Malaysia filed the second request for consultations of 2021 on January 15, 2021. The request for consultations addresses the European Union, France and Lithuania and certain enumerated measures pertaining to palm oil and oil palm crop-based biofuels. See WT/DS600/1 (15 January 2021). France and Lithuania have already adopted laws and regulations implementing and EU provision which Malaysia views as violating a wide range of WTO obligations. As other EU members are working on possible implementing laws and regulations, Malaysia is keeping open the possibility of raising issues with additional EU members.

Because the dispute involves the interface of EU efforts to reduce greenhouse gases and trade restricting effects on certain biofuels that the EU views as not sufficiently promoting the reduction greenhouse gases, it will likely draw a lot of attention. The background part of the request for consultations lays out the Malaysian concerns.

A. Background

“1. Malaysia is the world’s second largest producer of palm oil. In 2019, Malaysia produced around 19.86 million metric tonnes of crude palm oil, accounting for 28% of world palm oil production and 33% of world palm oil exports.1 In 2019, Malaysia exported around 1.9 million metric tonnes of palm oil to the EU. The palm oil industry directly employs more than one million Malaysians and 40% of all palm oil plantations in Malaysia are owned or farmed by smallholder farmers, who have benefited from oil palm cultivation.2 Palm oil production and export has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today.

“2. As one of the biggest producers and exporters of palm oil and palm oil products, Malaysia recognises that it has an important role to play in fulfilling the growing global need for oils and fats in a sustainable manner. Malaysia is a responsible producer of palm oil and has long taken the lead in the continuous process of making palm oil production more sustainable and environmentally friendly. As of December 2020, nearly 90% of Malaysia’s total oil palm cultivation has obtained Malaysian Sustainable Palm Oil (MSPO) certification. Additionally, as at that date, 428 of Malaysia’s 452 oil palm mills, corresponding to around 95% of total milling capacity, received the MSPO certification. Most recently, on 1 January 2020, Malaysia made the MSPO certification mandatory.

“3. It is important to recall Malaysia’s commitment at the 1992 Rio Earth Summit, where it pledged to maintain at least 50% of the country’s landmass under forest cover. On the basis of data from 2018, about 55.3% of Malaysia’s 33 million hectares (ha) land areas are under forest cover, exceeding the country’s pledge made at the Rio Earth Summit.

“4. In the context of addressing the environmental risks posed by the extensive use of fossil fuels, the EU and its Member States have, since 2009, adopted a policy of promoting the use of biofuels by setting national targets for the use of renewable energy in various sectors, including the transport sector. This policy led to a rapid increase in the EU consumption of biofuels, produced mainly from food crops.

“5. While the measures taken by the EU and EU Member States under this policy pursue the reduction of greenhouse gas (‘GHG’) emissions and the achievement of commitments under international climate agreements, some of these measures contravene their WTO obligations. In 2018 and 2019, the EU adopted legislative measures that, in simple terms, define palm oil as an unsustainable feedstock for the production of biofuel. The EU further argues that only palm oil production entails a high risk of indirect land-use change (‘ILUC’). On that basis, oil palm crop-based biofuels cannot be counted towards EU renewable energy targets.3

“6. Generally speaking, the measures adopted by the EU, as well as the related measures adopted by EU Member States, confer unfair benefits to EU domestic producers of certain biofuel feedstocks, such as rapeseed oil and soy, and the biofuels produced therefrom, at the expense of palm oil and oil palm crop-based biofuels from Malaysia. These measures may also discriminate against Malaysian palm oil and oil palm crop-based biofuels in favour of ‘like products’ from third countries.

“7. Malaysia submits that the measures adopted by the EU and its Member States currently already limit and will increasingly limit the volume of Malaysian palm oil and oil palm crop-based biofuels that can be counted towards reaching EU renewable energy targets and, consequently, that will be sold in the EU market.

“fn1 Malaysian Palm Oil Council (MPOC), Malaysian Palm Oil Industry. Available at:
http://mpoc.org.my/malaysian-palm-oil-industry/. Malaysian Palm Oil Board, Production 2019. Available at
http://bepi.mpob.gov.my/index.php/en/production/production-2019/production-of-oil-palm-products-
2019.html.

“fn 2 Malaysian Palm Oil Council (MPOC). Available at http://theoilpalm.org/about/http://theoilpalm.org/about/.

“fn 3 See European Commission, Factsheet, Indirect Land Use Change, 17 October 2012, available at https://ec.europa.eu/commission/presscorner/detail/de/MEMO_12_787 (accessed 13 January 2021). See also Recitals 80 and 81 of the RED II.”

The full request for consultations is embedded below.

600-1

The Malaysian request for consultations raises similar allegations of WTO violations by the EU and member states as a case filed by Indonesia in late 2019 where a panel was finally composed on November 12, 2020. See European Union — Certain measures concerning palm oil and oil palm crop-based biofuels, WT/DS593/10 (composition of panel). Malaysia and many other countries are third parties in that dispute.

The WTO alleged violations in Malaysia’s request for consultations are the following for the EU, France, Lithuania and other EU members.

C. Legal basis for the complaint in respect of the EU measures

“31. With regard to the EU measures, as embodied and developed in the respective legal instruments as specified in para. 22 herein and as applied by the relevant authorities, Malaysia considers that these measures are inconsistent with the EU’s obligations under the GATT 1994 and the TBT Agreement. In particular, the measures are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, discriminate among ‘like’ feedstocks and derived biofuels originating in third countries;

“ii. Article III:4 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, accord less favourable treatment to imported palm oil and oil palm crop-based biofuels than they do to ‘like’ domestic feedstocks and derived biofuels, thereby modifying the conditions of competition to the detriment of the imported palm oil and oil palm crop-based biofuels, in particular from Malaysia;

“iii. Article X:3(a) of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, are administered in a manner that is not uniform, impartial and/or reasonable; and

“iv. Article XI:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, and which provide criteria for certifying low ILUC-risk biofuels, restrict the importation of palm oil and oil palm crop-based biofuels.

TBT Agreement

“v. Article 2.1 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, have a detrimental impact on the competitive conditions in the EU market of Malaysia’s imports of oil palm crop-based biofuels compared with ‘like products’ imported into the EU from other countries and compared with ‘like’ domestic products;
vi. Article 2.2 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are more trade-restrictive than necessary to achieve the objectives pursued by the measures;

“vii. Article 2.4 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are not based on the relevant international standards;

“viii. Article 2.5 of the TBT Agreement, because the EU, in preparing, adopting or applying the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, has failed, upon the request of Malaysia, to explain the justification for those measures in terms of Articles 2.2 to 2.4 of the TBT Agreement;

“ix. Article 2.8 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are based on an abstract and unsubstantiated high-ILUC risk concept instead of the performance of such biofuels;

“x. Article 2.9 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, were adopted without the required timely publication and notification of these measures and organising an adequate process for commenting;

“xi. Article 5.1.1 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, treats suppliers of oil palm crop-based biofuels from Malaysia less favourably than domestic suppliers of ‘like’ biofuels or suppliers from other WTO Members in a comparable situation;

“xii. Article 5.1.2 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, creates unnecessary obstacles to international trade;
xiii. Article 5.2 of the TBT Agreement, because the EU failed to make available the conformity assessment procedures to certify low ILUC-risk;

“xiv. Article 5.6 of the TBT Agreement, because the EU, with regards to the measures at issue, which provide criteria for certifying low ILUC-risk, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, neither notified nor enter into meaningful consultations, or allowed for comments on such conformity assessment procedures;

“xv. Article 5.8 of the TBT Agreement, because the EU neither promptly published nor otherwise made available the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement; and

“xvi. Articles 12.1 and 12.3 of the TBT Agreement, because the EU, in the preparation and application of the measures at issue referred to above, failed to take into account the circumstances specific to developing countries, in particular Malaysia, where palm oil and oil palm crop-based biofuels are produced.

D. Legal basis for the complaint in respect of the EU Member States’ measures

a. France

“32. The set of advantages granted by France for oil crop-based biofuels, as embodied and developed in the respective legal instruments, as specified in paragraphs 24 to 27 herein, and as applied by the relevant authorities, are inconsistent with the obligations of France under the GATT 1994 and the SCM Agreement. In particular, the set of advantages described above, as contained in the mentioned legal instruments, are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, discriminates against ‘like’ biofuels by granting an advantage, in the form of a tax reduction, to biofuels of some countries, that is not granted to all WTO Members, and in particular not to Malaysia, and

“ii. Article III:2 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, indirectly applies a tax on imported oil palm crop-based biofuels: (1) in excess to ‘like’ domestic biofuels; or (2) which is not similar to the tax on ‘directly competitive and substitutable’ domestic biofuels, and affords protection to the production of these domestic biofuels.

