European Union

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

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

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

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

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

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

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

Growth in new cases among developing countries

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

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

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

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

Vaccines and therapeutics – developments and challenges for access

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

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

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

Conclusion

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

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

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

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

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

The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences

On Friday, July 17th, the General Council of the World Trade Organization concluded three days of meetings with the eight candidates for the post of Director-General. With the current Director-General, Roberto Azevedo, stepping down on August 31st, the WTO is engaged in a somewhat truncated process for selecting a new Director-General, though it is likely that the selection will not conclude until early November of this year.

Each candidate had ninety minutes with the General Council and then were given a press conference for thirty minutes. At the press conference, the candidate would provide a short opening statement and then answer questions from journalists. The order of candidates meeting with the General Council followed the order of receipt of the candidate’s nomination from their government. Thus, Dr. Jesus Seade Kuri (Mexico), Dr. Ngozi Okonjo-Iweala (Nigeria) and Mr. Abdel-Hamid Mamdouh (Egypt), the first three nominations received by the WTO, met with the General Council on July 15. On July 16, the General Council met with Mr. Tudor Ulianovschi (Rep. of Moldova), H.E. Yoo Myung-hee (Rep. of Korea) and Amb. Amina C. Mohamed (Rep. of Kenya). On July 17, the General Council held meetings with H.E. Mohammad Al-Tuwaijri (Saudi Arabia) and Dr. Liam Fox (United Kingdom). The week also provided candidates with the opportunity to meet with individual WTO Members or groups of WTO Members based on availability, etc.

While the meetings with the General Council are simply an early part of the two month outreach by candidates to Members to become better known, the meetings are nonetheless important as they provide WTO Members the opportunity to hear from and to ask questions of each candidate under comparable circumstances. While the minutes of the General Council meetings will be generated by the WTO Secretariat in the coming months and made public some time after that, the General Council meetings are not open to the public. Hence the material available to evaluate the three days of meetings is limited to prepared statements made to the General Council and the press conferences for each candidate held after the candidate had met with the General Council. Those materials can be accessed from the WTO website. See Candidates for DG selection process 2020, https://www.wto.org/english/thewto_e/dg_e/dgsel20_e/dgsel20_e.htm (shows biography, statement to General Council, photo gallery and video press conference for each candidate); WTO members meet the candidates for Director-General, https://www.wto.org/english/news_e/news20_e/dgsel_17jul20_e.htm.

What follows are first my summary impressions from the public information of the candidates. Those are followed by my summaries of each candidate’s presentation and answers to questions.

Summary Impressions of the Candidates

In the challenging environment that confronts the world at the present time, one has to marvel that eight individuals were willing to be put forward by their governments to pursue heading the World Trade Organization. Despite some successes in its first twenty-five years, the WTO is viewed as being severely challenged. Its negotiating function, historically the most important function of the GATT and presumed to be critical in the WTO, has been at least seriously challenged, unable to deliver on many of the subjects that have been considered. This has led the WTO rules to be both outdated and not dealing with current issues of great importance. The dispute settlement system has seen the shutdown of the second-tier review (the Appellate Body) as a variety of longstanding concerns of the United States have not been addressed leading the U.S. to block appointing new members of the Appellate Body. Standing Committees that monitor notifications and discuss topics within the Committee’s jurisdiction have been less robust than historically was the case. Notifications are problematic for many Members in terms of completeness and timeliness of notifications. The lack of successful negotiations has raised concerns on obligations of members as economic development changes the relative ability of Members to contribute. Also the growth of Members operating on economic systems different than market economy models has created challenges as to practices that may not be addressed by WTO rules. And the COVID-19 pandemic has resulted in many export restraints to address concerns about adequacy of medical supplies or agricultural goods.

So it is encouraging that there are eight individuals willing to be considered to head the WTO going forward in such circumstances.

Each candidate has different backgrounds and experiences which may appeal to some WTO Members but not others. For example, Minister Mohammmad Al-Tuwaijri has an extensive business background as well as four years in a Minister position for Saudi Arabia and has focused on his management experience and his desire to develop goals and performance metrics to measure progress if selected the next Director-General.

That is a very different profile than that of Dr. Ngozi Okonjo-Iweala of Nigeria. While Dr. Okonjo-Iweala has some private sector experience, she is a development economist with deep experience at the World Bank and as Finance Minister for Nigeria who focuses on her political experience, ability to work with various multilateral and UN organizations to achieve coordinated actions for developing and least-developed countries and being able to bring “fresh eyes” to the problems of the WTO. She has a reputation as a reformer.

A number of the candidates have depth of GATT/WTO experience and/or trade ministry work. Dr. Jesus Seade Kuri was Mexico’s Ambassador to the GATT, went inside the GATT Secretariat to help conclude the Uruguay Round and was one of the first Deputy Directors-General of the WTO and has recent experiences with the Mexican government concluding the USMCA talks with the United States and Canada. His presentation had a very aggressive and active agenda presented with approaches on the Appellate Body and other issues that indicate he would be active as a Director-General in helping Members find solutions through his understanding of the Agreements, their history, and an ability to devise possible alternative approaches to resolve impasses. He is obviously fluent in all three official languages which is an aid in dealing with senior Mission officials and officials in capitals for many countries.

Mr. Abdel-Hamid Mamdouh similarly has very long experience at the GATT and WTO, first as a negotiator for Egypt and then as part of the WTO Secretariat where he served as Director of Services and Investment. He has significant technical expertise and views himself as having a history of being a trusted advisor to all WTO Members which is different from others who have more government specific experience. While he hasn’t filled senior political positions in the Egyptian government, he notes that political leadership, which is important for the Director-General position, is not the same as ministerial leadership experience.

Minister Amina C. Mohamed of Kenya touted her extensive experience both at the WTO where she was Ambassador for Kenya to the WTO including chairing the three major bodies (General Council, Dispute Settlement Body and Trade Policy Review Body) and her role as Foreign Affairs and International Trade Minister which included her chairing the 10th WTO Ministerial in Nairobi and achieving a series of breakthroughs on negotiations including an amendment to the TRIPS Agreement, expansion of the Information Technology Agreement and delivering an agreement on agriculture export subsidies to highlight her ability to build consensus should she be selected as the next Director-General.

Mr. Tudor Ulianovschi from Moldova similarly had served both as his country’s Ambassador to the WTO and Minister of Foreign Affairs. He presented himself as having political leadership experience and an understanding of current WTO challenges and having interfaced with governments around the world. As Moldova is neutral on many issues before major trading partners, Mr. Ulianovschi views he can be the honest broker and viewed as such by Members. He can handle the political and technical elements of the job and references his sixteen years of experience with Moldova’s government.

H.E. Yoo Myung-hee of Korea has spent twenty-five years in international trade for her government and is the first female Minister for Trade. While she has not served in Geneva in her country’s mission, she has engaged extensively in trade negotiations with countries at all levels of economic development and knows what is needed to conclude negotiations. The fact that she has experienced Korea’s change in economic status over the years helps her understand issues and needs of WTO Members at different economic levels of development.

Finally, Dr. Liam Fox of the United Kingdom believes the next Director-General needs to have political skills, not be a technocrat. He has been in the UK Parliament for several decades and has served in two different administrations (Secretary of State for Defence; Secretary of State for Trade). While he hasn’t served at the WTO, he is a strong supporter of free trade. He believes the WTO needs to recommit to the fundamental principles of most favoured nation, national treatment and transparency of commitment as part of the next Ministerial Conference in 2021. He also cautions that now is not the time for an incoming Director-General to overcommit on anticipated results.

There are factors that may influence some Members — geographical diversity, gender of candidate, whether the candidate is from a developed or developing country. In my last post, I provided a chart that graphed these and some other factors. See WTO Director-General selection process – this week candidates meet WTO Members in a General Council Meeting, https://currentthoughtsontrade.com/2020/07/14/wto-director-general-selection-process-the-week-candidates-meet-wto-members-in-a-general-council-meeting/.

On geographical diversity, there has never been a Director-General from an African country (three candidates – Nigeria, Egypt and Kenya), from an Arab country (Saudi Arabia, Egypt), from North America (Mexico).

On gender, there has never been a Director-General who was female. There are three candidates who are female in this selection process (Nigeria, Korea, Kenya).

On developed vs. developing country, there are two countries that are “developed” at the WTO (United Kingdom, Moldova). In my prior chart, Moldova had been listed as developing, flowing from the fact that in their trade policy review, it was indicated that Moldova is eligible for generalized system of preference benefits from a number of countries (GSP is intended to benefit developing countries). See Trade Policy Review, Report by the Secretariat, Republic of Moldova, WT/TPR/S/323 (14 September 2015) at 31, para. 3.24, https://www.wto.org/english/tratop_e/tpr_e/s323_e.pdf. Saudi Arabia was included in the chart as a developing country, despite being a high income country in the World Bank’s terminology, because the Saudi Arabia trade policy review indicates Saudi Arabia is a member of the Informal Group of Developing Countries. See Trade Policy Review, Report by the Secretariat, The Kingdom of Saudi Arabia, WT/TPR/S/333 (29 Feb. 2016) at 22, para. 2.20, https://www.wto.org/english/tratop_e/tpr_e/s333_e.pdf.

If WTO Members are looking for positions of candidates on particular issues, candidates were typically careful not to go in one direction or another where there are known differences in the position of Members. For example, on the question of the Appellate Body reform, candidates recognized the need to address both the concerns of the United States and the concerns of other Members to have the WTO Appellate Body reinstated in their prepared statements and were certainly asked questions both by the General Council and during the press conferences. Some, like Dr. Jesus Seade, had some broader ideas on how to resolve the Appellate Body issue without indicating what the resolution would look like. Others like Mr. Abdel-Hamid Mamdouh believed it would be possible to move forward from the work already done. Some like Dr. Liam Fox suggested that without resolution there was no dispute settlement, which is a sentiment that at least the United States would disagree with. Several were asked about the interim arrangement entered into by the EU, China, Canada and some 19 others. All who addressed the issue accepted the arrangement as interim only and not intended to replace the Appellate Body and focused on obtaining a solution to the impasse on the Appellate Body.

Similarly, many candidates were asked about the question of classification of countries as developing for special and differential treatment. Minister Yoo of Korea noted that Korea had decided that its economic development permitted it to accept higher levels of commitments and thought that was useful for countries who felt they could do so. But she recognized that it was a sensitive issue on which there was no consensus. Dr. Seade felt a more productive approach to the issue would be to look at whether any given country needed special and differential treatment on a product or sector basis in new agreements versus tackling what he viewed was a theological issue – country classification. Others deferred to what Members thought or wanted to pursue.

While all candidates talked extensively about reform, none can fairly be said to have embraced the U.S. call for broad-ranging reform of the existing organization and agreements. Nor did any candidate publicly indicate that the WTO did not address many of the practices of China which operates under a different economic system than most of WTO members, another issue viewed as important by USTR Lighthizer for candidates to recognize.

To sum up, the candidates are in the early days of their outreach to get better known by Members. The appearances before the General Council and the press conferences afterward provide a better understanding of their visions for the WTO and what the candidates believe they bring to the table. The next 51 days til September 8 will undoubtedly be an exhausting time for each candidate as outreach continues around the world. We wish all of the candidates success in their outreach efforts these next fifty-one days.

The immediate task for the General Council will be selecting an acting Director-General from the four existing Deputy Directors-General. It is not clear if this will be accomplished at this week’s General Council meeting on July 22 and 23, or if this week’s meeting will simply represent the start of the process.

What follows are summaries of prepared statements and of the press conferences held July 15-17, 2020

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade was the first candidate nominated and so was the first before the General Council and the first to have a press conference after the meeting with the General Council. His statement to the General Council was the only one presented in all three of the official languages of the WTO with the first part in Spanish, the middle section in French and the last part in English.

Dr. Seade reviews his unique history with the GATT and WTO, having been Mexico’s Ambassador to the GATT during the Uruguay Round, part of the GATT Secretariat during the period that Peter Sutherland was Director-General working to conclude the Uruguay Round, and his role as one of the first Deputy Directors-General of the WTO when the WTO launched in 1995. The GATT and WTO have accomplished a lot in terms of expanding global trade and economic development over roughly three quarters of a century. The WTO provided needed stability during the 2008 financial crisis and is continuing to do so now during the COVID-19 pandemic. And the WTO has had some recent successes in terms of completing the trade facilitation agreement and agreeing to the elimination of agricultural export subsidies by some countries. Nonetheless, the WTO’s performance has not lived up to the initial high expectations of Members.

The WTO has the twin problems of limited results from negotiations and the paralysis of the Appellate Body. These problems are being exacerbated by the enormous negative effects of COVID-19 on trade. Key to restoring the role of the organization is to restore the negotiating function, restore a two stage dispute settlement system and start discussions to make the WTO more efficient, transparent and inclusive. On negotiations, the WTO needs to address issues currently being addressed, issues relevant to 21st century trade, and traditional issues where progress has not been made.

Dr. Seade presented a three-stage program for action:

  1. In the first 100 days, work with Members to (a) complete a fisheries subsidies agreement, (b) restore the Appellate Body, (c) work to reverse negative views of WTO and its ability to fulfill its mandate and (d) work with Members on the COVID-19 crisis both to increase transparency and address trade restrictions introduced.
  2. By the Ministerial Conference to be held in 2021, help Members achieve results (a) in joint initiatives and (b) on issues that will make WTO more transparent and effective, and establish a work program on issues where negotiations have been suspended.
  3. In the medium and longer term, work with Members to identify weaknesses in the organization and pursue modifications to strengthen the organization, take up traditional priority issues on the sustainable development agenda. Also ensure a high quality and effective Secretariat. Finally, address issues important to society, including those related to the environment, gender, MSMEs, etc.

Dr. Seade indicated that he possesses not only vision, leadership and political capacity but also an understanding of the trade agreements and the sensitivities behind the agreements. These are qualities he believes the next Director-General will need.

During the press conference, Dr. Seade provided a short opening statement which basically reviewed his special role in the creation of the WTO and his other positions. He noted that trade is very transformative for countries to help development and lift people out of poverty. He then reviewed the serious crisis at the WTO and why he has been put forward as a candidate.

Dr. Seade was asked many questions some of which sought information that is reflected in his prepared statement. Dr. Seade was asked why Members should choose him, how he would help Members address the Appellate Body impasse, what did he think of the interim arbitration arrangement entered into by a number of Members while the Appellate Body is not functioning, what is the most pressing challenge at the WTO, which Members were supporting his candidacy, what will the effect of the U.S. election be on the Director-General selection process and what Dr. Seade thinks of the issue of classification of Members as developed or developing. He was also asked questions about regional diversity and gender for the next Director-General noting Mexico is part of Latin America, the area where the current Director-General is also from, versus candidates from Africa or the Middle East which have never had a Director-General. Similarly, the GATT and WTO have had Directors-General all of whom have been male. The current field of eight candidates includes three women; isn’t it time for a woman to be Director-General?

Dr. Seade reviewed the capabilities he believes the next Director-General needs. While he wouldn’t make a comparison to other candidates, he felt that he had the capabilities in fact needed. His job as Director-General would be to come up with alternative ideas to help Members find solutions. He has that ability.

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

On the question of the major problem with the WTO, Dr. Seade identified two problems — the inability to negotiate and dispute settlement, although dispute settlement largely flows from the inability to negotiate. Because the nature of the world has changed so profoundly over the years, there are new issues and new actors. Where Members can’t negotiate new issues, there is enormous pressure put on the dispute settlement system to find solutions. The inability to negotiate is spurred on by an enormous lack of trust between Members. The issue of lack of trust needs to be addressed.

On the issue of support, he noted that obviously many Members want to meet all candidates as they consider who they will support. He has done extensive outreach already to many Members and believes those outreach efforts have generally been well received. While he has some Members who have indicated they will support his candidacy (about a half dozen), only two are public — Argentina and Bolivia. He did not view it as appropriate to mention other Members where support was not public. He was hopeful of obtaining support from all parts of the world including in North America.

On the question of the effect of the U.S. Presidential election in November on the Director-General selection process, Dr. Seade said that both parties in the United States have been critical of the WTO in various respects. So regardless of the election outcome, the WTO will need to address U.S. concerns. The key is to make the Director-General selection as soon as possible. This is because of the need to get working ahead of the Ministerial Conference which will be next year, but there is pent-up demand on issues since the last Ministerial was four years ago. While the schedule for the selection of the next Director-General could run to early November, he hopes it will be handled more quickly by Members.

On the question of developed vs. developing country, Dr. Seade looks at it from the perspective of special and differential treatment. On the one hand the world keeps changing, so it’s reasonable to ask what a Member can do. The idea of changing classification of countries from developing to developed will take a very long time and so is probably the wrong approach. The question should be what contribution can a particular member make, which may be different in different industries.

On the questions of geographical diversity and gender, Dr. Seade reviewed that Members will be making the selection. He believes the correct course is for Members to pick the individual best qualified for this particular time. He believes that he is that person.

Dr. Ngozi Okonjo Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala in her prepared statement includes sincere condolences for all who have lost a family member from COVID-19 in French. Later in her statement, Dr. Okonjo-Iweala includes a phrase from her native igbo language, and she gives thank yous in six languages. The main part of her statement is in English. Her statement reviews her record at the World Bank, her time as Finance Minister in Nigeria and her role as Chair of Gavi to stress her ability to achieve reform and to work with other multilateral organizations and her focus on the needs of development and the role trade plays in development.

Looking at the challenges confronting the WTO, Dr. Okonjo-Iweala flags a negotiating function that is underperforming “at a time when its rule book would greatly benefit from an update to 21st century issues such as e-commerce and the digital economy, the green and circular economies. Issues of women and trade and Micro Small and Medium Enterprises (MSMEs) are import to ensure greater inclusion.” (pages 2-3). Other challenges include improving transparency and notifications, improving the functioning of the regular WTO bodies and strengthening the Secretariat. There are important differences on issues such as SOEs and agricultural subsidies amongst Members and increased trade tensions.

These problems are exacerbated by the COVID-19 crisis which have resulted in export restraints by some and stimulus packages which may “undermine WTO commitments by distorting production and trade.” (page 4).

Dr. Okonjo-Iweala reviewed why she believes she is the person to be the next Director-General:

  1. She is a strong believer in the role of trade and of the multilateral trading system to bring shared prosperity. She brings a “fresh pair of eyes to the WTO’s challenges.”
  2. Need to build trust. Not a question of technical expertise but rather political will/solutions.
  3. She has a proven track record in carrying out successful reforms which is what will be needed at the WTO going forward.

After reviewing the range of pending issues before the WTO that need to be completed or addressed, Dr. Okonjo-Iweala reviews the need to work closely with other multilateral organizations and the UN and her ability to improve cooperation with these other entities.

“The rules-based MTS is a public good that underpins peace, security, stability and a chance for prosperity in the world. Every effort should therefore be made to safeguard, improve and renew it to enable it effectively address the challenges of the 21st century.” (Page 11)

During the press conference, Dr. Okonjo-Iweala provided her short statement and then received a large number of questions. Her short statement was that trade is important for the 21st century, for prosperity, resilience and growth. The WTO is at the center of global trade.

She was asked about whether three candidates from Africa hurt her chances to be selected, what she views as the role of the Director-General, how she views the question of fair trade particularly between north and south, what she believes is achievable in terms of deliverables by the next WTO Ministerial Conference in 2021, what she would say to the U.S. President on why the U.S. should stay in the WTO, what the WTO can do to ensure that small and micro-businesses survive the economic fallout from the COVID-19 pandemic, what her selection as the next Director-General would mean for women in Nigeria, if selected the next Director-General what would she do to ensure availability of medical supplies to all countries, and whether her perceived lack of a trade background was a handicap in the competition to become the next Director-General.

Her response on the question about multiple candidates from Africa was that Dr. Okonjo-Iweala viewed that it was a positive that there were three qualified candidates from Africa and not a problem. It is up to the Members to select from all of the candidates, a process which should focus on who is the best candidate. If from Africa, great.

On the question of the role of the Director-General, Dr. Okonjo-Iweala views the role to be working with Members to help them reach consensus. It is important that starting with the next Ministerial, the WTO show movement to achieve results.

On the question of fair trade, particularly between north and south, Dr. Okonjo-Iweala noted that the WTO’s role is to support all members to take advantage of fair and open trade. Where the South is getting fewer benefits from global trade, Dr. Okonjo-Iweala would use the instruments available to the WTO Director-General (e.g., Aid for Trade, working with other multilateral organizations) to get resources to South Members to improve their position in international trade.

On the question of what is achievable by the next Ministerial in 2021 and whether it is best to go after issues one at a time or in a larger grouping, Dr. Okonjo-Iweala indicated that she hoped the WTO Membership would make a decision soon on who should be Director-General so whoever is selected has more time before the next Ministerial. But even if a decision is not made until November 2020, there are some areas that could be ready by the next Ministerial. For example, a fisheries subsidies agreement should be achievable. There was a lot of discussion in the General Council on trust and building trust to move negotiations along. Trust is obviously an important issue. So the WTO may need to sequence issues to build trust by achieving a win or two. Once there are some successes, it should be possible to handle more issues in parallel.

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

On the question of MSMEs, Dr. Okonjo-Iweala noted that they are very important globally but are being harmed by COVID-19 fallout. How to ensure MSMEs survive and get such entities better included in the global trading system is a matter of great interest to Dr. Okonjo-Iweala. There is a great need to facilitate provision of additional resources to help these entities. Dr. Okonjo-Iweala would work with other multilateral organizations to help facilitate assistance.

On the question of what will her getting selected Director-General of the WTO would mean for women in Nigeria, Dr. Okonjo-Iweala noted that women not just in Nigeria but around the world are ready for greater roles. But Dr. Okonjo-Iweala reiterated that selection of the WTO Director-General should be based on merit–if a woman, great; if from Africa, great.

On the question of what she would do as Director-General to ensure smooth trade of medical goods including therapeutics and vaccines, Dr. Okonjo-Iweala indicated that she would use the knowledge she has from the chair of GAVI and working with other groups and organizations to ensure that the WTO did its part to ensure equitable and afforadable access to any vaccines developed to address COVID-19. There should be no barriers to access to the medicines/vaccines while honoring intellectual property rights. It is critical that everyone have access to lifesaving medicines at the same time and at affordable prices.

On the question of whether the consensus rule at the WTO should be gotten rid of to overcome gridlock, Dr. Okonjo-Iweala responded that part of the strength of WTO is that agreements are reached by consensus. Where all sovereign states agree to a text, they are more likely to implement the provisions. The real question is how to make consensus better. In Dr. Okonjo-Iweala’s view, the underlying problem with the current consensus system is the lack of trust among the Members. Thus, there is an urgent need to rebuild trust. To rebuild trust, the WTO needs confidence building measures, i.e., obtaining wins in achieving new agreements. That will show that consensus can and does work.

The question on what Dr. Okonjo-Iweala would do as Director-General to see that an agreement on e-commerce was pursued was answered by noting that there was extensive work being done plurilaterally by many Members as one of a number of joint statement initiatives. Dr. Okonjo-Iweala agrees that an agreement on e-commerce is very important, but she notes that there is a digital divide where many poorer countries don’t have the infrastructure to take advantage of e-commerce. The WTO, working with other multilateral organizations, needs to see that resources are put together to help countries address the digital divide. Once the digital divide is addressed, all Members should want to and be able to participate in the e-commerce negotiations, so that the agreement becomes a multilateral one.

On the question of whether her career in finance is a handicap for a trade position, Dr. Okonjo-Iweala disagrees with the premise as her career has always involved trade as a development economist and also as finance minister where Customs was part of her responsibilities.

