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Conclusion of Joint Statement Initiative on Services Domestic Regulation — a win for the WTO and services trade

For an organization seeking to regain relevance and facing continued delays in holding its 12th Ministerial Conference because of restrictions on travel from increased COVID-19 cases, the conclusion of the Joint Statement Initiative (JSI) on Services Domestic Regulation through the issuance of a declaration on December 2 was an important accomplishment. Sixty-seven WTO Members agreed to a reference paper and a process for amending services schedules for the participants over the next months with benefits accruing to all WTO Members and with transition periods for developing and least developed countries. See Declaration on the Conclusion of Negotiations on Services Domestic Regulation, 2 Deember 2021,WT/L/1129 (includes Annex 1, Reference Paper on Services Domestic Regulation, 26 November 2021, INF/SDR/2 and Annex 2S, Schedules of Specific Commitments, 2 December 2021, INF/SDR/3/Rev.1). The 67 WTO Members participating the JSI reportedly account for 90% of services trade. The 67 countries are Albania, Argentina, Australia, Kingdom of Bahrain, Brazil, Canada, Chile, China, Colombia, Costa Rica, El Salvador, European Union (and member states), Hong Kong, Iceland, Israel, Japan, Kazakhstan, Republic of Korea, Liechtenstein, Mauritius, Mexico, Republic of Moldova, Montenegro, New Zealand, Nigeria, North Macedonia, Norway, Paraguay, Peru, Philippines, Russian Federation, Kingdom of Saudi Arabia, Singapore, Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Kingdom, United States and Uruguay.

According to the WTO press release on the completion of negotiations, the aim of the JSI was “slashing administrative costs and creating a more transparent operating environment for service providers hoping to do business in foreign markets.” WTO Press Release, Negotiations on services domestic regulation conclude successfully in Geneva, 2 December 2021, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm.

It is the first agreement at the WTO barring discrimination between men and women. WT/L/1129 at 10 (Annex I, para. 22(d), development of measures — “such measures do not discriminate between men and women.”).

The WTO and OECD released a short paper looking at the benefits to global services trade through a successful conclusion to the JSI on services domestic regulation. The study estimated that savings to service providers and their customers would be around $150 billion/year. See World Trade Organization and OECD, Services Domestic Regulation in the WTO: Cutting Red Tape, Slashing Trade Costs and Facilitating Services Trade, 19 November 2021, https://www.wto.org/english/news_e/news21_e/jssdr_26nov21_e.pdf. The four “key messages” in the study (page 1) are copied below.

“Key messages

“• Improving business climate: At the 12th WTO Ministerial Conference, the Joint Initiative on Services
Domestic Regulation will conclude negotiations on a set of good regulatory practices with a focus on procedural aspects of licensing and authorization procedures for services suppliers. By enhancing the transparency, efficiency, and predictability of regulatory systems, the disciplines on services domestic regulation that the Joint Initiative has negotiated will address the practical challenges that affect the ability of businesses and suppliers to operate.

“• Facilitating services trade: Building on efforts to identify and disseminate good regulatory practice, an
increasing number of “new generation” trade agreements have moved beyond the removal of quantitative restrictions and discriminatory measures to include a comprehensive set of disciplines largely equivalent to those developed by the Joint Initiative. At the same time, economies at all levels of income have also implemented reforms with a view to making their regulatory environment more trade facilitative for services businesses.

“• Lowering trade costs and generating broader trade benefits: Through the full implementation of the
disciplines on services domestic regulation, economies can lower trade costs and reap substantial trade
benefits: annual trade cost savings could be in the range of USD 150 billion, with important gains in financial services, business services, communications and transport services. Moreover, a positive correlation between the implementation of services domestic regulation measures and services trade by all four modes of supply, as well as a more active engagement of economies in global value chains, hints to even broader economic benefits.

“• Widespread gains beyond participants: Exporters from all WTO members will benefit from the improved regulatory conditions when they trade with participants of the Joint Initiative. However, significantly larger benefits will accrue to WTO members that are implementing the disciplines themselves in their internal regulatory frameworks.”

The study provides a summary of improved disciplines the 67 WTO Members have identified in the reference paper. The improved disciplines are grouped under transparency, legal certainty and predictability, regulatory quality and facilitation. See id at 2.

While the estimated savings once fully implemented is small in comparison to global services trade ($150 billion of 2019 estimated trade of $6.1 trillion (2.6%)(UNCTAD, 2020 Handbook of Statistics, page 33, data for 2019, https://unctad.org/system/files/official-document/tdstat45_en.pdf) as noted in the WTO press release, it is the first update of WTO rules on services in more than a quarter century. The negotiations had three co-chairs — Costa Rica, Australia and the European Union. Part of the EU’s statement by Ambassador Aguiar Machado from the December 2 meeting and announcement of the declaration is provided below. See Services Domestic Regulation Joint Initiative Meeting to conclude the negotiations (co-hosted by Costa Rica, the European Union and Australia), 2 December 2021, Geneva, https://eeas.europa.eu/delegations/brazil/108266/services-domestic-regulation-joint-initiative-meeting-conclude-negotiations-co-hosted-costa_en.

“Today, we are following up on a joint commitment we collectively took two years ago in Paris to finalize the negotiations that had started with the Joint Statement of Buenos Aires in 2017. Since then, several new Members have joined the group and a tremendous amount of work has been done by our negotiators under the valued Chairmanship of Costa Rica. In particular, warm welcome to the Philippines and Bahrain who joined our negotiations most recently.

“We are here today to conclude our negotiations in this JSI and on the Reference Paper with domestic regulation disciplines. This step will allow us to commence our respective domestic procedures required for the certification of our improved schedules of commitments, which will give legal effect to the negotiated disciplines.

“The work on services domestic regulation is of critical importance. It is the first WTO deliverable in the area of trade in services since a very long time. Our additional commitments for domestic regulation will benefit all other WTO Members by giving them the reassurance that we will apply good regulatory and administrative practices also to their service suppliers. 

“Good regulatory practices are crucial for the well-functioning of today’s economy. I believe that the clear rules on transparency and authorisation in the area of services – that were agreed as part of this initiative – will facilitate trade in services significantly. Especially for micro, small and medium-sized enterprises who do not have the same resources and experience to cope with complex processes as their larger competitors.

“The services sector has been hit hard by the pandemic – as other parts of our economy. The adoption and implementation of the disciplines of the reference paper will reduce trade costs for service suppliers substantially and thus help the sector in its recovery. It is a sector where women entrepreneurs often play an important role. The reference paper recognises this role by ensuring non-discrimination between men and women in authorisation processes. This is the first rule of this kind in the WTO.

“Delivering on the WTO services agenda is a long overdue objective we all have. Since Buenos Aires, we have collectively developed a pragmatic approach to negotiations. We have allowed groups of interested Members to advance negotiations on some important issues – through open, inclusive and transparent processes.

“Today, we prove that this plurilateral approach can lead to tangible results. This demonstrates that the Joint Initiative model is a viable one. A large and diverse group of WTO Members can work together towards a common objective, overcome their differences, show flexibility and agree on tangible results that are important for businesses and consumers.

“I believe that this Joint Initiative can be a source of inspiration for work in other areas, allowing interested Members to move ahead while ensuring that the outcome, in its substance and its form, remains supportive of and strengthens the multilateral trading system.”

Since the collapse of the Doha Development talks in 2008, the reality has been that most progress on trade talks have taken place in bilateral, and plurilateral settings. The sole meaningful exception was the completion of the Trade Facilitation Agreement which hopefully will be supplemented by a completion to the Fisheries Subsidies negotiations in the near future. Stating at the WTO’s 11th Ministerial, many WTO Members have started Joint Statement Initiatives to seek progress on important issues facing the trading system.

As noted in earlier posts, India and South Africa (WTO Members who are not participating in any of the Joint Statement Initiatives) have raised objections to the use of JSIs to update rules claiming such approaches are inconsistent with existing WTO requirements. See, e.g., November 17, 2021:  The role of plurilaterals in the WTO’s future, https://currentthoughtsontrade.com/2021/11/17/the-role-of-plurilaterals-in-the-wtos-future/.

The view of the participants in the services domestic regulation JSI is that existing WTO provisions permit the updating of service schedules by Members. The reference paper will apply to those who have participated or who later accept the reference paper. New obligations taken on by the 67 Members are applied by them on an MFN basis to all WTO trading partners.

The Declaration on Services Domestic Regulation and actions to implement it will be an early test of whether the WTO can proceed to update rules through open plurilaterals. While one can expect continued objections from India and South Africa, the path to renewed relevancy for the WTO will almost certainly run through finding room for open plurilaterals.

The folly of self-selection as a developing country at the WTO

In prior posts I have reviewed efforts by the United States and others to have the WTO membership modify who is entitled to special and differential treatment in light of the rapid changes in economic capabilities of a number of countries who have classified themselves as “developing” countries at the WTO under the self-designation approach that has characterized the GATT and now the WTO. See, e.g., December 14, 2020:  WTO December 14th Heads of Delegation meeting – parting comments of U.S. Ambassador Dennis Shea, https://currentthoughtsontrade.com/2020/12/14/wto-december-14th-heads-of-delegation-meeting-parting-comments-of-u-s-ambassador-dennis-shea/; August 13, 2020 [updated August 27]:  The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/; February 15, 2020: The U.S. Modifies the List of Developing and Least Developed Countries Under U.S. Countervailing Duty Law, https://currentthoughtsontrade.com/2020/02/15/the-u-s-modifies-the-list-of-developing-and-least-developed-countries-under-u-s-countervailing-duty-law/; December 28, 2019: WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved?, https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/.

The issue is one of importance because of the concern that many Members who have economically advanced to be fully internationally competitive or internationally competitive in significant areas of goods or services are not opening their markets to a level commensurate with their actual stage of development. A number of Members have indicated that they will not seek Special and Differential treatment in new agreements while maintaining rights under existing ones. The U.S., the EU and others have sought a more factual basis for any entitlement to differential treatment.

On November 10, 2021, Director-General Ngozi Okonjo-Iweala addressed the WTO Committee on Trade and Development (“CTD”) See WTO News Release, “Development issues should be at the heart of work at the WTO“— DG Okonjo-Iweala, 10 November 2021, https://www.wto.org/english/news_e/news21_e/devel_10nov21_e.htm. The press release starts with an overview of the importance of development in the overall WTO mission,

“Director-General Ngozi Okonjo-Iweala highlighted the key role that trade plays in economic development during a meeting of the WTO’s Committee on Trade and Development (CTD) on 10 November. She stressed that development is a priority for the WTO and that the CTD plays an important role in addressing the development dimension in the multilateral trading system.

“DG Okonjo-Iweala stressed that the work of the WTO is important for developing and least  developed countries (LDCs),  hence, it is critical for the WTO to deliver on issues of importance to them. Trade is a significant driver for economic growth and poverty reduction and ultimately for development, she added.”

The press release later has a statement that “The Secretariat presented the findings of its latest report concerning the participation of developing economies in global trade.” The latest report is PARTICIPATION OF DEVELOPING ECONOMIES IN THE GLOBAL TRADING SYSTEM, NOTE BY THE SECRETARIAT, 28 October 2021, WT/COMTD/W/262.

The problem with the note from the Secretariat and the functioning of the Committee on Trade and Development and other aspects of the WTO work is that developing countries in the note is treated as all Members so designating themselves and hence provides little useful information on the role of countries in actual need of assistance. Data in the note is skewed by information on developing Asia — an area that includes China, Singapore, the Republic of Korea and Chinese Taipei (Taiwan). On pages 8-9 of the Secretariat note, the major “developing” country traders are reviewed. The top 15 developing country exporters in 2020 were Chins (34.0%), Republic of Korea (6.7%), Mexico (5.5%), Singapore (4.8%), Chinese Taipei (4.6%), United Arab Emirates (4.2%), Viet Nam (3.7%), India (3.6%), Malaysia (3.1%), Thailand (3.0%), Brazil (2.8%), Kingdom of Saudi Arabia (2.3%), Turkey (2.2%), Indonesia (2.1%), South Africa (1.1%), other (16.4%). The top 15 importer developing countries included all of the top exporters with the exception of South Africa (Hong Kong, China was the 15th largest importer).

The World Bank provides Gross National Income per capita for most countries/territories (China blocks provision of data for Chinese Taipei). The latest data are for 2020 and include the following ranges for the four categories of World Bank countries:

Low income countries, less than $1,048/capita GNI

lower middle-income economies, $1,048-4,095/capita GNI

upper middle-income economies, $4,096-12,695/capita GNI

high income economies, $12,696 or more/capita GNI.

China in 2020 had a per capita GNI of $10,610; Singapore had a 2020 per capita GNI of $54,920; Republic of Korea had a 2020 per capita GNI of $32,860; Chinese Taipei had a per capita GDP in 2021 of $33,402; Mexico had a 2020 per capita GNI of 8,480; the United Arab Republic had a 2019 per capita GNI of $43,470; the Kingdom of Saudi Arabia had a 2020 per capita GNI of $21,930; Hong Kong, China, had a 2020 per capita GNI of $48,630; Thailand had a 2020 per capita GNI of $7,050; Malaysia had a 2020 per capita GNI of $11,230; Turkey had a 2020 per capita GNI of $9,030; Brazil had a 2020 per capita GNI of $7,850.

See New World Bank country classifications by income level: 2021-2022, July 1, 2021, https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2021-2022; World Bank Country and Lending Groups, ← Country Classification, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups; GNI per capita, Atlas method (current US$) – China, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=CN (lists all countries); Wikipedia, Economy of Taiwan, https://en.wikipedia.org/wiki/Economy_of_Taiwan.

There is obviously no justification in high income economies receiving special and differential treatment as though they are developing countries in fact. Thus, data for Singapore, Korea, Hong Kong, UAE, Saudi Arabia shouldn’t be in the developing country data base. Similarly, China and Malaysia with per capita GNIs above $10,000 and purchasing power parity gross national income per capita (2019) above the minimum high income economy threshold ($16,790 for China; $28,830 for Malaysia) shouldn’t be eligible for special and differential treatment as a general rule. Brazil, Thailand, Turkey and Mexico while below $10,000 per capita GNI in 2020 have 2019 per capita purchasing power parity GNI higher than the high income economy threshold ($14,890 for Brazil; $26,840 for Mexico; $18,570 for Thailand; $27,660). There is no apparent logic in having these countries have automatic rights to special and differential treatment.

The Secretariat, of course, cannot change the classification of Members. But the lack of a rational standard for determining appropriateness of receiving special and differential treatment undermines the functioning of the WTO and permits countries who have succeeded at rapid economic development from assuming full obligations of WTO membership. The problem also results in statistical reports that are largely meaningless.

In a consensus based system like the WTO, the road to rationality will be long at best with many WTO Members who should have accepted full obligations by now continuing to hide behind the self-selection process to claim lesser obligations.