SCM Agreement

“iii. Articles 3 and 5 of the SCM Agreement, because the measures at issue, under which the French Government reduces the tax on petrol and diesel containing crop-based biofuel other than oil palm crop-based biofuels and excludes petrol and diesel containing oil palm crop-based biofuels from this tax reduction, amount to a subsidy within the meaning of Article 1 of the SCM Agreement which is: (1) a prohibited import substitution subsidy within the meaning of Article 3.1(b); and/or (2) an actionable subsidy causing an adverse effect on the interests of Malaysia within the meaning of Article 5(c) of the SCM Agreement.

b. Lithuania

“33. Concerning Lithuania’s measures (including any annexes thereto, amendments, supplements, replacements, renewals, extensions, implementing measures or any other related measures, and any exemptions applied), as implemented and/or applied by the latter in line with its obligations as a EU Member State regarding the transposition of the RED II, Malaysia claims that those measures are inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.

c. Other EU Member States

“34. Malaysia contends that to the extent that any other EU Member State transposes the RED II and further implement and/or apply any measure(s) according to its obligations as regards the limitation and/or phasing out of oil palm crop-based biofuels from being counted towards reaching renewable energy targets, regardless of whether the said measures are explicit or implicit in their treatment of oil palm crop-based biofuels, such measure(s) shall be inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.”

With the Indonesian case now in the briefing stage, a panel report could be available in late 2021 or in the front half of 2022 depending on delays flowing from the continued limitations imposed by the pandemic. The Malaysian case will likely trail the Indonesian case by six months or more.

Neither Indonesia nor Malaysia are signatories to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 Of The DSU. The EU has in at least one case where the party challenging EU actions was not a signatory opted to file an appeal into the void when it was dissatisfied with the panel report. See 28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7). Thus, whether reform of the Appellate Body moves forward in the next year to address U.S. concerns may be important to a final resolution of the two cases. The WTO is a long distance from resolving the current impasse on the Appellate Body, but perhaps there will be reengagement during the second half of 2021.

Comments

It is surprising that with the pressing importance of working to address climate change and the EU efforts at leadership that the EU appears not to have found a way to work with trading partners like Malaysia or achieve a common science-based understanding as to which biofuels help reduce greenhouse gases. For trade and environment issues to gain a greater role within the WTO (as Members need them to do), all Members working to achieve sustainable development objectives have to feel that the rules of trade will support their effort, provide guidance as to what more is needed and not close those Members out of the market of a trading partner.

Continued surge of COVID-19 cases results in extended restrictions in many countries affecting trade and economic growth

The latest data from the European Centre for Disease Prevention and Control (ECDC) show the global growth in new cases and deaths accelerating in many parts of the world with resulting extensions of restrictions on activities which harms international trade and global economic growth prospects. The control of the outbreak of new cases is being complicated by new strains in the U.K., South Africa and elsewhere that are proving to be more easily spread than initial strains and rapidly spreading around the world.

Specifically, the ECDC in a report released on January 14 covering data through the first week of 2021 (assumed to be through January 6), shows the last two weeks as generating 9,487,913 new reported cases of COVID-19 — the first time, more than nine million new cases has been found in a two week period. Data on global cases to this morning (January 15) show total global cases at 93.2 million with deaths at 2 million. These are up from the 89.8 million cases through the first week of 2021 and 1.94 million deaths. The world is likely to top 100 million COVID cases by the end of January.

The United States had its worst two weeks — 3,271,355 new cases (34.48% of global new cases) and 41,116 deaths (24.07% of last week global) — and its totals since the beginning of 2020 at 22.4 million cases and 374,442 deaths (24.97% and 19.30% of global totals) dwarf its 4.3% of global population.

Many countries in Europe are continuing to struggle with new cases and deaths and hence have extended restrictions. So, for example, the United Kingdom, has had the largest number of new cases in the last two weeks(742,619) it has ever recorded and the highest number of deaths since spring in the last two weeks (10,322). The result has been continued tightening of restrictions within the United Kingdom. See, e.g., BBC, Covid-19: UK daily deaths at record high and Scotland rules tightened, January 14, 2021, https://www.bbc.com/news/uk-55652431; BBC, Covid: What are the lockdown rules across the UK?, January 13, 2021, https://www.bbc.com/news/explainers-52530518.

In Italy, following a second surge in the fall, restrictions helped lower the number of new cases and deaths but there have been upward trends in new cases in recent weeks with potential increases in deaths likely, leading to the introduction of some new restrictions. See, e.g., The Local, Italy declares three regions red zones as restrictions tighten, January 15, 2021, https://www.thelocal.it/20210115/italy-declares-three-regions-red-zones-as-restrictions-tighten.

Other countries in Europe are also seeing rising cases after drops in cases and deaths following introduction of restrictions and are often imposing or maintaining restrictions to address recent increases. See, e.g., The Local, French government extends 6pm curfew to whole country as Covid cases rise, January 14, 2021 (updated January 15), https://www.thelocal.fr/20210114/latest-french-government-to-announce-extra-restrictions-as-covid-cases-rise; France 24, France introduces tougher Covid-19 restrictions for non-EU travellers, January 15, 2021, https://www.france24.com/en/france/20210115-france-introduces-tougher-covid-19-restrictions-for-non-eu-travellers; DW, Coronavirus: German Chancellor Angela Merkel urges ‘significantly’ tougher curbs — reports, January 15, 2021, https://www.dw.com/en/coronavirus-german-chancellor-angela-merkel-urges-significantly-tougher-curbs-reports/a-56230751; El Pais, Spain reports 35,878 new coronavirus infections and 201 deaths, as third wave progresses, January 15, 2021, https://english.elpais.com/society/2021-01-15/spain-reports-35878-new-coronavirus-infections-and-201-deaths-as-third-wave-progresses.html (“Simón is taking for granted that the epidemiological curve will continue to rise for several more days, but he is hoping that the more restrictive measures that have been put in place after the Christmas holidays will put the brakes on the rhythm of infections.”).

Even in parts of Asia where there have been relatively few COVID-19 cases, recent increases have led to restrictions imposed in particular areas. See, e.g., NPR, Millions In China Under New Restrictions Amid COVID-19 Spike Near Beijing, January 9, 2021, https://www.npr.org/sections/coronavirus-live-updates/2021/01/09/955298826/millions-in-china-under-new-restrictions-amid-covid-19-spike-near-beijing; the Japan Times, Japan bars entry for new arrivals and business travelers due to new COVID-19 strains, January 14, 2021, https://www.japantimes.co.jp/news/2021/01/14/national/japan-bars-new-arrivals-business-travelers/; japan-guide.com, Travel Alerts and Disaster Updates, updated January 15, 2021, https://www.japan-guide.com/news/alerts.html (“Domestic Situation Although the virus has not spread in Japan at a rate seen in Europe and North America, infection numbers have increased considerably in recent weeks, and a state of
emergency was declared in 11 of Japan’s 47 prefectures, including in the greater Tokyo, Osaka, Nagoya and Fukuoka regions, to last until February 7.”); NPR, South Korea Tightens Restrictions During Holiday Period, December 22, 2020, https://www.npr.org/sections/coronavirus-live-updates/2020/12/22/949155094/south-korea-tightens-restrictions-during-holiday-period (“The new measures, which will be in effect through Jan. 3, follow the capital Seoul’s ban earlier in the week on private assembly of five or more people. The capital area, which accounts for more than 70% of last week’s new infections in South Korea, upped the regional alert level three times in the past month. But case numbers have yet to demonstrate a downward trend.”).

In India, where the government has worked hard to bring down the number of new cases in recent months and has had some significant success, many restrictions remain in place. See GardaWorld, India: Authorities extend domestic coronavirus disease controls through Jan. 31, 2021; international travel restrictions continue, December 29, 2020, https://www.garda.com/crisis24/news-alerts/422756/india-authorities-extend-domestic-coronavirus-disease-controls-through-jan-31-2021-international-travel-restrictions-continue-update-33.

Some governments have reduced economic recovery projections for 2021 because of the second wave of cases in the fall of 2020. See, e.g., Euronews, What does 2021 hold for jobs and businesses in Europe?, December 16, 2020, https://www.euronews.com/2020/12/16/what-does-2021-hold-for-jobs-and-businesses-in-europe (“The second wave of lockdowns devastated businesses across Europe and led the European Commission to downgrade its economic growth forecast for 2021 for the Eurozone from 6.1% down to 4.2%. It’s expected to be two years until the European economy comes close to its pre-pandemic level.”).

While other government 2021 projections show greater growth than was projected in the fall of 2020, the rebound is built on assumptions about stimulus funding, timing and effectiveness of vaccines and other elements. See, e.g., CNBC, Fed raises its economic outlook slightly, sees 4.2% growth next year and 5% unemployment rate, December 16, 2020, https://www.cnbc.com/2020/12/16/fed-raises-its-economic-outlook-slightly-sees-4point2percent-growth-next-year-and-5percent-unemployment-rate.html#:~:text=The%20Federal%20Reserve%20expects%20real,to%204.2%25%20from%204.0%25; The Conference Board, The Conference Board Economic Forecast for the US Economy, January 13, 2021, https://www.conference-board.org/research/us-forecast (“Our base case forecast yields 1Q21 real GDP growth of 2.0 percent* (annualized rate), and an annual expansion of 4.1 percent for 2021, following an annual contraction of 3.5 percent for 2020. We view this scenario as the most probable. It assumes: a) new cases of COVID-19 peak in early 1Q21 but no widespread lockdowns are implemented, b) vaccines are deployed gradually in 1Q21 but volumes accelerate into 2Q21, c) the December 2020 stimulus package is fully deployed in 1Q21 and an additional stimulus package is deployed in 2Q21, d) labor markets and consumption weaken slightly in 1Q21 but rebound in 2Q21 and 3Q21, and e) the political transition does not result in a hit to consumer or business confidence. These assumptions yield a lull in the recovery in 4Q20 and early 1Q21, but a steady acceleration of economic activity that peaks in the summer months as consumers eagerly spend on services and goods that they had forgone in 2020. In this scenario US monthly economic output returns to pre-pandemic levels in August 2021.”).