Abdel-Hamid Mamdouh (Egypt)

Mr. Abdel-Hamid Mamdouh is the one candidate with extensive WTO Secretariat experience (27 years), junior negotiating experience for Egypt during the Uruguay Round, but no Minister or Ambassador experience on his biography. His prepared statement concurs that the WTO needs reform, an updated rulebook for the 21st century and a Director-General with political leadership though he indicates political leadership doesn’t require or mean ministerial leadership. That said, Mr. Mamdouh indicates that a core problem is that the consensus or common purpose of the WTO has faded for many and to get that common purpose back, the WTO needs a different type of leadership, one that he is positioned to provide.

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

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

As international trade has evolved, the rules of trade have not done so which has added to imbalance through use of dispute settlement to address matters where no rules exist. Similarly, where transparency and notifications are not robust, Members don’t have the necessary information to confirm compliance, and that can lead to additional disputes.

“A deeper look into the root causes of this imbalance would reveal that there are three cross-cutting phenomena that hinder the functioning of the WTO: leadership deficit, increasing complexity of trade policy and negotiating issues, and a fading vision of the common purpose behind the system. Over time, these phenomena lead to the unsustainable imbalance across the vital functions.” (Page 4)

Reform of the WTO can only occur through negotiations. For the 12th Ministerial Conference to be held in 2021, the WTO needs to agree on a reform agenda and to “achieve concrete progress on issues currently under negotiation”. (Page 5) Fisheries subsidies, Joint Statement Initiatives on e-commerce, domestic regulation in services, MSMEs and investment facilitation along with backlog issues all need to be considered.

The next DG needs “authoritative knowledge of the system and long experience with its functioning” and “trust of Members in his or her impartiality”. (page 7). Mr. Mamdouh believes he is the best candidate to be the next Director-General.

During the press conference, Mr. Mamdouh responded to a wide range of questions (see below) following his opening statement. In his opening statement, Mr. Mamdouh indicated that he had reviewed with the General Council why he was running as a candidate and what he would do as Director-General. He touted his 35 years of experience and participation in the Uruguay Round. He reviewed why he perceives the organization in crisis, the root cause being the imbalance among the three legs of the system — negotiations, dispute settlement, transparency/notifications. He also talked about how to fix the problems and the differences between other organizations’ reform and that of the WTO where reform involves modifying the agreements.

On the question of whether the General Council had concerns with Mr. Mamdouh’s background (no position as minister or ambassador) and role of the Director-General, Mr. Mamdouh indicated that he hadn’t sensed any concern among the Members. In his view, ministers take national perspective, while the role of the Director-General is to be a facilitator and honest broker which requires independence. His background is exactly that. While Mr. Mamdouh agreed that political leadership is required for the next Director-General, political leadership is not synoamous with ministerial leadership.

On the question of his vision for fixing the WTO and his strategy for doing so, Mr. Mamdouh indicated that he believed the WTO Members needed to develop a sense of common purpose. His strategy would begin with reviving the negotiation function. The Director-General will need fact- based knowledge to help Members find solutions.

On the question of running against two other African candidates and whether it will make it harder to win, Mr. Mamdouh answered that it was the position of the Egyptian government that the Egyptian candidate is the only candidate who has been endorsed by the African Union through its process. Candidates from Nigeria and Kenya have not passed through the process established by the African Union.

Mr. Mamdouh was asked about whether changes were needed in the interaction between the WTO Secretariat and Members. Mr. Mamdouh responded that the WTO has a body of great expertise within the Secretariat that could be better utilized. The expertise needs to be put at the disposal of the membership; information from the Secretariat staff is provided to Members in negotiations, to panels in dispute settlement and in committees. Mr. Mamdouh wants to bring the role of the Secretariat back to where it was in the past.

Mr. Mamdouh was asked if there is an Egyptian vision that makes him unique as a candidate. He was also asked if he didn’t think it was time for a woman to lead the WTO. Mr. Mamdouh stated that his Egyptian perspective is that of a Egyptian negotiator struggling to navigate the challenges within the GATT and then deal with the new issues within the Uruguay Round (services, IP). Thus, he understands what negotiators from developing and LDCs face to effectively participate with new issues. On the question of when it is time for a woman to lead the WTO, Mr. Mamdouh indicated that any time is the right time. He believes in gender equality. But gender shouldn’t be the primary criteria in selecting a Director-General.

Mr. Mamdouh was asked a question based on his role in the GATS negotiations as to what is key to building consensus. Mr. Mamdouh believes that the key to building consensus is to mobilize support for the common purpose. Conversely, while consensus is the golden rule in how the WTO functions, Members shouldn’t impose a requirement of consensus where it is not required. If one follow these two approaches, one facilitates achieving consensus.

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

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

A question was asked on globalization, whether the golden age of globalization had passed, the challenges of new protectionism and what he would do to restore the golden age of globalization. Mr. Mamdouh indicated that he believes globalization has been in transition for a while. The challenges from the COVID-19 pandemic merely highlight some challenges and possible changes. Globalization won’t go away. Problems seen during COVID-19 relate to medical products and agricultural products. Problems with supply chains have to do with disruption. If trying to deal with resilience, solution may lie with diversification of supply vs. onshoring. Globalization is restructuring but not going away (supply closer to demand). Will continue to evolve but won’t disappear.

On the question of what is the top challenge facing the WTO and his priority actions to address, Mr. Mamdouh indicated that the top challenge is the failing sense of purpose within the membership. What he would prioritize would be working to revive the sense of common purpose.

Mr. Mamdouh was asked if there will be enough time to prepare for the next Ministerial to have positive agenda/outcome. He answered that if the selection process concludes before November, there should be sufficient time. In his view, the next Ministerial needs to be a turning point for the WTO. At MC12, the WTO must have a clear agenda for reform. There is not currently a mainstream focus on reform; issues are being raised ad hoc. Second, the WTO needs to score successes – fisheries subsidies and progress on joint statement initiatives.

Tudor Ulianovschi (Republic of Moldova)

Mr. Ulianovschi was the first candidate who met with the General Council on Thursday, July 16. He reviewed his time as the Moldovan Ambassador to the WTO and as Moldova’s Foreign Minister and his overall diplomatic and political career that spanned more than sixteen years.

He articulated his vision for the WTO if selected as the next Director-General as being

“a 3D vision and approach:

First D is Direct Access to Ministers and political decision makers — in my capacity as a recent Minister dealing with Ministers.

Second D is Dialogue and discussions with Geneva based Ambassadors — in my capacity as former Ambassador to the WTO — I was in your shoes and fully understand the process of work, its challenges and the potential efficient and effective solutions.

Third D is Driving the work of the WTO Management and Secretariat, so it can better and more efficiently serve Members’ needs and continue bringing its contribution to a better system for all Members.” (Pages 2-3)

There is a need to strengthen the system by reinvigorating the negotiation function, safeguarding and improving the WTO’s two-tiered dispute settlement system, and improving compliance with notification obligations. (Pages 2-3). Incremental progress on negotiations is what is achievable.

Immediate priorities for the next Director-General include eight items, the first four of which are getting the Appellate Body reactivated, achieving resolution to the fisheries subsidies negotiations, addressing joint initiative issue (e-commerce, investment facilitation for development, domestic services regulations, MSMEs), and facilitating dialogue on other ongoing issues.

Mr.Ulianovschi provided separate discussions on dispute settlement and on COVID-19. On the latter issue, transparency of government action is crucial for traders. Members should limit export restraints and remove as soon as the situation permits. The WTO needs to continue working with other international organizations to analyze the effect of COVID-19 on agricultural supplies, supply chains as well as how to help economic recovery, particularly for developing and least developed countries.

During the press conference, Mr. Ulianovschi provided a short introductory statement and then responded to a variety of questions. His short statement reviewed his presentation to the General Council. He believes that the WTO must show its relevance, and that the WTO needs reform to restore relevance. The WTO’s negotiating function is key to achieving this and helping restore the negotiating function would be his top priority as Director-General. The second priority is to reactive the Appellate Body. Third, is improving transparency and the monitoring function of the WTO. Mr. Ulianovschi brings to the table as a candidate his experience as a former Ambassador to the WTO and as a former Minister.

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

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

Mr. Ulianovschi was asked a question of how he, if selected as the next Director-General, would withstand the political pressure being young and from a very small country. Mr. Ulianovschi noted that as a candidate he speaks in his individual capacity not in his country’s capacity. Key criteria should be competence, experience and political profile, not age or size of country the candidate is from. He has the relevant experiences to be the next Director-General. The WTO needs a person who understands the issues but also has the political experience and networking to help members to get things done. As to age, Mr. Ulianovschi has plenty of experience negotiating agreements. He has the right resilience, tenacity, ability to listen and political will to get things done.

A question was asked of what sets Mr. Ulianovschi apart from other candidates. His response was that at the end of the day, it is for Members to decide which candidate best meets their needs. All of the eight candidates have extensive backgrounds. Believes he has a good 3-D approach which will benefit members.

On the COVID-19 crisis, Mr. Ulianovschi was asked how the pandemic will impact the WTO. His response was that COVID-19 is a wakeup call to WTO and its Members. The pandemic is having major negative effects on trade and economic growth around the world. Some WTO Members have imposed export restraints and pursuant to WTO requirements have generally notified such restraints. While all Members are affected by the pandemic, there have been significant effects on those least able to handle the negative effects, particularly LDCs. There is a need to expand capacity to help such Members. As Director-General he would work with other organizations to have a unified approach on how to address COVID-19 challenges through trade to the benefit of all people.

Mr. Ulianovschi was asked whether considering that Moldova was a small country that is not a powerhouse in trade, there were experiences from his country in post-Soviet times that would inform his handling the role of Director-General. Mr. Ulianovschi answered that when Moldova joined the WTO in 2001, it joined as a developed country and made the commitments expected of a developed member. Trade is important for Moldova and is for all WTO Members. Moldova has had a neutral role in many of the issues at the WTO. Thus, coming from Moldova enhances Mr. Ulianovschi’s background for being an honest broker if selected as the next Director-General. On size of country, Members should be evaluating the experience of the candidate versus the size of the country.

A question was asked whether the consensus rule at the WTO should be changed to reduce the paralysis. Mr. Ulianovschi responded that the consensus rule was decided by Members. Consensus decision making is one of the elements of the WTO that helps members remember the greater goods and need to consider partners’ needs. Process doesn’t work well all the time. The Director-General can help facilitate Members moving forward and achieving consensus. While there are different formats at the WTO (multilateral and plurilateral), at the end, it is important that basic principles are respected. Consensus is a cornerstone of the WTO.

The last question asked was about getting the WTO out of crisis; in particular, what is the core factor causing the crisis and how would Mr. Ulianovschi address the factor if he was selected as Director-General. Mr. Ulianovschi answered that this is an existential question for the WTO. First priority, in his view, to get out of the crisis is for there to be trust among Members. The role of the Director-General is to enhance feeling of trust through confidence building steps. Many issues which have been unresolved for a long time have undermined trust. Joint initiative statement issues are advancing and give hope that the organization is relevant and can deliver. This is a good sign that there is a common purpose among the Members.

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

The Korean candidate has spent twenty-five years in international trade and presently serves as Korea’s Minister for Trade.

“My 25 year career in international trade has taught me that solid ground- work is the basis of an agreement, and political will is what closes the deal. I have dealt with both the technical details of agreements, as well as engaged in finalizing major trade agreements as Trade Minister. I believe my extensive experience and expertise will enable me to offer insights and creative solutions to restore and revitalize the WTO.” Page 1

Minister Yoo reviewed the nature of the challenges facing the WTO at the present time:

“We are now witnessing the threat of growing protectionism, and heightened trade tensions. Technological advances are transforming the way we produce, deliver, and consume goods and services in ways never imagined when the WTO was created. The global crisis induced by the pandemic is challenging the WTO’s purpose of ensuring the smooth flow of goods and services.

“The WTO, which was intended to provide predictability and stability in these times of turbulence, is now facing a trust deficit with all three pillars under stress.

“Despite much good will and hard work, the record of negotiations in the WTO leaves much room to be desired. There has been progress, such as the adoption of the Bali and the Nairobi packages including the Trade Facilitation Agreement, but we need to do much more to meet the challenges and realities of the 21st century. The stagnant negotiations have had negative consequences for all of the WTO’s functions, and, to some extent, contributed to the current problems facing the dispute settlement system.” (page 2)

Minister Yoo’s vision for the WTO “is to make the WTO more relevant, resilient and responsive.” (Page 2)

“The WTO needs to keep evolving to become more relevant to changing economic circumstance and realities. The WTO needs to enhance sustainability and inclusiveness to remain resilient as a champion of open trade for the next 25 years and beyond. And the WTO needs to be more responsive to global challenges and contingencies for the benefit of all of its Members.” (Page 2)

In terms of tasks should she become the next Director-General, Minister Yoo lists the first priority as the next Ministerial Conference (MC12). The second priority is WTO reform and the third is inclusive trade and sustainable development.

For the MC12, achieving an agreement on fisheries subsidies by the conference is critical. Significant progress towards a plurilateral electronic commerce agreement is another achievable objective by MC12. Progress on development issues is also critical, particularly on issues important to developing and least developed countries to help survive and come back from the COVID-19 pandemic.

On the issue of WTO reform, Minister Yoo separates the topic into three areas – updating “the rule-books and delivering agreements with real economic impact”; “restoring the dispute settlement system”; and “implementation of agreements and increased transparency.” (Page 3)

The third area, inclusive trade and sustainable development is described as follows by Minister Yoo:

“WTO reform should not be a goal in and of itself, but an instrument to promote economic prosperity and better living standards for all of its Members. To this end, the WTO should pursue inclusive trade initiatives encompassing overall development issues, as well as specific, cross-cutting issues such as MSMEs, women’s economic empowerment, and environment.

“Among others, we should deepen our efforts to help developing countries, especially LDCs, secure a larger share in the growth in international trade. We should fully implement what has been agreed for LDCs and strengthen our technical assistance and capacity building programs. Further, while maintaining a central role for the WTO in seeking these important values, I will support cooperation with other international organizations in a proactive and forthcoming manner. This will help broaden the available resources and multilateral commitment to achieving Members’ goals.” (pages 3-4)

Minister Yoo’s prepared statement to the General Council concludes with a section on how she sees the role of the Director-General — bringing optimism, having a vision based on realism, helping rebuild trust in the Organization. “[T]he Director-General has to be an effective, trusted, and informed facilitator and a person who knows how and when to act to help achieve consensus and agreement.” (Page 4)

At the press conference, Minister Yoo provided a short statement which was followed by a range of questions. In her short statement, Minister Yoo stated that the WTO is at a crossroads. Her vision is to make the WTO more relevant, resilient and responsive (as reviewed in her prepared statement). She brings her 25 years experience to the job.

The first question asked that since Korea was one of the countries who agreed to export limits to avoid steel and aluminum tariffs imposed by the U.S., what thoughts did Minister Yoo have on voluntary export restraints (VERs) under the WTO. Minister Yoo responded that VERs are banned by the WTO. But the current situation is different as US has taken action pursuant to national security provisions, and Korea was addressing intended actions by U.S. under that law. Cases are before panels challenging U.S. national security action as inconsistent with WTO, so Minister Yoo would not comment on the merits of the cases at this time. While aware of different views on whether national security issues can be challenged at the WTO, since the issue is in front of panels, she would not comment further.

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

Minister Yoo was asked how hard it would be to move from Korea’s Minister for Trade to the WTO’s Director-General and whether she would have problems living in Geneva or working for an international organization. Minister Yoo indicated that she believes she is in best position to understand all Members views at the WTO. During her lifetime, Korea has gone through many stages of development, and she has seen trade issues through her country’s experience at different levels of economic development. Because of her diverse experiences at Korea’s different stages of developments, she is in a good position to understand concerns of all countries if selected as the next Director-General. As for living abroad, Minister Yoo was stationed Beijing for 3 years and Singapore for 3 1/2 years. She would have no problem living abroad or working for an international organization.

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

A question was asked how Minister Yoo viewed the question of the status of Members as developed or developing countries particularly in light of Korea viewing itself as a developing country in the WTO although Korea has indicated it will not seek additional special and differential treatment under future WTO Agreements. Minister Yoo started her response by noting that the Marrakesh Agreement requires that the WTO work to help developing and least developed countries LDC countries secure their fair share of trade. There are competing issues at the WTO. Should the WTO make special and differential treatment provisions more operational in existing Agreements is one issue. Should the WTO change the classification status of some countries based on economic development is the other issue. For Korea, the. world has changed, and countries have changed in terms of their stage of economic development. Korea decided to take on more responsibility based on its changing level of economic development. But many countries continue to need special and differential treatment. It would be ideal for developing countries to take on more responsibilities as they are able. But this a sensitive issue on which there is no consensus as yet.

A question was asked as to how Minister Yoo would restore trust if selected as the next Director-General. Minister Yoo noted her experience in negotiating trade deals with all level of countries around the world. She knows what it takes to negotiate and what it takes to bring negotiations to a close. She is confident that she can earn confidence from Members and achieve tangible outcomes. The key is to obtain even a small success at the MC12 (e.g., fisheries subsidies agreement by then) which would help build trust and convince world that progress can happen at the WTO.

Minister Yoo was asked if in a consensus system, she could gain the support of Japan for her candidacy considering she had led Korea’s dispute with Japan on semiconductor materials. Minister Yoo remarked that she is here as a candidate in her own capacity and not as part of the Korean government. She would not comment on the ongoing dispute between Japan and Korea. She did note that Japan and Korea work closely on many issues at the WTO, and both are strong supporters of the multilateral trading system. Therefore, she is confident that Japan will look at all candidates and decide which has the best qualifications to move the WTO forward.

One questionner indicated he had heard from an analyst that there is some concern that China might block Korea’s candidacy as China might otherwise have to give up its Deputy Director-General slot. Minister Yoo was also asked if it was time for a woman to lead the WTO. Minister Yoo felt it would be inappropriate to comment on the position of other countries, each of whom must make their own decision as to whom to support for the next Director-General. She hadn’t heard about the rumor mentioned. She added that China and Korea have worked closely on many matters. She was in China for three years and has negotiated with China. She would be doing outreach to China and other Members to see how she could work with them if selected as the next Director-General. On gender, for the last 25 years, she has been a pioneer in the Korean government, the first woman to hold her position in trade. Promotion has been based on merit not on gender. The WTO Members should pick the right person to help WTO move forward. All of the women candidates are well qualified. She knows she is well qualified based on her experience.

What does it mean for the WTO to be relevant, and how would you bring on major members who may not agree with the issue being considered? Minister Yoo stated that the WTO needs to revitalize its negotiating function and must be able to enforce its rules (restore AB). Given 21st century realities, WTO needs to update its rule book and to achieve things that can have real global effect such as joint initiative efforts on e-commerce, MSMEs, investments, and other issues. That said, there are open issues from The Doha Development Agenda that are not moving because there are different views on how to move forward. In terms of how you bring members to the negotiating table, part of the answer is to obtain small successes to build trust and momentum.

Amb. Amina C. Mohamed (Republic of Kenya)

Ministrr Mohamed was the last candidate who met with the General Council on Thursday, July 16. She started by outlining what she referred to as “the three main themes of my vision for the WTO: Reform, Recover, Renewal.”

“The WTO needs urgent reforms so it can once again play its full part as an engine of growth, development and stability. Reform is all the more urgent because an effective WTO is needed to help create the conditions for a sustainable recovery from the economic fallout of the COVID-19 pandemic. And looking further ahead, the WTO needs to renew its capacity to negotiate and to develop new trade rules and disciplines for the challenges of the very near future.” (Pages 2-3)

Minister Mohamed reviewed that the WTO was challenged before COVId-19 with few new agreements since its creation, with increased trade tensions, and with a dispute settlement system that has lost at least temporarily its Appellate Body. The COVID-19 adds huge complications being the largest economic contraction since the Great Depression. Recovery will be a challenge, and there is an urgent need to update the trading system to address the issues of today including “climate change, the digital revolution, poverty and sustainable development.” (page 5)

On the topic of renewal, Minister Mohamed noted that

“Renewal has to start with facing up to the defects that have weakened the system in recent years: the inability to update rules to reflect the changing realities of how trade is conducted; the sterility of ideological standoffs; the retreat into defensiveness; and the sense of the benefits of trade not being equitably shared.” (Page 7)

“Renewal should also build upon the WTO’s core values and achievements. Trade has been transformational. It has helped to lift close to 1 billion people out of poverty and facilitated the attainment of higher living standards in countries at all levels of development. These successes were possible because Members did not see trade as a zero-sum game. They understood that trade-offs were needed to produce outcomes. All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.” (Page 7)

While supporting bilateral and regional trade agreements, Minister Mohamed, noted that such agreements are not a substitute for multilateral agreements.

She reviewed the importance of dispute settlement to the system and the need to resolve the existing impasse on the Appellate Body.

“The WTO should give effect to its development objectives in a practical and enabling way, not forgetting its special responsibility towards its most vulnerable Members, particularly least-developed countries. It also needs to play its part in the important task of advancing the economic empower- ment of women through trade.”

Minister Mohamed ended her prepared statement to the General Council by reviewing her qualifications for the job, including her time in Geneva as Ambassador from Kenya, her chairing the top WTO bodies (General Council, Dispute Settlement Body, Trade Policy Review Body), her time as Minister of Foreign Affairs and International Trade and heading the 10th Ministerial Conference and her role as a facilitator in helping Members achieve agreements on “the TRIPS amendment, the Expanded Information Technology Agreement and the Nairobi Decision on Export Competition”. (Page 12)

At the press conference, Minister Mohamed made a brief opening statement and was followed by questions. In her opening statement, Minister Mohamed stated that the WTO is being challenged like never before referring to the changing world trade order, limited negotiating success, and breakdown of the appellate body, and the outbreak of the COVID-19 pandemic. She then reviewed her vision, the three “r’s” — reform, recovery and renewal. She concluded by reviewing her qualifications for the Director-General.

The first questioner asked what lessons Minister Mohamed had learned from her 2013 run and why she thought that countries that hadn’t supported her then would do so now. Minister Mohamed responded that 2020 is a different time with a different group of candidates. Since 2013, she has had many additional experiences that add to her qualifications and hence help her candidacy. She mentioned in particular her role in chairing the 10th Ministerial and the successes that were achieved including the agriculture export subsidy agreement, expansion of the Information Technology Agreement and amending the TRIPS Agreement. So 2020 is the right time for her candidacy.

One questioner asserted that the agreement on export subsidies was negotiated with a small group and given to the full membership on a take it or leave it basis and asked if this was a correct way to conduct inclusive negotiations. Minister Mohamed stated that the questioner was incorrect in the process used. Negotiations were conducted in different configurations but always went back to the full Membership. If anyone felt left out, they had the ability to block the agreement. That didn’t happen. Nairobi worked extremely well, and is an example of how the negotiations should proceed.

One questioner inquired whether the ongoing FTA negotiations between the US and Kenya was an advantage or disadvantage in her candidacy. Minister Mohamed responded that she didn’t consider it relevant. Obviously, the FTA negotiations are just one of many happening around the world. She is hopeful that the negotiations and eventual agreement will be a model for her region and open to other countries. It should be viewed as very positive.

What would you do differently if you become the next DG? Minister Mohamed responded that she would do a lot differently. She indicated that her experiences are different and her skills are different. With the WTO at a crossroads, there is a great need for an experienced negotiator to come in and lead. The agenda would be established through consultations with Members. She would also hope to focus on the gender issue.

if selected as DG, will you be more engaged in resolving trade tensions between major players? If yes, what tactics would you use? Minister Mohamed reviewed the types of powers that a Director-General has to work with Members. For example, the Director-General has engagement powers and can encourage members to consult, use of good offices of the Director-General. So while the Director-General has only limited powers, they can be used effectively to help members to use the system to resolve differences.