The APEC 2021 Ministerial Meeting Joint Statement — portion relevant to WTO 12th Ministerial Meeting

The APEC 2021 Ministerial meeting was held remotely on November 8-9 and resulted in a joint statement which included ambitions of APECs 21 members for the upcoming 12th WTO Ministerial Conference which starts in Geneva at the end of November (November 30-December 3). New Zealand has chaired APEC in 2021. Because the APEC countries include members accounting for 38% of the world’s population, 62% of the world’s GDP and 48% of global trade in 2020 and includes both the United States and China among the 21 territories, what APEC members support for the upcoming WTO ministerial may offer a glimpse of what may be possible in Geneva in the coming weeks. The APEC Ministerial Meeting Joint Statement and a publication on APEC in Numbers can be found here. See 2021 APEC Ministerial Meeting Joint Statement, Wellington, New Zealand, 09 November 2021, https://www.apec.org/meeting-papers/annual-ministerial-meetings/2021/2021-apec-ministerial-meeting; APEC in Charts 2021, https://www.apec.org/docs/default-source/publications/2021/11/apec-in-charts-2021/221_psu_apec-in-charts-2021.pdf?sfvrsn=50537c36_2. APEC members include Australia, Brunei Darussalam, Canada, China, Hong Kong (China), Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russian Federation, Singapore, Chinese Taipei, Thailand, United States, and Viet Nam.

While the Declaration contains coverage of a number of issues, it has a separate section on the World Trade Organization (pages 4-5, paras. 17-22). The six paragraphs from the Joint Statement are copied below.

“World Trade Organization

“17. APEC takes pride in its long history of active support for the rules-based multilateral trading system (MTS), with the WTO at its core. The MTS has been a catalyst for our region’s extraordinary growth and we will work together to improve it. We seek a responsive, relevant, and revitalised WTO. We must support the WTO and its membership to modernise trade rules for the twenty-first century. Together, we will engage constructively and cooperate to ensure the 12th WTO Ministerial Conference (MC12) is a success and delivers concrete results.

“18. As a priority for MC12, we see an opportunity for the WTO to demonstrate that the MTS can continue to help address the human catastrophe of the COVID-19 pandemic and facilitate recovery. We call for pragmatic and effective ministerial outcomes that makes it easier to respond swiftly and effectively to the COVID-19 pandemic and accelerate the recovery. Our priorities include supporting the facilitation of manufacturing, distribution, and supply chains of essential medical goods, including vaccines. We will work proactively and urgently in Geneva to support text-based discussions, including on a temporary waiver of certain intellectual property protections on COVID-19 vaccines.

“19. We reiterate our determination to negotiate effective disciplines on harmful fisheries subsidies in line with SDG 14.6, and call for agreement to a comprehensive and meaningful outcome by MC12 in a few weeks’ time.

“20. Despite its importance for ensuring global food security and sustainable economic development, agriculture is one of the most protected sectors in global trade. We recognise the need for a meaningful outcome on agriculture at MC12, reflecting our collective interests and sensitivities, with a view towards achieving substantial progressive reductions in support and protection, as envisaged in the continuation of the reform process provided in Article 20 of the WTO Agreement on Agriculture and existing mandates.

“21. We recognise the positive role that existing plurilateral negotiations and discussions are playing in progressing outcomes. APEC member participants in the relevant Joint Statement Initiatives (JSIs) call for conclusion of negotiations on services domestic regulation by MC12; and substantial progress by MC12 in the JSIs on e-commerce; micro, small and medium-sized enterprises; and investment facilitation for development. We take note of the efforts by the APEC economies who endorsed the Joint Declaration on Trade and Women’s Economic Empowerment to deliver an ambitious outcome at MC12 that supports the advancement of trade and gender equality.

“22, We continued our frank and constructive discussions regarding improvement to the WTO’s monitoring, negotiating and dispute settlement functions. We continue to support the ongoing and necessary reform work to improve the WTO’s functioning, including the importance of making progress on enhancing transparency to support its monitoring and negotiating functions. We will work together at the WTO and with the wider WTO membership to advance the proper functioning of the WTO’s negotiation and dispute settlement functions, which require addressing longstanding issues. We urge WTO members to seek a shared understanding of the types of reform needed.”

The Joint Statement has some specific items where outcomes are pursued — conclusion of the fisheries subsidies negotiations, some outcomes in the Joint Statement Initiatives (services domestic regulation should be completed; micro, small and medium-sized enterprises is completed; progress on others). As reviewed in yesterday’s post, WTO Members still have a challenging road to achieve a completed fisheries subsidies agreement at the 12th Ministerial. See November 9, 2021:  WTO Fisheries Subsidies Negotiations — a second revised text from November 8 holds out hope for a deal by MC12; how realistic is the hope?, https://currentthoughtsontrade.com/2021/11/09/wto-fisheries-subsidies-negotiations-a-second-revised-text-from-november-8-holds-out-hope-for-a-deal-by-mc12-how-realistic-is-the-hope/. Moreover, India, South Africa and others are raising objections to having any plurilaterals being negotiated included in the WTO which will complicate what comes out of the 12th Ministerial Conference (as opposed to encouraging Members to pursue plurilaterals outside of the WTO). See February 20, 2021:  Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/; September 18, 2021: The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance, https://currentthoughtsontrade.com/2021/09/18/the-wtos-12th-ministerial-conference-in-late-november-early-december-2021-the-struggle-for-relevance/.

The Joint Statement also seeks “pragmatic and effective” outcomes in the health and trade space to address responding to the COVID pandemic. Specifics are lacking although there is support to expanding production and access to vaccines and other medical goods. While supporting text based negotiations in the area, including on a possible temporary waiver of some TRIPS provisions on COVID vaccines, the lack of greater specificity reflects differences in positions of APEC members.

Similarly, while supporting WTO reform in all three areas of WTO activity (monitoring, negotiating and dispute settlement), APEC members have significantly different views on what is needed in these areas. Hence only general language is included in the Joint Statement.

In a prior post, I have opined that recent actions by the U.S. and EU to find ways around the civil aircaraft and steel and aluminum frictions suggests that the U.S. may agree to the start of a process to review the dispute settlement system issues raised by it as part of the 12th Ministerial (a high EU priority) and that the U.S. and EU could coalesce around an outcome acceptable to both in the TRIPS waiver dispute. See November 2, 2021:  What does the U.S.-EU Agreement on steel and aluminum imply for the upcoming 12th WTO Ministerial Conference?, https://currentthoughtsontrade.com/2021/11/02/what-does-the-u-s-eu-agreement-on-steel-and-aluminum-imply-for-the-upcoming-12th-wto-ministerial-conference/.

China has opposed greater transparency obligations and has tied reform of industrial subsidies to looking at agricultural subsidies as well. A recent post of mine reviews the need for better information on subsidies. See October 30, 2021:  WTO reform — distortions to market access and the need for better information, https://currentthoughtsontrade.com/2021/10/30/wto-reform-distortions-to-market-access-and-the-need-for-better-information/. Despite differences of view on some issues among major Members, it is not out of the question that a reform program will cover an examination of all three functions going forward.

On agriculture, there is a shared view for a need for results at the WTO 12th Ministerial and reflects on the fact that Article 20 of the WTO Agreement on Agriculture calls for periodic rounds of liberalization. However, the language of the Joint Statement doesn’t specify the areas where agreement is possible by the 12th Ministerial, reflecting different views among APEC members.

Nothing in the APEC Joint Statement addressed what, if anything should be agreed at the 12th WTO Ministerial on the climate crisis and what role trade can play in addressing the crisis. This omission is unfortunate but likely reflects large differences in views within APEC members on the topic. As I reviewed in a recent post, much more is needed but unlikely to come from the WTO and its members. See November 4, 2021:  The WTO and the environment — will the 2020s be different in terms of trade policies that are environmentally supportive?, https://currentthoughtsontrade.com/2021/11/04/the-wto-and-the-environment-will-the-2020s-be-different-in-terms-of-trade-policies-that-are-environmentally-supportive/.

Conclusion

The APEC 2021 Ministerial Meeting Joint Statement, being released three weeks before the start of the WTO’s 12th Ministerial Conference is a positive statement of support for the multilateral trading system. Coming from a group of WTO Members accounting for nearly 50% of global trade, it is a useful guide for topics these countries and territories will be pursuing in Geneva. Other group statements have been released as well as individual country or group objectives. But even within the APEC group of countries, large differences exist on outcomes of interest. With the exception of a possible conclusion to the fisheries subsidies negotiations and conclusions on several Joint Statement Initiatives, there may be only limited positive outcomes. There may be some limited agreement on the broad topic of health and trade and some agreement on topics for future negotiation. There may also be at least some provisions in a declaration dealing with the climate crisis and the important role trade can play in addressing the crisis.

Such a limited set of outcomes will likely be viewed as a success for an organization hamstrung by Members with no common vision for the role of the organization, with large differences in development levels, a cumbersome governance system and growing divergence on whether the organization can support global trade where market rules are not the required framework. More is needed for a truly relevant WTO and for a sustainable global trading system. The world is unlikely to achieve meaningful reform at the WTO in the coming decade. Progress, if any, will likely be slow and piecemeal.

WTO reduces transparency of Trade Policy Reviews — what is the possible justification?

Through September 2021, when a country went through a Trade Policy Review, a large amount of material was made available to the public at the time of the TPR meeting with additional information (minutes, questions and answers, corrections to Secretariat report and/or government report) released a number of months later. The WTO press releases at the time of the TPR meeting were similar. The one for Singapore from 22 and 24 September 2021 is typical.

As can be seen from the press release, the public could access the full report of the Secretariat, the full report of the Government of Singapore, the concluding comments of the Chairperson as well as an Executive Summary of the Secretariat report at the time of the two day meeting to review the reports. Moreover, minutes from the meeting were available to the public typically about six weeks after the meeting as were the written questions and written answers.

Beginning in October, the press release has been modified and far less information is made available immediately to the public. There have been two TPRs so far in October, the Republic of Korea (13 and 15 October) and China (20 and 22 October). A TPR of the Russian Federation is scheduled for next week.

The WTO press release for the Republic of Korea is copied below. The current one for China is similar.

All that is made available to the public at the time of the meeting is a short executive summary of the Secretariat report and the concluding remarks of the Chairperson. No reference is made to how to access the full report of the Secretariat or the Government (here Republic of Korea), nor is there an indication as to when minutes or written questions and written answers will be available.

There is nothing on the WTO webpage which describes why so little information is being provided beginning this month on new Trade Policy Reviews. For the public, the drastic reduction in transparency makes the WTO operations even less understandable.

If the WTO will be releasing all of the documents it has historically but with significant time delays on all documents, what is the justification? For 25 years, TPRs have been conducted with the type of information released that gave the public a good understanding of the Secretariat’s and the government’s review of its trade policy. That understanding has been timely, consistent with the meeting and supplemented within several months with minutes and the written questions and answers.

If the WTO is not intending on releasing all of the documents it has historically released, what is the possible justification?

China, which is going through a Trade Policy Review this week, also went through a TPR in 2018. In 2018, the Secretariat Report released to the public at the time of the TPR meeting was 193 pages (along with a summary of 6 pages). See WT/TPR/S/375. China’s Report on its trade policy was 23 pages. See WT/TPR/G/375. These documents are dated 6 June 2018. A revision to the Secretariat Report is dated 14 September 2018 and was also 193 pages ( WT/TPR/S/375/Rev.1). The Concluding remarks by the Chairperson are contained in a separate press release from the WTO at the time of the TPR meeting but linked from the main notice of the TPR. See WTO news, Trade Policy Review: China, 11 and 13 July 2018, https://www.wto.org/english/tratop_e/tpr_e/tp475_e.htm linking to the concluding remarks of the Chairperson at https://www.wto.org/english/tratop_e/tpr_e/tp475_crc_e.htm. The minutes of the meeting are contained in WT/TPR/M/375, 21 November 20218 and are 98 pages in length with statements from 66 Members (two on behalf of larger groups). The written questions and answers are contained in WT/TPR/M/375/Add.1, dated 1 February 2019 and being 729 pages in length. The WTO Members who submitted questions (including follow-up questions) are shown on pages 2-3 of the document.

Because the current TPR on China (20 and 22 October) does not provide either of the full reports (Secretariat and Government) and because there is no indication of when minutes or written questions and answers will be available, there is certainly delayed access and potentially denial of access of the same type of information on China (or any other country) that was been released in the past. This should be viewed as unacceptable by the WTO Secretariat and WTO Members and certainly should be so viewed by the public.

Conclusion

What is available to the public from a Trade Policy Review is critical for an understanding of concerns raised by WTO Members about any other Member’s trade policy as well as the level and openness of the response from the Member being reviewed. The Secretariat’s report is an important factual analysis of developments in the Member being reviewed. The recent curtailment of access to the full Secretariat Report and the full Government Report greatly harms transparency and the ability of the public to understand developments within WTO Members in a timely manner. Should the WTO cease to release any of the information heretofore available to the public in current and future TPRs, the WTO will be further damaging the public’s perception of the WTO and will be further retreating from openness and transparency towards the public..

COVID-19 Vaccines — Bolivia seeks a compulsory license to produce a vaccine in a third country

Back in February of this year, Bolivia provided notice that it intended to use the special compulsory licensing system as an importing Member under the Amended TRIPS Agreement. See NOTIFICATION UNDER THE AMENDED TRIPS AGREEMENT, NOTIFICATION OF INTENTION TO USE THE SPECIAL COMPULSORY LICENSING SYSTEM
AS AN IMPORTING MEMBER, IP/N/8/BOL/1, 19 February 2021.

On the 10th of May 2021, Bolivia filed a notice with the WTO seeking access to a COVID-19 vaccine through a compulsory license for production in a third country. The notice was posted on the WTO website on November 11 (IP/N/9/BOL/1) and the subject of a WTO news release on the 12th of May. See WTO, Bolivia outlines vaccine import needs in use of WTO flexibilities to tackle pandemic, 12 May 2021, https://www.wto.org/english/news_e/news21_e/dgno_10may21_e.htm. Bolivia’s two notifications are embedded below.

8BOL1

9BOL1

A translation from Google Translate (with a few tweaks) of the May 10 notice is provided below.

NOTIFICATION UNDER THE AMENDED TRIPS AGREEMENT

NOTIFICATION OF THE NEED TO IMPORT PHARMACEUTICAL PRODUCTS UNDER THE SPECIAL COMPULSORY LICENSING SYSTEM

Member(s) who present the notification

Plurinational State of Bolivia

Necessary product(s)

An estimated 15 million doses of COVID-19 vaccines. In particular, it is intended to import the vaccine Ad26.COV2.S, a replication adenovirus type 26 (AD26) vectorized vaccine incompetent that encodes a stabilized variant of protein S of the SARS-Cov-2. The Plurinational State of Bolivia reserves the right to import other vaccines.

Demonstration that the capabilities of manufacturing in the pharmaceutical sector are insufficient or nonexistant

[X] At the moment the Member does not have manufacturing capacity in the pharmaceutical sector.