Growing concern over new strains of the COVID-19 and mounting new cases will be putting strain on many governments and keeping downward pressure on trade in services which the WTO has estimated as being down 30% globally in 2020. Travel and tourism have been decimated in 2020 and will continue to face major hurdles for at least the first half of 2021. International arrivals are down 70% for the year and more than 90% for the period since April 2020. See UNWTO, TOURISM BACK TO 1990 LEVELS AS ARRIVALS FALL BY MORE THAN 70%, 17 December 2020, https://www.unwto.org/news/tourism-back-to-1990-levels-as-arrivals-fall-by-more-than-70.

In the EU, a $2.1 trillion budget and coronavirus recovery package has been approved. See KFF, E.U. Leaders Agree To $2.1T Budget, Pandemic Recovery Fund; Main Science Research Program Receives Less Than Expected, Jul 21, 2020, https://www.kff.org/news-summary/e-u-leaders-agree-to-2-1t-budget-pandemic-recovery-fund-main-science-research-program-receives-less-than-expected/; Politico, EU leaders back deal to end budget blockade by Hungary and Poland, December 10, 2020, https://www.politico.eu/article/deal-reached-to-unblock-eu-budget-and-recovery-fund/.

In the United States, the recent $900 billion stimulus package was viewed as a temporary measure that would need to be supplemented in 2021. President-elect Biden announced on January 14, 2021 that he will be seeking a $1.9 trillion additional stimulus package to address the human costs of the pandemic, provide funding for people and businesses, strengthen efforts at vaccine distribution and vaccinations and other purposes. See, e.g., New York Times, Biden Outlines $1.9 Trillion Spending Package to Combat Virus and Downturn, January 14, 2021 (updated January 15), https://www.nytimes.com/2021/01/14/business/economy/biden-economy.html.

The stimulus packages by the EU (and member governments) and U.S. and other countries have kept demand higher than would otherwise have been possible but at the cost of significant increases in national debt which will reduce national flexibilities in later years.

In prior posts, I pointed out that the vaccine rollout, while promising, was facing a series of problems both at producers and in the ability of many governments to ramp up vaccinations. Moreover, the rapidity of the global economic rebound would depend on the speed of global vaccinations. See January 3, 2021, 2021 – how quickly will COVID-19 vaccines bring the pandemic under control?, https://currentthoughtsontrade.com/2021/01/03/2021-how-quickly-will-covid-19-vaccines-bring-the-pandemic-under-control/; January 5, 2021,  Global economic rebound in 2021 will be affected by rate of vaccinations against COVID-19 – World Bank’s January 5, 2021 release of its World Economic Prospects report, https://currentthoughtsontrade.com/2021/01/05/global-economic-rebound-in-2021-will-be-affected-by-rate-of-vaccinations-against-covid-19-world-banks-january-5-2021-release-of-its-world-economic-prospects-report/.

There is also the question of whether variants of COVID-19 will be treatable as effectively by the currently approved vaccines. See, e.g., National Geographic, Existing vaccines should work against new coronavirus variants for now, January 15, 2021, https://www.nationalgeographic.com/science/2021/01/existing-vaccines-should-work-against-new-coronavirus-variants-for-now/; VOX, How the new Covid-19 variants could pose a threat to vaccination, January 7, 2021, https://www.vox.com/22213033/covid-19-mutation-variant-vaccine-uk-south-africa.

There continue to be problems with the rate of vaccinations in many countries who have access to vaccines although all governments area working on ways to speed up the vaccination process. There are also problems in terms of the ramp up of production and the slower than expected approval of some vaccines. See, e.g., Politico, Germans vexed as coronavirus vaccine rollout lags, January 12, 2021, https://www.politico.eu/article/coronavirus-story-kiel/; Politico, France rejects criticism of EU coronavirus vaccine procurement, January 10, 2021, ; Financial Times, Pfizer to limit vaccine deliveries temporarily to Europe, January 15, 2021,https://www.ft.com/content/e8177df6-04ae-4d20-8e62-ca76589c7653?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a; BBC News, Coronavirus: Dutch shocked to be EU vaccination stragglers, January 6, 2021, https://www.bbc.com/news/world-europe-55549656; USA Today, Tracking COVID-19 vaccine distribution by state: How many people in the US have received a shot?, January 14, 2021, https://www.usatoday.com/in-depth/graphics/2021/01/14/covid-vaccine-distribution-by-state-how-many-covid-vaccines-have-been-given-in-us-how-many-people/6599531002/ (“About 63.6% of the vaccines distributed haven’t been used yet.”).

Finally, while 49 countries have started to vaccinate their populations according to a recent article from Politico, the largest number of countries continue to wait for vaccines which will be helped when more vaccines are approved. See, e.g., Politico, Coronavirus vaccination in Europe — by the numbers, January 11, 2021, https://www.politico.eu/article/coronavirus-vaccination-europe-by-the-numbers/.

Conclusion

The COVID-19 pandemic continues to rage globally and is becoming more concerning because of faster spreading variants that are showing up around the world. Since many western countries continue to have very high numbers of new cases, hospitalizations and deaths, enormous pressure is on governments to get effective vaccines in large quantities as quickly as possible and get their populations vaccinated. Many countries with access to vaccines are having early problems in ramping up vaccinations. Some of the approved vaccinations are struggling with the production ramp up and being pressed to provide more volumes of vaccines in the absence of alternative vaccines from other producers. The main vaccines intended for broad distribution to many developing and least developed countries are either just starting to receive approvals for distribution or are still working through final trials. In a world quickly approaching 100 million reported cases and more than 2 million deaths and having suffered significant economic dislocations with services trade down an estimated 30 percent, with as many as 100 million people pushed into poverty, and 100-120 million people in the tourism sector having lost jobs, a global solution cannot occur soon enough. While 2021 will show significant improvements for many countries, the continuing challenges from COVID-19 will be with the world community for the foreseeable future.

U.S. Section 301 investigations on digital services taxes by trading partners — USTR releases additional reports on January 14, 2021

On January 8, 2021, I reviewed in a post the release of the first three of ten reports on investigations under Section 301 of the Trade Act of 1974, as amended, on countries’ digital services taxes (DSTs). See January 8, 2021, U.S. Section 301 investigations on digital service taxes by trading partners – an update, https://currentthoughtsontrade.com/2021/01/08/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-an-update/ (release of reports on India, Italy and Turkey). The release of the three reports was accompanied by a decision to postpone indefinitely the imposition of additional duties on France for its DST to permit a coordinated response on all eleven countries following the completion of all investigations. The Federal Register notices on the India, Italy and Turkey investigations and the postponement of imposition of duties on France for its DST were published on January 12. See 86 FR 2477-78 (Italy); 86 FR 2478-79 (India); 86 FR 249-80 (France); 86 FR 2480 (Turkey).

On January 14, USTR released three additional reports on the DSTs of Austria, Spain and the United Kingdom and released a status report on the remaining four investigations on Brazil, the Czech Republic, the European Union, and Indonesia. See USTR press release, USTR Releases Findings and Updates in DST Investigations,
01/14/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-and-updates-dst-investigations. The press release is embedded below but, similar to the earlier reports, found that “each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing
principles of international taxation, and burden or restricts U.S. commerce.”

USTR-Releases-Findings-and-Updates-in-DST-Investigations-_-United-States-Trade-Representative

The press release notes that “’The taxation of companies that engage in international trade in goods and services is an important issue,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘The best outcome would be for countries to come together to find a solution.’” As noted in the January 8 post, there is an ongoing process through the OECD/G20 Integrated Framework to find a solution by mid-2021.

For the four investigations where USTR has not yet published reports, USTR released a status report yesterday, reflecting the reality that the Trump Administration is in its final week and such unfinished investigations and issuance of reports will await the incoming Biden Administration. See Office of the United States Trade Representative, Section 301 Investigations, Status Update on Digital Services Tax Investigations of Brazil, the Czech Republic, the European Union, and Indonesia, https://ustr.gov/sites/default/files/files/Press/Releases/StatusUpdate301InvestigationsBEUIndCR.pdf. The twenty page status report is embedded below.

StatusUpdate301InvestigationsBEUIndCR

The status update is organized as reviewed in the opening paragraph of the update.

“In this Status Update, USTR reports on the progress of the four investigations, offers brief descriptions of the four jurisdictions’ approach to digital services taxes, and describes our preliminary, high-level concerns. In the sections that follow, we address: the procedural developments in the four investigations (Section I); a description and preliminary analysis of Brazil’s DST proposal (Section II); a description and preliminary analysis of the Czech Republic’s DST proposal (Section III); a description and preliminary analysis of the EU’s
approach to digital services taxes (Section IV); and a description and preliminary analysis of Indonesia’s DST proposal (Section V).”