The next questioner inquired as to what the Minister’s views were on whether it is time for an African or a woman to lead WTO. The Minister was also asked about the reform proposal from the U.S. to clarify who qualified as a developing country (versus current system where developing country status is a matter of self-selection). On the issue of gender or regional preferences to become the next Director-General, Minister Mohamed believed that the key consideration is whether a particular candidate is best qualified to handle the job. If a female has the qualities, obviously great. Members shouldn’t select a woman just to have a woman; they should pick the best candidate. On the issue of development, this is an issue for the members. Only category of members defined in the WTO is least developed countries where the United Nations listing is used. For all other Members, there are no definitions. It will be up to Members to decide if the issue is ripe for discussion.

One questioner wanted to know if Minister Mohamed has had solutions for the WTO reform needs why she hadn’t pursued them before now. Minister Mohamed indicated that it was up to Members to decide what issues to pursue. WTO is at a crossroads. Membership needs to agree on what to consider in any reform effort, what sequence of issues may make sense and so on. Questions of reform have been floated here in Geneva for many years. When she was Kenyan Ambassador to the WTO, the WTO was beehive of activity. In her prior roles both as Anbassador and as Minister and chair of the 10th Ministerial, she had in fact achieved with the membership significant reforms including managing to amend the TRIPS Agreement, achieving an agreement in agricultural export subsidies and more.

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

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

A series of questions on reform were asked by a questioner – what would Minister Mohamed do to move reform forward? Should reform be incremental or broader based? How does MC12 factor into this? Minister Mohamed indicated that she would help members identify what they want and encourage dialogue. By the time of the next ministerial in 2021, she hoped there would be some clarity as to types of reforms needed and supported —restoring the Dispute Settlement system, updating rule book. There are lots of potential issues, but it is up to the Membership on what gets examined.

Is it Africa’s turn to lead? Why couldn’t Africa come together around one candidate? Minister Mohamed responded that Africa takes the WTO very seriously. That’s why there are three candidates. There is no reason to penalize Africa for having three candidates. Each of the three candidates is very accomplished. Africa should be commended for putting them forward.

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

Minister Al-Tuwaijri was the first candidate to meet with the General Council on Friday, July 17. His background is largely in business with the last four years serving Saudi Arabia as the Minister of the Economy and Planing. He started his prepared comments by expressing support all those affected by COVID-19, and noted his involvement for Saudi Arabia in addressing the pandemic in his country and the important role the WTO plays in keeping trade flowing.

Minister Al-Tuwaijri stated that his family had a long history of trading which involved traveling and following the North star. Like his family, the WTO Members must establish goals, set a course (their North star) to follow to accomplish the goals. The role of the Director-General is like a compass to help Members stay on the course towards achieving their goals. The WTO’s “challenging situation has become even more difficult with the pandemic; it will likely get worse; and, we know that trade policy is an essential part of the response to the pandemic itself, and will be key to our collective recovery.” (Pages 1-2)

Minister Al-Tuwaijri identified three questions to consider:

“First, what opportunities and solutions will emerge from current challenges?

“Second, how can Members work together to leverage new ideas, new rules and new technologies to solve the emerging problems that we face today, and the issues that will arise tomorrow?

“And, third, * * *, what kind of leadership is required to ensure that the
multilateral trading system delivers on the vision and objectives set by Members?” (Page 2)

Minister Al-Tuwaijri then indicates that the Membership needs to ensure “steady progress is made on delivering the goals and objectives set by Members.” (Page 2) Because the WTO is not performing, there is a need for a performance assessment to determine why. Based on his business background and government experience, if Minister Al-Tuwaijri is selected as the next Director-General, he would implement critical success factors from the goals and objectives of the Members, establish key performance indicators, and collect evidence and data to determine progress in meeting objectives.

“As part of this effort, feedback loops of constructive suggestions will be encouraged to deliver continuous improvement.

“If we do not respond to shortcomings, the system will not run smoothly,
stakeholders will become dissatisfied, and alternative means will be found outside the WTO to achieve your goals and objectives.” (page 4)

Minister Al-Tuwaijri noted that in its first twenty-five years, the WTO had maintained the status quo, but hadn’t adapted to the changing trade environment.

“Concerning working together through negotiations, I believe that Members will participate in negotiations when they are convinced that the agenda includes an incentive for them to participate. Therefore, in order to have a successful multilateral negotiation, the agenda needs to be balanced – it needs to include something for everyone. I support plurilateral negotiations as long as they are open to all Members, their outcome is applied to all on a most-favored nation basis, and they do not create rules that prejudice the interests of non-participants.” (PAGE 5) Minister Al-Tuwaijri indicated that the work of Members could be bolstered by WTO Secretariat research and interaction with the business communities of Members.

On the issue of opportunities from the current challenges, Minister Al-Tuwaijri expressed that the delay in the next Ministerial Conference (MC12) should permit completing of the fisheries subsidies negotiations and the plurilateral talks on e-commerce both important “issues in the public good”. (Page 6). He also suggested increasing the frequency of Ministerial meetings to annually. On the issue of special and differential treatment, “without negotiations that include incentives for everyone to participate actively, I do not think it will be possible for Members to address the issue of SDT.” (Page 6)

During the press conference, Minister Al-Tuwaijri provided a short opening statement and then answered questions. In his opening statement, Minister Al-Tuwaijri reviewed the current situation facing the WTO and the need for the next Director-General to have a strong reform agenda. COVID-19 will make the global trade situation more uncertain.

The first questioner asked how Minister Al-Tuwaijri could obtain regional support with the current conflict between Saudi Arabia and Qatar. Minister Al-Tuwaijri indicated that he would not comment on the dispute between Members. He noted that Qatar is a member of the WTO and believed the next Director-General should focus on what the goals of members are, how to achieve the goals and address the uncertainty created by the pandemic.

What is the greatest problem facing the WTO, and what is your plan to fix it? Minister Al-Tuwaijri noted that in the first twenty-five years of the WTO history, there have been some successes in terms of new agreements. However, the world has changed significantly in terms of trade. He sees the biggest issue facing the WTO as being the process of negotiations. In Minister Al-Tuwaijri’s view there is no process for negotiations. This results in countries going outside of WTO to find solutions in some circumstances. Thus, in his view, process enhancement is needed. Minister Al-Tuwaijri’s strengths are in management and leadership. These two characteristics are key to leading the WTO forward. The next Director-General should focus on process enhancement, design metrics so members can see progress. Moreover, whenever there is a dispute, the WTO should be looking for the root cause as well as resolving the particular dispute. If don’t get to root causes, disputes will recur. Minister Al-Tuwaijri approaches the challenges facing the WTO from a management perspective.

The next question reviewed interest by some Members in having a Director-General from an African country but noted that there has never been a Diirector-General from an Arab country either and sought the Minister’s comments. Minster Al-Tuwaijri noted that WTO Members need to think about what they need in the next Director-General . If management and leadership are the important characteristics that the next Director-General should have (which is the Minister’s view), he has those characteristics. First, he has twenty-five years management experience in the private sector where trade was important and multifaceted (trade finance, logistics, insurance, manufacturing, energy). He would bring that experience to the WTO Director-General position. Secondly, he has been the Minister of Economy and Planning, involved in major transformation (diversification) for the last four years, including policy making. He developed a delivery unit which measures performance and helps fill gaps. He would bring that experience to the WTO Director-General position as well.

On the issue of WTO reform, Minister AlTuwaijri recognized that the WTO is a member driven organization. Second, the Director-General has a function to facilitate and to assess, but there is also room to improve the Director-General’s role. For example, the next ministerial (MC12) has been delayed til 2021. The delay provides an opportunity to improve the discussion at MC 12 and the outcomes that are possible. Bringing management and leadership skills to the Director-General position will permit setting goals, metrics for measuring progress in achieving those goals and providing a feedback loop on gaps that need to be addressed. Certain current issues should be achievable, such as fisheries subsidies and e-commerce. In the Minister’s view, COVID-19 and postpandemic recovery provide the WTO an opportunity to address core needs of Members by doing a performance assessment. Where are the gaps in performance; why did those gaps develop; how to proceed? From his business and government experience, Minister Al-Tuwaijri knows that this type of transformation for the WTO to a more goal-oriented organization is possible.

Is it time for a woman to lead the WTO and what sets you apart from the other candidates. Minister Al-Tuwaijri stated that on women empowerment, he has a good track record in terms of working on woman empowerment in business and government As to what distinguishes him from other candidate, Minister Al-Tuwaijri reflected on his long business career and the need for specific goals and targets. He also reviewed his experience as a minister involved in the transformation of Saudi Arabia which is getting results. He brings those experiences to the WTO.

Why don’t Arab countries unite around one candidate where there are two candidates and does that hurt your chances? Minister Al-Tuwaijri remarked that the WTO is a member driven organization. Hence all WTO members can nominate candidates. All candidates have different experiences which provides much for Members to consider and choose from. For himself, the Minister noted that Saudi Arabia is presently president of G20 and has initiated its own reform program a few years back. Thus, Saudi Arabia has had the political will for reform. Coming from that culture can be useful to his candidacy.

Longterm observers view issues as revolving around political will versus being caused by a lack of management skills. Minister Al-Tuwaijri stated that while both technical and political elements exist, he believes that management and leadership would permit improvements in the process of negotiations which in turn would permit both the technical and political elements to have a better chance to work. How to improve the negotiation process is a management issue. Of course, there are political elements, and he has political background and strengths as well.

On the question about the future of the WTO, Minister Al-Tuwaijri noted that the future of the WTO is a member choice — the WTO is about their goals, their choices. The Director-General is a facilitator. But the organization is drifting away from its core objectives. Thus, there is a need to review root causes of this drift. He believes the WTO can create key performance indicators to prevent future drift and monitor early warning signs to catch major disputes early. The Minister wants the debate to shift from political will to how the Members can go back to the organization’s original goals and deliver on them.

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

Dr. Liam Fox (United Kingdom)

Dr. Fox was the last candidate to meet with the General Council. He has served in Parliament for many years and was Secretary of State for Defence and Secretary of State for International Trade under different UK administrations.

Dr. Fox started his prepared statement “by acknowledging the scale of the challenge the world currently faces in the COVID pandemic.” (Page 1). He commented that the WTO was facing problems before the pandemic., meaning to progress, it cannot be business as usual.

“But I know from talking to many of you, including in this last week, that
there is a widespread feeling that things are not as they should be. Yes,
there are technical issues to be overcome but the real problems of the
WTO are not technical. Our problem is the lack of political momentum.
There is too little political will to make the compromises needed for the
multilateral trading system to evolve and too little vision to make those
compromises easier. We must rediscover that political will and find the
right language to express our vision about the opportunities that trade
can bring to a new generation.” (Pages 2-3)

On the question of what qualifications the next Director-General should have, Dr. Fox stated that “it is not where the new DG comes from that matters but the skills and experience, especially the political experience, that they are able to bring to the organisation for the benefit of each and every one of our members. I believe that my 28 years in politics, and my years serving in senior cabinet posts such as trade and representing the UK at the top table on global issues give me the right experience to bring the renewed momentum, commitment and compromise, which will allow us to return this institution to greater global relevance.” (Page 3)

Dr. Fox expressed his strong support for open trade in a rules-based international trade system. He expressed concern for the trading system under current conditions and urged Members to recommit to the core principles of most-favoured nation, national treatment and transparency of commitments.

On the issue of challenges ahead for the new Director-General, Dr. Fox indicated that one of the first tasks would be to help Members achieve a successful Ministerial Conference (MC12 ) in 2021. A fisheries subsidies agreement needs to be completed as quickly as possible. Similarly progress on Joint Initiative issues like “e-commerce, services, MSMEs and investment” would be a priority. (Page 7) Outstanding issues on agriculture (subsidies, public stockholding for food security, cotton, and others) and WTO reform are other important issues to be addressed.

Dr. Fox reviewed concerns about increasing trade restrictive measures in the last decade and flowing from the pandemic and how they undermine other activities such as Aid for Trade.

On the topic of women and trade, Dr. Fox reviewed the importance of the issue and his own history of working to improve business opportunities for women and roles in government including the U.K. trade ministry. Dr. Fox committed that if he was selected as the next Director-General, he would “ensure that at least half of the WTO’s most senior leadership team are women.” (Page 9)

“[T]rade is not an end in itself. It is a means to an end. It is a
means by which we create and share prosperity. That prosperity
underpins social cohesion and that social cohesion in turn underpins
political stability. That political stability is the bedrock of our collective
security.

“And I say this because we must understand protectionism does not
come without a price tag. If we deny people access to prosperity and
opportunity through trade then we should not be surprised if the
outcomes, whether mass migration, political radicalisation or failing
states, come back to bite us.

“As an organisation we all need to recapture that optimism that comes
from committing to shared values. Yes, we’ve taken a billion people out
of extreme poverty but that cannot remotely be the end of our ambitions.

“We need the political momentum to take us forward. It is only with vision,
and shared purpose, that we can find the compromises required to meet
the challenges I’ve set out — reversing the rise in trade restrictive measures, recommitting ourselves to the founding principles to which we have all
agreed, while updating and strengthening this institution so it’s fit to tackle the challenges of the 21st Century.

“I believe I have the skills and experience to deliver that political
momentum.” (pages 10-11)

During the press conference, Dr. Fox provided a short opening statement which was followed by press questions. Dr. Fox’s opening statement reviewed some key points. This is not going to be business as usual. COVID-19 will affect the global economy and world trade. WTO is a great organization that has helped move 1 billion people out of poverty. There is a feeling in Geneva that the WTO has lost some of the political momentum. Negotiators can’t make compromises if don’t have common goals. The WTO can’t just focus on legacy issues (agriculture) but must address the changed trading environment and also recommit to the principles of a multilateral trading system. Negative consequences of alternative outcome are too dark.

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

On Brexit, is it an advantage or disadvantage for Dr. Fox’s candidacy with the EU? Dr. Fox stated that it was good that not everyone in the world sees all issues through the Brexit prism. If he becomes the next Director-General, he would be available to all Members on the same basis. While not directly relevant to the Director-General selection process, he hopes the UK and EU will reach a good trade agreement and believes it will be important for COVID recovery. On who the EU chooses, Dr. Fox believes the EU will likely pick a candidate who is most in line with their views on the characteristics and experiences needed for the job.

Is there a British perspective? Dr. Fox noted that he believes so in how he sees the role of the Director-General, which he analogizes to that of the British Prime Minister. In Britain, the Prime Minister is first among equals. Dr. Fox envisions the same concept applying to the WTO’s Director-General. On the question of whether Britain has a strong commitment to free trade, Dr. Fox noted that Britain has a very strong commitment to free trade. He is worried about threats to free trade today. He was surprised that in the General Council meeting he received very few questions about what free trade brings to consumers. Most of the questions were from a producer perspective. Trade liberalization is obviously very important to consumers. He would like to see the WTO unleash consumer interests more.

Dr. Fox received a question on whether it was premature for the U.K. to put forward a candidate since it has only recently obtained trade policy freedom from the EU. Dr. Fox’s answer was it was not too early. He noted the U.K.’s long history of promoting free trade. Currently besides negotiations with the EU, they are engaged in various other FTA negotiations and looking to adopt or further liberalize their participation in various FTAs between the EU and other countries.

There was a question on geographical diversity and his being European when most prior Director-Generals have been European. Dr. Fox stated that he understands the idea of diversity in personnel which he generally supports. What he is hearing from Members is that this organization has great personnel, but the organization is not where it should be. In Dr. Fox’s view, problems at the WTO are not technical but rather political. Whoever is the next Director-General will have to have difficult conversations with major members. He has met those leaders. Key is what the Director-General brings to the organization in skills and experience. Other aspect mentioned by some is gender diversity. Dr. Fox has been committed to gender diversity in his positions in the U.K. He has committed to having at least half of senior WTO officials be women if he is selected as the next Director-General.

One questioner asked if Dr. Fox had any Member is mind when he raised the need to support a rules-based system. Dr. Fox replied that he did not. He stated that at the end of World War II, nations set out principles in the GATT that have stood the test of time. Problem today is that various members have taken exception to particular rules. While exceptions or waivers are needed for some developing and least developed countries, it was not possible to have Members decide which rules applied to them. If Members don’t comply with existing agreements, what value do future agreements have? Countries at different stages of development access benefits of free trade under the current system by committing to basic principles.

A question was asked about the deficit of trust among Members of the WTO, and why Dr. Fox would be the right person to lead the organization and restore trust. Dr. Fox noted that a similar question had been asked during the General Council meeting. Important to know what is meat by trust. On the issue of how do parties get to trust, it is by the experience of behavior over time. Transparency and the sharing of information are big elements to enabling trust. In the current environment, the next Director-General will need a willingness to have conversations that are uncomfortable but necessary. The role of a Director-General is not to take sides but to understand both sides of a dispute between Members. In Dr. Fox’s view a political figure is better able to bring qualities to the role of the Director-General needed to build confidence. Separately, Dr. Fox stressed the importance in the present circumstances of being optimistic but also realistic. He believes that it would be a mistake for the Director-General to overpromise likely outcomes in the current circumstances.

As the only candidate from a developed country, does this give you an advantage? Dr. Fox noted that each candidate has different background and so could be viewed by some as advantaged or disadvantaged on the basis of geographic origin, gender and other factors. Dr. Fox does believe coming from a G20 country may be an advantage in the current cirumstances because of the substantial contraction in openness amongst G20 countries. He stated that the world is in a more difficult position re trade now than we were during the financial crisis. In 2009 only 0.7% of G20 import trade was covered by restrictive measures. By 2019 fully 10.3% of G20 imports were covered by restrictive measures. To come out of the economic challenges presented by the pandemic, all WTO Members have to abide by WTO commitments. That message may be easier to be delivered by a G20 country Director-General. Dr. Fox indicated he would have no problem delivering the message.

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

The last question inquired into what reform is needed. Dr. Fox articulated that reform should be viewed in three buckets. The first is conceptual reform. By this he means, Members recommitting to the basic principles of the WTO (most favoured nation, national treatment and transparency of commitments). He believes this is what MC 12 needs to focus on. The second is organizational reform. By this Dr. Fox means what does the team look like, the Director-General being first among equals; selecting Secretariat staff that are the most talented and challenging group. The third is policy reform. By that, Dr. Fox means what issues will be addressed — legacy issues and issues to update organization such as fisheries subsidies; resolution of the Appellate Body impasse. Dr. Fox concluded by saying that the Director-General position is a job for a politician not for a technocrat at this time.

WTO Director-General Selection Process — Next Steps

With the current WTO Director-General, Robert Azevedo, stepping down at the end of August, the WTO is a little more than one month into the selection process for a new Director-General. The process is envisioned normally to take nine months of which six months deal with nominations, candidate outreach to WTO Members, and consultations by the WTO’s Chair of the General Council (with the assistance of the Chairs of the Dispute Settlement Body and the Trade Policy Review Body) with WTO Members to find a candidate for whom consensus is possible and a General Council meeting to confirm the selection of a new Director-General. Because of the approaching departure of the current Director-General, the WTO is examining whether the process of selecting a new Director-General (“DG”) can be accelerated. To the extent the process is not concluded before DG Azevedo departs, the WTO will select an acting Director-General from among the four Deputy Directors-General.

Phase 1, Nominations

Phase 1 of the WTO Director-General selection process came to an end on July 8, one month after the process started on June 8 as the window for WTO Members to nominate candidates from their country/territory came to an end at the close of business on July 8th. Eight WTO Members provided nominations to the WTO. The Member and candidate in the order of nomination at the WTO are reviewed below along with the date that the WTO posted a press release on the nomination (with official bio submitted).

The Chair of the General Council released a consolidated list of candidates whose nominations had been received by the WTO on July 9, embedded below. WT/GC/INF/30.

WTGCINF30

Phase 2, Candidates Making Themselves Known to the WTO Members

After the close of the nomination window, normal procedures provide three months for candidates to “make themselves known to Members”. This phase 2 of the selection process starts with a WTO General Council meeting at which each candidate is given time to make an opening statement and for Members to ask questions and receive answers. The General Council meeting is followed and preceded by candidates and their nominating governments doing outreach to WTO Members in Geneva and in capitals around the world.

A. General Council meeting

In the 2012-2013 selection process, the General Council meeting took three days and occurred 29-31 days after the close of the nomination phase. Each candidate had 15 minutes for an opening statement followed by 75 minutes of questions and answers with the last five minutes of the 75 minutes reserved to the candidate to make a summing up if desired. Members wishing to ask a question notified the WTO in advance for each candidate for which they wished to be considered to ask a question and their names were included in a box from which names were drawn. Questions were limited to one minute maximum, with no follow-up questions allowed. Each candidate was offered the opportunity to meet with the media immediately after the meeting with the General Council.

In the current selection process, the WTO is proceeding in the same manner with the same time allocations and same opportunity to meet press, though the timing of the General Council meeting has been moved up as part of a process to expedite the overall selection process. The General Council will meet 7-9 days after the close of the nominating period, the meetings being over three days, July 15-17.

On Friday, the specific schedule was announced. Candidates are heard in the order in which their nominations were received by the WTO. Below is the schedule of meetings for candidates with the General Council (each meeting is 90 minutes) followed by a press conference, assumed to occur within 15 minutes of the close of the meeting with the General Council. The press conferences will be webcast live on the WTO website and will be archieved, as they were in 2013.

CandidateDate at GCTimePress Conference
Dr. Jesus Seade Kuri (Mexico)July 1511:15 13:00 (est.)
Dr. Ngozi Okonjo-Iweala (Nigeria)July 1515:0016.45 (est.)
Mr. Abdel-Hamid Mumdouh (Egypt)July 1516:3018:15 (est.)
Amb. Tudor Ulianovschi (Rep. of Moldova)July 1611:0012:45 (est.)
H.E. Yoo Myung-ee (Rep. of Korea) July 1615:0016:45 (est.)
Amb. Amina C. Mohamed (Rep. of Kenya)July 1616:3018:15 (est.)
Mr. Mohammad Maziad Al-Tuwaijri (Kingdom of Saudi Arabia)July 1710:0011:45 (est.)
Dr. Liam Fox (United Kingdom)July 1711:3013:15 (est.)

B. Length of period of outreach by candidates

The Chair of the WTO’s General Council on the 10th of July announced that Members had agreed to truncate the phase 2 outreach by candidates from three months to two months, ending September 7. See General Council Chair Walker announces timelines for next stages of DG selection process, https://www.wto.org/english/news_e/news20_e/dgsel_10jul20_e.htm.

Phase 3, Consultations with WTO Members on Candidate Best Placed to Attract Consensus

The final phase of the selection process is one in which the WTO’s Chair of the General Council along with the Chairs of the Dispute Settlement Body and the Trade Policy Review Body consult with all WTO Members “to assess preferences and seek to determine which candidate is best placed to attract consensus support.” Id. This phase is to be completed within two months with a General Council meeting to consider and (hopefully) adopt the recommendation of the candidate put forward by the General Council Chair (by November 7 in the current selection process).

In 2013, when there were nine candidates, the consultation process involved three rounds of consultations, with those candidates with the least likelihood of generating consensus being asked to withdraw after each round so a recommendation could be made.

With eight candidates in the current selection process, multiple rounds of consultations will almost certainly be needed. It is unlikely that the process will be completed significantly in advance of the two month deadline.

The procedures adopted in 2002 provide for the option, if needed, to go to voting, though that is a last resort and has not been used to date.

Hopefully, resolution of the selection of the next Director-General will happen by early November. While the procedures for selection envision a three month period after selection before the new Director-General assumes his/her position at the WTO, the three months is premised on there being a Director-General whose term ends in three months. In the current situation where the Director-General departs at the end of August, the new Director-General will presumably take office immediately and General Council adoption of his/her nomination.