[ ] The Member has found that its capacity in the pharmaceutical sector to meet the needs regarding the pharmaceutical product needed.

Information about how it has proved the lack of manufacturing capacities (enough) in the pharmaceutical sector

The Plurinational State of Bolivia has verified that it does not have the capacity to manufacture in the pharmaceutical sector vaccines against COVID-19 including the vaccine Ad26.COV2.S.

Is (are) the product(s) necessary (s) protected (s) by patent in the territory?

[ ] No.

[ ] Yes.

[X] To be determined. Insofar as they have been requested or granted patents for the necessary products, the Plurinational State of Bolivia intends to grant compulsory licenses, in accordance with Articles 31 and 31bis of the TRIPS Agreement.

Date of presentation of the notification

10 May 2021

The WTO news release is copied below.

“The government of Bolivia has formally notified the WTO of the country’s need to import COVID-19 vaccines, taking another step towards using flexibilities in WTO intellectual property rules as part of its pandemic response.

“Bolivia notified the WTO it needed to import 15 million doses of a vaccine under the legal system introduced in a
2017 amendment (https://www.wto.org/english/news_e/news17_e/trip_23jan17_e.htm) to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). That amendment, which created Article 31bis of the TRIPS Agreement, provides an additional legal pathway for import-reliant countries to access affordable medicines, vaccines and other pharmaceutical products.

“Bolivia’s submission follows through on its February notification signalling that it intended to exercise the flexibilities under the amendment.

“Bolivia’s notification opens up the possibility of importing the needed vaccines from any one of around 50 WTO members (https://www.wto.org/english/tratop_e/trips_e/par6laws_e.htm) that have put in place domestic laws providing for the production and export of medicines made under compulsory licence through this system.

“’This is an example of a WTO member seeking to make use of available tools under the TRIPS Agreement to respond to the COVID-19 pandemic, even as members seek to expand the range of options through the TRIPS waiver proposal,’ said Antony Taubman, Director of the WTO’s Intellectual Property Division. ‘This step provides one practical component of what could be a wider process of countries signalling urgent and unmet needs and encouraging a combined, coordinated response by international partners.’

“The WTO Secretariat has been encouraged by members in the TRIPS Council to provide any necessary technical assistance to facilitate use of the system to import pharmaceutical products manufactured under compulsory licence.”

The intersection of intellectual property rights and public health has been a topic of great interest and intense feelings at the WTO since its inception and resulted in an amendment to the TRIPS Agreement to address the needs of developing and least developed countries without pharmaceutical manufacturing capacity for certain products during emergencies. As the WTO news release notes, through a long process starting in 2001 and ending with the adoption of Article 31bis to the TRIPS Agreement in 2017, special provisions were added that would permit importing developing or least developed countries to have pharmaceutical products produced under compulsory license in countries adopting procedures to comply with the modified agreement. Today the following countries are on the list of WTO Members willing to produce pharmaceutical products under compulsory license for importing countries where conditions are met:

Albania; Australia; Botswana; Canada; China; Croatia; Cuba; European Union; Hong Kong, China; India; Jordan; Kazakhstan; New Zealand; Norway; Oman; Philippines; Republic of Korea; Singapore; Switzerland; Chinese Taipei; Japan. See Intellectual Property: TRIPS and Health, Members’ laws implementing the ‘Paragraph 6’ system, https://www.wto.org/english/tratop_e/trips_e/par6laws_e.htm.

The Amended TRIPS Agreement at Article 31bis and the Annex and Appendix which lay out requirements for utilization of the compulsory license provisions for importers are copied below. Like other compulsory licensing provisions, compensation to the patent holder is required by the exporter.

Article 31bis

1. The obligations of an exporting Member under Article 31(f) shall not apply with respect to the grant by it of a compulsory licence to the extent necessary for the purposes of production of a pharmaceutical product(s) and its export to an eligible importing Member(s) in accordance with the terms set out in paragraph 2 of the Annex to this Agreement.

2. Where a compulsory licence is granted by an exporting Member under the system set out in this Article and the Annex to this Agreement, adequate remuneration pursuant to Article 31(h) shall be paid in that Member taking into account the economic value to the importing Member of the use that has been authorized in the exporting Member. Where a compulsory licence is granted for the same products in the eligible importing Member, the obligation of that Member under Article 31(h) shall not apply in respect of those products for which remuneration in accordance with the first sentence of this paragraph is paid in the exporting Member.

3. With a view to harnessing economies of scale for the purposes of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products: where a developing or least developed country WTO Member is a party to a regional trade agreement within the meaning of Article XXIV of the GATT 1994 and the Decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (L/4903), at least half of the current membership of which is made up of countries presently on the United Nations list of least developed countries, the obligation of that Member under Article 31(f) shall not apply to the extent necessary to enable a pharmaceutical product produced or imported under a compulsory licence in that Member to be exported to the markets of those other developing or least developed country parties to the regional trade agreement that share the health problem in question. It is understood that this will not prejudice the territorial nature of the patent rights in question.

4. Members shall not challenge any measures taken in conformity with the provisions of this Article and the Annex to this Agreement under subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994.

5. This Article and the Annex to this Agreement are without prejudice to the rights, obligations and flexibilities that Members have under the provisions of this Agreement other than paragraphs (f) and (h) of Article 31, including those reaffirmed by the Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2), and to their interpretation. They are also without prejudice to the extent to which pharmaceutical products produced under a compulsory licence can be exported under the provisions of Article 31(f).

ANNEX TO THE TRIPS AGREEMENT 

1. For the purposes of Article 31bis and this Annex:

(a) “pharmaceutical product” means any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems as recognized in paragraph 1 of the Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2). It is understood that active ingredients necessary for its manufacture and diagnostic kits needed for its use would be included(1);
  

(b) “eligible importing Member” means any least-developed country Member, and any other Member that has made a notification(2) to the Council for TRIPS of its intention to use the system set out in Article 31bis and this Annex (“system”) as an importer, it being understood that a Member may notify at any time that it will use the system in whole or in a limited way, for example only in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. It is noted that some Members will not use the system as importing Members(3) and that some other Members have stated that, if they use the system, it would be in no more than situations of national emergency or other circumstances of extreme urgency;
  

(c) “exporting Member” means a Member using the system to produce pharmaceutical products for, and export them to, an eligible importing Member.

2. The terms referred to in paragraph 1 of Article 31bis are that:

(a) the eligible importing Member(s)(4) has made a notification(2)to the Council for TRIPS, that:
  

(i) specifies the names and expected quantities of the product(s) needed(5);
  

(ii) confirms that the eligible importing Member in question, other than a least developed country Member, has established that it has insufficient or no manufacturing capacities in the pharmaceutical sector for the product(s) in question in one of the ways set out in the Appendix to this Annex; and
  

(iii) confirms that, where a pharmaceutical product is patented in its territory, it has granted or intends to grant a compulsory licence in accordance with Articles 31 and 31bis of this Agreement and the provisions of this Annex(6);
  

(b) the compulsory licence issued by the exporting Member under the system shall contain the following conditions:
  

(i) only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS;
  

(ii) products produced under the licence shall be clearly identified as being produced under the system through specific labelling or marking. Suppliers should distinguish such products through special packaging and/or special colouring/shaping of the products themselves, provided that such distinction is feasible and does not have a significant impact on price; and
  

(iii) before shipment begins, the licensee shall post on a website(7) the following information:
  

— the quantities being supplied to each destination as referred to in indent (i) above; and
  

— the distinguishing features of the product(s) referred to in indent (ii) above;
  

(c) the exporting Member shall notify(8) the Council for TRIPS of the grant of the licence, including the conditions attached to it.(9) The information provided shall include the name and address of the licensee, the product(s) for which the licence has been granted, the quantity(ies) for which it has been granted, the country(ies) to which the product(s) is (are) to be supplied and the duration of the licence. The notification shall also indicate the address of the website referred to in subparagraph (b)(iii) above.

3. In order to ensure that the products imported under the system are used for the public health purposes underlying their importation, eligible importing Members shall take reasonable measures within their means, proportionate to their administrative capacities and to the risk of trade diversion to prevent re-exportation of the products that have actually been imported into their territories under the system. In the event that an eligible importing Member that is a developing country Member or a least-developed country Member experiences difficulty in implementing this provision, developed country Members shall provide, on request and on mutually agreed terms and conditions, technical and financial cooperation in order to facilitate its implementation.

4. Members shall ensure the availability of effective legal means to prevent the importation into, and sale in, their territories of products produced under the system and diverted to their markets inconsistently with its provisions, using the means already required to be available under this Agreement. If any Member considers that such measures are proving insufficient for this purpose, the matter may be reviewed in the Council for TRIPS at the request of that Member.

5. With a view to harnessing economies of scale for the purposes of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products, it is recognized that the development of systems providing for the grant of regional patents to be applicable in the Members described in paragraph 3 of Article 31bis should be promoted. To this end, developed country Members undertake to provide technical cooperation in accordance with Article 67 of this Agreement, including in conjunction with other relevant intergovernmental organizations.

6. Members recognize the desirability of promoting the transfer of technology and capacity building in the pharmaceutical sector in order to overcome the problem faced by Members with insufficient or no manufacturing capacities in the pharmaceutical sector. To this end, eligible importing Members and exporting Members are encouraged to use the system in a way which would promote this objective. Members undertake to cooperate in paying special attention to the transfer of technology and capacity building in the pharmaceutical sector in the work to be undertaken pursuant to Article 66.2 of this Agreement, paragraph 7 of the Declaration on the TRIPS Agreement and Public Health and any other relevant work of the Council for TRIPS.

7. The Council for TRIPS shall review annually the functioning of the system with a view to ensuring its effective operation and shall annually report on its operation to the General Council.

APPENDIX TO THE ANNEX TO THE TRIPS AGREEMENT 

Assessment of Manufacturing Capacities in the Pharmaceutical Sector

Least-developed country Members are deemed to have insufficient or no manufacturing capacities in the pharmaceutical sector.

For other eligible importing Members insufficient or no manufacturing capacities for the product(s) in question may be established in either of the following ways:

(i) the Member in question has established that it has no manufacturing capacity in the pharmaceutical sector;
  

or
  

(ii) where the Member has some manufacturing capacity in this sector, it has examined this capacity and found that, excluding any capacity owned or controlled by the patent owner, it is currently insufficient for the purposes of meeting its needs. When it is established that such capacity has become sufficient to meet the Member’s needs, the system shall no longer apply.


Notes:

  1.  This subparagraph is without prejudice to subparagraph 1(b). 
  2.  It is understood that this notification does not need to be approved by a WTO body in order to use the system.  
  3.  Australia, Canada, the European Communities with, for the purposes of Article 31bis and this Annex, its member States, Iceland, Japan, New Zealand, Norway, Switzerland, and the United States.   
  4.  Joint notifications providing the information required under this subparagraph may be made by the regional organizations referred to in paragraph 3 of Article 31bis on behalf of eligible importing Members using the system that are parties to them, with the agreement of those parties.   
  5.  The notification will be made available publicly by the WTO Secretariat through a page on the WTO website dedicated to the system.   
  6.  This subparagraph is without prejudice to Article 66.1 of this Agreement.   
  7.  The licensee may use for this purpose its own website or, with the assistance of the WTO Secretariat, the page on the WTO website dedicated to the system.  
  8.  It is understood that this notification does not need to be approved by a WTO body in order to use the system.   
  9.  The notification will be made available publicly by the WTO Secretariat through a page on the WTO website dedicated to the system.   

Comments

The COVID-19 vaccine challenge is an interesting one. The WHO, Gavi, CEPI and UNICEF have come together to have a process for both supporting development, procuring and distributing vaccines around the world including to 92 low- and middle-income countries at little or no cost. The COVAX facility is an effort supported by many governments and private sector supporters to improve the equitable access to vaccines. Thus, it is an effort to reduce the need for individual low- and middle-income countries to have to secure supplies on their own. As reviewed in prior posts, while COVAX has been shipping millions of doses to countries (as of May 12, 2021 over 59 million doses to 122 countries), it is far behind its anticipated shipments because of the current challenges in India with the cessation of exports from India in the last several months March to address internal needs. (reduction of some 90 million doses likely)

Bolivia is a recipient of vaccines from COVAX. See Gavi, COVAX vaccine roll-out BOLIVIA, https://www.gavi.org/covax-vaccine-roll-out/bolivia (information from the webpage on 14 May 2021 reports that “First doses received: 22 March 2021Doses received: 228,000 SII-AstraZeneca (COVISHIELD) vaccine*; Doses allocated: 72,000 SII-AstraZeneca (COVISHIELD) vaccine; 92,430 Pfizer-BioNTech (BNT162b2) vaccine.”).

While many countries have arranged for vaccine shipments outside of the COVAX facility process from one or more of the global producers, including some not yet approved by the WHO, and while production levels for many producers have been ramping up month to month and there are a number of additional companies likely to pursue authorization for vaccines in the coming months, access to vaccines is limited for many countries in the first and second quarters of 2021. See Bloomberg, More than 1.38 Billion Shots Given: Covid-19 Tracker, updated May 13, 2021 (6:18 p.m.), https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/. There are four countries or areas with more than 100 million vaccination shots — China (354.3 million), United States (266.6 million), European Union (186.6 million) and India (179.2 million). There are seventeen countries with between 10 million and 56.4 million vaccination shots, 52 countries with more than 1 million and less than 10 million vaccination shots. There are 101 countries that have fewer than one million vaccination shots. Bolivia has administered 972,846 shots, enough for 4.2% of its population.

At the WTO, India and South Africa, now supported by a large number of other countries, have pursued a waiver from most TRIPS Agreement obligations for medical goods needed to address the COVID-19 pandemic largely on the basis that TRIPS Agreement flexibilities don’t work and the pandemic presents special urgency. Developed pharmaceutical producing countries have opposed a waiver as both unlikely to solve the need for more volume of vaccines and as unnecessary in light of TRIPS flexibilities. Last week the United States indicated it would support a waiver and agreed to engage in textual negotiations, though the position taken by the U.S. has not been supported by the European Union and possibly others.

So the Bolivian notification provides a real time opportunity to see if the flexibilities included in the Amended TRIPS Agreement can be used successfully to permit developing and least developed countries to access needed vaccines in a timely fashion. Coupled with expanded capacity and production and possibly additional licensing arrangements and additional approvals of new vaccines, a successful use of Art. 31bis of the Amended TRIPS Agreement may provide sufficient flexibility to address equity concerns at the WTO.

An update on COVID-19 data

Before closing, it is useful to review updated data from the European Centre for Disease Prevention and Control in yesterday’s COVID-19 situation update worldwide, as of week 18, updated 12 May 2021, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases and the data on weekly cases and deaths. The world in week 18 of 2021 saw the number of new recorded infections come down from the peak of the prior week as seen in the ECDC weekly update (chart copied below).