There is little doubt that when the four pending investigations are completed, there will be similar findings to those in the prior seven completed investigations.

As reviewed in the January 8 post, the OECD was to hold a virtual meeting on January 14-15, 2021 in an effort to obtain public input to refine the draft documents released in October and to help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

For the incoming Biden Administration, it will be facing in the early months of the new Administration critically important negotiations on the OECD/G20 proposals as well as the need to complete the investigations on the four unfinished 301 investigations on DSTs. The outcome and interplay of both will have significant implications for global trade and for fairness in international taxation.

Below are the reports on Austria, Spain and the United Kingdom and the notices sent to the Federal Register on each of the three investigations.

AustriaDSTSection301Report

AustriaDSTFRN

SpainDSTSection301Report

SpainDSTFRN

UKDSTSection301Report

UKDSTFRN

First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel

Costa Rica’s request for consultations

Costa Rica has filed the first request for consultations at the WTO in 2021. Its request was filed on January 11, 2021 and posted on the WTO website on January 14. See PANAMA – MEASURES CONCERNING THE IMPORTATION OF CERTAIN PRODUCTS FROM COSTA RICA, REQUEST FOR CONSULTATIONS BY COSTA RICA, WT/DS599/1, G/AG/GEN/179, G/SPS/GEN/1873, G/L/1383 (14 January 2021). Costa Rica alleges a host of restraints imposed on various agricultural exports from Costa Rica including on “(i) strawberries; (ii) milk
products; beef; pork; processed poultry meat; cured beef, pork and poultry products (including ham, sausages, mortadella, bacon, chorizo made of pork, chicken and turkey, pâté, pepperoni, salami, legs, ribs, loin of pork, roast beef and beef loin); prepared beef, pork and chicken, chicken and turkey breast, pork rind and dry chorizo; and fish food; (iii) pineapples; and (iv) plantains and bananas.” (Page 1).

Costa Rica’s request for consultations reviews the lengthy efforts at communicating with Panama and the apparent failure of Panama to respond or to provide inspections of facilities in some cases. Costa Rica has been seeking resolution with Panama over the last two years without results. Costa Rica has raised some of the issues in the Committee on Agriculture during 2020. See WTO Committee on Agriculture, SUMMARY REPORT OF THE MEETING HELD ON 28 JULY 2020, NOTE BY THE SECRETARIAT, G/AG/R/95 (19 October 2020)(“The Committee adopted the agenda with the following additions: • Under Part 1.A: The Review Process, matters relevant to the implementation of Commitments under the reform programme raised under Article 18.6 of the Agreement on Agriculture: o Costa Rica raised matters relating to non-tariff barriers to agricultural trade during the COVID-19 pandemic by Panama”). The question from Costa Rica and Panama’s limited response are embedded below.

View-Question-Answer

Indeed press articles from the summer of 2020 reviewed the growing trade concerns that Costa Rica had with Panama’s restrictions on Costa Rica’s exports of agricultural products. See, e.g., MENAFN, Costa Rica protests Panama trade blockade to World body, 8/7/2020, https://menafn.com/1100601315/Costa-Rica-protests-Panama-trade-blockade-to-World-body (“A growing trade dispute between Costa Rica and Panama has landed on the world stage as Costa Rica notified the Agriculture Committee of the World Trade Organization (WTO) that Panama has blocked the entry of Costa Rican products of animal origin to the Panamanian market for over three months. In a statement, issued on Thursday, August 6, the Minister ofAgriculture and Livestock, Renato Alvarado Rivera, and the Minister of Foreign Trade, Dyalá Jiménez Figueres, said that the blockade constitutes ‘a serious commercial problem between both countries.'”); CentralAmericaData.com, Trade Dispute Between Panama and Costa Rica, August 7, 2020, https://www.centralamericadata.com/en/article/main/Trade_Dispute_Between_Panama_and_Costa_Rica.

The bulk of the alleged violations by Panama are to obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”), with GATT 1994 Article violations (e.g., failure to provide most favored nation access) alleged as well. The request for consultations is embedded below.

599-1

Costa Rica will have a long road (likely measured in years) in pursuing its dispute with Panama and at present, has no second stage dispute settlement option. While Costa Rica has joined the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU, Panama is not a signatory. Hence, absent agreement on how to proceed after a panel report, Panama could file an appeal which could not be heard until such time as there is a resolution to the Appellate Body impasse.

The challenge Costa Rica is having with Panama on restraints based on claims of SPS problems has become increasingly common. For example, while most observers perceive that the wide range of import restrictions by China on goods from Australia flow from China’s unhappiness with Australia’s positions on unrelated matters, China has imposed restrictions often claiming SPS or other problems. See, e.g., 9news, Aussie cherries labelled ‘inferior’ by China, growers worried, January 14, 2021, https://www.9news.com.au/national/china-trade-dispute-cherry-exporters-targeted/9f734bf9-ba2f-4259-bce0-758ff0913cc3. For the more likely reason for Chinese restrictions see my prior post (December 22, 2020, China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/) and last week’s article (South China Morning Post, China-Australia relations: bans on Australian imports ‘beginning to bite’ as commodity exports fall, 8 January 2021, https://www.scmp.com/economy/china-economy/article/3116808/china-australia-relations-bans-australian-imports-beginning).

The EU’s request for establishment of a panel to address its concerns with export restraints on raw materials from Indonesia

The EU filed its request for establishment of a panel today, January 14, 2021. The European Commission’s Directorate of Trade issued a press release entitled “EU files WTO panel request against illegal export restrictions by Indonesia on raw materials for stainless steel” and the request for establishment of a panel is also available from the same website. Both documents are embedded below.

EU-files-WTO-panel-request-against-illegal-export-restrictions-by-Indonesia-on-raw-materials-for-stainless-steel-Trade-European-Commission

tradoc_159271

The EU request for establishment of a panel raise two issues where Indonesia’s actions are alleged to violate GAT 1994 Article XI:1 which provides, “No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.” The actions of Indonesia from the request are copied below.

“Indonesia has restricted exports of nickel ore to different extents and under different rules since at least 2014. In January 2014 nickel was excluded from the regime on the necessary processing and purification of mining commodities for export, which effectively outlawed exports of nickel ore. From January 2017 to December 2019 exports of nickel ore with a concentration below 1.7% were permitted subject to certain conditions, while those of nickel ore with a higher concentration remained prohibited. Since January 2020 all exports of nickel ore, regardless of its concentration, are banned.” (page 1 of request for establishment of a panel)

“Indonesia applies domestic processing requirements with regard to certain raw materials, notably nickel ore and iron ore, prior to them being exported. Domestic processing requirements oblige mining companies to enhance the value of the relevant raw materials through the conduct of certain processing and/or purification operations in Indonesia before exporting them.” (page 2)

While the EU is a signatory to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU but Indonesia is not. Should the EU be successful in its dispute with Indonesia at the panel stage, Indonesia could take an appeal to the Appellate Body which at least at present could not hear it. The EU would likely retaliate against Indonesia if an appeal were pursued where the Appellate Body is not functioning.

Conclusion

It is not surprising that new requests for consultations and new requests for the establishment of a panel continue despite the current inoperability of the second stage dispute settlement (the Appellate Body). As panels have been taking a long time in rendering panel reports, it is possible that reform of the Appellate Body will be accomplished before either the Costa Rica case against Panama or the EU case against Indonesia get to a panel decision. It is also obviously the case that the Dispute Settlement Understanding encourages parties to disputes to resolve them at any time, so neither case may reach a point where an appeal is considered. Alternatively, the parties could agree to not appeal from any panel report or otherwise find a mutually agreeable solution without appeal. However, if either or both cases get to a stage where an appeal is taken, either the case will sit awaiting the return of a functioning Appellate Body or the winning party may opt to take unilateral action and retaliate even though not authorized by WTO DSU provisions.

The following from the WTO webpage on Dispute Settlement, Appellate Body, provides a list of disputes where appeals have been taken but the Appellate Body is not in a position to resolve at the present time. The list and note are copied below (but don’t contain quote marks). There are presently 16 disputes where appeals have been filed where the Appellate Body is not currently working the appeals.