Need for an Acting Director-General for the Period September 1 – early November

According to the Procedures for the Appointment of Directors-General adopted by the General Council on 10 December 2002 (WT/L/509, para. 23),

“In the event of a vacancy in the post of Director-General, the General Council shall designate one of the existing Deputy Directors-General to serve as Acting Director-General until the appointment of a new Director-General.”

As this post is being written, there are just 51 days until there is a vacancy in the post of Director-General. Since the timing for completion of the selection process will run several months past the departure of Director-General Azevedo, the General Council has in front of it the additional need to designate one of the existing Deputy Directors-General to serve as the Acting Director-General.

The four existing Deputy Directors-General are Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wm. Wolff (United States) and Yi Xiaozhun. Information on the four Deputy Directors-General is contained in various WTO website listings. See The Deputy Directors-General, https://www.wto.org/english/thewto_e/dg_e/ddg_ra_e.htm; Understanding the WTO The Organization, the Secretariat, https://www.wto.org/english/thewto_e/whatis_e/tif_e/org4_e.htm#agah. Embedded below is the page on the Deputy Directors-General.

WTO-_-Deputy-Directors-General

While the 2002 procedures for designating an acting Director-General have not been used before now, it is understood that the Chair of the General Council is consulting with Members now on the issue and will likly include the topic in the agenda for the General Council meeting scheduled for July 22-23. Selection of an acting Director-General is presumably done by consensus as well.

While the role of an acting Director-General is understood to be largely administrative (being available to pay bills, manage Secretariat issues, keep the organization functioning while awaiting the completion of the selection process) and even though Deputy Directors-General act independent of their national origin, it is unclear how political considerations will be at play in the designation of an acting Director-General. For example, with three candidates from African countries for the post of Director-General (including one from Nigeria) would the designation of Yonov Frederic Agah (a Nigerian) as acting Director-General be viewed as harmful or helpful to the chances of the one or more of the African candidates since an African would be serving in the acting position? Similarly, with the differences in views of the WTO’s path forward between the U.S., China and Europe, will one ore more of the three other Deputy Directors-General be viewed as unacceptable to one or more of the majors? If there are political complications affecting the designation of an acting Director-General, what spillover effects will such tensions on the acting designation have in achieving a smooth resolution on the selection process of a new Director-General? We will likely find out whether the designation process is smooth or complicated in the next several weeks.

Conclusion

The selection process for the next WTO Director-General is in a very active stage. The Chair of the General Council has worked with the WTO Members to expedite the process to the extent acceptable to Members. Such expedition will result in at least one month cut off of the six month period from the start of nominations to the selection of a new Director-General, with resolution due by November 7 at the latest.

All of the eight candidates will be in Geneva next week for their meetings with the General Council during July 15-17. There is a shortened period for candidates to do outreach to WTO members so the rest of July, all of August and the first week of September will be hectic for the candidates and their governments with some in person meetings and many virtual meetings during this time.

When Phase 3 kicks in in early September, the General Council’s Chair along with the Chairs of the Dispute Settlement Body and the Trade Policy Review Body will be involved in the time-consuming task of consultations with Members as they work to find a consensus candidate for the Director-General post. In 2013, those efforts took three rounds of consultations to go from nine candidates to one who was recommended to the General Council and accepted by consensus. It is assumed this year, the challenges will be comparable and will likely take three rounds (8 candidates to 4 to 2 to recommendation may be the path consultations take).

Because the current Director-General, Roberto Azevedo, will be stepping down on August 31, the WTO, for the first time since the General Council adopted procedures for selecting new Directors-General at the end of 2002, will need to designate an acting Director-General from the four existing Deputy Directors-General. While the designation process may prove to be uneventful, in a time of significant dysfunction within the WTO because of dramatically different views of the operation of the WTO and reform needs by many Members, there is at least the chance for the designation process to become complicated and to make more difficult the ability to reach consensus on a new Director-General.

Considering the severe challenges facing the WTO and the complications flowing from the COVID-19 pandemic, selecting a strong Director-General in a process that flows without major incident is an important hoped-for outcome in the remainder of 2020.

COVID-19 — the sharp expansion of new cases will put increased pressure on finding vaccines and therapeutics and complicate global economic recovery

The last two weeks have seen an extraordinary explosion of new cases of COVID-19 in the United States, the rest of the Americas, and in many developing and least developed countries in Asia and Africa. Total infections globally now exceed 11.2 million up close to 2.5 million in the last two weeks (from 8.767 million) and up close to 100% from the two week period ending May 24. All figures are taken from the European Centre for Disease Prevention and Control daily reports.

The top five countries in the world with most cases account for 53.94% of global cases through July 5 and are:

United States 2,839, 542

Brazil 1,577,004

Russia 674,515

India 673,165

Peru 299,080

Three of these countries (the United States, Brazil and India) have not yet reached a peak and had the three largest number of new cases in the last two weeks — 584,423 for the U.S.; 509,425 for Brazil; 262,704 for India. While Russia and Peru appear to have peaked (last two weeks are 28.89% and 37.18% below their respective peak periods), the number of new cases in the last two weeks was the fourth and eight largest of any country (97,563 for Russia; 47,742 for Peru). The top five countries for cases to date also accounted for 60.81% of new cases during the last two weeks.

The U.S. which had seemingly peaked in the two weeks end April 26 at 409,102 and seen declines to 297,391 for the two weeks ending June 7, has seen a resurgence since then (335,058 for two weeks ending June 21) with a staggering growth in the last two weeks to 584,423 new cases. Thus, the U.S. has seen a dramatic growth in cases — up 96.52% from the June 7th two weeks; up 74.42% from the prior two weeks ending June 21; and up 42.86% since the prior peak for the two weeks ending April 26.

The United States has been in the process of opening up over the last two months after lockdowns in most states and has seen dramatic growth in cases in large parts of the country (south, southwest, west coast), with some substantial contraction in areas hardest hit back in March and April (Middle Atlantic states including New York and New Jersey). While other countries that have been opening up have had some resurgence as well (e.g., France, Germany, South Korea, Japan), the growth has been from very low numbers and has typically been relatively small absolute increases.

The United States is the only developed country to be having the challenges it is having getting the COVID-19 pandemic under control. Indeed, no other developed country has not peaked in the number of new cases. All other developed countries have generally seen very large decreases in the number of new cases from their peaks back in March or April. Dr. Anthony S. Fauci, Director, National Institute of Allergy and Infectious Diseases in the U.S., has warned that the United States could reach infection rates of 100,000 cases per day without increased adherence to the straightforward but challenging control criteria of social distancing, wearing masks, handwashing, testing, tracing and isolation.

With mixed messages from government leaders at the federal, state and local levels, with COVID-19 fatigue among many U.S. residents, and with lower rates of infection and generally less severe infections for younger people (leading many to be less concerned about the pandemic), the path forward in the U.S. is unclear particularly prior to the development of effective vaccines and therapeutics.

So large are the increases in new cases from the U.S., Brazil and India in the last two weeks that the U.S. and Brazil’s two week totals exceed the total cases since December 31 for all other countries except Russia and India; India’s new cases over the last two weeks exceed every country’s total number of COVID-19 cases since December 31 except the U.S., Brazil, Russia, Peru, Chile, and the United Kingdom).

The alarming rate of growth in the United States is masking the focus on the rapid growth of the pandemic in many developing and least developed countries. For countries with the largest number of confirmed cases, Brazil, India, Mexico, South Africa, Nigeria, Argentina, Bolivia, Colombia, Dominican Republic, Ecuador, Guatemala, Honduras, Panama, Bangladesh, Indonesia, Iraq, and the Philippines are seeing cases grow in number with no peak as yet. This is also true among many countries in the Middle East where World Bank listings would not have them as lower income countries – Kuwait, Oman, Qatar, and the United Arab Emirates. For the developing and least developed countries who are not among the forty-two countries who account for 90.62% of total cases through July 5, the rate of growth of new cases in the last two weeks is roughly 50% greater than for the 42 countries — 39.59% increase versus 26.87% increase (47.34% greater).

So the pandemic continues to grow rapidly and is affecting an increasing number of developing and least developed countries. The WHO has repeatedly reviewed the steps any country needs to take to bring the COVID-19 pandemic under control. See WHO Director-General’s opening remarks at the media briefing on COVID-19 – 1 July 2020, https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—1-july-2020. The world is not adhering to the required steps, at least for many countries including the United States.

Trade implications

Prior posts have reviewed the array of health and economic challenges for governments that are going through increasing cases during the pandemic. The WTO and others have cataloged the number of export restraints on medical goods imposed by certain countries during the pandemic. Because of the huge increase in demand that occurs for many medical goods when the pandemic spreads in a country, the world has been faced with challenges of adequacy of supplies, openness of markets, and ability to ramp up production as needed. While some restraints have been lifted, many continue. There have also been some export restraints on agricultural goods introduced by countries concerned about access to food supplies during the pandemic despite no actual global food shortage for major crops.

There also have been many efforts at liberalization by countries as they attempt to lower the cost of imported medical goods, streamline customs procedures to expedite delivery of goods, maintain open markets and for other reasons.

Groups of countries at the WTO, in the G20 and through other entities have put forward a range of proposals and action steps to ensure that trade plays its part in minimizing the downside to countries from the pandemic both in terms of health consequences and in terms of economic activity.

With rapidly growing numbers of new COVID-19 cases, one can predict that pressures will continue on export restraints and on needed efforts to ramp up production and inventories of key medical goods. As the number of tests, number of hospitalizations and other medical activities increase, governments will be struggling to find supplies. The United States has had significant problems in the past and will likely experience medical goods shortages again if the number of new cases in the U.S. is not brought under control.

For many developing and least developed countries, there are joint efforts by countries through the Supply Chain Task Force (chaired by the World Health Organization and World Food Programme) to identify medical equipment needs and to work to develop contracts to secure needed supplies and get them to the countries in need. See COVID-19 supply chain system, requesting and receiving supplies, https://www.who.int/publications/m/item/covid-19-supply-chain-system-requesting-and-receiving-supplies. The write-up explaining how it operates is embedded below and reflects the global commitment to see that both medical goods and any eventual vaccines and therapeutics and improved diagnostics are equitably available at affordable prices.

covid-19-supply-chain-system-requesting-and-receiving-supplies-2

While the joint efforts of various UN and other organizations are providing assistance to some 130 countries, challenges exist both as to funding and to access to adequate supplies as demand grows. Below are notes for the record from the Supply Chain Task Force meeting of 23 June 2020 followed by the catalogue of products being covered by the Emergency Global Supply Chain System.

supply-chain-taskforce-nfrs-20200623

20200207233119365

Availability of medical goods should improve as many countries who have gone through the worst of the pandemic (at least phase 1) who produce medical goods are increasingly in a position to increase exports. The challenges will be with overall global capacity and whether certain countries tie up global supplies to safeguard against growing demand in the current phase or to develop inventories should there be a second phase.

Vaccines and therapeutics – developments and challenges for access

There have been extraordinary efforts to ramp up research and development around the world to address COVID-19. Through the WHO and other efforts, there have been greater efforts at coordination of R&D and at the identification of gaps in knowledge and research. Large sums are being committed by some countries and NGOs to help ensure that all countries will have access to vaccines and therapeutics that get developed and that such access will be at affordable prices.

On July 1-2, the WHO held a two day virtual conference both to track progress on COVID-19 research and development efforts and to identify new research priorities. See https://www.who.int/news-room/feature-stories/detail/global-scientific-community-unites-to-track-progress-on-covid-19-r-d-identifies-new-research-priorities-and-critical-gaps.

The WHO has a summary table that shows where different vaccine development projects are. The document is embedded below.

novel-coronavirus-landscape-covid-19-1

However, a major challenge for equitable and affordable access to both vaccines and therapeutics involves the needs of major governments to lock- up capacity for potential vaccines and early therapeutics to take care of their own populations regardless of global giving events or commitments of individual countries to the principles of equitable and affordable access for all.

Prior posts have reviewed efforts of the United States, the European Union and others to lock up large quantities of vaccines from particular manufacturers of vaccines in trials should the trials prove successful. Most countries don’t have the financial capabilities to copy that approach. In addition, many vaccine trials are in China by Chinese pharmaceutical companies raising questions as to how vaccines developed by those companies (in which the Chinese government has investments for some or all of the companies) will be handled and made available to other countries with needs.

Developments in the last week show the challenge will apply equally with therapeutics that are viewed as effective in treating COVID-19. For example, there is one treatment which to date has been shown to shorten the recovery time in patients who have COVID-19. The product is remdesivir produced by U.S. company Gilead. A preliminary report on the results of testing of remdesivir was published in May 2020. See The New England Journal of Medicine, Remdesivir for the Treatment of COVID-19 — Preliminary Report, May 22, 2020.

In a July 4 article in The Guardian, entitled, “Trump is scooping up the world’s remdesivir. It’s a sign of things to come,” the author states “Trump boasted this week that the US had bought the world’s entire supply of remdesivir, the antiviral drug produced by the U.S. biotechnology company Gilead. Though low- and middle-income countries can still produce their own generic versions of the drug, European and other high-income countries are not able to buy remdesivir or produce it for three months. Fortunately the UK and Germany have stockpiled enough of the drug to treat all the patients who need it.” https://www.theguardian.com/commentisfree/2020/jul/04/trump-remdesivir-covid-19-drug.

A Reuters article from July 3rd reviews remdesivir getting conditional EU clearance. See Reuters, Gilead’s COVID-19 antiviral remdesivir gets conditional EU clearance, July 3, 2020, https://www.reuters.com/article/us-health-coronavirus-eu-remdesivir/gileads-covid-19-antiviral-remdesivir-gets-conditional-eu-clearance-idUSKBN2441GK. “”The EU’s green light broadens the use of remdesivir around the world – the United States has cleaered it for emergency use and it is also approved as a COVID-19 therapy in Japan, Taiwan, India, Singapore and the United Arab Emirates, Gilead said on Friday.”

It is fair to say that with the huge growth in the number of confirmed cases in the U.S. and with the U.S.’s control of supply for the next three months, remdesivir is likely the poster child of the challenges the global community will face in ensuring equitable and affordable access to vaccines and therapeutics going forward.

Conclusion

More than six months into the COVID-19 pandemic, the world continues on a sharp upward trajectory of new cases with a major shift from developed countries to developing and least developed countries as nearly all developed countries (excluding the United States) have managed to get the pandemic under control. With the United States apparently unable to get its house in order, there will be increased stress on medical goods supplies as demand from the U.S. will certainly continue to grow. Global efforts to arrange supplies for developing and least developed countries are showing some positive results. However, such efforts will become more challenging in the coming months as the number of cases in those countries continue to surge and those countries and buying groups compete with the U.S. for supplies.

It has long been known that the world would not be safe from COVID-19 until there were vaccines and therapeutics equitably available to all. For that to be the case, the vaccines and therapeutics need to be affordable for all.

There has historically been the perceived need for countries with the means to secure supplies for their populations during pandemics before making supplies available to all on an equitable basis and at affordable prices. With the COVID-19 seemingly out of control in the United States, there is little doubt that the United States will be doing its best to lock up supplies of vaccines and therapeutics as it has done and as it apparently will need to do to get to the other side of the pandemic.

Activities by the U.S., the EU and others on arranging commitments for promising vaccines and therapeutics will make the global objective of equitable and affordable access harder to achieve.

The reasons for optimism that a better approach will be followed during this pandemic include commitments made by many countries to ensure equitable access at affordable prices, the existence of multilateral organizations working to get getting vaccines to those in need, and the global footprint of at least some of the major companies and consortia developing vaccines and therapeutics which should provide regional production capabilities better able to service global demand.

Look for a challenging rest of 2020 and first half of 2021.

WTO Dispute Settlement — How to Handle Allegations That an Appellate Body Member is Affiliated with a Government and Hence Not Properly an Appellate Body Member?

In the first twenty-five years of the World Trade Organization, there have generally been few challenges to Appellate Body members in terms of violations of their obligations under Art. 17.3 of the Dispute Settlement Understanding or of the Rules of Conduct, WTO/DSB/RC/1.

The dispute brought by Canada against a countervailing duty order issued by the United States on supercalendered paper from Canada has resulted in such an issue arising. The WTO summary of the case is contained here, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds505_e.htm. The Appellate Body Report was circulated on February 6, 2020 under the document number WT/DS505/AB/R.

The United States had taken an appeal from certain aspects of the panel report. At the Dispute Settlement Body meeting of February 26, 2020, the U.S. had objected to the DSB considering the Appellate Body report as invalid for various reasons, including the fact that two of the three AB members’ terms had expired and had not received authorization from the DSB to continue to participate in appeals, that the report was issued far beyond the maximum 90 days laid out in the DSU (Art. 17.5 of the DSU). Most importantly, the United States claimed that the third person hearing the appeal was in fact affiliated with a government in contravention of DSU 17.3 and that her participation in the appeal was inappropriate for that reason and the fact that many of the cases relied upon by Canada to establish a practice were cases involving the government of China, the government with which the AB member was allegedly affiliated creating justifiable doubts as to the person’s independence or impartiality (WT/DSB/RC/1, Art. III.1). The U.S. position was that in light of the problems, the only consensus possible would be a positive consensus and that the U.S. would agree to a positive consensus on certain findings by the panel that were not appealed by the U.S.

Canada, the EU, and China all made comments at the DSB meeting in late February. Canada argued that despite the allegations raised by the US which should be looked at but not in the context of a DSB meeting, the DSB would adopt the Appellate Body report absent negative consensus. China agreed and defended the Appellate Body member who was from China. The EU reviewed procedures for raising the types of allegations raised by the US but like Canada and China viewed the DSU as mandating adoption of the AB report where a negative consensus did not exist.

The U.S. did not agree that adoption was permitted or appropriate and continued to oppose. The WTO webpage coverage of the dispute view the AB and panel reports as adopted on 5 March 2020. The minutes of the WTO DSB meeting of February 28 and March 5, 2020 are presented in WT/DSB/M/441 at pages 18-25 (14 May 2020). The document is embedded below and the reader is encouraged to read the discussion on those pages in full to understand the competing positions of the parties and major third parties.

WTDSBM441

While the Rules of Conduct describe a process for presenting information “of a material violation of the obligations of independence, impartiality, or confidentiality or the avoidance of direct or indirect conflicts of interest by covered persons which may impair the integrity, impartiality or confidentiality of the dispute settlement mechanism,” parties are told “at the earliest possible time and on a confidential basis, submit such evidence to the Chair of the DSB, the Director-General or the Standing Appellate Body, as appropriate.” WT/DSB/RC/1 Art. VIII.1. Paragraph 2 of Art. VIII says that the alleged failure to disclose by itself is not a sufficient ground for disqualification “unless there is also evidence of a material violation of the obligations of independence, impartiality, confidentiality or the avoidance of direct or indirect conflicts of interests and that the integrity, impartiality or confidentiality of the dispute settlement mechanism would be impaired thereby.”

Paragraphs 14-17 address how to address alleged violations by a member of the Appellate Body basically calling for the information to be shared with the other party to the dispute and to the Standing Appellate Body.

But the basic premise of the Rules of Conduct is that allegations and resolutions will occur before the panel or Appellate Body process is complete to permit time to substitute a new panelist or an Appellate Body member into the dispute before final resolution.

Challenges of the Supercalendered Paper case

After December 10, 2019, there was only one Appellate Body member. The United States communicated with the Director-General of the WTO and the Chair of the Dispute Settlement Body (the other two entities to whom evidence of possible violations could be sent if other than an Appellate Body member) on January 30, 2020 about the alleged violation of the one remaining AB member as she was affiliated with the government of China and the case, while brought by Canada involved mainly cases in which China was involved. While the evidence wasn’t sent to the Standing Appellate Body, that was not a practical option under the circumstances.

It is unclear whether the Director-General or the Chair of the Dispute Settlement Body did anything with the information provided. Certainly, no action was expeditiously undertaken to permit a resolution of the allegation before the time when the DSB would take up the Appellate Body Report and panel report. There is no reference in the minutes of the March 5, 2020 meeting to any action being taken.

The position of Canada and the EU was that the U.S. would have to wait until the Appellate Body was functioning again to have the issue reviewed. Yet such an approach is counter to the need to determine whether a material violation has occurred expeditiously so that corrective action (e.g., replacement of AB member or panelist) could occur if appropriate.

What is clear is that a system which doesn’t permit the timely evaluation of allegations against the propriety of an Appellate Body member, a panelist or other individual involved in the dispute settlement system, serving on a dispute weakens the integrity of the system and the perceived impartiality of the AB members and panelists.

Nor have Canada, the EU, China or others identified what a later review of allegations would permit in terms of correction of the particular dispute if the allegations are deemed to be confirmed. Nor do the Rules of Conduct seem to provide for retroactive correction of earlier disputes where a panelist or Appellate Body with a demonstrated serious violation of obligations served (and hence either there may have been a split decision on certain issues if there was a dissenting view and where you would not have had three proper AB members participate).

One would assume that the U.S. will make addressing these shortcomings in the existing system part of what needs to be addressed before the Appellate Body is reconstituted.

Continuing saga

Despite the fact that Canada agrees that the U.S. has raised serious issues, Canada has sought rights to retaliation and the topic was discussed at Monday’s Dispute Settlement Body meeting (June 29, 2020). The WTO press release on the meeting included this summary of the discussion of supercalendered paper:

“Paper from Canada

“Canada noted its request to suspend concessions against the United States for the US failure to comply with the WTO’s ruling in DS505. Canada said the US has neither informed the DSB of its intentions in regard to complying with the ruling, nor has it proposed a reasonable period of time to ensure compliance. Thus, Canada was pursuing its right to retaliate.

“The United States objects to the premise that the DSB adopted the ruling in this dispute on 5 March. The US position is that there was no valid Appellate Body report, and there was no consensus for the DSB to adopt the ruling. The report was not valid for three reasons: 1) the ruling was issued after the 90-day deadline set under the Dispute Settlement Understanding (DSU); 2)
two of the Appellate Body members were not authorized by the DSB to continue working on the case after their terms as members expired; and 3) the third Appellate Body member — Hong Zhao of China — was disqualified from serving as a member because she currently serves as vice president of an academy which is a public institution under Chinese law and subordinate to China’s Ministry of Commerce (MOFCOM), and thus she was neither independent nor impartial.

“The US also said Canada was not suffering any trade impact from the measures in question, particularly since the countervailing duties had been removed two years earlier. Nevertheless, the US said it had objected to the Canadian request on 26 June, meaning that the matter is automatically referred to WTO arbitration.

“Canada was joined by China, the EU, Japan, Australia and Mexico in rejecting the notion that the Appellate Body ruling in DS505 was not valid and that the DSB never adopted the ruling. Canada said the minutes of the DSB meeting on 5 March show that the ruling was adopted on the basis of Article 17.14 of the DSU, whereby a ruling can only be rejected if all WTO members present agree to reject it. Canada added that its request is based on a formula to ensure that retaliation can be exercised only if and when the US applies its WTO-inconsistent ongoing conduct to imports from Canada in the future.

“China rejected the accusations that Ms Zhao was not impartial and independent, declaring that the Chinese institute with which she is affiliated is an independent legal entity, and that the US raised no objections to her when she was first appointed to the WTO, nor when she was involved in rulings that were favorable to the United States.

“The US countered that China has not denied US statements regarding Ms Zhao’s affiliation with the institute and its affiliation with, and financial support from, MOFCOM.”

https://www.wto.org/english/news_e/news20_e/dsb_29jun20_e.htm.

The United States releases its statement to the Dispute Settlement Body meetings on the US Mission Geneva webpage. See Statement of the United States at the Dispute Settlement Body Meeting, Geneva, June 29, 2020, https://geneva.usmission.gov/wp-content/uploads/sites/290/Jun29.DSB_.Stmt_.as-deliv.fin_.public13218.pdf The relevant portion (pages 20-24) of the U.S. statement this past Monday is copied below.