Distribution of COVID-19 cases worldwide, as of week 18 2021

Distribution of COVID-19 cases worldwide, as of week 18 2021
“Distribution of cases of COVID-19 by continent (according to the applied case definition and testing strategies in the affected countries)

“Cases reported in accordance with the applied case definition and testing strategies in the affected countries.

This is true in total and also for India. For the last two weeks, India recorded 5,544,535 new cases — the first time a country has surpassed five million cases in a two week period, although week 18 was slightly lower than week 17 in terms of new cases recorded in India. See ECDC, Data on 14-day notification rate of new COVID-19 cases and deaths, 13 May 2021, https://www.ecdc.europa.eu/en/publications-data/data-national-14-day-notification-rate-covid-19. India accounted for 49.38% of global cases over the last two weeks — the highest percent for a single country during the pandemic — and remains in a state of health care crisis as previously reported, although support from trading partners and lockdowns in a number of the Indian states appear to be reducing the number of cases and helping to some extent address health care needs.

Because of the size of India’s population and despite the recent surge of cases, India’s number of cases and deaths per 100,000 population are lower than many other countries. India has reported infections for 1.64% of its population or 1,642.21 people/100,000 population during the pandemic with 198.33 people/100,000 in the last week. Brazil has reported infections for 7.16% of its population or 7,155.64 people/100,000 population during the pandemic and 202.51 people/100,000 population in the last week. Bolivia has recorded infections in 2.73% of its population or 2,779.45 people/100,000 population and 103.51 people/100,000 population in the last week. The United States has recorded infections for 9.88% of its population or 9,881.43 people/100,000 population during the pandemic with 86.43 people/100,000 population in the last week. And there are many other countries with higher COVID-19 cases than India according to the ECDC data. Similar comparisons can be made on deaths where India has suffered recorded COVID deaths equal to 0.02% of its population during the pandemic compared to 0.20% for Brazil, 0.11% for Bolivia and 0.18% for the United States. Even in the last week, deaths in Brazil per 100,000 were more than three times what was recorded in India (6.87 people vs. 1.968 people). Bolivia was comparable to India during the last week (1.876) while the U.S. death count is declining (1.42 people during the last week per 100,000 population).

All of the above to say, the world’s attention on India is understandable because of the severe challenges the Indian government is facing and the size of its population. However, there are a number of countries experiencing comparable or even greater surges than India. Brazil is one example, but there are others in South America and some in Asia facing alarming increases or levels of infections. Equitable access needs to be tempered by flexibility to address current fires if the global effort is to be successful and reduce global infections and deaths.

Biden Administration continues treatment of Hong Kong as no longer autonomous from China, inter alia, for purposes of marking of products

The U.S. Department of State released on March 31, 2021 the 2021 Hong Kong Policy Act Report. See U.S. Department of State, Hong Kong Policy Act Report, Press Statement, March 31, 2021, https://www.state.gov/hong-kong-policy-act-report/; U.S. Department of State, 2021 Hong Kong Policy Act Report, REPORT, Bureau of East Asian and Pacific Affairs, March 31 2021, https://www.state.gov/2021-hong-kong-policy-act-report/.

The Press statement is copied below (emphasis added).

“Over the past year, the People’s Republic of China (PRC) has continued to dismantle Hong Kong’s high degree of autonomy, in violation of its obligations under the Sino-British Joint Declaration and Hong Kong’s Basic Law.  In particular, the PRC government’s adoption and the Hong Kong government’s implementation of the National Security Law (NSL) have severely undermined the rights and freedoms of people in Hong Kong.

“Each year, the Department of State submits to Congress the Hong Kong Policy Act Report and accompanying certification.  In conjunction with this year’s report, I have certified to Congress that Hong Kong does not warrant differential treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.

“This report documents many of the actions the PRC and Hong Kong governments have taken against Hong Kong’s promised high degree of autonomy, freedoms, and democratic institutions.  These include the arbitrary arrests and politically-motivated prosecutions of opposition politicians, activists, and peaceful protesters under the NSL and other legislation; the postponement of Legislative Council elections; pressure on judicial independence and academic and press freedoms; and a de facto ban on public demonstrations.

“I am committed to continuing to work with Congress and our allies and partners around the world to stand with people in Hong Kong against the PRC’s egregious policies and actions.  As demonstrated by the March 16 Hong Kong Autonomy Act update, which listed 24 PRC and Hong Kong officials whose actions reduced Hong Kong’s autonomy, we will impose consequences for these actions.  We will continue to call on the PRC to abide by its international obligations and commitments; to cease its dismantlement of Hong Kong’s democratic institutions, autonomy, and rule of law; to release immediately and drop all charges against individuals unjustly detained in Hong Kong; and to respect the human rights of all individuals in Hong Kong.”

The Report covers a range of issues including discussion of:

  • national security law,
  • impact on rule of law,
  • arrests, bail, and investigations proceedings,
  • impact on democratic institutions,
  • progress towards universal suffrage and impact on the legislature,
  • impact on the judiciary,
  • Impact on Freedom of Assembly,
  • Impact on Freedoms of Speech and Association,
  • Impact on Freedom of the Press,
  • Disinformation/Malign Political Influence Activities,
  • Impact on Internet Freedoms,
  • Impact on Freedom of Movement,
  • Impact on Freedom of Religion or Belief,
  • Impact on U.S. Citizens,
  • Impact on Academics and Exchanges,
  • Areas of Remaining Autonomy,
  • U.S.-Hong Kong Cooperation and Agreements,
  • Export Controls,
  • Sanctions Implementation,
  • U.S. Sanctions
  • Hong Kong Policy Act Findings

The summary of the report is copied below.

“Consistent with sections 205 and 301 of the United States-Hong Kong Policy Act of 1992 (the “Act”) (22 U.S.C. 5725 and 5731) and section 7043(f)(3)(C) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2021 (Div. K, P.L. 116-260), the Department submits this report and the enclosed certification on conditions in Hong Kong from June 2020 through February 2021 (“covered period”).

“Summary

“The Department of State assesses during the covered period, the central government of the People’s Republic of China (PRC) took new actions directly threatening U.S. interests in Hong Kong and inconsistent with the Basic Law and the PRC’s obligation pursuant to the Sino-British Joint Declaration of 1984 to allow Hong Kong to enjoy a high degree of autonomy. In the Certification of Hong Kong’s Treatment under United States Laws, the Secretary of State certified Hong Kong does not warrant treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.

“By unilaterally imposing on Hong Kong the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (NSL), the PRC dramatically undermined rights and freedoms in Hong Kong, including freedoms protected under the Basic Law and the Sino-British Joint Declaration. Since the imposition of the NSL in June 2020, Hong Kong police arrested at least 99 opposition politicians, activists, and protesters on NSL-related charges including secession, subversion, terrorism, and collusion with a foreign country or external elements. These include 55 people arrested in January for organizing or running in pan-democratic primary elections in July 2020, 47 of whom were formally charged with subversion on February 28. Additionally, the Hong Kong government used COVID-19-related public health restrictions to deny authorizations for public demonstrations and postponed Hong Kong’s Legislative Council (LegCo) elections for at least one year.”

Ongoing WTO dispute filed by Hong Kong

Hong Kong has filed a request for consultations and a request for a panel at the WTO to contest actions during the Trump Administration which resulted in a requirement that goods from Hong Kong exported to the United States be labeled as manufactured in China because of prior actions by China that limited Hong Kong autonomy. A panel has been established but not yet composed. See WTO, DS597: United States — Origin Marking Requirement, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds597_e.htm. I have reviewed the dispute in prior posts. See February 23, 2021, WTO Dispute Settlement Body meeting of February 22, 2021 — panels authorized in two matters; impasse on the Appellate Body remains, https://currentthoughtsontrade.com/2021/02/23/wto-dispute-settlement-body-meeting-of-february-22-2021-panels-authorized-in-two-matters-impasse-on-appellate-body-remains/; January 16, 2020, Request for the establishment of a WTO panel by Hong Kong, China contesting the U.S. origin marking requirement, https://currentthoughtsontrade.com/2021/01/16/request-for-the-establishment-of-a-wto-panel-by-hong-kong-china-contesting-the-u-s-origin-marking-requirement/.

What is clear from yesterday’s Hong Kong Policy Act Report is that the concerns in the United States on the actions by China to restrict Hong Kong’s autonomy have not gone away with the Biden Administration but have increased with the escalating actions by the Chinese government. While Hong Kong will pursue its challenge, one shouldn’t expect a change in U.S. position nor should one expect a resolution in the WTO in the next several years.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

World Trade Organization involvement in addressing the problem

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

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

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

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

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

Conclusion

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

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


Request for the establishment of a WTO panel by Hong Kong, China contesting the U.S. origin marking requirement

In a post on January 14, I noted that the first actions in the WTO dispute settlement system included Costa Rica’s request for consultations with Panama on various import restraints on agricultural products and the EU’s request for the establishment of a panel to examine its concerns with Indonesia’s export restraints on various raw materials used in stainless steel production. See January 14, 2021, First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel, https://currentthoughtsontrade.com/2021/01/14/first-dispute-settlement-cases-of-2021-at-the-wto-costa-rica-requests-consultations-with-panama-for-various-restrictions-on-agricultural-products-viewed-as-violating-sps-obligations-and-more-eu-re/.

A third action has occurred, a request from Hong Kong, China, for the establishment of a panel contesting the United States origin marking requirements. The request was also filed on January 14 and was posted on the WTO website on January 15. See WT/DS567/5 (15 January 2021). The request for establishment of a panel is embedded below.

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The origin of the dispute is the actions of China in imposing national security legislation on Hong Kong that was viewed by the United States as rendering Hong Kong not sufficiently autonomous to justify it not being treated as part of China and posing national security concerns for the United States. The part of the request for establishment of a panel titled “Background” provides Hong Kong, China’s description of the developments leading to the dispute.

“On 11 August 2020, the United States Customs and Border Protection (USCBP) published a notice that, after 25 September 2020, goods produced in Hong Kong must be marked to indicate that their origin is ‘China’ for the purposes of the origin marking requirement set forth at Section 304 of the Tariff Act of 1930, 19 U.S.C. § 1304. By subsequent notice, the USCBP extended the date for compliance with this requirement to 10 November 2020.

“Section 304 of the Tariff Act of 1930 requires articles of non-United States origin imported into the United States to be marked ‘in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article’. Prior to the imposition of the revised origin marking requirement as announced in the notice published on 11 August 2020, the United States has required, and therefore permitted, goods produced in Hong Kong, China to be marked to indicate that their origin is ‘Hong Kong’. The United States’ prior treatment of goods of Hong Kong, China origin was consistent with the fact that the United States generally permits goods originating within the territory of other WTO Members, including separate customs territory Members, to be marked with the English name of that territory.

“The USCBP published the notice on 11 August 2020 pursuant to the ‘Executive Order on Hong Kong Normalization’ signed by the President of the United States Donald J. Trump on 14 July 2020. The Executive Order suspends the application of Section 201(a) of the United States-Hong Kong Policy Act of 1992, 22 U.S.C. § 5721(a), to a variety of United States statutes, including Section 304 of the Tariff Act of 1930.

“Under Section 201(a) of the United States-Hong Kong Policy Act of 1992, the laws of the United States apply to Hong Kong, China in the same manner as those laws applied to Hong Kong prior to the resumption of the exercise of sovereignty by the People’s Republic of China on 1 July 1997, unless the President of the United States determines and issues an Executive Order that Hong Kong, China ‘is not sufficiently autonomous to justify treatment under a particular law of the United States … different from that accorded the People’s Republic of China’. The suspension of Section 201(a) of the United States-Hong Kong Policy Act of 1992 as it applies to Section 304 of the Tariff Act of 1930 is the legal basis upon which the USCBP ordered that goods produced in Hong Kong ‘may no longer be marked to indicate ‘Hong Kong’ as their origin, but must be marked to indicate ‘China’.”

The Executive Order and U.S. Customs and Border Protection notices are embedded below.

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The Executive Order articulates the concerns of the U.S. Administration with the actions taken by China.

“In late May 2020, the National People’s Congress of China announced its intention to unilaterally and arbitrarily impose national security legislation on Hong Kong. This announcement was merely China’s latest salvo in a series of actions that have increasingly denied autonomy and freedoms that China promised to the people of Hong Kong under the 1984 Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the Question
of Hong Kong (Joint Declaration). As a result, on May 27, 2020, the Secretary of State announced that the PRC had fundamentally undermined Hong Kong’s autonomy and certified and reported to the Congress, pursuant
to sections 205 and 301 of the United States-Hong Kong Policy Act of 1992, as amended, respectively, that Hong Kong no longer warrants treatment under United States law in the same manner as United States laws were
applied to Hong Kong before July 1, 1997. On May 29, 2020, I directed the heads of executive departments and agencies (agencies) to begin the process of eliminating policy exemptions under United States law that give
Hong Kong differential treatment in relation to China.

“China has since followed through on its threat to impose national security legislation on Hong Kong. Under this law, the people of Hong Kong may face life in prison for what China considers to be acts of secession or
subversion of state power—which may include acts like last year’s widespread anti-government protests. The right to trial by jury may be suspended. Proceedings may be conducted in secret. China has given itself broad power to initiate and control the prosecutions of the people of Hong Kong through the new Office for Safeguarding National Security. At the same time, the law allows foreigners to be expelled if China merely suspects them of violating the law, potentially making it harder for journalists, human rights organizations, and other outside groups to hold the PRC accountable for its treatment of the people of Hong Kong.

“I therefore determine that the situation with respect to Hong Kong, including recent actions taken by the PRC to fundamentally undermine Hong Kong’s autonomy, constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States. I hereby declare a national emergency with respect to that threat.”

Certainly the actions of the Chinese government in organizing mass arrests in Hong Kong undermine the concept that Hong Kong is autonomous. See, e.g., Washington Post, ‘Total submission,’ With mass arrests, China neutralizes Hong Kong democracy movement, January 6, 2021, https://www.washingtonpost.com/world/asia_pacific/hong-kong-arrests-national-security-law/2021/01/06/c3ccc248-4fbe-11eb-a1f5-fdaf28cfca90_story.html; New York Times, With Mass Arrests, Beijing Exerts an Increasingly Heavy Hand in Hong Kong, January 8, 2021, https://www.nytimes.com/2021/01/06/world/asia/china-hong-kong-arrests.html (“The central Chinese government, which once wielded its power over Hong Kong with a degree of discretion, has signaled its determination to openly impose its will on the city.”); BBC News, National security law: Hong Kong rounds up 53 pro-democracy activists, 6 January 2021, https://www.bbc.com/news/world-asia-china-55555299.