Current Notified Appeals (1)

  • 17 December 2020:  Notification of Appeal by Indonesia in DS484: Indonesia — Measures Concerning the Importation of Chicken Meat and Chicken Products (Article 21.5 — Brazil) (WT/DS484/25)
     
  • 26 October 2020:  Notification of Appeal by United States in DS543: United States — Tariff Measures on Certain Goods from China (WT/DS543/10)
     
  •  28 September 2020: Notification of Appeal by United States in DS533: United States — Countervailing Measures on Softwood Lumber from Canada (WT/DS533/5)
     
  •  28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7)
     
  •  28 July 2020: Notification of Appeal by Saudi Arabia in DS567: Saudi Arabia — Measures Concerning the Protection of Intellectual Property Rights (WT/DS567/7)
     
  •  18 December 2019: Notification of Appeal by the United States in DS436: United States — Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (Article 21.5 — India) (WT/DS436/21)
     
  • 6 December 2019: Notification of Appeal by the European Union in DS316: EC and certain member States — Large Civil Aircraft (Article 21.5 — EU) (WT/DS316/43)
     
  • 19 November 2019: Notification of Appeal by India in DS541: India — Export Measures (WT/DS541/7)
     
  • 9 September 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines II) (WT/DS371/30)
     
  • 15 August 2019: Notification of Appeal by the United States in DS510: United States — Certain Measures Relating to the Renewable Energy Sector (WT/DS510/5)
     
  • 4 June 2019: Notification of Appeal by Canada in DS534: United States — Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada (WT/DS534/5)
     
  • 25 January 2019: Notification of Appeal by the United States in DS523: United States — Countervailing Duty Measures on Certain Pipe and Tube Products from Turkey (WT/DS523/5)
     
  • 9 January 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines) (WT/DS371/27)
     
  • 14 December 2018: Notification of Appeal by India in DS518: India — Certain Measures on Imports of Iron and Steel Products (WT/DS518/8)
     
  • 20 November 2018: Notification of Appeal by Panama in DS461: Colombia — Measures Relating to the Importation of Textiles, Apparel and Footwear (Article 21.5 — Colombia)(Article 21.5 — Panama) (WT/DS461/28)
     
  • 21 September 2018: Notification of Appeal by the European Union in DS476: European Union and its member States — Certain measures Relating to the Energy Sector (WT/DS476/6)

Notes

  1. This refers to current cases in which notifications of appeal have been made. As indicated in the opening paragraphs, at the current time the Appellate Body is unable to review any of these notified appeals given the ongoing vacancies.  Back to text

U.S. Section 301 investigations on digital service taxes by trading partners — an update

For all countries the question of tax base erosion and profit shifting during a period of tremendous growth in e-commerce has been important as countries struggle to secure funding sources in a rapidly changing global marketplace. Concerns about tax revenue sources has grown during the COVID-19 pandemic as e-commerce has surged and may countries tax revenues have shrunk which stimulus outlays have soured.

For a number of years the OECD and the G20 have been working with many other countries in what is called an integrated framework to examine how international taxation needs to change to reflect the changed economic environment. The U.S. unhappiness with many trading partners on the question of digital service taxes is the early adoption of taxes on digital services before the completion of international negotiations and, in particular, taxes which appear to the U.S. to discriminate against U.S. companies who often are major global players in e-commerce and digital services.

In a post from early June, I reviewed the actions of the United States in response to actions by trading partners to introduce digital services taxes (DST), including a first investigation under section 301 of the Trade Act of 1974, as amended (“section 301”) on France on their DST and the initiation of investigations under section 301 on nine other countries and the European Union. While USTR had identified additional tariffs of 100% on a variety of French products, the imposition of duties was postponed until January 6, 2021 to give negotiators time to reach an agreement within the OECD. See June 3, 2020:  Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union, https://currentthoughtsontrade.com/2020/06/03/digital-services-taxes-new-u-s-section-301-investigations-on-nine-countries-and-the-european-union/.

Earlier this week, USTR issued three reports on three countries from the 2020 investigations — on India, Italy and Turkey. Parts of the USTR press release are copied below and, similar to the report on France, found the DSTs of the three countries were discriminatory to U.S. companies, contrary to international tax principles and burden or restrict U.S. commerce. See USTR press release, USTR Releases Findings in DST Investigations,
01/06/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-dst-investigations.

“Washington, DC – The U.S. Trade Representative has issued findings in Section 301 investigations of Digital Service Taxes (DSTs) adopted by India, Italy, and Turkey, concluding that each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce.

“The findings on each of the DSTs are supported by comprehensive reports, which are being published today on USTR’s website.

“USTR is not taking any specific actions in connection with the findings at this time but will continue to evaluate all available options.

“The Section 301 investigations of the DSTs adopted by India, Italy, and Turkey were initiated in June 2020, along with investigations of DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom. USTR expects to announce the progress or completion of additional DST investigations in the near future.”

Similarly, on January 7, 2021, USTR announced that it was postponing introduction of tariffs on French products that were due to kick in on January 6 to provide the agency with the ability to coordinate its actions based on the results of the other ongoing investigations. See USTR press release, Suspension of Tariff Action in France Digital Services Tax Investigation, 01/07/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/suspension-tariff-action-france-digital-services-tax-investigation. The press release is copied below.

“Washington, DC – The U.S. Trade Representative has determined to suspend the tariff action in the Section 301 investigation of France’s Digital Services Tax (DST). The additional tariffs on certain products of France were announced in July 2020, and were scheduled to go into effect on January 6, 2021. The U.S. Trade Representative has decided to suspend the tariffs in light of the ongoing investigation of similar DSTs adopted or under consideration in ten other jurisdictions. Those investigations have significantly progressed, but have not yet reached a determination on possible trade actions. A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations.

“The suspension of the France DST tariffs is set out in a notice sent for publication in the Federal Register.”

The three notices on the India, Italy and Turkey investigations were sent to the Federal Register on January 6 and will appear in the Federal Register next week. The same is true on the postponement of tariffs on France which was forwarded yesterday to the Federal Register and which should appear next week as well.

The three USTR reports released on January 6 and the four notices sent to the Federal Register by USTR on January 6 or 7 are embedded below.

Report-on-Indias-Digital-Services-Tax

Report-on-Italys-Digital-Services-Tax

Report-on-Turkeys-Digital-Services-Tax

IndiaDSTFRNJLB

ItalyDSTFRNJLB

TurkeyDSTFRNJLB

FRN-France-DST-Modification-2021.01.07

The OECD/G20 Integrated Framework talks

The OECD/G20 Integrated Framework negotiations on arriving at tax policies for an increasingly digitalized global economy have been ongoing for a number of years and include 137 countries.

The OECD/G20 Integrated Framework project released a series of reports on policy issues and approaches to address international taxation in the age of digitalisation in early October to address base erosion profit shifting (“BEPS”) and have moved the target date for completion from the end of 2020 to mid-2021. The reports released attempt to address at least some of the U.S. concerns. The OECD has sought public comments, received more than 270 comments and is holding a virtual meeting on January 14-15 in an effort to obtain public input to refine the draft documents and help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

A series of documents released in October that permit a better understanding of the complexities involved in seeking a way forward are listed next. For non-tax readers, the “Top 10 Frequently Asked Questions” is a good primer on the issues and challenges. See OECD/G20 Inclusive Framework on BEPS, Addressing the Tax Challenges Arising from the Digitalisation of the Economy, HIGHLIGHTS, October 2020, https://www.oecd.org/tax/beps/brochure-addressing-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising
from Digitalisation – Report on Pillar One Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint-beba0634-en.htm; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Report on Pillar Two Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-two-blueprint-abb4c3d1-en.htm; OECD/G20 Inclusive Framework on BEPS, PUBLIC CONSULTATION DOCUMENT, Reports on the Pillar One and Pillar Two Blueprints, 12 October 2020 – 14 December 2020, https://www.oecd.org/tax/beps/public-consultation-document-reports-on-pillar-one-and-pillar-two-blueprints-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Economic Impact Assessment, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-economic-impact-assessment-0e3cc2d4-en.htm; OECD, Tax Issues Arising from Digitalisation, Top 10 Frequently Asked Questions, October 2020, https://www.oecd.org/tax/beps/top-10-frequently-asked-questions-tax-challenges-digitalisation.pdf; Public consultation meeting on the Reports on the Pillar One and Pillar Two Blueprints (Date 14-15 January 2021), https://www.oecd.org/tax/beps/public-consultation-meeting-reports-on-the-pillar-one-and-pillar-two-blueprints.htm; 11th meeting of the OECD/G20 Inclusive Framework on BEPS (Date 27-28 January 2021 (Inclusive Framework plenary); 29 January 2021 (Tax and Development briefings)), https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-meeting-january-2021.htm.

To understand some of the concerns of U.S. businesses or business groups with actions of particular trading partners, a review of several comments to the OECD/G20 may be useful. I embed below comments from the American Chamber of Commerce Ireland, Amazon and the Business Roundtable. The Amcham Ireland paper comments on non-discrimination, multilateralism, administrability and certainty, avoiding double taxation, durability, efficiency, scope, safe harbour, segmentation and the interaction with the US’s Global intangible low-taxed income (GILTI). Amazon explores issues in the two pillar blueprints dealing with segmentation, sourcing, user location/IP address, business-to-business sales, reasonable steps/evidence requirements, double tax relief, dispute prevention and resolution, marketing and distribution safe harbour, GILTI Co-existence, framework for implementation, double-tax relief, application of STTR, and additional areas for simplification. The Business Roundtable (BR) has an overview section in which they “affirm certain principles of international income taxation” as being critical to a strong and growing global economy. One of the principles is that taxation should be of net business profits, not gross revenue. BR also provides seven comments on specific aspects of Pillar One and/or Two which are similar to concerns raised by the other U.S. interests. Comment 4 states “An agreement on Pillar One must include repeal of existing unilateral measures and a commitment to refrain from imposing any new unilateral measures aimed at profit reallocation or the digital economy.” It is the unilateral actions of trading partners that are perceived to discriminate against U.S. companies, often base tax on revenue versus profit and deviate from other established international taxation principles that is causing concern in the U.S. business community and resulting in U.S. investigations under Section 301 of the Trade Act of 1974, as amended.