“12. UNITED STATES – COUNTERVAILING MEASURES ON SUPERCALENDERED PAPER FROM CANADA

“A. RECOURSE TO ARTICLE 22.2 OF THE DSU BY CANADA (WT/DS505/13)

“ On June 18, 2020, Canada filed a request that the DSB authorize Canada to suspend concessions because it considers that the United States failed to comply with the recommendations of the DSB.

“ The United States objects to the premise of Canada’s request, which is that the DSB adopted recommendations in this dispute on March 5, 2020. As we will explain again, the position of the United States is that no DSB recommendation was or could be adopted because there was no valid Appellate Body report, and there was no consensus for the DSB to adopt the reports.

“ The United States has also repeatedly expressed concern that Canada continues to pursue a dispute that has no real world effect on Canadian exporters – a fact conceded by Canada’s recent request.

“ Canada’s request asks for authorization based on speculation – that is, related to an alleged nullification or impairment that occurs ‘if the ‘ongoing conduct’ continues to exist and [if it] applies to exports from Canada in the future’.

“ Canada is unable to even assert that it suffers from any nullification or impairment today because the alleged conduct is not applied to any Canadian good.

“ Only one determination in this dispute involved Canada – Supercalendered Paper – and that countervailing duty order was revoked two years ago.

“ Therefore, Canada suffers no nullification or impairment from the alleged measure, nor can it say that the alleged measure continues to exist, nor that Canada will suffer nullification or impairment in the future.

“ Nevertheless – and without prejudice to the U.S. position that no recommendations were adopted by the DSB – by letter dated June 26, 2020, the United States also objected to the level of suspension of concessions or other obligations proposed by Canada.

“ Under Article 22.6 of the DSU, the filing of the objection by the United States automatically results in the matter being referred to arbitration. Article 22.6 does not refer to any decision by the DSB, and no decision is therefore required or possible.

“ Consequently, because of the U.S. objection under Article 22.6, the matter already has been referred to arbitration. Although unnecessary, the DSB may take note of that fact and confirm that it may not therefore consider Canada’s request for authorization.

“ The United States recalls that at the March 5, 2020, DSB meeting, we did not join a consensus to adopt the reports put forward. There were multiple reasons why the appellate document was not a valid Appellate Body report under Article 17 of the DSU. First, the DSB had taken no action to permit two ex-AB members to continue to serve after their terms expired; second, the report was not issued within 90 days, as required by Article 17.5; and third, one person serving was affiliated with the Government of China, and therefore was not a valid member of the Appellate Body under Article 17.3.12

“ Indeed, separate from this dispute, on January 31, 2020, the United States informed the WTO Director-General and the DSB Chair by letter of discovered information that disqualified a Chinese national, Ms. Zhao, from the Appellate Body.

“ At the March 5 meeting, the United States detailed for Members the evidence demonstrating that Ms. Zhao is not “unaffiliated with any government.” No information has been presented, before, during, or after the March 5 DSB meeting that contradicts that evidence.

“ Because of Ms. Zhao’s affiliation with the Government of China, the appellate document is not a valid Appellate Body report because it had not been provided and circulated on behalf of three Appellate Body members, as required under DSU Article 17.1.

“ At the March 5 DSB meeting, Canada agreed that the allegations of Ms. Zhao’s lack of independence are serious and stated that they deserve full and impartial consideration. Canada asserted that the Rules of Conduct addressed such situations.

“ The United States agrees with Canada’s apparent concern that Ms. Zhao’s participation in the appeal may also be inconsistent with the Rules of Conduct.

“ The procedures under the Rules of Conduct for the Appellate Body itself to conduct an inquiry are not available in current circumstances. However, this does not mean that no inquiry may be conducted. To the contrary, in general the Rules provide for the DSB Chair or the Director-General to conduct the relevant inquiry.

“ The DSB Chair and Director-General would be natural leaders of such an inquiry given their roles in the WTO dispute settlement system and the trust Members repose in them.

“ The United States notes that the conduct at issue also would have constituted a breach of the obligation in DSU Article 17.3 to avoid a direct or indirect conflict of interest.13 Ms. Zhao was demonstrably connected with the Chinese Government, which had a direct interest in this appeal as the “ongoing conduct” complained of related almost exclusively to China.14 This reinforces the importance of an alternative form of ethical inquiry.

“ Therefore, given Canada’s acknowledgement of serious issues of independence and impartiality, the United States would support an alternative inquiry under the Rules of Conduct.

“ Even aside from the fact that Ms. Zhao was not a valid Appellate Body member under DSU Article 17.3, such an inquiry would confirm her disqualification from serving on the appeal.

“Second Intervention

“ Canada asserts that the appellate report must have been adopted by negative consensus. But it is evident that not any document issued with the title “Report of the Appellate Body” is such a document. For example, if such a document were signed by three members of the Appellate Body Secretariat, no one would seriously argue the report must be adopted by the DSB by negative consensus. That is because the alleged “Report” would not be consistent with DSU Article 17, which requires an appeal to be decided by three Appellate Body members.15

“ In this dispute, the facts are not seriously contested. First, the DSB had taken no action to permit two ex-AB members to continue to serve after their terms expired; this is evident from the fact that no such decision was ever proposed to the DSB.

“ Second, the report was not issued within 90 days, as required by Article 17.5; this too is not contested.

“ Third, one Appellate Body member was affiliated with the Government of China; as the United States has pointed out, the evidence of affiliation brought forward by the United States has not been directly contested. Therefore, this affiliated person was not a valid member of the Appellate Body under Article 17.3.

“ Given that there was no valid Appellate Body report before the DSB, the document could not be adopted by negative consensus under Article 17.14 as that rule did not attach to this document. Therefore, the DSB could only adopt the document by positive consensus. The United States made clear at the DSB meeting that it objected and did not join a consensus on adoption.

“ As there was no consensus for adoption, the DSB did not adopt any reports in this dispute. Accordingly, there was no recommendation for the United States to bring a measure into conformity with a covered agreement.

“ Regarding Canada’s comments concerning application of the Rules of Conduct, we note these rules were agreed by Members in order to help preserve the integrity and impartiality of the WTO dispute settlement system. That does not mean that the Rules are all that is necessary to do so. Rather, first and foremost, it is for WTO Members, and all participants in the system, to take responsibility for safeguarding that system.

“ When Canada says only the Appellate Body may apply the obligations of impartiality and independence to a person serving on an appeal, and therefore the Rules cannot be applied now, Canada would actually use the Rules to undermine the integrity and impartiality of the WTO.

“ If there are valid ethical concerns with the service by a person in an appeal, they should be investigated. It would be thoroughly inconsistent with our experience and close relationship with Canada to see it defend the behavior of the Chinese official in this dispute.

“ And there is no question that Ms. Zhao’s professional connections with the Government of China raise serious ethical concerns. For instance, given Ms. Zhao’s professional connections with the Government of China, her participation in the appeal is not consistent with the obligations to be ‘independent and impartial’ and ‘avoid direct or indirect conflicts of interest,’ provided for in paragraph II:1 of the Rules of Conduct.16

“ We therefore look forward to further conversations with Canada to find a shared approach through which we can maintain the integrity and impartiality of WTO dispute settlement.

“ At the March 5 DSB meeting and again today, China has responded to the evidence explained by the United States. Importantly, and revealingly, China has not denied the following:

“o Ms. Zhao serves as Vice President of MOFCOM-AITEC.

“o Ms. Zhao receives or has received a salary for her position of Vice President.

“o MOFCOM-AITEC is an “affiliated” entity “subordinate” to MOFCOM.

“o MOFCOM-AITEC’s budget is part of MOFCOM’s budget, such that the salary for Ms. Zhao’s Vice President position at MOFCOM-AITEC is funded by the Government of the People’s Republic of China.

“ The fact that China did not deny these statements or assert that they are incorrect only confirms that Ms. Zhao is affiliated with the Government of China and is therefore not a valid member of the Appellate Body.

“12 See U.S. Statement at the March 5, 2020, Meeting of the Dispute Settlement Body (Item 8).

“13 See DSU Art. 17.3 (“They [persons serving on the Appellate Body] shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.”).

“14 See United States – Countervailing Measures on Supercalendered Paper from Canada (Panel), WT/DS505/R, para. 7.295 and Tables 1-4 (seven of nine proceedings involving China).

“15 DSU Art. 17.1 (“The Appellate Body shall hear appeals from panel cases. It shall be composed of seven persons, three of whom shall serve on any one case.”).

“16 Rules of Conduct, Section II (“Governing Principle”), para. 1 (“Each person covered by these Rules … shall be independent and impartial [and] shall avoid direct or indirect conflicts of interest . . . so that through the observance of such standards of conduct the integrity and impartiality of that mechanism are preserved.”).”

Conclusion

The dispute settlement system at the WTO is facing challenges flowing from long standing concerns about the Appellate Body conforming to the limited role given it by the Dispute Settlement Understanding, the expansive reading of the Appellate Body’s role by AB members over time and the largely ineffective negotiating function of the WTO which has prevented meaningful oversight of the Appellate Body by WTO Members.

Added to the longstanding concerns raised by the United States and others comes a concern that goes to the heart of the dispute settlement system’s legitimacy — the need for impartial decision making and how to ensure prompt resolution of allegations of violations of obligations by AB members or panelists. The allegations against the remaining Appellate Body member raised by the United States in the supercalendered paper dispute have not been addressed by the Director-General of the WTO or by the Chair of the Dispute Settlement Body. Other WTO Members seem to be willing to see challenged reports adopted instead of having allegations pursued. Adopting a report put out by the AB including the challenged member and Canada’s pursuit of retaliation rights make a mockery of a properly functioning system and will do lasting harm to the DSB’s legitimacy. And so the downward spiral at the WTO continues in its dispute settlement function.

COVID-19, EU move to permit some international travel in addition to intra-EU travel, effects on tourism

Many countries have imposed travel restrictions on visitors from other countries during the COVID-19 pandemic. The International Air Transport Association (“IATA”) reports that there are 163 countries that have some travel restrictions and that 96 countries impose quarantine requirements. See IATA, COVID-19 Government Public Health Mitigation Measures, https://www.iata.org/en/programs/covid-19-resources-guidelines/covid-gov-mitigation/.

Travel and tourism is one of the most seriously harmed economic sectors from the global COVID-19 pandemic for many countries. The UN World Tourism Organization has created “the first global dashboard for tourism insights”. https://www.unwto.org/unwto-tourism-dashboard. The dashboard indicates that COVID-19 will result in the reduction of some 850 million to 1.1 billion tourists with a loss of US$ 910 billion to US $ 1.2 trillion in revenues from tourists with the potential loss of as many as 100-120 million jobs in the sector. These are obviously staggering figures for a sector that has contributed to global economic growth over recent decades. The dashboard has ten slides which shows data for tourism through April 2020 with some projected figures for full year 2020 under various assumptions. Data are presented both globally and for some slides by regions and in a few within regions by country. Thus, in slide 2, global tourism grew 2% in January 2020, declined 12% in February, declined 55% in March and declined 97% in April for a January-April total decline of 43.8%. By region, Europe declined 44%, Asia and the Pacific declined 51%, the Americas declined 36%, Africa declined 35%, and the Middle East declined 40%. While data for May and June are not yet available and may be less severe in terms of contraction than April, the decline in global tourism through June will likely exceed 50% and possibly be even more severe. For data through April 2020 see the link, https://www.unwto.org/international-tourism-and-covid-19.

In prior posts, I have provided background on the sector and the likely toll from the COVID-19 pandemic. See April 30, 2020, The collapse of tourism during the COVID-19 pandemic, https://currentthoughtsontrade.com/2020/04/30/the-collapse-of-tourism-during-the-covid-19-pandemic/; May 3, 2020, Update on the collapse of travel and tourism in response to COVID-19, https://currentthoughtsontrade.com/2020/05/03/update-on-the-collapse-of-travel-and-tourism-in-response-to-covid-19/.

As many countries in parts of Asia, Oceania, Europe and a few other countries have seen significant declines following first wave peaks of COVID-19 cases, restrictions within countries and increasingly on international travel are starting to be relaxed.

The European Union is a large tourist destination and on June 30 announced recommendations for member states to consider in opening up for tourists from both other EU countries and for travelers from outside of the area for nonessential travel. Specifically, the Council of the European Union adopted Council Recommendations on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction on 30 June 2020. See https://data.consilium.europa.eu/doc/document/ST-9208-2020-INIT/en/pdf. Intra EU travel, travel from Norway, Iceland, Switzerland, Liechtenstein and certain other countries is not part of the third country nonessential travel affected by the recommendations (to the extent adopted by EU members).

The EU Council selected third countries whom the Council recommended have access based on criteria which “relate to the epidemiological situation and containment measures, including physical distancing, as well as economic and social considerations, and are applied cumulatively.” Page 6. The Council lists three critieria: (1) whether the number of new cases over the last 14 days per 100,000 inhabitants is close to or below the EU average (15 June 2020); (2) whether the trend of new cases over the prior 14 day period is stable or decreasing; and (3) considering “the overall response to COVID-19 taking into account available information aspects such as testing, surveillance, contact tracing, containment, treatment and reporting as well as the reliability of available information and data sources and, if needed, the total average score across all dimensions for International Health Regulations (IHR).” Page 6.

Based on these criteria, the EU Council recommends that 15 countries (with China being subject to confirmation of reciprocity by China to EU travelers) “whose residents should not be affected by temporary external borders restriction on non-essential travel into the EU” (Annex I, page 9): Algeria, Australia, Canada, Georgia, Japan, Montenegro, Morocco, New Zealand, Rwanda, Serbia, South Korea, Thailand, Tunisia, Uruguay and China. The Council may review every two weeks whether the list should be modified.

Annex II to the Council recommendations provides an identification of travelers with essential functions for whom the restrictions should not apply. These include healthcare professionals, health researchers, and elderly care professionals, frontier workers, seasonal workers in agriculture, transport personnel, diplomatic personnel, passengers in transit, passengers traveling for “imperative family reasons,” seafarers, third-country nationals traveling for the purpose of study and a few others. Annex II, page 10.

The EU Council Recommendations are embedded below as is a Council press release on the recommendations.

ST_9208_2020_INIT_EN

Council-agrees-to-start-lifting-travel-restrictions-for-residents-of-some-third-countries-Consilium

Obviously many countries are not included on the list of third countries where loosening of restrictions on travel is recommended. The United States, Argentina, Brazil, India, Indonesia, Malaysia, Nigeria, Russia, Saudi Arabia and South Africa are just a few for whom nonessential travel restrictions are not recommended to be lifted. For most of these countries, either the number of new cases has not peaked or has not receded significantly.

For the EU, getting agreement among its members to lift travel restrictions for other EU countries and to start lifting restrictions for travelers from thrid countries has been important as the summer holiday season of July-August arrives. Data from EU tourism statistics showed 710 million international visitors in 2018 (when there were 28 EU members, including the UK). 81% or 575 million visitors were intra-EU, that is traveling from one EU country to another. Thus, for the EU, the biggest return of tourism business involves reopening to travelers from other EU countries. By contrast, visitors from third countries in total were some 19% of the total or 135 million visitors. The US accounted for 11.6% of third country visitors in 2017, some 15.7 million in number. While an important source of third country tourists, The U.S. was just a little over 2.2 percent of total EU global visitors. See http://www.condorferries.co.uk (tourism in Europe statistics). Thus, for tourism, the EU’s reopening recommendations will not return travel and tourism to pre-COVID-19 levels. But the partial reopening could result in a significant rebound in its tourism sector which will be good news for EU businesses involved in the travel and tourism space. Time will tell just how much of a rebound actually occurs.

For other nations, the more countries who get COVID-19 under control and are thus able to open international travel and tourism responsibly, the greater the likely rebound in global travel and tourism will be. However, because many businesses in the travel and tourism space in any country are small businesses, the risk for many countries (whether in the EU or elsewhere) is that the rebound whenever it occurs will happen with a much smaller business base to serve customers. While governments can provide targeted assistance through legislative initiatives, operating conditions for many such businesses post opening do not permit profitable operation where social distancing and other important steps remain critical to safe functioning. So unlike other global crises in the past, there may be large and permanent job losses in the travel and tourism sector flowing from COVID-19.

WTO Dispute Settlement – With Appellate Body Currently Non-Operational, AB Secretariat Personnel Have Been Shifted to Other Divisions

As of December 11, 2019, there was only one remaining Appellate Body member whose term had not expired. Agreement amongst WTO Members permitted a number of pending appeals (those where hearings had already happened) to be completed even though this would mean completion by individuals whose terms had terminated but who would operate under AB rule 15. The last Appellate Body reports were released on June 9, 2020. AUSTRALIA – CERTAIN MEASURES CONCERNING TRADEMARKS, GEOGRAPHICAL INDICATIONS AND OTHER PLAIN PACKAGING REQUIREMENTS APPLICABLE TO TOBACCO PRODUCTS AND PACKAGING, WT/DS435/AB/R and WT/DS441/AB/R (9 June 2020).

The WTO has contractual arrangements with the remaining Appellate Body member and with many of the Appellate Body Secretariat staff. As a result, the WTO Director-General has worked to move the AB Secretariat staff to other Divisions within the WTO in light of the reduced 2020 Appellate Body budget, the reduced workload and now the termination (at least temporarily) of any work by the Appellate Body.

For example, the Committee on Budget, Finance and Administration meeting of March 9, 2020 had an appearance by Director-General Azevedo. The write-up on the meeting noted that “Turning to the Appellate Body Secretariat, the Director-General observed that until a political agreement emerges as to the format of the future appeals process, 23 staff members of the Appellate Body Secretariat have been temporarily re-assigned to other Divisions.” Committee on Budget, Finance and Administration, Report of meeting held on 9 March 2020, WT/BFA/185/Rev. 1 at para. 1.10.

Last Friday, June 26, 2020, Director-General Azevedo wrote to all the WTO membership to alert them to the creation of a new Division on July 1 “responsible for Knowledge and Information Management, Academic Outreach and the WTO Chair’s Programme”. The new Division will be headed by Mr. Werner Zdouc who was being reassigned. Mr. Zdouc has since 2006 served as the director of the Appellate Body Secretariat. It is assumed that by July 1st all Appellate Body Secretariat staff have either left the WTO or been reassigned. The June 26 letter is embedded below.

DG-letter-to-PRs-re-New-Division-Zdouc-June-2020

Press accounts from 2019 suggested that Mr. Zdouc was viewed as contributing to the problems at the Appellate Body long complained of by the United States and some others, particularly on the issue of precedent (i.e., whether AB reports were precedential) and on the practical problem of whether the Appellate Body would correct elements of decisions that were viewed as wrongly decided by Members. See Inside U.S. Trade’s World Trade Online, Appellate Body’s future could depend on whether its director keeps his job, December 8, 2019.

Movement of WTO Appellate Body Secretariat staff doesn’t end the conflict on second-tier review

While there has been hope amongst some that WTO Members would continue to pursue in 2020 a path to reform that would permit the reactivating of the Appellate Body, that hope seems to have no short-term prospect for fulfillment.

Parties remain locked in their existing positions. With U.S. elections scheduled for November, some WTO Members may be deciding that they will simply await the outcome of the election before further engaging. Ambassador Lighthizer said at the recent U.S. House of Representatives Committee on Ways and Means hearing on the President’s 2020 trade agenda that it would be ok if the Appellate Body never comes back.

Without an operational Appellate Body, WTO Members have various options including arbitration under DSU Article 25. However, there are ongoing skirmishes at the WTO pertaining to the coverage of costs by the WTO of arbitration costs for Members pursuing arbitration through the interim arbitration agreement to which the EU, Canada, China and many other countries are signatories. See JOB/DSB/1/Add. 12, 13 and 14.

During the 2020 budget discussions held at the end of 2019, the U.S. had pushed for a clarification for how arbitrators would be paid (same as panelists which was significantly lower than AB member daily charges; no monthly retainer) and for a reduction in the Appellate Body budget in light of the lack of sufficient AB members. See, e.g., Committee on Budget, Finance and Administration, Report of the Meeting Held on 12 and 27 November and 5 December 2019, WT/BFA/183 (6 December 2019).

Recent press accounts have reported that there continue to be challenges by the United States to the interim arbitration agreement on various fronts including payment from the WTO budget. See Inside U.S. Trade’s World Trade Online, June 12, 2020, Shea: U.S. opposes use of WTO budget for interim appellate plan (article includes a link to the June 5 letter from Amb. Shea to DG Azevedo). As stated in Amb. Shea’s June 5th letter to DG Azevedo, the U.S. objects to the interim arbitration agreement that the EU, China and others are party to because it “exacerbates some of the worst aspects of the Appellate Body’s practices.” The U.S. also objected “to the use of WTO budget funds for a process that is clearly far more than a simple Article 25 arbitration.” The letter is embedded below.

June-5-2020-letter-from-Amb.-Shea-to-DG-Azevedo

Conclusion

With a reduced 2020 budget for the Appellate Body and with the conclusion of disputes on which Appellate Body reports will be prepared until such time as the Appellate Body is reactivated, the WTO has reassigned Appellate Body Secretariat staff to other divisions and has started a new division which will be headed by the former Director of the Appellate Body Secretariat.

Unfortunately, shifting personnel to different divisions does nothing to eliminate the deep divisions on how to proceed with dispute settlement after panel reports. Moreover, there is no apparent willingness to move reform of the dispute settlement system forward at the present time. Efforts by the EU and others to create an interim process that mirror many of the problems found in the Appellate Body practices have simply moved the deep divisions among Members over the Appellate Body into what is permissible under DSU Art. 25. So we will have a crisis in the dispute settlement area at least until 2021 and probably beyond.

EC Trade Commissioner Phil Hogan withdraws his name from consideration for WTO Director-General

An Bloomberg article last week indicated that the Irish Government would be nominating Phil Hogan as a candidate for position of next Director-General of the World Trade Organization.

Today, Commissioner Hogan issued a statement indicating that he would not be putting his name forward in light of the important trade issues facing the EU and the expected delays in completing the selection process which would require him to be absent for a considerable period from the EC Commissioner post. See Statement by Commissioner Phil Hogan on election of new WTO Director-General, 29 June 2020, https://ec.europa.eu/commission/commissioners/2019-2024/hogan/announcements/statement-commissioner-phil-hogan-election-new-wto-director-general_en. The statement is embedded below.

Statement-by-Commissioner-Phil-Hogan-on-election-of-new-WTO-Director-General-_-European-Commission

The announcement leaves the number of candidates at five (Jesus Seade Kuri from Mexico, Dr. Ngozi Okonjo-Iweala from Nigeria, Abdel-Hamid Mamdouh from Egypt, Tudor Ulianovschi from Moldova, and Yoo Myung-hee from Korea). None of the candidates is from a developed country (as understood within the WTO). Some have suggested that the WTO has moved to an informal rotation between developed and developing Member candidates when selecting a Director-General. Since Roberto Azevedo is from a developing country (Brazil), following that logic, WTO members should, assuming well qualified candidates from both developed and developing countries, select a developed country candidate. Indeed the last four Directors-General have come from developed (New Zealand), developing (Thailand), developed (France), and developing (Brazil) countries. Others argue that selection should be from a geographic area that hasn’t held the Director-General position or hasn’t held the position recently. The WTO Members from Africa are stressing that view, and there are two candidates from African countries among the five. There is also interest in having a qualified woman take the Director-General position as there has never been a woman in the DG slot.