Hong Kong, China lists seven claims of violation of WTO obligations by the United States requiring goods from Hong Kong, China to be marked as goods of China. These include:

“1. Article I:1 of the GATT 1994, because in respect of the rules and formalities of importation pertaining to marks of origin, the United States does not extend to products of Hong Kong, China origin immediately and unconditionally the same advantages, favours, privileges, or immunities that the United States extends to like products originating in the territory of other countries;

“2. Article IX:1 of the GATT 1994, because the United States does not accord to the products of Hong Kong, China treatment with regard to marking requirements no less favourable than the treatment that the United States accords to like products of other countries;

“3. Article X:3(a) of the GATT 1994, because the United States does not administer its origin marking requirements in a uniform, impartial, and reasonable manner;

“4. Article 2(c) of the Agreement on Rules of Origin, because in respect of products produced in Hong Kong, the United States requires the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin;

“5. Article 2(d) of the Agreement on Rules of Origin, because the United States discriminates between Hong Kong, China and other Members in respect of the rules of origin that it applies to imports;

“6. Article 2(e) of the Agreement on Rules of Origin, because the United States does not administer its rules of origin in a consistent, uniform, impartial, and reasonable manner;

“Article 2.1 of the Agreement on Technical Barriers to Trade, because the origin marking requirements that the United States applies to imports are technical regulations and, in respect of those technical regulations, the United States does not accord to products imported from Hong Kong treatment no less favourable than the treatment that it accords to like products originating in other countries.

“In addition, and as a consequence of the foregoing, the measures at issue appear to nullify or impair the benefits accruing to Hong Kong, China directly or indirectly under the cited agreements.”

The United States position on the various claims is not known as yet. Presumably, the United States will raise as a defense national security claims as it has in a host of other cases.

The dispute will presumably take years to move to a conclusion, and absent a resolution of the Appellate Body impasse could result in the matter being appealed into the existing void.

Hong Kong requests consultations with the United States on the change in origin marking requirements for goods from Hong Kong

When China enacted legislation earlier this year giving China sweeping powers over Hong Kong in the name of national security following months of protests in Hong Kong, there was significant concern among China’s trading partners about China’s actions. The United States, viewing Hong Kong as having lost significant autonomy to China by the legislation enacted by China, took actions to eliminate many aspects of its own treatment towards Hong Kong. The actions of the U.S. were caused by President Trump’s Executive Order of July 14 which was published in the Federal Register on July 17, 2020. The Federal Register notice is embedded below.

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One of the actions taken in response to the Executive Order was a change by the U.S. Customs and Border Protection to the country of origin marking required on goods from Hong Kong to indicate such goods were from China. The Federal Register notice of the change was published on August 11, 2020 and is embedded below.

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The government of Hong Kong released a statement on the day of the Federal Register notice and has raised concerns with the U.S. government about such change in marking requirements during the intervening months. The August 11 release from Hong Kong is embedded below.

HK-statement-on-US-country-of-origin-marking-requirement-for-HK-goods-as.._

Having been unable to get the United States to modify its position on country of origin marking, on October 30, Hong Kong filed a request for consultations with the United States at the WTO challenging the change in origin marking requirements as violative of a number of WTO obligations the U.S. has (seven alleged violations are listed in the request). See UNITED STATES – ORIGIN MARKING REQUIREMENT, REQUEST FOR CONSULTATIONS BY HONG KONG, CHINA, WT/DS597/1, G/L/1365, G/RO/D/8, G/TBT/D/53 (3 November 2020). The request for consultations is embedded below.

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Whatever the technical and legal merits of the Hong Kong request for consultations, this is the type of dispute that will not result in a satisfactory resolution through resort to the WTO dispute settlement system. The underlying dispute is about the actions of China in implementing national security legislation affecting the treatment of those living in Hong Kong which the U.S. (and many other countries) view as contrary to the agreed treatment of Hong Kong by China following the return to China from the United Kingdom. Resolution of the underlying dispute will not be advanced by Hong Kong’s request. Moreover, with the current impasse on the WTO Appellate Body, adding a dispute to the WTO pending cases which in reality involves bilateral differences between the U.S. and China will do nothing to resolve the Appellate Body impasse. Thus, if there is a panel report which finds U.S. violations of existing obligations, the U.S. would almost certainly file an appeal where no functioning Appellate Body is in place. Thus, the dispute will not resolve the matter or result in authorization by the WTO for action by Hong Kong.

While a change in administrations could result in a different approach being taken by the United States (unknown if that would be true), if the Trump Administration continues past January 20, the request for consultations filed by Hong Kong will simply generate paperwork without the possibility of a meaningful resolution.

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

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

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

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

Statement by Australia on COVID-19 and dispute settlement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Concluding comments

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

The U.S. Trade Representative Robert Lighthizer in an Op Ed last week in the Wall Street Journal suggested that reform of the dispute settlement system is critical but may involve changing the system from its existing two-tiered configuration under the DSU to a one-tier process more like commercial arbitration. If that is the path that the United States pursues, resolution of the current situation will take years. See August 24, 2020,  USTR Lighthizer’s Op Ed in the Wall Street Journal – How to Set World Trade Straight, https://currentthoughtsontrade.com/2020/08/24/ustr-lighthizers-op-ed-in-the-wall-street-journal-how-to-set-world-trade-straight/.

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

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

The race to become the next WTO Director-General — where candidates are on important issues: eligibility for Special and Differential Treatment/self-selection as a developing country

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

During the years of the General Agreement on Tariffs and Trade, countries engaged in a series of rounds of tariff liberalization. The basic principle of Most Favored Nation ensured that any participating country or customs territory would receive the benefits of trade liberalization of others whether or not the individual country made tariff liberalization commitments of its own.

Moreover, the GATT and now the WTO have recognized that countries at different levels of economic development will be able to make different contributions and some may need special and differential treatment to better participate.

Historically, there has been a distinction between developed countries and developing countries, with special and differential (S&D) treatment reserved for the latter. Typically, S&D treatment would permit, inter alia, lesser trade liberalization commitments and longer phase-ins for liberalization undertaken.

During the Uruguay Round, least-developed countries, as defined by the United Nations, were broken out from developing countries to receive lesser obligations than other developing countries. But the categorization as a developing country has always been a matter of self-selection within the GATT and now within the WTO.

Some three quarters of WTO’s current 164 Members have self-declared themselves to be developing countries or are least-developed countries under UN criteria. Thus, only one fourth of WTO Members shoulder full obligations under the current system.

While the Uruguay Round negotiations attempted to deal with “free riders” by requiring all countries and customs territories to bind all or nearly all tariff lines, the results at the creation of the World Trade Organization was a system where the vast majority of Members had relatively high tariff rates in their bindings while developed countries typically have very low tariff rates bound.

After twenty-five years of operation and dramatic economic development by many Members and limited trade liberalization through WTO multilateral negotiations, questions have been raised by the United States and others as to whether the concept of self-selection by countries of developing country status has contributed to the inability of the WTO to achieve further liberalization through negotiations. The U.S. has put forward a definition of who would eligible for developing country status based upon a country not qualifying under any of four criteria. See December 28, 2019, WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved? https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/. Countries who would not qualify under the U.S. proposal include:

Member of the OECD or in the accession process:

Chile, South Korea, Mexico, Turkey, Colombia, Costa Rica.

Member of the G-20:

India, South Africa, Turkey, Argentina, Brazil, Mexico, China, Indonesia, South Korea.

Classified by World Banks as “high income” for 2016-2018 (includes):

Antigua and Barbuda, Bahrain, Brunei Darussalam, Chile, Hong Kong, South Korea, Kuwait, Macao, Panama, Qatar, Saudi Arabia, Seychelles, Singapore, St. Kitts and Nevis, Trinidad and Tobago, United Arab Emirates, Uruguay.

0.5% of Merchandise Trade (includes):

China, South Korea, Hong Kong, Mexico, Singapore, United Arab Emirates, Thailand, Malaysia, Vietnam, Brazil, Indonesia, Turkey, South Africa.

For many countries who have self-declared as developing countries, the concept of changing their status, regardless of economic development, is untenable and has been actively opposed at the WTO (including by China, India and South Africa).

Four WTO Members who had self-declared as developing countries — Korea, Singapore, Brazil and Costa Rica — have indicated to the WTO that they will not seek special and differential treatment in ongoing or future negotiations (but maintain such rights for existing agreements). Other countries who are self-declared developing countries have blocked an Ambassador from one of the four who have agreed to accept greater obligations from assuming the Chair post for one of the WTO Committees.

The United States has also raised questions about the imbalance of tariff bindings which have flowed from economic development of some countries without additional liberalization of tariffs by those countries and the lack of progress on negotiations. Thus, for the United States there is also the question of whether tariff bindings should be reexamined in light of economic developments over the last twenty-five years. From the WTO’s World Tariff Profiles 2020 the following simple bound tariff rates for all goods are identified for a number of countries. See https://www.wto.org/english/res_e/booksp_e/tariff_profiles20_e.pdf. While for developing countries, bound rates are often much higher than applied rates, the bound rates give those countries the ability to raise applied tariffs without challenge:

“Developed Countries”

United States: 3.4%

European Union: 5.1%

Japan: 4.7%

Canada: 6.4%

“Developing Countries”

China: 10.0%

Brazil: 31.4%

Chile: 25.2%

Costa Rica: 43.1%

Republic of Korea: 16.5%

India: 50.8%

Indonesia: 37.1%

Singapore: 9.5%

South Africa: 19.2%

Thus, for the eight candidates competing for the position of Director-General of the World Trade Organization, a challenging topic within the WTO for possible reform is whether the issue of Special and Differential treatment needs review to ensure that its provisions apply to those who actually have a need and not to three quarters of the Members simply because they self-selected. While not necessarily encompassed by the S&D question, for the United States, the issue also subsumes whether WTO reform needs to permit a rebalancing of tariff bindings based on changing economic development for WTO Members.

What follows is a review of the prepared statements to the General Council made by each candidate during July 15-17, my notes on candidates’ responses to questions during the press conference immediately following each candidate’s meeting with the General Council, and my notes on candidates’ responses to questions during webinars hosted by the Washington International Trade Association (WITA) and Asia Society Policy Institute (ASPI) (as of August 13, seven of the eight candidates have participated in such webinars; the webinar with the Moldovan candidate is being scheduled).

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade did not take up the question of special and differential treatment directly as part of his prepared statement. One can read part of his statement to indicate that part of the challenges facing the WTO flow from the lack of success of the negotiating function on traditional issues (which would include further tariff liberalization). Also one could construe the need to modernize the organization as including the need to better reflect the need for all Members to carry the extent of liberalization that their stage of economic development permits.

“In the medium and long term, and in order to prevent the Organization from becoming obsolete and obsolete, it is important that mechanisms be
adopted to modernize it. I will seek to establish an informal dialogue on the
weaknesses and challenges of the Organization in the current context, through annual forums or specialized conferences.

“But thinking about long-term expectations, I am convinced that they have been affected by the lack of significant results in the negotiations since the
creation of the WTO. Thus, as results are achieved on 21st century issues, it will be very important to also energetically take up the traditional priority issues on the sustainable development agenda.” (Google translation from French)

During the press conference, Dr. Seade was asked a question on the issue of developed versus developing country designation. My notes on his response are as follows:

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.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. Dr. Seade was asked about the issue of self-selection of developing country status and how he would try to get Members to address. My notes on his response follow:

Dr. Seade had this to say:  he believes countries are looking at the issue the wrong way.  Special and differential treatment is like a discount card which you can use at a store.  Some customers have the discount card; some don’t.  The reality in the WTO is that everything is negotiated.  When you negotiate, you can talk to every Member.  If Members make whether and what type of special and differential treatment a Member needs part of negotiations, the outcome can be tailored so that Members are contributing what they can while still accommodating Members where there is a real need. While seeking to define who is a developing country may be an approach that can be taken, Dr. Seade believes that actually getting Members to agree to changing status is an impossible issue.  In his view, status is “theological” for many Members. 

One can look at the trade facilitation agreement for an example of where Members were asked to take on obligations to the extent they could; there were negotiations if more was felt possible from a Member.  The same type of approach can be taken in ongoing and new negotiations.  He believes this is the way to go.  The key question is not who is eligible, but for what does a Member need S&D.  This will be true at a country level (e.g., in Dr. Seade’s view Mexico and Brazil don’t need the same flexibilities as Angola).  But the need for differentiation in a given country may also differ by sector.  In fact the need for special and differential treatment can vary by product. Dr. Seade mentioned Mexico’s agriculture sector, where corn production is not efficient or modern and hence S&D may be necessary but where that is not the case for fruits and vegetable production.  Thus, Dr. Seade believes that going about it on a more practical way is the right way to make progress in the WTO.  Negotiate by agreement by country, etc.

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala’s prepared statement directly notes the differing positions on the issue of special and differential treatment and also mentions concerns of Members in terms of imbalances in rights and obligations and distribution of gains (which presumably includes the U.S. concern about high bound tariff rates of many countries who have gone through significant ecoonomic growth in the last 25 years).

“Members’ views differ on a number of fundamental issues, such as special and differential treatment or the need for the WTO to tackle new issues and develop new or enhanced rules to deal with SOEs and agricultural subsidies, for example.”

“While a key objective of the WTO is the liberalization of trade for the mutual benefit of its Members, it appears that this very concept is now a divisive issue as a result of the perceived imbalances in the rights and obligations of Members and the perceived uneven distribution of the gains from trade. I would constantly remind Members about the value of the MTS and help energize them to work harder to overcome the challenges that have paralyzed the WTO over the years.”

During the press conference on July 15th, Dr. Ngozi Okonjo-Iweala was not a question on S&D treatment, classification of developing countries or on tariff bindings.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. Dr. Ngozi Okonjo-Iweala in her opening comments identified the issue of special and differential treatment as an issue that could be considered as part of WTO reform, although it wasn’t in her list of topics for tackling by the next WTO Ministerial Conference. She was asked a question about how to restore trust among Members and used that question to review her thoughts on special and differential treatment and the question of self-selection by Members as developing countries. Below is my summary of Dr. Ngozi Okonjo-Iweala’s discussion of the issue.

One issue being pushed by the United States and others that is very divisive is the issue of special and differential treatment and self-selection of developing country status.  The concern of those wanting a change is that self-selection and the automatic entitlement to S&D treatment shifts the balance of rights and obligations to advanced developing countries.  There is no disagreement that least-developed countries need special and differential treatment. In her view, the real question is whether other countries that view themselves as developing should get special and differential treatment automatically.  Dr. Ngozi Okonjo-Iweala believes the WTO needs a creative approach to resolve the issue.  For example, Members should address the need of individual Members for special and differential treatment on a negotiation by negotiation basis.  Members should, as part of each negotiation, consider what other Members believe their needs are based on level of development.  She references the Trade Facilitation Agreement as an example where Members took on obligations based on their level of development vs. a one size fits all approach.  Dr. Ngozi Okonjo-Iweala believes that if the Members can reach a resolution on this issue, the resolution would help build trust among Members and hence help the WTO move forward.

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh’s prepared statement did not directly deal with the topic of special and differential treatment or the changing economic competitiveness of Members. There is one statement towards the end of his statement which recognizes the evolving nature of the Membership.

“Since then, global trade has transformed, and trading powers have evolved. The circumstances and dynamics have changed. But the skillset we require of the leadership: imaginative thinking, and the ability to come up with legally sound and enforceable solutions – remain the same.”