American-Chamber-of-Commerce-Ireland

Amazon

Business-Roundtable-BRT

Conclusion

With the Trump Administration in its last twelve days, it is unknown if USTR will be able to complete the remaining seven 301 investigations on Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom to accompany the three reports released on the 6th of January dealing with India, Italy, and Turkey and the earlier report and proposed action on France. My guess is that this will be a primary focus of USTR in the next week and a half so that a full set of reports is available and possibly a recommendation for action on all eleven reports. Whether the remaining investigations are completed by January 20 or not, the Biden Administration will be confronted with the ongoing OECD/G20 process with a target completion in the front half of 2021 and a host of governments implementing DSTs unilaterally ahead of any agreement among the Integrated Framework members. Action under 301 is an option should trading partners pursue approaches to DSTs that in fact discriminate against U.S. companies or deviate from what the OECD/G20 process is likely to generate as a final package.

Global economic rebound in 2021 will be affected by rate of vaccinations against COVID-19 — World Bank’s January 5, 2021 release of its World Economic Prospects report

The last forecast by the WTO for international merchandise trade for 2020 projected a decline of 9.2% for the world reflecting significant improvements in the 3rd quarter of 2020 after the sharp contraction in the second quarter. Services trade is trailing merchandise trade significantly as is reflected in the WTO ‘s December 4, 2020 press release, Electronics and automotive products lift global merchandise trade in Q3, services lag behind, https://www.wto.org/english/news_e/news20_e/stat_04dec20_e.htm. Two charts from the press release show data through the third quarter of 2020 for goods and services and are copied below.

The expected continued rebound in the fourth quarter of 2020 has likely been reduced in size by the large increase in COVID-19 cases in many countries, including the European Union, United Kingdom, the United States and some countries in Asia and reintroduction of restrictions on people in those countries, resulting in downward pressure on domestic consumption (and hence trade flows in both goods and services).

There is significant optimism about economic growth in 2021 in light of the progress on approval and production of COVID-19 vaccines. See my post from January 3, 2021, 2021 – how quickly will COVID-19 vaccines bring the pandemic under control?, https://currentthoughtsontrade.com/2021/01/03/2021-how-quickly-will-covid-19-vaccines-bring-the-pandemic-under-control/.

Today, January 5, 2021, the World Bank released its World Economic Prospects report. See World Bank, World Economic Prospects, January 2021, https://www.worldbank.org/en/publication/global-economic-prospects. The press release from the World Bank provides both an estimate for growth in 2021 for the world and for various regions of the world but also cautions that the economic rebound could be reduced significantly if there are problems with vaccinations in the developed world and various advanced developing countries. See World Bank, Global Economy to Expand by 4% in 2021; Vaccine Deployment and Investment Key to Sustaining the Recovery, January 5, 2021, https://www.worldbank.org/en/news/press-release/2021/01/05/global-economy-to-expand-by-4-percent-in-2021-vaccine-deployment-and-investment-key-to-sustaining-the-recovery. A large part of the press release is copied below (emphasis and italics in the original).

Development risks remain as economic activity, incomes likely to stay low for extended period

“WASHINGTON, Jan. 5, 2021 — The global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year. A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects.

“Although the global economy is growing again after a 4.3% contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period. Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment. To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt.

“‘While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges—in public health, debt management, budget policies, central banking and structural reforms—as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth,’ said World Bank Group President David Malpass. ‘To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance.’

“The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China. In contrast, disruptions to activity in the majority of other emerging market and developing economies were more acute than expected.

“’Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed,’ Vice President and World Bank Group Chief Economist Carmen Reinhart said.

“The near-term outlook remains highly uncertain, and different growth outcomes are still possible, as a section of the report details. A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could limit the global expansion to 1.6% in 2021. Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5 percent.

“In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery. U.S. GDP is forecast to expand 3.5% in 2021, after an estimated 3.6% contraction in 2020. In the euro area, output is anticipated to grow 3.6% this year, following a 7.4% decline in 2020. Activity in Japan, which shrank by 5.3% in the year just ended, is forecast to grow by 2.5% in 2021.

“Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5% in 2021, after a contraction of 2.6% in 2020. China’s economy is expected to expand by 7.9% this year following 2% growth last year. Excluding China, emerging market and developing economies are forecast to expand 3.4% in 2021 after a contraction of 5% in 2020. Among low-income economies, activity is projected to increase 3.3% in 2021, after a contraction of 0.9% in 2020.

“Analytical sections of the latest Global Economic Prospects report examine how the pandemic has amplified risks around debt accumulation; how it could hold back growth over the long term absent concerted reform efforts; and what risks are associated with the use of asset purchase programs as a monetary policy tool in emerging market and developing economies.

“’The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will likely further increase debt burdens and erode borrowers’ ability to service debt,’ World Bank Acting Vice President for Equitable Growth and Financial Institutions Ayhan Kose said. ‘The global community needs to act rapidly and forcefully to make sure the recent debt accumulation does not end with a string of debt crises. The developing world cannot afford another lost decade.’

“As severe crises did in the past, the pandemic is expected to leave long lasting adverse effects on global activity. It is likely to worsen the slowdown in global growth projected over the next decade due to underinvestment, underemployment, and labor force declines in many advanced economies. If history is any guide, the global economy is heading for a decade of growth disappointments unless policy makers put in place comprehensive reforms to improve the fundamental drivers of equitable and sustainable economic growth.  

“Policymakers need to continue to sustain the recovery, gradually shifting from income support to growth-enhancing policies. In the longer run, in emerging market and developing economies, policies to improve health and education services, digital infrastructure, climate resilience, and business and governance practices will help mitigate the economic damage caused by the pandemic, reduce poverty and advance shared prosperity. In the context of weak fiscal positions and elevated debt, institutional reforms to spur organic growth are particularly important. In the past, the growth dividends from reform efforts were recognized by investors in upgrades to their long-term growth expectations and increased investment flows.

“Central banks in some emerging market and developing economies have employed asset purchase programs in response to pandemic-induced financial market pressures, in many cases for the first time. When targeted to market failures, these programs appear to have helped stabilize financial markets during the initial stages of the crisis. However, in economies where asset purchases continue to expand and are perceived to finance fiscal deficits, these programs may erode central bank operational independence, risk currency weakness that de-anchors inflation expectations, and increase worries about debt sustainability.”

Whether the economic recovery in 2021 is as robust as projected or is dramatically smaller (worst case scenario) will obviously affect trade flows of both goods and services. As can be seen from the initial roll out of vaccines in the U.S., EU, U.K., Canada and other countries, there are significant goods and services involved with the production, distribution and utilization of vaccines globally and within markets. Thus, if there are problems with vaccinating large parts of populations, that will have a direct effect on both goods shipments and on various services. There are also the indirect effects on goods and services from the likely continued restrictions on travel and tourism if the pandemic is not brought under control, something that widespread vaccinations will assist in achieving. My post yesterday reviewed some of the early challenges with vaccinations occurring in the U.S., EU and India. Additional articles are appearing which suggest a lot of work needs to be done to in fact permit rapid vaccinations of populations. See, e.g., Politico, The EU’s coronavirus vaccine blame game. Why so slow?, January 5, 2021, https://www.politico.eu/article/the-vaccination-blame-game-is-it-all-the-eus-fault/; Politico, Sluggish coronavirus vaccination rollout poses risks for Macron, January 5, 2021, https://www.politico.eu/article/coronavirus-covid19-vaccine-campaign-fail-france-president-emmanuel-macron-election/; Wall Street Journal, Covid-19 Vaccine’s Slow Rollout Could Portend More Problems, January 1, 2021, https://www.wsj.com/articles/covid-19-vaccines-slow-rollout-could-portend-more-problems-11609525711/ And this comes against the backdrop of continued surges of new cases of COVID-19 in the U.S. and many other countries which will extend restrictions into the early months of 2021 at least and hence restrict economic recovery in at least the first quarter of 2021. See, e.g., Financial Times, Covid surges as UK rolls out mass vaccination programme, January 3, 2021, https://www.ft.com/content/71140ee7-8e47-4499-9fcf-2d23d5c7d94f; New York Times, The Lull Before the Surge on Top of the Surge, January 5, 2021, https://www.nytimes.com/2021/01/05/us/california-coronavirus.html

The World Bank report identifies a host of policy issues for governments and challenges flowing from the high level of debt that has been incurred during 2020 and the downward pressures on investment flows in many countries. Many countries will have trouble implementing the appropriate policy options because of existing debt issues (particularly many developing countries) or because of political gridlock, as is apparent in the U.S. even with a new Administration due to be sworn in on January 20. See, e.g., New York Times, $900 Billion Wonʼt Carry Biden Very Far (Despite new pandemic aid, he confronts an economic crisis unlike any since he last entered office in 2009. And political headwinds have only stiffened), January 4, 2021. Indeed, as reviewed in a recent Congressional Research Service updated report on the Global Economic Effects of COVID-19 (updated as of December 23, 2020), the level of debt incurred by developed and developing countries has surged during the pandemic with the level of fiscal deficit relative to GDP reflecting declining government revenues and increased expenditures to reduce the negative effects of the pandemic. See CRS, Global Economic Effects of COVID-19, updated December 23, 2020, page 13, https://fas.org/sgp/crs/row/R46270.pdf. The figure from the report is copied below. Obviously the levels of fiscal deficit incurred in 2020 are not sustainable. They also reduce flexibilities of countries in policy actions that can be taken to speed up the recovery of the national and global economies.