The nominating period ends at the close of business on July 8. It is not clear if some other European from the European Union will be nominated (e.g., Spain could nominate Arancha Gonzalez Laya, the current Spanish foreign minister; she has been mentioned in various press accounts as a possibility) or whether one or more nominations may yet come from other developed or developing countries. Canada, Japan, Australia, New Zealand, Norway, Switzerland from the developed world all have experienced current or past officials. The United States historically has not nominated individuals and will presumably not do so this time. There are many other Members who consider themselves to be developed who might also submit a candidate, though that seems less likely with the current group of candidates.

Today’s Financial Times provides its analysis of Commissioner Hogan’s withdrawal. See Financial Times, June 29, EU trade commissioner Phil Hogan abandons interest in WTO role, https://www.ft.com/content/f94683c0-5020-4570-8a14-85bb13016f6a.

Will the EC Trade Commissioner Phil Hogan be nominated by Ireland for the WTO Director-General position?

There have been many news articles over the last few weeks on the possibility of Phil Hogan being nominated by Ireland as a candidate for the Director-General position at the World Trade Organization (“WTO”). See, e.g., Politico, May 30, 2020, European trade chief mulls bid for WTO top job, https://www.politico.com/news/2020/05/30/phil-hogan-wto-european-union-290660. The WTO is in the middle of the period for receiving nominations, a period which began on June 8 and will end on July 8. To date five candidates have been put forward from Mexico (Jesus Seade Kuri), Nigeria (Dr. Ngozi Okonjo-Iweala), Egypt (Abdel-Hamid Mamdouh), Moldova (Tudor Ulianovschi) and the Republic of Korea (Yoo Myung-hee).

Commissioner Hogan has indicated he has been thinking about the possibility. See, e.g., Irish Times, June 9, 2020, Phil Hogan confirms he is weighing bid to become WTO chief, https://www.irishtimes.com/news/politics/phil-hogan-confirms-he-is-weighing-bid-to-become-wto-chief-1.4274865. There have been articles about the European Union seeking a candidate all EU countries would support and certain ethical limitations on a sitting Commissioner seeking another position. See, e.g., Reuters, June 9, 2020, EU weights single bid for WTO job, trade chief Hogan confirms interest, https://www.reuters.com/article/us-health-coronavirus-eu-trade/eu-weighs-single-bid-for-wto-job-trade-chief-hogan-confirms-interest-idUSKBN23G1RE; Financial Times, June 16, 2020, https://www.ft.com/content/c45a56ab-5b2d-4a8c-af83-6aedec645bff.

A Bloomberg report on June 23 indicated that Ireland would be submitting his nomination and that Commissioner Hogan would announce his candidacy on Thursday (today), though delays for unspecified reasons have apparently occurred. Bloomberg, June 23, 2020, Ireland to nominate EU Trade Chief Hogan for Top WTO post, https://www.bloomberg.com/news/articles/2020-06-23/ireland-to-nominate-eu-trade-chief-hogan-for-top-wto-post. As of 5 p.m. Geneva time, no nomination has been received and there are no updates on Commissioner Hogan making an announcement.

The EU webpage for Commissioner Hogan provides the following shorthand biography of positions held over the last thirty-three years:

Biography

  • European Commissioner for Trade2019 – present
  • European Commissioner for Agriculture and Rural Development2014-2019
  • Minister for Environment, Community and Local Government, Ireland2011-2014
  • President of the Council of EU Environment Ministers2013
  • Minister of State at the Department of Finance, Ireland1994-1995
  • Member of Dáil Éireann (Lower House of Parliament)1989
  • Member of Seanad Éreann (Upper House of Parliament)1987-89

If Commissioner Hogan is nominated in the coming days, he will be the first candidate from a country that is a “developed” country Member of the WTO. To the extent WTO Members look at having the Director-General from a developed country versus a developing country following DG Azevedo’s departure on the thought that there should be rotation between developed-developing country leadership, then Commissioner Hogan would be the first (and to date, only) developed country candidate. The candidate from the Republic of Korea may view herself as from a developed country, though Korea has self-declared itself a developing country at the WTO though has agreed not to seek special and differential treatment in future agreements.

Other possible positives for Members will be his experience in trade (first agriculture and now trade overall), his political and his technical competence, his support of the WTO overall, his support for reform at the WTO.

Challenges for Commissioner Hogan’s candidacy may include the number of European Directors-General there have been at the WTO (and at the GATT before then) suggesting those wanting geographical diversity of leaders may be less interested in another European. Commissioner Hogan will also have potential challenges based on positions he has taken on behalf of the European Union on important issues before the WTO (e.g., United States on dispute settlement and whether convergence or coexistence is a key need for WTO Members). Candidates are obviously expected if selected to be the next Director-General to be honest brokers and facilitators and not to be representing the views of the Member who nominated them. But in an environment in which there are fundamental differences in views of existing rights and obligations and the needs of the WTO, it is possible that Commissioner Hogan will have a special challenge in demonstrating his neutrality and openness to all issues and views.

Conclusion

With thirteen days left in the WTO DG nomination process, there are five candidates who have been put forward. It is likely that several more will be put forward before the close of the process on July 8. It appears that the European Commissioner Phil Hogan will be nominated in the coming days by Ireland which would expand the field of candidates to six. It is unclear if the delay in the announcement of his nomination that was apparently originally scheduled for today, June 25, flows from internal EU or Irish logistics, from a lack of consensus within the EU member countries to support Commissioner Hogan or reflects some other issue that simply delays the timing and not the likelihood of his nomination.

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

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

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

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

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

Some recent developments

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

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

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

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

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

Trade Considerations

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

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

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

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

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

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

Role of WTO during Pandemic

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

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

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

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

WTO possible actions to facilitate recovery from COVID-19, the Ottawa Group’s June 16 Communication

A number of WTO Members have submitted proposals for action by the WTO Membership to address the global trade challenges flowing from the COVID-19 pandemic including speeding recovery and minimizing future disruptions from later health challenges. Most proposals address what to do about export restrictions, simplifying import procedures and/or reducing import duties, and improved transparency of actions taken.

The Ottawa Group June 2020 Statement: Focusing Action on COVID-19

The latest contribution comes from the “Ottawa Group” and was submitted on June 16, 2020. June 2020 Statement of the Ottawa Group: Focusing Action on COVID-19, WT/GC/217. The Ottawa Group is a group of WTO Members who describe themselves as “champions of WTO reform”. The group consists of the following WTO Members — Australia, Brazil, Canada, Chile, European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland.

The Ottawa Group statement provides the following introduction followed by six areas for potential WTO action:

“The world continues to grapple with the profound human health and economic impacts of the COVID-19 pandemic. In response to these challenges, thinking has begun on trade policy actions that would support an inclusive, sustainable, and resilient recovery as well as what trade rules should be adapted or developed to guide collaborative policy responses to future global crises. In this context, the WTO must play an important role in helping ensure coordination and coherence between actions its members take. This will require initiative and engagement by WTO Members in order to be successful.

“In this environment, there is an opportunity for the Ottawa Group to provide leadership, critical thinking and analysis, as well as ideas and proposals on potential actions that the broader WTO membership could take. In order to make best use of resources, this paper sets out six areas where concrete actions could be taken.” Page 1

The six action items are identified with a discussion of why the area is important and what steps the Group views as important to take. The Ottawa Group recommendations are summarized at the end of the communication (pages 4-5):

Summary:

Action Item 1: Transparency and Withdrawal of Trade-Restrictive Measures

Action Point: Ministers instruct officials to: 1) ensure any measures introduced in response to COVID-19 are promptly notified in accordance with relevant WTO requirements; 2) support efforts by the WTO Secretariat to collect and share information and best practices on trade-related measures taken in response to COVID-19 5/; 3) discuss the principle of ‘targeted, proportionate, transparent, temporary and consistent with WTO rules’; and 4) lead by example and withdraw or end any trade restrictive measures introduced in response to COVID-19 as quickly as possible.

“5/ Including by: (a) returning to the quarterly cycle of trade monitoring reports as during the financial crisis; and (b) including trade-related economic support measures in the trade monitoring reports and (c) and to the extent possible, making a technical assessment of members’ trade-related economic support measures in reaction to COVID-19.

Action Item 2: Keeping Open and Predictable Trade in Agricultural and Agri-Food Products

Action Point: Ministers instruct officials to: 1) engage in ongoing discussions on the fulfilment of joint declarations on maintaining predictable and open agriculture trade; 2) lead by example, and withdraw or end any emergency measures introduced in response to COVID-19 that may adversely affect trade in agriculture as quickly as possible; and 3) advance analysis and consideration on what steps WTO Members could take to continue improving agriculture trade based on the lessons learned from COVID-19 to ensure that future crises will not undermine trade, food security, and the stability of agricultural markets in the long-term.

Action Item 3: E-commerce

Action Point: Ministers instruct officials to prioritize and accelerate work on the Joint Statement Initiative on E-commerce, including through informal and virtual discussions, ahead of the rescheduled MC12 in 2021, including by the development of a consolidated negotiating text by the end of 2020 at the latest. In this regard, we will support the efforts of the co-convenors.

Action Item 4: Trade Facilitation – Use of Information Technology and Streamlined Procedures

Action Point: Ministers instruct officials to identify ways to take full advantage of the opportunities for trade facilitation in the Trade Facilitation Agreement (TFA) and to promote best practices for the implementation of the TFA. This includes how the adoption of digital solutions can support the movement of essential goods across borders as smoothly as possible.

Action Item 5: Initiative on Medical Supplies

Action Point: Ministers instruct officials to advance analysis and consideration in order to identify what steps WTO Members could take to facilitate trade in medical supplies to help ensure that the world is better positioned to deal with future health emergencies and to help ensure that versatile, diversified and resilient supply chains exist that allow all members access to vital medical supplies. This work should include analysis of the objectives and effects of policies affecting trade of medical supplies in response to the current pandemic and support for international organizations, including the WTO, in analyzing the potential impacts and outcomes of measures and recommending policies.

Action Item 6: Deepen Engagement with Stakeholders

Action Point: Ministers instruct officials to explore how best to pursue intensified engagement with stakeholders in order to better inform policymaking.”

The Ottawa Group proposals include topics not addressed in other proposals, such as the importance of prioritizing conclusion of the e-commerce joint statement initiative. During the pandemic, the critical importance of e-commerce to and expanded use by many businesses and consumers has reduced the damage to economies and to global trade. All Ottawa Group members are participating in the ongoing e-commerce talks, talks involving 84 countries or territories.

On issues like export restraints, the Ottawa Group has some positive ideas while reflecting the reality that some Ottawa Group members have used export restraints on medical goods during the pandemic. The idea of giving definition to the terms “targeted, proportionate, transparent, temporary and consistent with WTO rules” could be useful for administrations to be able to evaluate intended actions. However, the spread of a pandemic such as COVID-19 and internal political pressures to help one’s own population will render any such clarifications of marginal actual assistance if the underlying challenge of global supply/demand imbalance is not addressed on an ongoing basis.

As has been seen in agricultural goods, increasing information on global supplies both reduces the likelihood of countries imposing export restraints and gives trading partners greater leverage in pushing for roll backs of export restraints imposed by individual countries where there is no actual shortage. The Ottawa Group’s recommendations on agricultural goods reflects that the ability to disarm restrictions where shortages do not in fact exist.

The Ottawa Group submission from June 16 is embedded below.

WTGC217

EU’s June 11, 2020 Concept Paper, Trade in Healthcare Products

Some WTO Members, including Ottawa Group member countries, have taken unilateral action to liberalize trade in medical goods by reducing tariffs (at least temporarily) and by streamlining entry of medical goods needed for handling the pandemic. Some members, like the EU, have suggested creating an expanded medical goods duty-free agreement to go beyond the 1995 pharmaceutical agreement. For example, in a concept paper of 11 June 2020 entitled Trade in Healthcare Products, the EU, inter alia, provides in the Annex (pages 9-14) a list of goods that WTO Members could consider for total duty elimination. https://trade.ec.europa.eu/doclib/docs/2020/june/tradoc_158776.pdf The EU notes in a footnote that its concept paper “is meant to contribute to an exploratory discussion on a possible initiative to facilitate trade in healthcare products and is without prejudice to the EU’s position in potential negotiations.” Page 1 footnote 1.

The EU concept paper covers a number of other areas besides tariff eliminations, but for purposes of this note, the discussion will be limited to the product coverage for possible duty elimination. The EU provides a list of 152 6-digit HS categories in its Annex. At the six-digit level, import categories may cover many products not relevant to a particular pandemic, but the six-digit HS level is the most fragmented level of harmonization provided by the Harmonized Commodity Description and Coding Systems. Interestingly the EU Annex does not cover all products identified by the World Customs Organization and World Health Organization as relevant to fighting the COVID-19 pandemic. Specifically, there are thirty products (with accompanying HS numbers that are in the WCO list that are not in the EU proposed Annex. See World Customs Organization Prepared jointly with the World Health Organization, HS classification reference for Covid-19 medical supplies, 2.1 Edition, http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/nomenclature/covid_19/hs-classification-reference_2_1-24_4_20_en.pdf?la=en.

Specifically, under the WCO’s Section II dealing with face and eye protection, there are two face and eye protection products which are not part of the EU list (HS 9004.90 and 3926.90); four of five glove categories are not in the EU list (HS 3926.20, 4015.19, 6116.10, 6216.00); and eight of nine of the other products are not in the EU list (HS 6505.00, 3926.20, 4015.90 and 4818.50, 6210.40, 6210.40, 6210.50, 6210.50).

Similarly, in Section III, disinfectants and sterilisation products, two products in the WCO list are not covered by the EU (HS 2207.10, 2208.90).

In Section IV, oxygen therapy equipment and pulse oximeters, there is one product in the WCO list not covered by the EU Annex (HS 9026.80).

In Section V, other medical devices and equipment, the EU Annex doesn’t cover three products covered by the WCO list (HS 8413.19, 9028.20, 7324.90).

In Section VI, other medical consumables, there are four products shown in the WCO list that are not part of the EU Annex (HS 2804.40, 3923.29, 3926.90, 3926.90).

Section VII of the WCO list covers vehicles; with the exception of wheelchairs (which are covered by the EU Annex), the other three WCO products are not covered — ambulances, mobile clinic vehicles, mobile radiological vehicles (HS 8703, 8705.90, 8705.90).

Finally, in the WCO’s Section VIII, other products, three of four products in the WCO list are not covered by the EU Annex (HS 8421.39, 7311.00, 7613.00).

Because the WCO/WHO list reflects items needed by countries dealing with the COVID-19 pandemic, it is unclear what the logic is of not including such items in a proposed duty-free list compiled by the EU. Many of the items not included in the EU Annex (e.g., gloves, face shields, etc.) would be needed in addressing the current as well as future pandemics. If there is an effort to seek a duty-free agreement on medical goods, presumably the list will change from that put forward by the EU to be more comprehensive.

While the United States under the Trump Administration is not likely to enter into an agreement to eliminate tariffs on medical goods while the pandemic is afoot (as indicated by Amb. Lighthizer), the reality is that nearly all of the goods in the EU Annex are already duty free in the United States. Specifcally, 135 of the 152 6-digit HS items are duty free (Column 1 rate) in the U.S. in 2020. That is 88.8% of the HS categories. On a dollar value basis, 98.4% of imports into the U.S. during 2019 of products in the EU Annex are under HS numbers that are duty free. Of the remaining 1.6% of imports, a large part of the imports would be duty free under an FTA or GSP or other preferential program. Imports from China, some of which may be subject to supplemental duties flowing from the Section 301 investigation and resulting additional tariffs on Chinese goods, are 6.2% of total imports and some of those goods, if covered by additional duties, are subject to existing or potential exclusions.

Stated differently, should there be an effort to do a sectoral duty free agreement, in considering whether there is a critical mass, sponsors should be evaluating the existing tariff structures of non-participants.

The EU Concept Paper and the WCO list are embedded below.

tradoc_158776

hs-classification-reference_2_1-24_4_20_en-1

Deputy Director-General Alan Wolff’s Jun 17 speech, Pandemic underlines need to improve trading system’s relevance and resilience

This past week, Deputy Director-General Wolff spoke at a Think20 virtual panel on Policy Recommendations for a Post-COVID 19 World. DDG Wolff reviewed both actions that the WTO has taken (transparency on actions taken by Members; developing a trade forecast; providing a forum for members to share proposals and consider collective action) and proposals that had been put forward by Members. See https://www.wto.org/english/news_e/news20_e/ddgaw_18jun20_e.htm.

DDG Wolff identified two imperatives — “where the current rules are least prescriptive, they should be strengthened”; “where collective action would be helpful it should occur.” He then reviews WTO Members who have put forward proposals (Korea, Canada, Singapore, New Zealand, Switzerland, the Ottawa Group, the Cairns Group) and provided his summary of some of the suggestions made:

“Some specific suggestions that have been made include the following:

” A major effort can be undertaken to increase transparency. Member notifications can be supplemented by enhanced monitoring and reporting of measures by the Secretariat.

“There is little guidance in the WTO rules as to the appropriate use of export controls where it is felt that there exists short supply. Further guidance could be crafted. Sometimes the existence of extensive policy space is contrary to the common interests of all.

“Government interventions to procure needed supplies reduce the scope for market forces to determine competitive outcomes. A number of the practices witnessed in the last three months in response to the pandemic are not explicitly regulated by the current WTO rules. Included under this heading would be subsidization conditioned on supplying the domestic market, and pre-emptive government purchasing and investment. Additional disciplines could be considered.

“Leaving the allocation of scarce necessities solely to market forces may also not be a completely satisfactory alternative if the poorest countries are priced out of participation.

“Consideration can be given to agreeing, as in the WTO Agreement on Agriculture, to require that a country planning to impose an export restriction consider the effect on others of applying the measure.

“Additional provisions could provide for prior notice before export restrictions are put into place and a commitment to engage in timely consultations.

“Consideration can be given to including in any restrictions a sunset clause and providing for a roll-back of current trade restrictions.

“Multilaterally-agreed guidance could be given for the sharing of scarce medical supplies, including vaccines.

“Concerted efforts could be made to have relevant tariff liberalization, not just for medical goods, equipment and pharmaceuticals, but more broadly.

“Consideration can be given to creating, a Members’ Emergency Task Force or other mechanism to flesh out options for consideration by Members.

“Where options are devised by groups of Members, an effort and process are needed to gain broader Member support for their recommendations and to assure implementation of concrete steps forward.

“A Long-Range Policy Planning Network for the Multilateral Trading System could be created. There is insufficient attention paid to assessing the future needs of the multilateral trading system, in part due to the daily need to deal with current challenges.

“For the recovery, there are at least three immediately identifiable ways
in which the multilateral trading system can contribute. Consideration
can be given to:

“Lowering the costs of trade by lowering tariffs and other impediments to trade broadly;

“Engaging in a collective effort to accelerate the implementation of
the Trade Facilitation Agreement, and

“Working with international financial institutions and banks to
foster the restoration of trade finance.”

A broad array of suggestions have been made at the WTO as can be seen. The challenge, of course, is in generating momentum for group action. If the major players are not pulling in the same direction, it is hard to see how that momentum will be generated. Typically times of crisis create opportunities for bold action. Is today’s crisis such an opportunity considering the significantly different perspectives of China, the EU and the U.S.?

Many developing countries (and those who claim developing status at the WTO) typically have the highest tariffs and can be motivated for short-term tariff action on specific goods (as this pandemic has demonstrated), but have not shown a willingness to lead on tariff liberalization when developed countries typically have very low tariff levels already. Is the pandemic a reason for such countries to rethink their contribution to the global trading system?

A number of the proposals go to the functioning of the WTO and its governance. Considering the desire by many for broader reform but with significant differences in what type of reforms are appropriate, can the proposals identified generate consensus support in the coming months?

With the economic damage to the world’s economies much larger than originally projected, certainly there has never been a greater need for collective action to minimize human health and economic costs from the pandemic and to speed economic recovery. The coming months will show whether the great divides among the majors can be bridged for the good of all.

U.S. approach to trade – USTR Lighthizer’s Foreign Affairs article and Congressional testimony on June 17

Every year, the U.S. House of Representative’s Committee on Ways and Means and the U.S. Senate Finance Committee hold hearings to understand the Administration’s trade agenda for the year. This year both Committees held hearings on June 17 where the sole Administration witness was U.S. Trade Representative Robert Lighthizer.

Ambassador Lighthizer had separately prepared an article for Foreign Affairs entitled “How to Make Trade Work for Workers, Charting a Path Between Protectionism and Globalism” which had been reviewed by many of the Committee members prior to the hearings. The article is available here and presents the Trump Administration’s approach to trade policy. https://www.foreignaffairs.com/articles/united-states/2020-06-09/how-make-trade-work-workers.

The Foreign Affairs article

Ambassador Lighthizer uses the challenges of the COVID-19 pandemic to state that it is time for discussions to reach a new consensus on “the future of U.S. trade policy.” Amb. Lighthizer’s summary of the approach of the current Administration are repeated below:

“That debate should start with a fundamental question: What should the objective of trade policy be? Some view trade through the lens of foreign policy, arguing that tariffs should be lowered or raised in order to achieve geopolitical goals. Others view trade strictly through the lens of economic efficiency, contending that the sole objective of trade policy should be to maximize overall output. But what most Americans want is something else: a trade policy that supports the kind of society they want to live in. To that end, the right policy is one that makes it possible for most citizens, including those without college educations, to access the middle class through stable, wellpaying jobs.

“That is precisely the approach the Trump administration is taking. It has broken with the orthodoxies of free-trade religion at times, but contrary to what critics have charged, it has not embraced protectionism and autarky. Instead, it has sought to balance the benefits of trade liberalization
with policies that prioritize the dignity of work.”

The paper reviews the history of trade liberalization, what the Administration views as its limits, their perception that many trade advocates have extolled the benefits of liberalization while discounting or ignoring the economic costs of liberalization. Unlike other areas of government policy, trade liberalization was viewed as an absolute good and not weighed against the costs of the policy in fact.

The section of the article entitled “The dark side of free trade” reviews the steep economic and human costs for the United States over the period 2000-2016 noting the loss of manufacturing jobs, stagnation of median household incomes, and the devastation to the populations left behind in manufacturing locations. While outsourcing reduces costs, it increases vulnerabilities and reduces the nation’s ability to respond to certain situations, such as the pandemic.

Amb. Lighthizer opines that “A sensible trade policy strikes a balance among economic security, economic efficiency, and the needs of working people.” He reviews how he believes the United States-Mexico-Canada Agreement (“USMCA”) achieves that balance looking at specific improvements from NAFTA.

The article then goes on to look at “two of the most significant trade challenges [the U.S.] will face in the coming years: market-distorting state capitalism in China and a dysfunctional WTO.”

The Trump Administration changed the approach of trying to deal with China’s trade policy issues pursued by prior Administration (e.g., through bilateral talks and through the WTO dispute settlement system) by going after some of the larger issues through the section 301 investigation with resulting tariffs on imports from China which led to the creation of the Phase 1 Agreement and, depending on success of Phase 1, a potential Phase 2.

On the WTO, the article focuses on the WTO’s Appellate Body and its deviation from its original purpose.

“The challenges in the WTO are also vexing. Like many international organizations, the WTO has strayed from its original mission. Designed as a forum for negotiating trade rules, it has become chiefly a litigation society. Until recently, the organization’s dispute-resolution process was led by its seven-member Appellate Body, which had come to see itself as the promulgator of a new common law of free trade, one that was largely untethered from the actual rules agreed to by the WTO’s members. The Appellate Body routinely issued rulings that made it harder for states to combat unfair trade practices and safeguard jobs. This was one of the reasons why the Trump administration refused to consent to new appointments to it, and on December 11, 2019, the Appellate Body ceased functioning when its membership dipped below the number needed to hear a case.