During his press conference on July 15, Mr. Mamdouh was not asked a question on S&D treatment or the criteria for being a developing country.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. Mr. Mamdough was asked a question during the webinar on whether the large number of WTO Members who have self-declared as developing countries and hence are eligible for special and differential treatment doesn’t undermine the credibility of the organization and what he would do about it if he was Director-General. Below is my summary of Mr. Mamdouh’s response.

Mr. Mamdouh believes that the issue should be addressed in a pragmatic maner. He referred back to the General Agreement on Trade in Services (GATS) negotiated during the Uruguay Round and noted that the GATS contains no special and differential treatment provisions.  Thus, in the GATS, Members moved away from a system of country classifications.  In Mr. Mamdouh’s view, obligations should be customized based on a Member’s needs/abilities through negotiations.  Flexibilities to address particular Member needs can be determined individually.  While this was the approach in GATS, Members can do that on goods on any area that can be scheduled but also rule making areas.  In Mr. Mamdouh’s view for any substantive obligations, there is room to customize obligations through negotiations.  He believes that big developing countries wouldn’t oppose different countries taking on different obligations.  He doesn’t believe that a solution will be in negotiating a different categorization system.  The solution for the WTO is to take a pragmatic approach and customize the outcome based on negotiations.  Mr. Mamdouh referenced fisheries subsidies as an example where that could occur.  He believes customizing obligations based on individual Member needs will be increasingly necessary, citing the 164 current Members.  But he cautions that no “one size fits all”.  Every solution would need to be tailored on the basis of the area being negotiated.

Amb. Tudor Ulianovschi (Moldova)

Amb. Ulianovschi’s prepared statement to the General Council on July 16 covers a wide range of issues that need to be addressed going forward, but, does not mention the issue of special and differential treatment or which Members should not be eligible to be developing countries based on economic developments. Amb. Ulianovschi does have one sentence in his prepared statement which talks generally about addressing global inequalities.

“The WTO is one of the most complex organizations in the world today, and it’s one of the most needed as to ensure open, predictable, inclusive, rule based multilateral trading system, as well as – to address global inequalities and bridge the gap between the least developed, developing and developed countries.”

At the press conference on July 16, Amb. Ulianovschi was asked many questions but none of the developing country/special and differential treatment issue.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi mentioned special and differential treatment both in his opening statement and in answer to a question. My notes on Amb. Ulianovschi’s comments are provided below.

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

Q:  How important is it to have a reform agenda, and how can you convince major Members to agree on a common agenda? A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the WTO needs to address the horizontal issue of Special and Differential Treatment (S&D).  The S&D principle is at the core of the organization, but it is how you apply the principle which determines commitments of Members.  From that point of view, Amb. Ulianovschi sees it as a positive signal that major players are putting forward proposals on this topic.  The proposals should be the starting point for discussions.  Amb. Ulianovschi would invite those who have put forward proposals to start discussions with other Members.  Negotiations need political will to succeed, and Members need to agree on how to proceed.  He believes that if he is Director-General, he can get Members to that point.

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

Minister Yoo’s prepared statement covers many issues but does not address the issue of special and differential treatment/developing country classification.

In her press conference on July 17 after meeting with the General Council, Minister Yoo was asked a question on developing vs. developed country status. My notes on her response follow:

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 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 is a sensitive issue on which there is no consensus as yet.

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. Below is my summary of the question asked on the issue of special and differential treatment and self-selection of developing country status, and Minister Yoo’s response:

Korea has informed the WTO that Korea will not seek S&D treatment in ongoing or future negotiations.  Many Members thinks the self-selection of developing country status is undermining the system.  How do you evaluate the issue and how important is it to resolve?

Minister Yoo indicated that this is an important issue to resolve to make progress in ongoing and future negotiations.  She believes it is important to reflect on a core principle of the WTO to ensure that developing countries and least-developed countries secure their fair share of global trade.  The question for the WTO is how to effectuate this embedded principle.

Over half of WTO Members are developing countries and 36 others are least developed countries. In total roughly three fourths of all Members get special and differential treatment.  If so many are eligible for special and differential treatment, it likely means that the countries with the greatest needs are not receiving the assistance actually needed to help their development and greater participation in international trade.

In Minister Yoo’s view, the WTO has very divergent views among Members about changing the classification process for Members from self-selection to a set of factual criteria.  US has put forward a proposal to categorize members as developed based on different factual criteria.  However, there is no consensus at the WTO at the moment which means that changing the classification process will not happen until there is consensus.  In light of the lack of consensus, a pragmatic approach may be to have countries who can take on more responsibilities to do so voluntarily.  This will permit those who need assistance to get it.

Looking at the Trade Facilitation Agreement, while the Agreement is not necessarily representative of other areas under negotiation, it shows one way to handle the issue of special and differential treatment in a pragmatic way.  Some developing countries take on more responsibility than others without S&D treatment and without a transition period.  This is an example of how through negotiations, Members can customize obligations to individual Member capabilities.  Such an approach is practical and pragmatic.

In Korea’s case, Korea indicated that they would not seek S&D treatment in ongoing and future negotiations based on Korea’s state of economic development.  It was not an easy decision and required extensive internal consultations.  Korea wants to promote the WTO system.  She believes it is useful for each country to step up and take on more responsibility if they are capable of doing so.  The U.S. proposal has been important in raising the issue.  While no consensus exists at the moment, the U.S. action has gotten Members discussing the matter.  If Minister Yoo is selected to be the next Director-General, she would continue to raise the issue with Members to achieve a good outcome for all. She believes resolution of the issue can help unlock progress in ongoing and future negotiations.

H.E. Amina C. Mohamed (Kenya)

Minister Mohamed’s prepared statement contains a number of statements which recognize the need of Members to contribute according to their ability, although she does not address the classification of developing countries or the need for special and differential treatment specifically.

“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.”

“All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.”

“We need a WTO that is fair and equitable, taking into account the level of economic development of each member. All WTO Members must be prepared to contribute to improving and strengthening the organization, so that it can facilitate trade for the benefit of all, and contribute to economic recovery from the effects of the pandemic.”

During Minister Mohamed’s press conference on July 16, no questions were asked about developing country status or on special and differential treatment.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed both made several comments on special and differential treatment and self-selection of developing country status, but also answered a question. My notes on her comments and the question asked are summarized below:

One of issues needing to be addressed by the WTO are the current “divisions over developing country status”.

We need a WTO that is fair and equitable considering the level of economic development of each Member.  The WTO should give effect to its development objectives in a practical and enabling way that takes into account needs and results.  All WTO Members must be prepared to contribute to strengthening and improving the WTO system.

Q: The U.S. has raised the issue of self-declaration of developing country status.  How would you handle the issue if you become Director-General?

Minister Mohamed noted that special and differential treatment is an integral part of existing agreements.  However, going forward, the journey to modify the approach to S&D has already begun. ” The train has already left the station.” Minister Mohamed noted that in the Trade Facilitation Agreement, any special treatment was based on the need of the individual Member. Countries assumed obligations they were able to, so different developing countries assumed different levels of obligations with or without transition periods.

Second, self-declaration by certain countries that they would no longer seek special and differential treatment has already occurred (Korea, Brazil, Singapore and Costa Rica).  Minister Mohamed believes the WTO will see more of this going forward by other countries.  If Minister Mohamed is selected to be the next Director-General, she would continue discussions among the Members and have candid discussions with some of the Members.  But she believes moving forward, special and differential treatment will be increasingly based on actual need.

H.E. Mohammed Maziad Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri in his prepared statement to the General Council on July 17 addressed briefly the proposal from the U.S. on special and differential treatment (classification of developing countries):

“Concerning Special and Differential Treatment, the bottom line is, 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. This is one of the main reasons that the negotiating function needs to start working. Members have various capacities to implement and take advantage of new rules and commitments, so it is clear that each Member must decide for itself what is in its own interest.”

At his press conference on July 17, Minister Al-Tuwaijri was not asked a question on special and differential treatment or of classification of developing countries.

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar Minister Al-Tuwaijri was not asked a question on self-selection of developing country status or on special and differential treatment.

The Rt Hon Dr. Liam Fox MP

Dr. Fox’s prepared statement to the General Council on July 17 did not include any references to special and differential treatment or to the classification of developing countries.

During his press conference on July 17, Dr. Fox was not asked a question dealing with special and differential treatment or the classification of developing countries.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. Dr. Fox was asked about the concerns expressed by the U.S. and others that the process of self-selection of developing country status had resulted in too many Members having special and differential treatment. There was a need to see that S&D is limited to those who actually need help. How would Dr. Fox address this issue if he were selected as the Director-General? What follows reflects my notes on Dr. Fox’s response.

Dr. Fox stated that first, the WTO must reassess that we are all aiming at the same goal.  As the WTO has expanded membership, Members knew that the organization would have countries with vast differences in capabilities and that it would take different countries different amounts of time to get to full implementation.  Thus, special and differential treatment is available. However, Dr. Fox understands that there are some WTO Members who want to be perpetually exempted from undertaking full obligations regardless of the level of economic development they have achieved. Dr. Fox views this approach as unacceptable. Membership in an organization envisions equal rights and obligations, though it may take some members longer to get there.

On the topic of special and differential treatment, Dr. Fox believes that it is important to accelerate the rate of development for countries that are developing or least-developed, so that their improved level of economic development means they don’t need special and differential treatment.  One of the reasons some Members gave Dr. Fox for not wanting to be moved into a different category, was the concern over loss of trade preferences.  Dr. Fox used as an example, small coastal economies who can experience wide swings in per capita GDP based on external events (hurricanes, etc.) which can move them from high income to low income and back in short order.  Dr. Fox believes WTO Members must think creatively on how to address concerns of Members that giving up developing country status will put them in difficulties. On his example, he suggested using multiple year averages.

Conclusion

As the WTO has become a much more universal organization, membership has widely expanded beyond the historical developed country proponents of the GATT. At the same time, in recent decades there has been tremendous economic development by many countries which should mean that the ability of Members to handle full or increased obligations of the WTO has increased for many countries.

Yet, the current system does not provide a means for modifying obligations of Members who joined as developing country members regardless of the level of development achieved after joining. The view of some Members is that this disconnect between actual economic development and level of commitments undertaken has contributed to the inability to conclude negotiations. The issues raised by the United States have resulted in a few countries indicating that they will not seek special and differential treatment in ongoing or future negotiations. In at least one recent agreement, the Trade Facilitation Agreement, countries have assumed obligations based on their perceived need and not as a general right with the result of countries who may have self-selected developing country status taking on more obligations with lower or no delay in implementation than other developing countries.

For the incoming Director-General, finding a solution to this issue acceptable to all Members could be critical to unlocking progress on other negotiations.

U.S. Withdrawal from the World Health Organization and Decision to Revoke Preferential Treatment for Hong Kong — Reduced Cooperation as COVID-19 Pandemic Rages on

On May 29, 2020, President Trump indicated that the United States was withdrawing from the World Health Organization (“WHO”) because of the WHO’s failure to adopt reforms the U.S. had demanded and the belief of a bias within the WHO towards China and China’s failure to provide timely information on the start of the virus and the likely nature of the problem. https://www.nytimes.com/2020/05/29/us/politics/trump-hong-kong-china-WHO.html. This followed the U.S.’s earlier temporary withholding of funds from the WHO while awaiting developments on reforms.

President Trump also indicated that in light of actions by China to assert security controls over Hong Kong, the U.S. viewed China as violating its commitment to maintain “one China, two systems” and would accordingly be taking actions to remove special treatment provided Hong Kong in a wide range of areas (extradition, export controls, etc.) and would be treating Hong Kong as part of China for tariffs, export controls, etc. https://www.wsj.com/articles/u-s-to-cancel-visas-for-some-chinese-graduate-students-11590744602.

Not surprisingly, China has reacted negatively to the statements of President Trump on Hong Kong and has threatened to take retaliatory actions if the U.S. takes actions contrary to China’s interests and indicated that any U.S. action was doomed to fail. https://www.bloomberg.com/news/articles/2020-05-30/china-says-us-action-on-hong-kong-doomed-to-fail; https://www.cnbc.com/2020/05/30/china-says-us-action-on-hong-kong-doomed-to-fail.html.

Concerns have also been raised that U.S. action would be a double-edged sword in light of the large trade surplus the U.S. has with Hong Kong and the enormous presence of U.S. businesses in Hong Kong. For example, based on U.S. Census data as compiled by the U.S. International Trade Commission, the United States had a trade surplus with Hong Kong (total exports – general imports) of $26.086 billion in 2019 [the trade surplus based on domestic exports – imports of consumption being lower at $11.845 billion]. While China has not identified actions it is considering, harming U.S. interests in Hong Kong would obviously be one avenue China might take.

The trade implications, in terms of U.S. imports from Hong Kong, are relatively minor. If imports from Hong Kong are treated as imports from China, imports of items subject to additional duties from the 301 investigation would be relatively minor. That is because U.S. imports for consumption from Hong Kong in 2019 were just $4.646 billion, with half of that being under HS 9810 for articles that have been imported after exportation, after repair, etc. If China were to impose additional duties on U.S. exports to Hong Kong, the effect would be larger. U.S. domestic exports to Hong Kong in 2019 were $16.491 billion.

Increased tensions; reduced cooperation

Whatever the merits of the actions being taken by the United States (and the reactions anticipated from China), the results are predictable — we are entering a period of reduced cooperation and coordination of actions to address the pandemic as well as increasing bilateral tensions between the U.S. and China at a time of global economic contraction. This despite the fact that cooperation has been less than robust even before the current increased tensions.

In the trade arena, the pandemic continues to grow in severity as confirmed cases continue to climb globally with the hot spots shifting. Cooperation at the WTO and G20 is critical in terms of keeping markets open, minimizing export restraints, addressing logistics needs in a manner that preserves the health needs of importing countries, avoiding inventory builds of agricultural products, the introduction of export restraints where there is no underlying agriculture production problem globally, taking actions to expand production of medical goods to meet the demand surge flowing from the pandemic, ensuring transparency, and promoting best practices. The world is struggling already to achieve the trade needs identified above. Reduced cooperation will make the challenges that much harder.

Similarly, the search for vaccines, therapeutics and diagnostics to effectively prevent, treat and identify medical needs requires global cooperation, information sharing and the work of a multilateral institution like the WHO and various NGOs to ensure all peoples who need these products have equitable and affordable access to them when developed. Trials on potential vaccines are at various stages in China, in the United States and in Europe and possibly other areas. Often the research is amongst companies working jointly from multiple jurisdictions. Which research project or projects will prove effective, if any, is obviously not known. Implications of a lack of cooperation between countries should effective vaccines, therapeutics and diagnostics be developed are for the possible hording of products, refusal to sell to other countries or delays in sharing and other actions that would make global escape from the pandemic harder, longer and more deadly.