Conclusion

The world needs to return to a period of sustained economic growth that is more inclusive and more equitable. The arrival of vaccines (with more expected in the first quarter of 2021) and the ramp up of production, distribution and utilization of vaccines around the world can expand economic growth both directly through the goods and services involved and indirectly through permitting countries to ease restrictions imposed to try to control the pandemic. The first few weeks of the rollout of vaccines have not been without significant problems. As reviewed in yesterday’s post, production of the vaccines that have been approved by individual nations is running behind what was anticipated, in some cases (e.g., India) significantly. While distribution has been reasonably robust in the U.S. and some other countries, there is a significant lag in getting the vaccines utilized with a wide variety of problems identified in different markets.

As the World Bank’s report today makes clear, if countries are not able to achieve significant vaccinations in 2021 the projected growth of global GDP could be cut by more than half. A global economy that is not expected to return to 2019 levels until 2022 even if 2021 growth rates are achieved will be further retarded if vaccinations lag what is needed. That will reduce trade volumes of goods and services, leave tens of millions of people around the world unemployed or underemployed, and challenge the ability to achieve UN Sustainability Goals on a host of issues including poverty, food security and many more.

President-elect Biden and his team are focused on dramatically ramping up the response in the United States, but the challenges here are significant and complicated by a divided public many of whom still doubt there is a pandemic or that it is problematic or who are opposed to vaccinations. Challenges exist in many other countries as well.

If ever there were a time for people to come together and ensure the timely vaccinations of as many people as possible as quickly as possible, it is obviously now. Whether that can be achieved is the multi-trillion dollar question.

2021 – how quickly will COVID-19 vaccines bring the pandemic under control?

News accounts report many countries starting to receive at least some doses of vaccines. In the United States, two vaccines have received emergency use authorization (“EUA”)(the Pfizer/BioNTech and the Moderna vaccines). The Pfizer/BioNTech vaccine has received approval (emergency use or other) in a number of countries (EU, Canada, United Kingdom, Bahrain) and was the first vaccine to receive an EUA from the World Health Organization. See WHO press release, WHO issues its first emergency use validation for a COVID-19 vaccine and emphasizes need for equitable global access, December 31, 2020, https://www.who.int/news/item/31-12-2020-who-issues-its-first-emergency-use-validation-for-a-covid-19-vaccine-and-emphasizes-need-for-equitable-global-access. As the WHO press releases indicates, “The WHO’s Emergency Use Listing (EUL) opens the door for countries to expedite their own regulatory approval processes to import and administer the vaccine. It also enables UNICEF and the Pan-American Health Organization to procure the vaccine for distribution to countries in need.”

AstraZeneca will likely seek emergency use authorization in the United States in January and Johnson & Johnson in February. AstraZeneca has received an emergency use authorization in the United Kingdom. It has also been given EUA by India (along with a vaccine from Bharat Biotech). See New York Times, India Approves Oxford-AstraZeneca Covid-19 Vaccine and 1 other, January 3, 2021, https://www.nytimes.com/2021/01/03/world/asia/india-covid-19-vaccine.html.

A recent Financial Times article includes a graph showing the number of citizens in various countries who have received a first vaccination shot. See Financial Times, European leaders under pressure to speed up mass vaccination, January 1, 2021, https://www.ft.com/content/c45e5d1c-a9ea-4838-824c-413236190e7e. The countries shown as having started vaccinations include China, the U.S., the U.K., Kuwait, Mexico, Canada, Chile, Russia, Argentina, Iceland, Bahrain, Oman, Israel, and fourteen of the 27 members of the EU).

Similarly an article from CGTN on January 1, 2021 shows a number of countries who are buying COVID-19 vaccines from China including Hungary and a number of others while vaccines from China are in stage 3 trials in a number of countries. CGTN, 1 January 2021, Hungary to focus on EU, Chinese coronavirus vaccine purchases, https://news.cgtn.com/news/2021-01-01/Hungary-to-focus-on-EU-Chinese-coronavirus-vaccine-purchases-WHm11NYjni/index.html. “By the end of 2020, UAE became the first country to roll out a Chinese vaccine to the public. Pakistan also announced on Thursday that they will purchase 1.2 million COVID-19 vaccine doses from China’s Sinopharm after China officially approved the vaccine for general public use. Sinovac’s CoronaVac shot, another candidate vaccine in China, has been signed up for purchase deals with Brazil, Indonesia, Turkey, Chile, and Singapore. The company is also in supply talks with Malaysia and the Philippines.”

So the good news at the beginning of 2021 is that effective vaccines are starting to be distributed. Many others are in late stages of trials, giving hope to a significant number of vaccines approved for use in the coming months. The WHO’s list of vaccines in development and their status can be found on the WHO website at this cite. https://www.who.int/publications/m/item/draft-landscape-of-covid-19-candidate-vaccines. How quickly approved vaccines can be produced, distributed and vaccinations given globally will determine when the pandemic will be brought under control. There are many challenges that the world faces in getting to the hoped for situation of a pandemic that is in the past.

For example, even in developed countries, governments are finding that there are significant hurdles in getting production volumes up to promised levels, and much greater challenges in going from production to distribution to vaccinations. In the United States, the Trump Administration had aimed at having 20 million vaccinations accomplished by the end of 2020. Only 13.071 million doses were distributed by the end of the year according to the US CDC and only 4.2 million vaccinations (first shot of two shots) occurred. See Center for Disease Prevention and Control, COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (viewed Jan. 3, 2021). President-elect Biden is talking about an aggressive program to get 100 million vaccinations (as the current vaccines require 2 shots, this means 50 million people) vaccinated in the first 100 days of his Administration (by the end of April). To achieve this objective will require cooperation from Congress in providing sufficient funding to build up the capabilities at the state and local levels. Health care infrastructure has been reduced over the last dozen years with a reduction of some 50,000 health care workers in the U.S. The huge COVID-19 case load in the United States and record hospitalizations also have health care operations across the United States overextended. So despite having sufficient vaccines on order from four companies where EUAs have been or will likely be granted in the near future to permit vaccination of all Americans by fall, there are enormous practical challenges to making the vaccinations happen in fact. And that is before the challenges of convincing portions of the population of the safety of the vaccines and the need for the vast majority of people to be vaccinated to achieve herd immunity.

Similar challenges exist in many other parts of the world as well. For example, in both the EU and India the roll out of vaccines is proceeding slower than desired. See, e.g., The Guardian, BioNTech criticises EU failure to order enough Covid vaccine, January 1, 2021, https://www.theguardian.com/world/2021/jan/01/france-to-step-up-covid-jabs-after-claims-of-bowing-to-anti-vaxxers; Politico, France under pressure to speed up coronavirus vaccine rollout, January 3, 2021, https://www.politico.eu/article/france-under-pressure-to-speed-up-coronavirus-vaccine-rollout/; New York Times, India Approves Oxford-AstraZeneca Covid-19 Vaccine and 1 other, January 3, 2021, https://www.nytimes.com/2021/01/03/world/asia/india-covid-19-vaccine.html (“The Serum Institute, an Indian drug maker that struck a deal to produce the Oxford vaccine even before its effectiveness had been proven, has managed to make only about one-tenth of the 400 million doses it had committed to manufacturing before the end of the year.”).

The WHO/GAVI/CEPI effort to get vaccines to the world on a equitable basis has much of its vaccine commitments in products still in the testing stage although roughly one billion doses can be available for a vaccine currently approved on an emergency use basis in the U.K. and India (the AstraZeneca vaccine) through COVAX agreements with AstraZeneca directly and with an Indian producer who can be asked to produce one of two potential vaccines, including the AstraZeneca one. See WHO, COVAX Announces additional deals to access promising COVID-19 vaccine candidates; plans global rollout starting Q1 2021, 18 December 2020, https://www.who.int/news/item/18-12-2020-covax-announces-additional-deals-to-access-promising-covid-19-vaccine-candidates-plans-global-rollout-starting-q1-2021.

“Geneva/Oslo, 18 December 2020

“COVAX, the global initiative to ensure rapid and equitable access to COVID-19 vaccines for all countries, regardless of income level, today announced that it had arrangements in place to access nearly two billion doses of COVID-19 vaccine candidates, on behalf of 190 participating economies. For the vast majority of these deals, COVAX has guaranteed access to a portion of the first wave of production, followed by volume scales as further supply becomes available. The arrangements announced today will enable all participating economies to have access to doses in the first half of 2021, with first deliveries anticipated to begin in the first quarter of 2021 – contingent upon regulatory approvals and countries’ readiness for delivery.