“The United States should not agree to any mechanism that would revive or replace the Appellate Body until it is clear that the WTO’s dispute-resolution process can ensure members’ flexibility to pursue a balanced, worker-focused trade policy. Until then, the United States is better off resolving disputes with trading partners through negotiations—as it did from 1947, when the General Agreement on Tarifs and Trade was signed, until 1994, when the WTO was created—rather than under a made-up jurisprudence that undermines U.S. sovereignty and threatens American jobs.”

Congressional Hearings

The Congressional hearings provide the opportunity for the Administration to present its record of accomplishments as well as identifying pressing issues being pursued and for members of Congress to inquire about specific issues of importance to their constituents, to challenge the narrative of the Administration (typically by the opposition party), to press for commitments on actions deemed of importance and otherwise to gain clarification of matters of interest to Congressional members.

Yesterday’s hearings had all of the above. Amb. Lighthizer’s opening statement to both Committees stressed what the Administration viewed itself as having achieved and the benefits to working Americans with a focus on China (and the US-China Phase 1 Agreement), USMCA, the US-Japan Phase 1, disputes at the WTO and WTO reform proposals as well as the Administration’s game plan for the WTO, for pending negotiations with the U.K. and Kenya and for WTO reform, and enforcement of existing agreements. His opening statement to the U.S. Senate Finance Committee is embedded below but mirrors his prepared statement to the U.S. House Ways and Means Committee.

17JUN2020LIGHTHIZERSTMNT1

Senate Finance Committee Ranking Member Wyden (D-OR) in his opening statement painted a different picture of the first three years of the Trump Administration’s trade agenda and whether successes had been achieved. His statement is embedded below.

061720-Wyden-Trade-Agenda-Hearing-Opener1

There were many questions in both chambers on the USMCA agreement, with particular focus on enforcement of labor, environment and other issues. With the final revised USMCA receiving strong bipartisan support in both houses of Congress and with the agreement taking effect on July 1st, many of the questions flagged areas where one of the countries was viewed as not in compliance with obligations in the Agreement (e.g., energy practices in Mexico) and commitments by Amb. Lighthizer to pursue matters where compliance wasn’t in place.

On the issue of Section 232 tariffs on steel and aluminum products from Canada and Mexico, some members inquired whether examining imposition of such tariffs would be consistent with U.S. agreement with the two countries which had excluded them from the additional tariffs. Amb. Lighthizer reviewed that the agreement excluded Canada and Mexico where volumes remained at historic levels. If the U.S. found surges and decided to impose the tariffs, any retaliation by Canada or Mexico would be limited to the same sectors (i.e., could not retaliate against agricultural products). Amb. Lighthizer indicated that the U.S. was considering whether tariffs should be imposed in light of surges that had been occurring.

There were also many questions about the U.S.-China Agreement with a focus on whether China was likely to meet its obligations on the purchase of goods (with most questions focused on agricultural purchases). Ranking Member Wyden (D-OR) cited a Peterson Institute paper claiming poor compliance with purchase commitments. See https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods Amb. Lighthizer on a number of occasions reviewed what were described as inadequacies in the Peterson data and reviewed strong growth in orders from China on agricultural goods to the present time (vs. exports through April shown in the Peterson graphs which look at January-April, even though the agreement didn’t take effect until February 14, 2020).

There were many questions about reshoring manufacturing of medical goods, particularly personal protective equipment (“PPE”), challenges to such reshoring because of the failure of the Administration to enter into long-term contracts to permit manufacturing to start up, whether broader tariff exclusions should be provided to imports of such products while there were inadequate supplies, concerns about existing supplies of PPEs amidst the ongoing pandemic. The issue featured prominently in Senate Finance Committee Chairman Grassley’s (R-IA) opening statement and in the questions of a number of Senators and House Representatives in the two sessions. Amb. Lighthizer discussed use of tariffs as a longer term issue to support reshoring and contested arguments that the Administration had not done enough to secure supplies during the pandemic. Chairman Grassley’s opening statement is embedded below.

Grassley-at-Hearing-on-the-President

There was also interest in both Houses of the ongoing or soon to be initiated FTA negotiations with the United Kingdom (ongoing, two rounds completed) and with Kenya (to start after July 4). There were questions or statements of support for the U.S.-Japan Phase 1 Agreement particularly by members with agricultural export interests to Japan.

On U.S.-EU trade relations, there were a few questions raised dealing either with the perceived abuse of geographical indications on food products by the EU and its push to get other countries to accept EU indications or with changing EU SPS provisions that appear to members of Congress and USTR as not science based. Amb. Lighthizer characterized both as protectionist trends from our friends in the EU. He also indicated that USTR is considering whether the U.S. should initiate a 301 investigation on the non-science based SPS measures.

On digital services taxes, questions arose about yesterday’s announced U.S. withdrawal from the OECD negotiations. Amb. Lighthizer reviewed USTR’s role in conducting 301 investigations first on France and now on a host of other countries where taxes are being imposed or considered on digital services on a discriminatory basis and on companies with no physical presence in countries imposing the taxes. The OECD effort was started to achieve a global agreement that could be accepted by all. The U.S. withdrew from the talks based on its view that the talks were building in discrimination against U.S. companies. If there is not a solution in the OECD, Amb. Lighthizer made it clear that results from the 301 investigations would permit the U.S. to take appropriate action against countries who proceed without a global agreement.

While Amb. Lighthizer’s opening statement had reviewed various WTO issues relevant to reform efforts — addressing Appellate Body; putting teeth into WTO notification requirements; clarifying which Members are eligible for special and differential treatment, and the concern about bound tariffs which have proven not to reflect current economic realities between countries, there were few questions about WTO reform during the two hearings. Amb. Lighthizer did go through the challenge of a WTO system where tariffs are bound, where the U.S. over 70 years has removed the vast majority of its tariffs and many other countries have maintained very high bound and even applied tariffs with little likelihood that those tariffs would be reduced regardless of the economic advances made by countries with high bindings. India and Indonesia were two of the countries used as examples of where bound tariffs today of such countries were not reflective of their economic advances and hence were unfair to the U.S.

There were also questions that arose from press reports about statements President Trump allegedly made to President Xi in Japan seeking China’s help in his reelection effort and to reports about two USTR professional staff members who had set up a webpage and been contacting automotive companies about helping them with USMCA compliance at a time when they were still USTR employees. Amb. Lighthizer was in a meeting with the U.S. and Chinese Presidents in Osaka, Japan in 2019 and denied that any request for assistance was made by President Trump at that meeting. On the latter issue, Amb. Lighthizer indicated that political appointees clearly could not do what was done by professional staff and that the professional staff had reportedly sought and obtained clearance from the USTR ethics office.

Conclusion

It has long been obvious that the Trump Administration was adopting a significantly different approach to trade policy than had been pursued by prior Administrations over recent decades. Ambassador Lighthizer’s Foreign Affairs article provides an articulation of the underlying concerns that have driven the Administration to the current policy approach. While there are many who remain skeptical about the benefits vs. costs flowing from the modified approach being pursued by the Trump Administration, there is little question that the change in approach has gotten attention of trading partners and at least some important modifications in agreements.

The USMCA has many novel elements, many of which are interconnected in terms of achieving stated objectives. Changes in rules of origin coupled with a high level of labor needing to make a minimum level of hourly wages and labor enforcement provisions are intended to address longstanding concerns of labor and is consistent with Amb. Lighthizer’s articulated objective of making trade work for workers. The willingness to work with the Democrats to achieve the labor and environment provisions contained in the revised agreement objectives permitted broad bipartisan support when implementing legislation was considered in the United States. Similarly, the USMCA provision of a sixteen year sunset of the agreement, extendable every six years should permit Canada, Mexico and the United States to update the agreement on a regular basis preventing the loss of relevance or coverage that normal FTAs have experienced with the passage of time.

On the importance of the U.S. relationship with China, the current Administration has come to the conclusion that China is not interested in converting to a market economy in fact. Reciprocity is unlikely under WTO Agreements since the WTO is premised on market economy Members, and the WTO agreements do not address many of the distortions flowing from the Chinese-style economy. Thus, the Administration has pursued a different approach to achieve a different outcome and greater reciprocity. The importance of the U.S.-China Phase 1 is best understood in that context. While the jury is out on how successful the Phase 1 Agreement will be, Amb. Lighthizer’s review of USTR information on growing orders from China in agriculture and China’s implementation of many of the specific commitments in the SPS area and other areas is encouraging.

On the WTO, the U.S. is looking for fundamental reform to achieve an organization that has rules for all and that reflects the changing capabilities of Members. With the differences in views of the purpose of the Appellate Body between the U.S. and the EU (and others), there is no likelihood of rapid restoration of the Appellate Body. With the EU moving towards taking unilateral action against Members who don’t engage in a second stage review of disputes with them, we are likely facing a period of heightened trade tensions between the U.S. and the EU.

Other U.S. proposals that have already been made at the WTO (notification requirements; eligibility for special and differential treatment; WTO being an organization for market economies ) or are working on jointly with others (e.g., EU and Japan on industrial subsidies and state-owned enterprises), have different challenges in terms of reaching consensus to adopt. The issue not yet formally raised on revisiting tariff bindings and/or how the system addresses changes in economic might over time with existing bindings would seem to require a further major shock to the operation of the WTO to have any chance of being considered.

As trading partners struggle to find new sources of revenue, particularly following the economic challenges flowing from the COVID-19 pandemic, many have looked to tax foreign companies in the digital services space. As the U.S. has many of the major players, there are looming major confrontations over EU and other country efforts to impose discriminatory taxes. The U.S. will defend its interests if an OECD agreed approach cannot be found. Based on yesterday’s withdrawal of the U.S. from the OECD process, major disputes are likely by the end of 2020.

The Trump Administration will continue to utilize all legal tools available to it under U.S. law and pursuant to various Agreements to achieve a rebalancing of the U.S. trade relationship with our major trading partners and with all nations. The Foreign Affairs article provides the Administration’s logic for the approach being pursued.

Qatar’s WTO dispute with Saudi Arabia — panel report released on June 16, 2020

A panel report in the dispute between Qatar and Saudi Arabia, Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights, WT/DS567/R, was released to the public today, June 16th.

Saudi Arabia and a number of other countries in the MENA (Middle East and North Africa) region had severed all relations with Qatar on June 5, 2017. Report, Section 2.2.2. “The June 2017 severance of relations and events leading up to it”. A Qatari company with exclusive rights of broadcasting in the MENA region (including Saudi Arabia) a range of sports for various leagues around the world found its materials used by a Saudi company without authorization. The Qatari company was unable to hire Saudi counsel to pursue enforcement actions in Saudi Arabia and criminal actions were not pursued by the Saudi government.

The dispute was one of several by Qatar against Members who cut off all relations for alleged violations of WTO Agreements. In the challenge of Saudi Arabia, various violations of the Trade-Related Aspects of Intellectual Property Rights Agreement were alleged by Qatar. While Saudi Arabia participated in the panel process, its main argument was that the matter was not properly the subject of dispute settlement or was justified by TRIPS Article 73.

Because the question of whether actions by countries pursuant to their national security concerns are properly the subject of WTO dispute settlement is important to many Members and in a number of ongoing disputes, there were many third parties (13 in total) to the dispute, including the United States, the European Union, China, Canada, Japan and others.

Panel findings

The panel did not find that the issues presented could not be decided by the panel. Based on the facts that were before the panel, the panel report had little trouble finding violations of various TRIPS Articles, with the key issue being whether security interests of the defending Member permitted an override of the other obligations. On this latter issue, the panel had different views on the two main violations, finding one (Art. 41.1 and 42) covered by the security exceptions and the other (Art. 61) not. More specifically, the panel found that the inability of the Qatari company to obtain local counsel in Saudi Arabia flowed directly from Saudi Arabia’s actions considered “necessary for the protection of its essential security interests” and which were “taken in time of war or other emergency in international relations.” TRIPS Art. 73(b) and (b)(iii). The panel did not find that the claim surrounding the non-application of criminal procedures and penalties to the Saudi company was factually related to the worsened relationship between Saudi Arabia and Qatar and hence did not find Art. 73 overrode the violation of TRIPS Art. 61.

The conclusion to the panel report is embedded below.

567r_conc_e

The earlier case that looked at security interests under the GATT, Russia – Measures Concerning Traffic in Transit, WT/DS512/R (adopted 26 April 2019; panel report was not appealed), was an object of interest for a number of the third parties who filed comments. While the U.S. supported the Saudi position that security interests are a matter of self-determination and are not subject to dispute settlement, that view was not supported by most other Members including Canada, China, the EU or Japan. WT/DS567/R/Add.1 at Annex C-4 (Canada), C-5 (China), C-6 (European Union), C-7 (Japan), C-13 (United States). With many countries (but not Japan) having challenges to the United States Section 232 national security action on steel and aluminum pending before panels, the third party positions mirror arguments being presented in those other disputes.

Next Steps

It is not clear that either Qatar or Saudi Arabia will pursue arbitration under DSU Art. 25 or some other approach to reach a final resolution of the dispute. While Saudi Arabia lost the overarching issue at the panel stage, having cut off all relations with Qatar, it is unclear why it would pursue next steps. For Qatar, having obtained a legal victory on some issues at the panel stage and with relations severed with Saudi Arabia, it is unclear what additional benefit they get from pursuing arbitration. They could decide to leave the issue for later appeal by agreeing with Saudi Arabia that they reserve the right to appeal at such time as the Appellate Body is functioning again. As neither Qatar nor Saudi Arabia are parties to the interim arbitration agreement that the EU and 20 other WTO Members are party to (JOB/DSB/1/Add.12, 13 and 14), any decision to pursue arbitration would have to be negotiated between the two countries including procedures, etc.

Conclusion

The panel report released today is important both in terms of providing some interpretation of TRIPS provisions but also for its interpretation of TRIPS Art. 73, which mirrors the language in GATT Art. XXI.

Bigger panel decisions are due out later this year in the large number of challenges to U.S. Section 232 of the Trade Expansion Act of 1962, as amended, and the actions taken on steel and aluminum products. The U.S. now has two panel reports that don’t agree with the U.S. basic premise that determination of national security interests and appropriate actions to take to defend are matters for Members to determine on their own without review by the dispute settlement system.

Assuming that the upcoming panel decisions go against the United States on that core principle, how the U.S. responds will depend on whether the panel report otherwise upholds the U.S. action as permissible in fact. If the U.S. loses the cases in toto, look for the U.S. to not accept the panel results, and to either negotiate with trading partners individually or take no action. The many countries who took unilateral retaliatory action without WTO disputes will likely continue to do so and may increase the level of retaliation based on the specifics of the decision.

At the same time, the United States has filed a series of challenges to the unilateral imposition of retaliation duties by many trading partners who treated Section 232 relief as being safeguard relief or without any WTO justification. Assuming that the U.S. wins all of these cases at the panel stage, the net outcome for the U.S. and each individual WTO member who has challenged Section 232 relief will depend on the combination of results and presumably bilateral consultations. It is unlikely that the United States will engage in arbitration with any of the disputants.

WTO Search for a New Director-General – Moldova’s Tudor Ulianovschi is the Fourth Candidate Put Forward

The Republic of Moldova has forwarded to the World Trade Organization the name of Tudor Ulianovschi as a candidate for the Director-General post. Mr. Ulianovschi is a former Minister of Foreign Affairs, a former Moldovan Ambassador to Switzerland and Liechtenstein and a former Permanent Representative to the WTO.

Moldova, a land-locked country in Eastern Europe between Romania and Ukraine, became a Member of the WTO on July 26, 2001. The bulk of its trade is with the Russian Federation, other parts of the former Soviet Union and the European Union. Moldova has been working to become part of the European Union and has an Association Agreement with the EU that was fully implemented on July 1, 2016.

Mr. Ulianovschi joins Jesus Seade (Mexico), Dr. Ngozi Okonjo-Iweala (Nigeria) and Abdel-Hamid Mamdouh (Egypt) who previously were nominated by their governments. WTO Members have until July 8 to put forward nominations.

Moldova is a lower middle-income country as classified by the World Bank with a small population (2.7 million) and small total GNI ($11.44 billion). It is unclear whether the addition of Mr. Ulianovschi will affect whether one or more candidates from existing EU countries or from the United Kingdom are put forward or whether Mr. Ulianovschi will be the sole European candidate. It is assumed one or more EU-country candidates will in fact be forwarded in the next several weeks.

Similarly, there is speculation that candidates from Asia (Japan, Republic of Korea) and/or Oceania (Australia, New Zealand) may be put forward. So the total number of candidates is likely to continue to grow in the coming days making the completion of a selection process before the end of August less and less likely.

Mr. Ulianovschi’s biography as forwarded to the WTO is embedded below.

bio_mda_e

In other news about the first three candidates, a subscription service, Inside U.S. Trade has published articles based on interviews with Jesus Seade and with Abdel-Hamid Mamdouh. Inside U.S. Trade’s World Trade Online, June 10, 2020, “Seade says he can be an effective, creative facilitator as director-general”; June 15, 2020, “Egypt’s Mamdouh: WTO needs to find its ‘common purpose’ again”. Foreign Affairs on April 30, 2020 published an article by Dr. Ngozi Okonjo-Iweala addressing the COVID-19 pandemic, “Finding a Vaccine Is Only the First Step, No One Will Be Safe Until the Whole World Is Safe,” https://www.foreignaffairs.com/articles/world/2020-04-30/finding-vaccine-only-first-step.

Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union

In 2019, the United States initiated a section 301 investigation on France’s digital services tax (“DST”), made a finding that France’s DST “is unreasonable or discriminatory and burdens or restricts U.S. Commerce.”  84 Fed. Reg. 66956 (Dec. 6, 2019).  Additional duties of up to 100% were proposed on French goods valued at $2.4 billion.  France agreed to hold up application of its tax until the end of 2020 and the U.S. agreed to hold up tariffs to give the Organization for Economic Cooperation and Development time to conclude discussions on a possible agreed international tax structure for digital services.

On June 2, 2020, the U.S. Trade Representative announced the initiation of 301 investigations on nine countries and the European Union who have either implemented DSTs or who have such DSTs under development.  https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/june/ustr-initiates-section-301-investigations-digital-services-taxes.  The countries who are subject to the investigations include Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.  The notice of initiation of the investigations will appear in the Federal Register on June 5, 2020 but was posted on the USTR website on June 2.  https://ustr.gov/sites/default/files/assets/frn/FRN.pdf.

Because of the COVID-19 situation, written comments are being accepted but it is unclear if there will be a public hearing.  Written comments are due by July 15, 2020.  The Federal Register notice pre-publication is embedded below.

USTR FR notice 301 investigation on digital services

The focus of the investigation will be on the following aspects of DSTs:

“The investigation initially will focus on the following concerns with DSTs: discrimination against U.S. companies; retroactivity; and possibly unreasonable tax policy. With respect to tax policy, the DSTs may diverge from norms reflected in the U.S. tax system and the international tax system in several respects. These departures may include: extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success.”  Page 5.

Based on the prior investigation into the French DST, there is little doubt that all of the programs will be found to violate Section 301 of the Trade Act of 1974, as amended, in some respect.

For example, in the French case, the USTR made five findings relevant to some or all of the current investigations:

‘First, the evidence collected in this investigation indicates that the French DST is
intended to, and by its structure and operation does, discriminate against U.S. digital companies.”

“Second, the evidence collected in this investigation indicates that the French DST’s
retroactive application is unusual and inconsistent with prevailing tax principles and renders the tax particularly burdensome for covered U.S. companies, which will also affect their customers, including U.S. small businesses and consumers.”

“Third, the evidence collected in this investigation indicates that the French DST’s
application to gross revenue rather than income contravenes prevailing tax principles and imposes significant additional burdens on covered U.S. companies.”

“Fourth, the evidence collected in this investigation indicates that the French DST’s
application to revenues unconnected to a presence in France contravenes prevailing international tax principles and is particularly burdensome for covered U.S. companies.”

“Fifth, the evidence collected in this investigation indicates that the French DST’s
application to a small group of digital companies contravenes international tax principles counseling against targeting the digital economy for special, unfavorable tax treatment.”

USTR, Section 301 Investigation, Report on France’s Digital Services Tax, Dec. 2, 2019, pages 1, 3, 4, 5.  https://ustr.gov/sites/default/files/Report_On_France%27s_Digital_Services_Tax.pdf.

The EU and the EU-member states covered have DSTs similar to France’s (without retroactivity) with some DSTs already in effect.  Other countries’ systems appear to be similar as well with many countries already applying their DST.  https://ustr.gov/sites/default/files/assets/frn/FRN.pdf.

The full USTR report on France’s DST is embedded below.

Report_On_France’s_Digital_Services_Tax

Where taxes are already in place, action by USTR will be likely even ahead of the end of the year absent agreement with the trading partner to postpone collection.  The start of investigations at this time will enable the U.S. to complete the investigation this summer or early fall, take public comments on possible tariffs to be added if no resolution with individual countries or the EU is possible.  More specifically, the U.S. will have handled domestic legal requirements to act if other DSTs go into effect without an OECD agreement or where the tax imposed is not consistent with the OECD terms.  As stated in the USTR press release yesterday, “’President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,’ said USTR Robert Lighthizer. ‘We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.’”  https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/june/ustr-initiates-section-301-investigations-digital-services-taxes.

Conclusion

The OECD efforts to develop an agreed model for taxing digital services are supposed to conclude this year.  The U.S. and its leading digital services companies have been very concerned about the efforts of trading partners to impose taxes that will effectively apply only or disproportionately to them.

At the same time, the COVID-19 pandemic has added pressure on governments to find new sources of revenue, and digital services are an inviting target.

Expect this to be a very important issue in the second half of 2020.  Failure to find an acceptable solution to the United States will result in a significant escalation of trade tensions both with the EU and with many other countries going forward.

 

 

 

 

 

G20 Trade and Investment Ministerial Meeting — Meaningful Help for COVID-19 Response and WTO Reform?

On May 14, 2020, the G20 trade and investment ministers held a virtual meeting to consider proposals for joint action pulled together by the Trade and Investment Working Group (“TIWG”) on the topic of “G20 Actions to Support World Trade and Investment Through the COVID-19 Pandemic”.

The Ministerial statement released on the 14th endorsed the TIWG proposals which were attached to the statement and contain both short-term actions designed to “alleviate the impact of COVID-19” and longer-term actions intended to “support the necessary reform of the WTO and the multilateral trading system, build resilience in global supply chains, and strengthen international investment.” https://g20.org/en/media/Documents/G20SS_Statement_G20%20Second%20Trade%20&%20Investment%20Ministerial%20Meeting_EN.pdf.

The WTO’s Director-General Roberto Azevêdo welcomed the Ministerial statement and provided the following characterization of its content:

“DG Azevêdo hails G20 pledges on trade cooperation in COVID-19 response

“WTO Director-General Roberto Azevêdo welcomed G20 ministers’ endorsement of collective action measures to mitigate the impact of the COVID-19 pandemic on trade and investment and help foster
global economic recovery. The initiatives were endorsed at a virtual meeting of the G20 trade and investment ministers on 14 May.

“The actions include short-term responses designed to prevent trade logjams and facilitate trade in products needed to contain COVID-19, as well as longer-term support to reform the multilateral trading system, build resilience in global supply chains, and strengthen international investment.

“The G20 ministers pledged to promote WTO reform and ‘support the role of the multilateral trading system in promoting stability and predictability of international trade flows’. They agreed to ‘explore COVID-19 related WTO initiatives’ to promote more open and resilient supply chains, and expand production capacity and trade in pharmaceuticals, medical and other health-related products

“’These commitments by G20 ministers represent an important collective response to the trade-related challenges raised by the COVID-19 pandemic,’ said DG Azevêdo. ‘Maintaining stability and predictability in trade relations is critical to ensuring that essential medical supplies are available to save lives, and that global food security and nutrition do not become a casualty of this pandemic.’