And for many developing and least developed countries, the pandemic, whether significantly affecting individual countries directly, threatens most countries through contraction in global trade (estimated to be between 13 and 32% by the WTO in 2020), limited financial capabilities to address budget shortfalls and increased unemployment and challenges to existing health care infrastructure from the pandemic. Multilateral institutions like the World Bank and the IMF and others are critical here but are dependent on the cooperation of key members like the U.S., China, and others. While these organizations have been working effectively to date, the size of the challenge posed by the pandemic which is unprecedented will likely result in additional funding needs in the coming months or years which will require cooperation to meet.

Conclusion

The United States and China have very different economic and political systems. In the trade sphere, the United States has reached the conclusion that coexistence of such disparate systems doesn’t make sense under the World Trade Organization’s rules which are premised on market-based economic policies. The U.S. actions vis-a-vis China on trade have been an effort to achieve reciprocity with China, a situation not possible under the existing WTO rules. That the U.S. effort to obtain reciprocity in fact is proving contentious is hardly surprising and will not likely lessen in bilateral tensions in the near future.

In the political sphere, our two systems have resulted and will continue to result in periodic tensions, such as we are currently witnessing over the actions of China on security measures in Hong Kong.

Historically, major nations who view each other as adversaries have been able to cooperate effectively on issues of mutual interest. That was true during the cold war between the U.S. and the Soviet Union on certain issues. Whether the U.S. and China view each other as adversaries as well as competitors at the present time, the same ability to cooperate between them should be true when looking at issues such as addressing the pandemic effectively and efficiently.

Let us hope that regardless of the bilateral tensions and of the U.S. departure from the WHO, all WTO Members can step up their efforts to keep markets open and transparent and that governments will cooperate to ensure that medical developments are available to all on an equitable and affordable basis and that the financial resources are available to help those least able to weather the pandemic’s effects alone to survive and move forward.

March 27, 2020 Agreement on Interim Arbitration Process by EU and 15 other WTO Members to Handle Appeals While Appellate Body is Not Operational

With the reduction in members of the Appellate Body from three to one after December 10, 2019, the WTO’s Appellate Body has not been in a position to handle new appeals nor to complete a range of other appeals that were pending where no hearing had occurred. The United States has blocked consideration of replacements while solutions to its substantive and procedural concerns with the actions of the Appellate Body are developed. As it is unlikely that U.S. concerns will be resolved in the near term, a number of WTO Members have been searching for alternative approaches to maintain a second stage review in disputes where one or more parties desires that second stage review.

Specifically, a number of WTO Members have wanted to establish an arbitration framework for disputes between Members willing to abide by such a framework. The European Union has been one of the most outspoken on the topic and had completed agreements with Canada and Norway ahead of Davos this year.

On the sidelines of Davos, a significant number of countries indicated a desire to find a common approach on arbitration to address the lack of Appellate Body review until such time as the operation of the Appellate Body was restored.

On March 27, 2020, a Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU was agreed to by to the following WTO Members — Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, the European Union, Guatemala, Hong Kong, Mexico, New Zealand, Norway, Singapore, Switzerland and Uruguay. The text of the arrangement is here, https://trade.ec.europa.eu/doclib/docs/2020/march/tradoc_158685.pdf. The arrangement is open to other Members should they opt to join at a future date.

As stated in the Ministerial Statement released yesterday, https://trade.ec.europa.eu/doclib/docs/2020/march/tradoc_158684.pdf

“Further to the Davos statement of 24 January 2020, we, the Ministers of Australia; Brazil; Canada; China; Chile; Colombia; Costa Rica; European Union; Guatemala; Hong Kong, China; Mexico; New Zealand; Norway; Singapore; Switzerland; and Uruguay, have decided [1] to put in place a Multi-party Interim Appeal Arbitration Arrangement (MPIA) on the basis of the attached document. This arrangement ensures, pursuant to Article 25 of the WTO Dispute Settlement Understanding, that any disputes among us will continue benefitting from a functioning dispute settlement system at the WTO, including the availability of an independent and impartial appeal stage.

“We believe that such WTO dispute settlement system is of the utmost importance for a rules-based trading system. The arrangement is open to any WTO Member, and we welcome any WTO Member to join.

“We wish to underscore the interim nature of this arrangement. We remain firmly and actively committed to resolving the impasse of the Appellate Body appointments as a matter of priority and urgency, including through necessary reforms. The arrangement therefore will remain in effect only until the Appellate Body is again fully functional.

“We intend for the arrangement to be officially communicated to the WTO in the coming weeks.

“1/ Subject to the completion of respective domestic procedures, where applicable.”

The European Commission reviewed the significance of yesterday’s group decision in a press release:

“The EU and 15 other members of the WTO today decided on an arrangement that will allow them to bring appeals and solve trade disputes among them despite the current paralysis of the WTO Appellate Body. Given its strong and unwavering support for a rules-based trading system, the EU has been a leading force in the process to establish this contingency measure in the WTO.

“Commissioner for Trade Phil Hogan said: ‘ Today’s agreement delivers on the political commitment taken at ministerial level in Davos in January. This is a stop-gap measure to reflect the temporary paralysis of the WTO’s appeal function for trade disputes. This agreement bears testimony to the conviction held by the EU and many other countries that in times of crisis working together is the best option. We will continue our efforts to restore the appeal function of the WTO dispute settlement system as a matter of priority. In the meantime, I invite other WTO Members to join this open
arrangement, crucial for the respect and enforcement of international trade rules.’

“The Multiparty Interim Appeal Arbitration Arrangement mirrors the usual WTO appeal rules and can be used between any members of the Organisation willing to join, as long as the WTO Appellate Body is not fully functional.

“Today’s agreement underscores the importance that the participating WTO members – Australia; Brazil; Canada; China; Chile; Colombia; Costa Rica; the European Union; Guatemala; Hong Kong, China; Mexico; New Zealand; Norway; Singapore; Switzerland; and Uruguay – attach to a functioning two-step dispute settlement system at the WTO. Such a system guarantees that trade disputes can be resolved through an impartial and independent adjudication, which is essential for the multilateral trading system based on rules.

“We expect the Multiparty Interim Appeal Arbitration Arrangement to be officially notified to the WTO in the coming weeks, once the respective WTO Members complete their internal procedures, after which it will become operational.”

https://ec.europa.eu/commission/presscorner/detail/en/IP_20_538.

The Interim Appeal Arrangement

Led by the European Union, the interim appeal arrangement looks a lot like an appeal to the Appellate Body and that is by design. As stated in paragraph 3 of the arrangement, “3. The appeal arbitration procedure will be based on the substantive and procedural aspects of Appellate Review pursuant to Article 17 of the DSU, in order to keep its core features, including independence and impartiality, while enhancing the procedural efficiency of appeal proceedings.” Many parts of practice and procedure of the Appellate Body are incorporated into the appeal arbitration procedures (Annex 1) and included in the text of the arrangement itself.

Arbitrations will be heard by three members of a standing pool of 10 appeal arbitrators who may be current or former Appellate Body members or other qualified individuals. See Annex 2. Such current and former AB members are not subject to any additional vetting if nominated by one of the signatories. Selection for serving on an appeal arbitration, similar to the Appellate Body, will be subject to rotation.

The participating Members are looking to the WTO Secretariat to provide “appropriate administrative and legal support”, that such support “will be entirely separate from the WTO Secretariat staff”. Stated differently, the participating Members are seeking the maintenance of something like the Appellate Body Secretariat but as an interim appellate arbitration group or secretariat.

The participating Members are permitting arbitration to be completed in 90 days (subject to extension approved by the parties) and give arbitrators authority to streamline proceedings to accomplish the 90 day timeline (page limits, time limits, etc.).

The full text of the interim arrangement and two appendices is embedded below.

3-27-2020-multi-party-interim-appeal-arbitration-arrangement-pursuant-to-Article-25-of-the-DSU

Approach of Other WTO Members

Time will tell the success of the interim appeal arbitration arrangement both among the existing participants and on any future participants.

The United States and many other Members are not presently participants in the interim agreement though that could, of course change as the arrangement is open to additional Members joining. Existing Members not participating in the arrangement include Japan, South Korea, India, Indonesia, Thailand, Malaysia, Argentina, South Africa, Saudi Arabia, Russia, Ukraine and many others.

Where a Member does not participate in the interim agreement, there are a wide range of options for the resolution of disputes including a bilateral agreement between the parties either during consultations or during the panel process, agreement to adopt the panel report without appeal or separate arbitration procedures agreed by the parties to a dispute. The U.S. and India in a pending dispute have also simply agreed to hold up any appellate review until such time as the Appellate Body is functioning again. Time will also reveal how well alternative dispute resolution approaches work for WTO Members.

What is certain is that absent a resolution of the underlying concerns raised by the United States over the last several years, the WTO dispute settlement system will be in a period of uncertainty with various approaches possible to resolve disputes but no clarification of the proper role of dispute settlement within the WTO.

Will the Interim Arrangement Promote Resolution of Long-Standing Problems with WTO Dispute Settlement?

While the participating Members to the interim agreement all state a commitment to pursue the prompt resolution to the WTO dispute settlement system challenges, the reality on the ground does not appear to match the rhetoric. While the U.S. has presented detailed information on its concerns and asked for engagement by Members to understand the “why” of the current situation, many Members have limited their engagement to suggesting modifications of the existing Dispute Settlement Understanding that do little more than repeat existing requirements – requirements which have been routinely flouted by the Appellate Body. Nor have Members advanced either an understanding or approaches for resolving the large number of instances where the Appellate Body has created rights or obligations not agreed to by Members. Thus, there has not been meaningful forward movement in recent months on the long-standing problems identified with the WTO dispute settlement system. Nothing in the interim arrangement augurs for an improved likelihood of resolution.

Moreover, the adoption of an interim arrangement that cloaks itself in much of the Appellate Body rules and procedures and is likely to have a number of former Appellate Body members in its pool of arbitrators is likely to create additional challenges as time goes by particularly in terms of the relevance of arbitral awards other than to the parties to the arbitration, whether existing problems are perpetuated through the interim appeal arbitration process, etc. There may also be short term challenges to the propriety of arbitrators being supported by a separate group of staff and who will pay for such services.

Conclusion

For WTO Members liking the past operation of the Appellate Body and wanting a second phase review of disputes that approximates the Appellate Body approach under the DSU, the interim appeal arbitration agreement will provide an approach while the Appellate Body itself is not functional. The WTO Members who are participating are significant users of the WTO dispute settlement system. More may join in the months ahead.

At the same time, other approaches to resolving disputes continue to be available to WTO Members and used by various Members.

There is nothing wrong with multiple approaches for handling resolution of disputes.

At the same time, nothing in the interim agreement or the actions of the participants to that agreement in the first quarter of 2020 provides any reason to believe the participants are working any harder to reach a resolution on the longstanding concerns of the United States on the actual operation of the Appellate Body.

Rule of law issues include seeing that the dispute settlement system operates within the confines of the authority defined by the Dispute Settlement Understanding. That has not been the case for many actions by the Appellate Body as well documented by the United States.

There won’t be meaningful forward movement in WTO reform or restoration of the two-step dispute settlement system until Members are able to both understand why the Appellate Body has deviated so widely from its limited role and fashion solutions that will ensure a properly functioning dispute settlement system that supports the other functions of the WTO and doesn’t replace or handicap them. Yesterday’s announcement of the interim agreement does nothing to advance those underlying needs.

Counterfeit and Contraband Goods — Issuance of A Presidential Executive Order on January 31, 2020

Rounding out a busy January on trade issues, President Trump on January 31st issued an Executive Order (“EO”) addressing the ballooning volume of illicit trade (counterfeit and pirated goods). The EO is directed at traffickers and those seeking to avoid U.S. customs duties, taxes, and fees but will also affect “express consignment operators, carriers, hub facilities, international posts, customs brokers, and other entities, including e-commerce platform operators”.

Executive Order 13904 of January 31, 2020, on Counterfeit Goods

The Executive Order issued by President Trump follows the issuance of a Memorandum on Combating Trafficking in Counterfeit and Pirated Goods from the President issued on April 3, 2019, calling for a study by the Department of Homeland Security on the extent of the problem and presenting suggested potential solutions. See, e.g., https://www.whitehouse.gov/presidential-actions/memorandum-combating-trafficking-counterfeit-pirated-goods/.

  1. April 3, 2019 Presidential Memorandum

President Trump’s April 3, 2019 Memorandum was a call for a coordinated game plan by the Administration on addressing the challenges posed by counterfeit and pirated goods including via the internet. Here is the relevant part of the Memorandum:

“Section 1.  Policy and Background.  (a)  It is the policy of my Administration to protect American businesses, intellectual property rights holders, consumers, national and economic security, and the American public from the dangers and negative effects of counterfeit and pirated goods, including those that are imported through online third-party marketplaces and other third-party intermediaries.  We must improve coordinated efforts within the Federal Government to address this challenge, which are led by the Attorney General, the Secretary of Commerce, the Secretary of Homeland Security, the Director of the Office of Management and Budget, through the Intellectual Property Enforcement Coordinator, and the United States Trade Representative.

“(b)  Counterfeit trafficking impairs economic competitiveness by harming United States intellectual property rights holders and diminishing the reputations and trustworthiness of online markets; cheats consumers and poses risks to their health and safety; and may threaten national security and public safety through the introduction of counterfeit goods destined for the Department of Defense and other critical infrastructure supply chains.  An estimate from the Organisation for Economic Co-operation and Development (OECD) indicates the value of trade in counterfeit and pirated goods to be approximately half a trillion dollars per annum, with roughly 20 percent of this trade infringing upon intellectual property belonging to United States persons.  A recent Government Accountability Office report examined four categories of frequently counterfeited goods, and, based on a small sample of these goods purchased through various online third-party marketplaces, found that more than 40 percent were counterfeit.

“(c)  Preventing the manufacture, importation, and sale of counterfeit and pirated goods is a priority for Federal law enforcement agencies.

“(d)  Existing efforts within the Federal Government to deter online trafficking in counterfeit and pirated goods through third-party intermediaries should be expanded and enhanced to better address the scale, scope, and consequences of counterfeit and pirated goods trafficking.

“(e)  Third-party intermediaries, including online third party marketplaces, carriers, customs brokers, payment providers, vendors, and others involved in international transactions, can all be beneficial partners in combating trafficking in counterfeit and pirated goods.  In order to build on cooperative efforts that are already underway with such partners, a coordinated approach by the Federal Government, including its law enforcement agencies, and private industry is needed.

“(f)  Comprehensive data regarding the extent of counterfeit trafficking through online third-party marketplaces are lacking.

“Sec. 2.  Report on the State of Counterfeit and Pirated Goods Trafficking and Recommendations.  (a)  Within 210 days of the date of this memorandum, the Secretary of Homeland Security, in coordination with the Secretary of Commerce, and in consultation with the Attorney General, the Director of the Office of Management and Budget, the United States Trade Representative, the Assistant to the President for Economic Policy, the Assistant to the President for Trade and Manufacturing Policy, the heads of other executive departments and agencies (agencies) and offices as determined by the Secretary of Homeland Security, shall prepare and submit a report to the President through the Assistant to the President for Economic Policy and the Assistant to the President for Trade and Manufacturing Policy.  In preparing the report, the Secretary of Homeland Security, in coordination with the Secretary of Commerce, shall, consistent with applicable law, consult with intellectual property rights holders, third-party intermediaries, and other stakeholders.