“Given these are arrangements for 2 billion doses of vaccine candidates which are still under development, COVAX will continue developing its portfolio: this will be critical to achieve its goal of securing access to 2 billion doses of safe and effective, approved vaccines that are suitable for all participants’ contexts, and available by the end of 2021. However, today’s announcements offer the clearest pathway yet to end the acute phase of the pandemic by protecting the most vulnerable populations around the world. This includes delivering at least 1.3 billion donor-funded doses of approved vaccines in 2021 to the 92 low- and middle-income economies eligible for the COVAX AMC.

“The new deals announced today include the signing of an advance purchase agreement with AstraZeneca for 170 million doses of the AstraZeneca/Oxford candidate, and a memorandum of understanding (MoU) with Johnson & Johnson for 500 million doses of the Janssen candidate, which is currently being investigated as a single dose vaccine.. These deals are in addition to existing agreements COVAX has with the Serum Institute of India (SII) for 200 million doses – with options for up to 900 million doses more – of either the AstraZeneca/Oxford or Novavax candidates, as well as a statement of intent for 200million doses of the Sanofi/GSK vaccine candidate.

“In addition to this, COVAX also has – through R&D partnership agreements – first right of refusal in 2021 to access potentially more than one billion doses (based on current estimates from the manufacturing processes under development) that will be produced, subject to technical success and regulatory approval, by candidates in the COVAX R&D Portfolio.”

* * *

“The COVAX Facility currently has 190 participating economies. This includes 98 higher-income economies and 92 low- and middle-income economies eligible to have their participation in the Facility supported via the financing mechanism known as the Gavi COVAX AMC. Of the 92 economies eligible to be supported by the COVAX AMC, 86 have now submitted detailed vaccine requests, offering the clearest picture yet on actual global demand for COVID-19 vaccines.

“In addition to gathering detailed information on participating economies’ vaccine requests, COVAX, through Gavi, UNICEF,WHO, the World Bank, and other partners has been working closely with all countries in the Facility, particularly AMC-eligible participants, to help plan and prepare for the widespread roll out of vaccines. Conditions that determine country readiness include regulatory preparedness as well as the availability of infrastructure, appropriate legal frameworks, training, and capacity, among other factors.

“’Securing access to doses of a new vaccine for both higher-income and lower-income countries, at roughly the same time and during a pandemic, is a feat the world has never achieved before – let alone at such unprecedented speed and scale,’ said Dr. Seth Berkley, CEO of Gavi, the Vaccine Alliance, which leads on procurement and delivery for COVAX. ‘COVAX has now built a platform that offers the world the prospect, for the first time, of being able to defeat the pandemic on a global basis, but the work is not done: it’s critical that both governments and industry continue to support our efforts to achieve this goal’.

Early pledges towards 2021 fundraising targets

“To achieve this ambitious goal, COVAX currently estimates it needs to raise an additional US$ 6.8 billion in 2021 – US$ 800 million for research and development, at least US$ 4.6 billion for the COVAX AMC and US$ 1.4 billion for delivery support.

“Support for the COVAX AMC will be critical to ensuring ability to pay is not a barrier to access. Thanks to the generous support of sovereign, private sector, and philanthropic donors, the AMC has met its urgent 2020 fundraising target of US$ 2 billion, but at least US$ 4.6 billion more is needed in 2021 to procure doses of successful candidates as they come through the portfolio.”

In the United States and in the EU, governments are looking to expand volumes of proven vaccines while awaiting approval of other vaccine candidates. See Pfizer press release, PFIZER AND BIONTECH TO SUPPLY THE U.S. WITH100 MILLION ADDITIONAL DOSES OF COVID-19VACCINE, December 23, 2020, https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-supply-us-100-million-additional-doses; Pfizer press release, PFIZER AND BIONTECH TO SUPPLY THEEUROPEAN UNION WITH 100 MILLIONADDITIONAL DOSES OF COMIRNATY®, December 29, 2020, https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-supply-european-union-100-million; HHS, Trump Administration purchases additional 100 million doses of COVID-19 investigational vaccine from Moderna, December 11, 2020, https://www.hhs.gov/about/news/2020/12/11/trump-administration-purchases-additional-100-million-doses-covid-19-investigational-vaccine-moderna.html.

Conclusion

The world is anxiously awaiting the resolution of the pandemic through the approval and distribution of effective vaccines on a global basis in 2021. The good news is that a number of vaccines have been approved in one or more countries and billions of doses of approved vaccines will likely be produced in 2021. The efforts of the WHO, GAVI and CEPI and the generosity of many nations, private and philanthropic organizations will mean people in nearly all countries will receive at least some significant volume of vaccines in 2021. As most vaccines require two shots, the number of people vaccinated in 2021 in an optimistic scenario is probably less than two billion. The world population at the beginning of 2021 is 7.8 billion people. Thus, 2021, even under an optimistic scenario, will not likely result in the eradication of the pandemic around the world.

Even in countries like the United States, the United Kingdom and the 27 members of the European Union where advance purchases should result in sufficient doses being available to vaccinate all eligible members of society, there are massive challenges in terms of distribution and vaccinating the numbers of people involved and educating the populations on the safety and benefits of the vaccines. Thus, even in wealthier countries it will be optimistic to achieve the desired levels of vaccination by the end of 2021.

The Director-General of the WHO in his year-end message laid out the likely situation for the world in 2021, the availability of vaccines but the continued need to be vigilant and adhere to preventive measures to control the pandemic and the need to work collectively to ensure equitable and affordable access to vaccines for all. See WHO,COVID-19: One year later – WHO, Director-General’s new year message, December 30, 2020, https://www.who.int/news/item/30-12-2020-covid-19-anniversary-and-looking-forward-to-2021 (Dr Tedros Adhanom Ghebreyesus, WHO Director-General)

“As people around the world celebrated New Year’s Eve 12 months ago, a new global threat emerged.

“Since that moment, the COVID-19 pandemic has taken so many lives and caused massive disruption to families, societies and economies all over the world.

“But it also triggered the fastest and most wide-reaching response to a global health emergency in human history.

“The hallmarks of this response have been an unparalleled mobilization of science, a search for solutions and a commitment to global solidarity.

“Acts of generosity, large and small, equipped hospitals with the tools that health workers needed to stay safe and care for their patients.

“Outpourings of kindness have helped society’s most vulnerable through troubled times.

“Vaccines, therapeutics and diagnostics have been developed and rolled out, at record speed, thanks to collaborations including the Access to COVID-19 Tools Accelerator.

“Equity is the essence of the ACT Accelerator, and its vaccine arm, COVAX, which has secured access to 2 billion doses of promising vaccine candidates.

“Vaccines offer great hope to turn the tide of the pandemic.

“But to protect the world, we must ensure that all people at risk everywhere – not just in countries who can afford vaccines –are immunized.

“To do this, COVAX needs just over 4 billion US dollars urgently to buy vaccines for low- and lower-middle income countries.

“This is the challenge we must rise to in the new year.

“My brothers and sisters, the events of 2020 have provided telling lessons, and reminders, for us all to take into 2021.

“First and foremost, 2020 has shown that governments must increase investment in public health, from funding access to COVID vaccines for all people, to making our systems better prepared to prevent and respond to the next, inevitable, pandemic.

“At the heart of this is investing in universal health coverage to make health for all a reality.

“Second, as it will take time to vaccinate everyone against COVID, we must keep adhering to tried and tested measures that keep each and all of us safe.

“This means maintaining physical distance, wearing face masks, practicing hand and respiratory hygiene, avoiding crowded indoor places and meeting people outside.

“These simple, yet effective measures will save lives and reduce the suffering that so many people encountered in 2020.

“Third, and above all, we must commit to working together in solidarity, as a global community, to promote and protect health today, and in the future.

“We have seen how divisions in politics and communities feed the virus and foment the crisis.

“But collaboration and partnership save lives and safeguard societies.

“In 2020, a health crisis of historic proportions showed us just how closely connected we all are.

“We saw how acts of kindness and care helped neighbors through times of great struggle.

“But we also witnessed how acts of malice, and misinformation, caused avoidable harm.

“Going into 2021, we have a simple, yet profound, choice to make:

“Do we ignore the lessons of 2020 and allow insular, partisan approaches, conspiracy theories and attacks on science to prevail, resulting in unnecessary suffering to people’s health and society at large?

“Or do we walk the last miles of this crisis together, helping each other along the way, from sharing vaccines fairly, to offering accurate advice, compassion and care to all who need, as one global family.

“The choice is easy.

“There is light at the end of the tunnel, and we will get there by taking the path together.

“WHO stands with you – We Are Family and we are In This Together.

“I wish you and your loved ones a peaceful, safe and healthy new year.”

We all want to have the COVID-19 pandemic in the rearview mirror as 2021 progresses. There is hope for significant progress this year. How much progress will depend on the will of governments and peoples to focus on the eradication of the pandemic and to support the dramatic ramp up of production, distribution and vaccination of the world’s people.