“Echoing language from their first crisis meeting in late March, G20 ministers said that any emergency restrictions on trade in vital medical supplies and services should be targeted, proportionate, transparent and temporary, and should not create unnecessary barriers to trade or disrupt global supply chains. They also agreed to strengthen transparency and notify the WTO of any trade-related measures taken. They urged governments to refrain from excessive food stockpiling and export restrictions on agricultural products.

“In addition, the G20 ministers endorsed trade facilitation initiatives, including accelerated implementation of provisions in the WTO’s Trade Facilitation Agreement, such as pre-arrival processing and expedited shipment, which could speed up access to essential goods during the pandemic. They also called for streamlining customs procedures and encouraging greater use of international standards to reduce sanitary and technical barriers to trade.

“Ministers also agreed to work together to identify key areas where investment is needed, in particular for critical medical supplies and sustainable agriculture production, and to encourage
investment in new production capacity for medical supplies.

“The extraordinary meeting of G20 trade and investment ministers was organized by the Kingdom of Saudi Arabia, which currently holds the group’s rotating presidency.”

https://www.wto.org/english/news_e/news20_e/igo_14may20_e.htm.

Because the G20 member countries have differing views on flexibilities needed, already taken, and potential space that may be needed in the future, much of the “actions” agreed to are more aspirational than commitments to avoid trade restrictive actions.

ANNEX to Ministerial Statement of May 14, 2020, G20 Actions to Support World Trade and Investment in Response to COVID-19

The Annex to the Ministerial Statement contains 19 “short-term collective actions” broken into five areas — “trade regulation”; “trade facilitation”; “transparency”; “operation of logistics networks”; and “support for micro, small, and medium-sized enterprises (MSMEs)”.

Trade regulation

On trade regulation, the three specific actions don’t ban export restraints for medical goods or agricultural products but rather provide avenues for such actions to be taken.

On medical goods, the action taken merely repeats the prior statement from the trade and investment ministers that any such actions are “targeted, proportionate, transparent, temporary” and “do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules”. Para. 1.1.1.

Similarly, on agricultural restrictions, G20 countries agree to “refrain from introducing export restrictions” “avoid unnecessary food-stockpiling” but “without prejudice to domestic food security, consistent with national requirements.” Para. 1.1.2.

Finally, there is an aspirational action to “Consider exempting humanitarian aid related to COVID-19 from any export restrictions on exports of essential medical supples, medical equipment and personal protective equipment, consistent with national requirements.” Para. 1.1.3.

Considering the number of G20 countries who have had in place or continue to have in place export restraints on medical goods and the history of export restraints on agricultural goods and/or buildup of food stockpiling by some G20 countries, it is not surprising that more ambitious objectives have not been possible. For example, information compiled by the WTO Secretariat shows that nearly all G20 countries have had or continue to have export restraints on medical goods flowing from the COVID-19 pandemic. Indeed, the US, EU, Argentina, Australia, Brazil, India, Indonesia, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey and the United Kingdom are in the WTO data. While China is not included, their export restrictions on medical goods likely predated the data collection done by the WTO Secretariat. See https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. Similarly, Russia has agricultural export restraints in place and China, India and Indonesia have used them in the 2007-2008 food shortage challenge.

Trade facilitation

The Annex includes eight agreed “actions” under the heading of trade facilitation. Most of these actions are similarly not binding but are aspirational or encouraged. In fact five of the eight include the word “encourage”. Others include language like “to the extent possible” or “as appropriate and according with applicable national legislation”.

That said, many of the G20 countries and others have been taking actions to streamline the release of imported medical goods and other actions that are consistent with the objectives of the Trade Facilitation Agreement.

Two of the provisions under trade facilitation really go to the issue medical goods capacity, product availability and capacity expansions and are noteworthy as encouraging sharing of information on producers of product and also encouraging expansion of medical goods capacity. Paras. 1.2.4 and 1.2.5. As I have noted in prior posts, there has been and continues to be an imbalance between global capacity to produce the medical goods needed to fight COVID-19 and the demand for countries experiencing outbreaks. See, e.g., Shifting Trade Needs During the COVID-19 Pandemic, https://currentthoughtsontrade.com/2020/04/28/shifting-trade-needs-during-the-covid-19-pandemic/. If the world doesn’t address the supply/demand imbalance, it is highly improbable that most countries won’t enact export restraints to prevent the loss of needed goods that are in country during surging demand. While neither G20 agreed action is binding, both are helpful to improve knowledge of available supplies and hopefully to expand that supply.

The last trade facilitation action merely calls for G20 countries to “Support the efforts of international organizations (WTO, FAO, WFP, etc.) to analyze the impacts of COVID-19 on global agricultural supplies, distribution chains and agri-food production and trade.” Para. 1.2.8. Many of the G20 are signatories to statements indicating they will not impose export restraints on agricultural goods or urge restraint on the use of such restraints. There has not been a food shortage in 2020, and mechanisms put in place after the 2007-2008 food shortages to monitor food supplies have helped to provide governments with better information on likely problems. At the same time, the COVID-19 pandemic has created challenges in getting agricultural products harvested, processed and distributed. If these challenges are not properly handled, the world could find local or regional food shortages not because of lack of product but from an inability to get the product harvested, processed and distributed. With COVID-19 outbreaks in meat processing plants in various countries (United States, Canada, Germany to name just three) and with travel restrictions limiting movement of temporary farm workers, the challenges are real. Work of the international organizations is important for information gathering and dissemination.

Transparency

There are two action items under transparency — to share experiences and best practices; to notify trade-related measures to the WTO as required by obligations to the WTO.

The first should be helpful depending on openness of governments and willingness of governments to share experiences in fact. The latter action reflects the fact that countries (whether G20 or otherwise) have in some cases been slow to provide notifications or have taken limited views of their obligations to report certain trade related activities.

Operation of logistics networks

The four agreed actions under this title all involve trade ministers encouraging G20 Transport Ministers to take actions that will speed the movement of medical goods, increasing air cargo capacity, improve transparency on enforcement measures and “to abide by international practices and guidelines to ensure the movement of goods through maritime channels.” Paras. 1.4.1 – 1.4.4.

Support for micro, small, and medium-sized enterprises (MSMEs)

There are two action items for this topic — calling for reports from international organizations that would look at the “disruption of global value chains caused by the pandemic on MSMEs”; and encouraging enhancement of communication channels and networks for MSMEs, including through deepened collaboration with the private sector.” Paras. 1.5.1 and 1.5.2.

MSMEs are important engines of economic growth for all countries and are significantly adversely affected by the governmental actions needed to address the COVID-19 pandemic. For many countries, the bulk of the response for MSMEs will be through financial support legislation as can be seen by summaries of actions taken compiled by one or more of the international organizations. See, e.g., IMF, Policy Responses to COVID-19, https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19 Thus, the two actions contained in the G20 trade and investment ministers statement are helpful for considering future actions but don’t address the core immediate needs which are handled by other ministers.

Longer-term collective actions

The Annex also contains nineteen specific agreed actions for the longer term. The actions are broken into three topics — supporting the mutilateral trading system; building resilience in global supply chains; and strengthening international investment.

Like the short-term actions, the agreed list reflects the limitations on achieving G20 consensus because of different perspectives of G20 members. Some members like the EU have an interest in pursuing tariff eliminations on medical goods, an issue that the U.S. is not willing to explore until the pandemic has passed. Thus, there is no action item to achieve tariff elimination on such products in the longer-term actions.

Supporting the multilateral trading system

There are seven action items which include WTO reform (para 2.1.1), how the G20 can support work at the WTO (para 2.1.2), strengthening transparency and WTO notifications (para. 2.1.3), working “together to deliver a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and to keep our markets open” (para. 2.1.4), “work to ensure a level playing field” (para. 2.1.5), importance of interface between trade and digital economy and need for e-commerce agreement (para. 2.1.6), and exploring “COVID-19 related WTO initiative to promote open and more resilient supply chains, and expand production capacity and trade” in medical goods (para. 2.1.7).

These action items will have very different meanings depending on the G20 member who is interpreting them. Thus, the EU, Japan and the U.S. would have very different interpretations of ensuring a level playing field than would China and possibly others. India and South Africa have different views on e-commerce and making permanent no tariffs on digital trade than would the U.S., Japan and others

Still support for WTO reform, global rules on e-commerce, increased transparency and the other issues should help provide some focus in the ongoing efforts at the WTO for a future agenda and reform.

As noted in the short-term actions, greater focus by G20 countries on the supply/demand imbalance in medical goods is critical to avoid many of the same shortage issues in future pandemics or future waves of the COVID-19 pandemic. Thus, the support for para. 2.1.7 is potentially important.

Building resilience in global supply chains

There are five action items included under this topic which are positive. These include sharing best practices, strengthening cooperation on regulation of trade (including customs and electronic document management), ensuring transparency of trade-related information useful to MSMEs, encouraging cooperation between multinationals and MSMEs, and establishing voluntary guidelines that would permit essential cross-border travel during a health crisis. Paras. 2.2.1 – 2.2.5.

While these action items could be useful going forward, there is a major omission in this important category. Does building resilience in global supply chains necessitate building in increased redundancy or for onshoring some products or inputs? This is an important issue that has raised concerns among some G20 members that there is too great dependence on certain countries for input materials and that supply chains don’t have sufficient redundancy or are too “global” and not sufficiently regional or national. The United States, for example, has expressed concerns about over dependence on other countries and has been looking at encouraging domestic production of some key products/inputs. Such an approach is not supported by the EU or China. See statement of Ambassador Lighthizer at the virtual G20 Trade and Investment Ministers meeting of May 14 and the statements of the U.S., EU and Chinese Ambassadors to the WTO’s virtual General Council meeting on COVID-19 responses lays out the different perspective on this and some other issues. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/second-g20-extraordinary-trade-and-investment-ministers-meeting-remarks-ambassador-robert-e; https://geneva.usmission.gov/2020/05/15/statement-by-ambassador-dennis-shea-at-the-may-15-2020-general-council-meeting/; https://eeas.europa.eu/delegations/world-trade-organization-wto/79401/eu-statement-informal-general-council-meeting-15-may-2020_en; http://wto2.mofcom.gov.cn/article/chinaviewpoins/202005/20200502965217.shtml. While G20 countries generally all agree that it is not possible to be self-sufficient in the medical goods area, that view doesn’t answer the question of whether supply chains should be changed or whether there are certain products where a country or countries could decide self-sufficiency is sufficiently important to take different actions. From the very different views on this topic, it is not surprising that the G20 collective long-term actions were limited in the building resilience group of actions, and such differences also likely influenced the language used in the third section on strengthening international investment.

Strengthening international investment

The last seven long-term collective actions focus on the obvious need for improved investment in medical goods to reduce the stress on the global system that has flowed from the imbalance in supply versus demand and the lack of adequate national, regional and global inventories.

Collective actions include sharing best practices on promoting investments in sectors where there have been shortages (para. 2.3.2), working together to identify key areas where additional investment is needed in both medical goods and agriculture (para. 2.3.3), and four paragraphs (2.3.4 – 2.3.7) encouraging investment in new capacity, working with the private sector to identify opportunities, and other items. The last action item calls on G20 governments to “Encourage cooperation on technical assistance and capacity building provided to developing and least developed countries on investment promotion.” Para. 2.3.7.

Because many countries have been encouraging expanded production of medical goods since the outbreak of the pandemic, there is a great deal of investment that has been happening, including converting (at least short term) production lines to medical goods in short supply. Missing from the collective actions is any encouragement to the Finance Ministers to ensure the international organizations work with developing and least developed countries to ensure adequate regional inventories of medical goods to help such countries address outbreaks of COVID-19.

The G20 Trade and Investment Ministers Statement of May 14 is embedded below.

G20SS_Statement_G20-Second-Trade-Investment-Ministerial-Meeting_EN-1

Conclusion

The COVID-19 pandemic continues to infect millions of people around the world and has resulted in massive economic dislocations and the loss of tens of millions of jobs just in the United States. The G20 has been doing a reasonable job of providing leadership in how to address the pandemic and how to help the world recover as the pandemic recedes. The significant differences between G20 members on some issues have resulted in actions being taken that are either aspirational or simply encouraged, as stronger action was not possible absent consensus. But the May 14 Ministerial Statement is another positive step and provides ongoing recognition of needing to address the supply/demand imbalance to permit all countries to be able to obtain medical goods needed when the pandemic creates hot spots in their countries.

World Trade Organization — Search for a new Director-General

On May 14, 2020, the WTO’s Director-General Roberto Azevedo announced during a virtual meeting of all WTO Members that he would be stepping down from his position on August 31st, one year ahead of the end of his second four year term which ends August 31, 2021. His message to the membership was that the decision was personal and was intended to permit the WTO to choose a new Director-General hopefully before his departure and to avoid a dilution of effort needed for the next Ministerial Conference which has been postponed from June 2020 to either summer or winter of 2021. The current Chair of the WTO General Council, Ambassador David Walker of New Zealand, indicated that he would be notifying Members shortly of the start of the selection process and would be consulting to see if the process could be expedited in light of DG Azevedo’s departure in three and a half months. Both statements are linked here and reproduced below. https://www.wto.org/english/news_e/news20_e/dgra_14may20_e.htm.

WTO-_-2020-News-items-DG-Azevêdo-announces-he-will-step-down-on-31-August

Procedures for the Appointment of Directors-General

Since 2003, there have been procedures for the appointment of directors-general adopted by the General Council of the WTO (10 December 2002), The procedures are included in WT/L/509.

The timeline laid out in the procedures calls for the process to start nine months prior to the “expiry of the term of an incumbent Director-General.” WT/L/509, para. 7. So the current situation will either run over beyond DG Azevedo’s departure (indeed potentially to as late as sometime in February 2021) or will have to be seriously expedited (as potentially permitted under para. 23).

While expediting the process is possible, the various steps required by the process suggest that it is highly unlikely a new WTO Director-General will have been agreed to by the time DG Azevedo steps down. Thus, the WTO will likely face a vacancy for some period of time. Para. 23 of the procedures agreed to would then require the General Council to designate one of the four Deputy Directors-General to serve as Acting Director-General until the selection process for a new Director-General is completed. Thus, if there is a vacancy beginning September 1st, the General Council will be selecting an Acting Director-General from among these individuals — Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wolff (US) and Yi Xiaozhun (China).

Timing of Steps Absent Expedition

The procedures (WT/L/509) provide for the following timeline if a selection process occurs within the nine months outlined:

  1. “Members shall have one month after the start of the appointment process to nominate candidates. Nominations shall be submitted by Members only, and in respect of their own nationals.” Para. 8.
  2. Chair of the General Council has materials distributed to members as received and sends a consolidated list of candidates after the close of the one month period. Para. 10.
  3. “The candidates nominated shall then have three months to make themselves known to Members and to engage in discussions on the pertinent issues facing the Organization.” Para. 8.
  4. “As early as possible after the close of the one-month nomination period, candidates shall be invited to meet with Members at a formal General Council meeting. Candidates will be invited to make a brief presentation, including their vision for the WTO, to be followed by a question- and-answer period.” Para. 14.
  5. Months 5 and 6 after initiation, “the General Council shall proceed, through a process of consultations, to narrow the field of candidates and ultimately to arrive at its choice for appointment.” Para. 15.
  6. The process which is led by the Chair of the General Council and several facilitators, looks to find the candidate “around whom consensus can be built.” Para. 17. Depending on the number of candidates, there can be successive rounds to find candidates least likely to attract consensus who are then expected to withdraw. Para. 18.
  7. If successful, the Chair of the General Council with the support of the facilitators will “submit the name of the candidate most likely to attract consensus and recommend his or her appointment by the General Council.” Para. 19.
  8. “The process shall conclude with a meeting of the General Council convened not later than three months prior to the expiry of an incumbent’s term, at which a decision to appoint a new Director-General shall be taken.” Para. 7
  9. If General Council can’t take a decision by consensus, Members can “consider the possibility of recourse to a vote as a last resort.” Para. 20.

The full list of procedures is embedded below (WT/L/509).

WTL509

Assuming Amb. Walker sends out a notification in the next day or so, a normal process would result in a General Council decision in the second half of November. If there is a vacancy, the new Director-General should be able to assume responsibilities as soon thereafter as his/her schedule permits, even if not three months after the decision.

Process in 2012-2013

The selection process in 2012 started in December with nine applications received by December 31. The WTO press release showing the candidates and linking to their statements, CVs and other materials is linked here. https://www.wto.org/english/news_e/news13_e/dgsel_03jan13_e.htm. There was interest by many developing countries in seeing that the selection process kept in mind paragraph 13 of the procedures dealing with representativeness of candidates which states,

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

Because the DG slot at the WTO had been filled by three Europeans, one New Zealander and one from Thailand (with Pascal Lamy of France the last DG), many developing countries sought a developing country candidate assuming there were well qualified candidates from many countries. See WT/GC/M/139 at 13-15 (paras. 50 – 60).

Of the nine candidates, eight were from countries that classify themselves as developing countries within the WTO (Ghana, Costa Rica, Indonesia, Kenya, Jordan, Mexico, the Republic of Korea and Brazil). The sole developed country candidate was from New Zealand. All candidates had solid credentials.

Meetings with the candidates by the General Council occurred in late January (29-31) where each candidate was given 15 minutes for an opening statement and then participated in a question and answer session of an hour and fifteen minutes. See, e.g., WT/GC/M/142 (minutes of meeting held on Jan. 29-31) posted 16 May 2013.

Three rounds of consultations were held beginning in early April, with the result that at a General Council meeting on May 14, the Chair of the General Council put forward Roberto Azevedo from Brazil as the candidate most likely to achieve consensus and the General Council agreed. WT/GC/M/144 (minutes of meeting held on May 14) posted 4 July 2013.

Mr. Azevedo then assumed the role of Director-General as of September 1, 2013 and was reappointed for a second four years in 2017.

Prognosis for 2020

One would expect that there will be a number of developed country Members who put forward candidates in the next thirty days on the assumption that the pattern will be developed, developing, developed, developing and Brazil has just completed seven years with their candidate as DG.

Canada, Australia, New Zealand, Japan, Switzerland, Norway, the United Kingdom and one or more member countries from the EU would seem to be possibilities. The U.S. is not included in the list simply because of its prior lack of putting forward candidates and current Administration and Congressional concerns with the WTO, although the U.S. concern with the need for reforms could result in a surprise. The Republic of Korea is not included as it has considered itself a developing country, though it may still put forward a candidate and note that it is not seeking special and differential treatment on current or future negotiations in light of its development. I would be surprised if the United Kingdom puts forward a candidate just based on the serious trade negotiations that the U.K. is engaged in with the EU and the United States and their recent resumption of trade policy responsibilities following Brexit.

Developing countries are not prevented from putting forward candidates, and I assume that there will be some candidates put forward. Singapore would fit a profile similar to Korea in that it has indicated it will not seek special and differential treatment on current or future negotiations. Africa has not had a Director-General selected from among its candidates, and there has been only one Asian candidate selected previously.

What isn’t known is the willingness of the Members to streamline the nomination and selection process to permit a resolution while DG Azevedo is still active. If there are very few candidates, it may be easier for Members to agree to expedited procedures.

With the serious issues facing the world economy and the global trading system, maximum cooperation in selecting a new Director-General would be very important to helping focus a global response and updating of the WTO. Let’s hope that this is an issue on which the membership can agree to act quickly.

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

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

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

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

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

Countrycases
through 5-11
14 days
to 4-11
14 days
to 4-27
14 days
to 5-11
Austria15,7875,8631,252598
Belgium53,08119,38316,4876,947
Bulgaria1,965342625665
Croatia2,187909430157
Cyprus89843318481
Czechia8,1233,4531,413719
Denmark10,4293,7732,4011,854
Estonia1,73968333496
Finland5,9621,7441,6021,386
France139,06357,71229,17214,488
Germany169,57569,07632,17714,382
Greece2,7161,045392210
Hungary3,2849671,125701
Ireland22,9965,9689,6073,734
Italy219,07061,07941,31221,395
Latvia939332161127
Lithuania1,47964138730
Luxembourg3,8861,618442163
Malta4962117048
Netherlands42,62714,49412,2584,782
Poland15,9964,5664,9434,379
Portugal27,58111,2047,2793,717
Romania15,3624,1754,7364,326
Slovakia1,45742063778
Slovenia1,45752820250
Spain224,39092,96343,04516,756
Sweden26,3226,6398,1577,682
EU271,018,867370,221220,830109,551
United Kingdom219,18355,72968,56166,343
EU27 + UK1,238,050425,950289,391175,894
United States1,329,799396,874408,339363,889
Canada68,84817,45822,51921,964
Mexico35,0223,12710,01620,345
North America1,433,669417,459440,874406,198
Japan15,7983,8486,1302,413
South Korea10,909972201171
Singapore23,3361,17711,0929,712
Australia6,9412,860391228
New Zealand 1,1476195825
Subtotal58,1319,47617,87212,549
China84,0101,058990-189
India67,1526,57418,74039,260
Indonesia14,0322,4664,6415,150
Iran107,60335,86018,79517,122
Turkey138,65741,33153,17428,527
Israel16,4777,3734,2531,079
Bangladesh14,6573764,7959,241
Kazakhstan5,1266471,7562,409
Krygyzstan1,016281276321
Malaysia6,6562,1851,097876
Pakistan30,9413,5917,95417,613
Saudi Arabia39,0482,54713,06021,526
Taiwan4401134111
Thailand3,0151,38234393
Vietnam2888660
Sri Lanka86391313340
Subtotal529,981105,961130,234143,397
Russian Federation209,68810,88165,179128,739
Ukraine15,2321,9856,2326,223
Belarus22,9731,8877,88512,510
Georgia635153229149
Subtotal248,52814,90679,525147,621
South Africa10,0158332,3735,469
Egypt9,4001,2992,2545,081
Morocco6,0631,1032,4041,998
Algeria5,7231,4561,4682,341
Burkina Faso751302135119
Cameroon2,579715801958
Cote d’Ivoire1,700379576550
D.R. of the Congo1,024165225565
Djibouti1,280137809187
Ghana4,2632419842,713
Guinea2,1462078441,052
Kenya672158158317
Mali70483273315
Mauritius33222480
Niger821428167125
Nigeria4,3992249503,126
Senegal1,7091463911,038
Somalia1,05418411618
Sudan1,363122181,126
Tunisia1,03244424283
U.R. of Tanzania50919268209
subtotal57,4698,59315,95927,990
Switzerland30,22212,1243,7581,244
Liechtenstein832030
Norway8,0992,6631,090594
Iceland1,801785919
Subtotal40,20515,5924,9421,847
Argentina5,7761,2851,5642,009
Brazil162,69916,22139,719100,811
Chile28,8661,9346,11815,535
Colombia11,0631,9342,6035,684
Dominican Republic10,3472,0393,1684,212
Ecuador29,5595,53415,2536,840
Panama8,4482,1882,3792,669
Peru67,3075,26219,99839,790
Costa Rica79229510097
El Salvador958105173660
Subtotal325,81536,79791,075178,307
All Other Countries131,67726,78038,80955,215
Total of all countries4,063,5251,061,5141,108,6811,149,018

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

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

Update on food security amidst COVID-19 pandemic

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

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

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

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

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

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

Coronavirus__Commission_adopts_package_of_measures_to_further_support_the_agri-food_sector-1

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

Efforts by some WTO Members to reduce food security concerns

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

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

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

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

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

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

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

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

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

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

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

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

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

208-1

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

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

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

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

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

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

211

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

210

Statement-on-COVID-19-by-APEC-Ministers-Responsible-for-Trade

Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4-30-pork-production-USDA

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

4-24-2020-USDA-poultry-data

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

Meat Production Outside of the U.S. and Canada

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

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

Conclusion

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

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

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

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

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