“(b)  The report shall:

“(i)     Analyze available data and other information to develop a deeper understanding of the extent to which online third-party marketplaces and other third party intermediaries are used to facilitate the importation and sale of counterfeit and pirated goods; identify the factors that contribute to trafficking in counterfeit and pirated goods; and describe any market incentives and distortions that may contribute to third-party intermediaries facilitating trafficking in counterfeit and pirated goods.  This review should include data regarding the origins of counterfeit and pirated goods and the types of counterfeit and pirated goods that are trafficked, along with any other relevant data, and shall provide a foundation for any recommended administrative, regulatory, legislative, or policy changes.

“(ii)    Evaluate the existing policies and procedures of third-party intermediaries relating to trafficking in counterfeit and pirated goods, and identify the practices of those entities that have been most effective in curbing the importation and sale of counterfeit and pirated goods, including those conveyed through online third-party marketplaces.  The report should also evaluate the effectiveness of Federal efforts, including the requirement for certain Federal contractors to establish and maintain a system to detect and avoid counterfeit electronic parts under the Defense Federal Acquisition Regulation Supplement (DFARS) 252.246-7007, as well as steps taken by foreign governments, such as France and Canada, to combat trafficking in counterfeit and pirated goods.

“(iii)   To the extent that certain types of data are not currently available to the Federal Government, or accessible in a readily usable form, recommend changes to the data collection practices of agencies, including specification of categories of data that should be collected and appropriate standardization practices for data.

“(iv)    Identify appropriate administrative, statutory, regulatory, or other changes, including enhanced enforcement actions, that could substantially reduce trafficking in counterfeit and pirated goods or promote more effective law enforcement regarding trafficking in such goods.  The report should address the practices of counterfeiters and pirates, including their shipping, fulfillment, and payment logistics, and assess means of mitigating the factors that facilitate trafficking in counterfeit and pirated goods.

“(v)     Identify appropriate guidance that agencies may provide to third-party intermediaries to help them prevent the importation and sale of counterfeit and pirated goods.

“(vi)    Identify appropriate administrative, regulatory, legislative, or policy changes that would enable agencies, as appropriate, to more effectively share information regarding counterfeit and pirated goods, including suspected counterfeit and pirated goods, with intellectual property rights holders, consumers, and third-party intermediaries.

“(vii)   Evaluate the current and future resource needs of agencies and make appropriate recommendations for more effective detection, interdiction, investigation, and prosecution regarding trafficking in counterfeit and pirated goods, including trafficking through online third-party marketplaces and other third-party intermediaries.  These recommendations should include suggestions for increasing the use of effective technologies and expanding collaboration with third party intermediaries, intellectual property rights holders, and other stakeholders.

“(viii)  Identify areas for collaboration between the Department of Justice and Department of Homeland Security on efforts to combat trafficking in counterfeit and pirated goods.

“(c)  Within 30 days of submitting the report required by section 2(a) of this memorandum, the Secretary of Homeland Security is authorized and directed to prepare, consistent with applicable law, a public version of the report and publish it in the Federal Register.”

2. The January 24, 2020 Report to the President from Homeland Security, Combating Trafficking in Counterfeit and Pirated Goods.

Last month, following outreach to stakeholders, the U.S. Department of Homeland Security (“DHS”) submitted its report to President Trump. Combating Trafficking in Counterfeit and Pirated Goods, Report to the President of the United States, January 24, 2020 (“January 24, 2020 DHS Report” or “Report”). https://www.dhs.gov/sites/default/files/publications/20_0124_plcy_counterfeit-pirated-goods-report_01.pdf.

It is this report that was relied upon for Executive Order 13904 issued on January 31.

The report reviews the severity of the problem counterfeiting and pirated goods pose to the U.S. economy, U.S. competitiveness, health and safety and to national security. It references information gained from other studies and from the private sector. For example, a 2018 report from the OECD, Governance Frameworks to Counter Illicit Trade, is cited by DHS for its finding that there was “a 154 percent increase in counterfeits traded internationally – from $200 billion in 2005 to $509 billion in 2016.” January 24 DHS Report at 4. “Relevant to the President’s inquiry into the linkages between e-commerce and counterfeiting, OECD reports that ‘E-commerce platforms represent ideal storefronts for counterfeits and provide powerful platform[s] for counterfeiters and pirates to engage large numbers of potential consumers.’1/” Page 4 of the Report citing OECD, Governance Frameworks to Counter Illicit Trade, Illicit Trade, OECD Publishing, https://doi.org/10.1787/9789264291652-en.

The health problems from counterfeit medicines and food products have been widely reported over the last decade or more with knock-of medicines not containing the proper elements. Similarly, counterfeit food products (for humans and animals) may be made with fillers that may cause health problems or even death. The quantity of counterfeit auto and defense sector parts, made of inferior materials and not to manufacturer or government specifications create quality issues and can pose problems for national security. The examples are endless and are found around the world.

The report reviews the complications in combating counterfeit and pirated goods with the growth of e-commerce, the shift from ship cargo shipments to express delivery and mail shipments, from expanded de minimis levels and reduced information from such shipments, and from failure of the private sector to broadly adopt best practices to reduce availability of such goods.

The report both identifies product categories with high levels of counterfeit and pirated goods, some of the major sources of such goods, and provides a list of actions for the U.S. Government and a list of best practices for the private sector involved in e-commerce platforms and third-party marketplaces.

For example, Customs and Border Protection publishes data on annual seizures of goods involving intellectual property rights. The top ten product categories from 2018 were wearing apparel/accessories, footwear, watches/jewelry, handbags/wallets, consumer electronics, consumer products, pharmaceuticals/personal care, optical medial, toys and computers/accessories. Seizures also occur of prohibited substances (e.g., drugs like cocaine, ecstasy, marijuana, LSD, DMT, etc.). January 24, 2020 DHS Report at 10 and 16.

While China is identified as the largest source of counterfeit and pirated goods (id.at 8), other countries are obviously also the source of such goods. China, Hong Kong, Singapore and India were identified as having shipped 97 percent of the counterfeit medicines seized in the U.S. Id at 17.

The report makes clear that there are many actions that the U.S. government must take to deal with the evolving threat from counterfeit and pirated goods. However, the report and private sector input also make clear that there must be a stronger government-private sector partnership for future efforts to be successful. Below are the summary tables from the Report on government actions and best practices for the private sector that are meant to address both government and private sector practices.

From page 5 of the Report:

Immediate Actions by DHS and Recommendations for the U.S. Government

  1. Ensure Entities with Financial Interests in Imports Bear Responsibility
  2. Increase Scrutiny of Section 321 Environment
  3. Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts
  4. Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products
  5. Leverage Advance Electronic Data for Mail Mode
  6. Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) Plan
  7. Analyze Enforcement Resources
  8. Create Modernized E-Commerce Enforcement Framework
  9. Assess Contributory Trademark Infringement Liability for Platforms
  10. Re-Examine the Legal Framework Surrounding Non-Resident Importers
  11. Establish a National Consumer Awareness Campaign

From page 6 of the Report:

Best Practices for E-Commerce Platforms and Third-Party Marketplaces

  1. Comprehensive “Terms of Service” Agreements
  2. Significantly Enhanced Vetting of Third-Party Sellers
  3. Limitations on High Risk Products
  4. Rapid Notice and Takedown Procedures
  5. Enhanced Post-Discovery Actions
  6. Indemnity Requirements for Foreign Sellers
  7. Clear Transactions Through Banks that Comply with U.S. Enforcement Requests for Information
    (RFI)
  8. Pre-Sale Identification of Third-Party Sellers
  9. Establish Marketplace Seller ID
  10. Clearly Identifiable Country of Origin Disclosures

3. Executive Order 13904, 85 Fed. Reg. 6725-6729

The Executive Order (“EO”) was issued on January 31, 2020 and published in the Federal Register on February 5. The EO lays out the Administration’s policy on addressing the problems of counterfeit and pirated goods in e-commerce, including its intent to not permit those engaged in such conduct to be able to do business with the U.S. government or to engage in importing or to avoid liability under U.S. law. Section 1 of the EO, 85 FR 6725.

Section 2 of the EO instructs DHS to engage in rulemaking to establish criteria importers must meet in order to obtain an importer of record number. One such criteria shall be that any person seeking a number has not been debarred or suspended by CBP “for lack of present responsibility”. 85 FR at 6725-6726.

Section 3 of the EO outlines responsibilities of express consignment operators, carriers, hub facilities and licensed customs brokers (‘group”) including to identify efforts of individuals or entities not entitled to importer of record status to resume trade. DHS through CBP is also instructed to consider measures against any member or members of the group who facilitate business by those not entitled to importer of record rights. 85 FR at 6726.

Sections 4 and 5 deal with efforts to be undertaken by the U.S. Postal Service in conjunction with other parts of the Administration to work with the international postal network to adopt similar restrictions as are contained in Section 2 and to provide a series actions the U.S. will take against foreign posts that are deemed not to be compliant. 85 FR at 6726-6727.

Section 6 reviews Administration intention to publish more information on seizures pertaining to illicit trade. It also calls on the Attorney General to make available resources to ensure Federal prosecutors will accord a high priority to going after import violations of the EO. 85 FR at 6727.

Section 7, reflecting the concern of DHS that import fees are not sufficient to cover the costs evaluating imports and importers for counterfeit and pirated goods, orders DHS to prepare a report on the adequacy of current fees and suggesting modifications if appropriate and consistent with U.S. law. 85 FR at 6727-6728.

Conclusion

There is strong support in the Congress and amongst the business community for strong enforcement against illicit trade, including shutting down counterfeit and pirated goods.

The growth of e-commerce has had many positive effects on the U.S. and world economies. It has also unleashed a massively expanding capability of those engaged in counterfeiting and the pirating of goods to market such goods to consumers in the U.S. and around the world without consequence. The risks identified in the DHS Report to manufacturers, to consumers, to health and safety and to national security are real and expanding.

The tension between growing e-commerce and ensuring that all players in the e-commerce system bear responsibility to address shutting down counterfeit and pirated goods is apparent in the Executive Order and the disciplines it does and doesn’t impose on players.

Similarly, the business community (particularly those involved in e-commerce, express delivery and the retail sector) have pushed hard for larger de minimis level imports to facilitate the movement of trade. As the DHS report makes clear, however, those engaged in shipping counterfeit and pirated goods are working the de minimis process to make identification of their products harder. The Report envisions making the de minimis exception harder to hide behind where users may be suspected on engaging in illicit trade.

The EO and related actions described above have the potential to strengthen enforcement in this important area of global commerce. Time will tell whether the actions envisioned will be enough to make a difference in fact in the rate and direction of growth of counterfeit and pirated goods.

WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved?

The GATT had and now the WTO has a system of self-declared status as a developing country. The vast majority of WTO members have declared themselves to be developing countries. Some WTO members are categorized by the United Nations as Least Developed Countries (“LDCs”). Indeed the WTO webpage indicates that 36 of 47 LDCs are currently WTO members and that another eight countries who are listed as LDCs by the UN are in the process of negotiating accession to the WTO. “There are no WTO definitions of ‘developed’ or ‘developing’ countries. Developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies.” https://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e.htm.

The relevance of a WTO member declaring themselves to be a developing country has to do with access to special and differential treatment provisions in virtually every agreement and the likelihood of reduced trade liberalization obligations on the member and in any ongoing negotiations. Thus, in the Uruguay Round, developing countries typically faced lower percent reductions on tariffs and were given longer time periods to implement such reductions than were true for developed countries. A report by the WTO Secretariat reviews Special and Differential Treatment (“S&D”) by agreement and categorizes the S&D provisions under one of the following six groupings (WT/COMTD/W/239 at 4) which are quoted as presented:

  1. provisions aimed at increasing the trade opportunities of developing country Members;
  2. provisions under which WTO Members should safeguard the itnerests of developing country Members;
  3. flexibility of commitments, of action, and use of policy instruments;
  4. transitional time-periods;
  5. technical assistance;
  6. provisions relating to LDC members.

The listing of S&D provisions in the Secretariat document is provided as an attachment below along with a correction.

WTCOMTDW239

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With the progress many countries or customs territories have made during their GATT and/or WTO membership, the self-selection designation process has raised concerns by other members about whether certain Members are carrying their weight in terms of market liberalization. Indeed, some have attributed the failure of the Doha Agenda to conclude in 2008 to what certain Members who have declared themselves to be developing countries were willing to do in terms of liberalization versus other major Members who are not “developing”. The issue of who should benefit from Special and Differential treatment takes as a given that all LDCs should receive such benefits. The issue is about whether those non-LDCs who have experienced strong growth and significant economic advancement since the start of the WTO should continue to enjoy those benefits in new agreements.

The United States at the beginning of 2019 made a major submission entitled “An Undifferentiated WTO: Self-Declared Development Status Risks Institutional Irrelevance”. WT/GC/W/757, 16 January 2019. A revision was submitted in February and was followed by a draft General Council Decision to limit who can claim S&D benefits in future negotiations and agreements. WT/GC/W/747/Rev.1; WT/GC/W/764. The U.S. proposal in February was as follows:

“The General Council,

Acknowledging that full implementation of WTO rules as negotiated by Members can contribute to economic growth and development and the need to take steps to facilitate full implementation;

Recognizing the great strides made by several WTO Members since the establishment of the WTO in accomplishing the goals set out in the Marrakesh Agreement Establishing the World Trade Organization, of ‘raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with
the objective of sustainable development…;’

Recognizing that not all WTO Members have enjoyed equal rates of economic growth and development since the establishment of the WTO;

Recognizing the plight of the least-developed countries and the need to ensure their effective participation in the world trading system, and to take further measures to improve their trading opportunities;

Recognizing that reserving flexibilities for those WTO Members with the greatest difficulty integrating into the multilateral trading system can open new export opportunities for such countries; and

Desiring to strengthen the negotiating function of the WTO to produce high-standard, reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations;

Agrees as follows:

“To facilitate the full implementation of future WTO agreements and to ensure that the maximum benefits of trade accrue to those Members with the greatest difficulty integrating into the multilateral trading system, the following categories of Members will not avail themselves of special and
differential treatment in current and future WTO negotiations:

“i. A WTO Member that is a Member of the Organization for Economic Cooperation and Development (OECD), or a WTO Member that has begun the accession process to the OECD;

“ii. A WTO Member that is a member of the Group of 20 (G20);

“iii. A WTO Member that is classified as a “high income” country by the World Bank; or

“iv. A WTO Member that accounts for no less than 0.5 per cent of global merchandise trade (imports and exports).

“Nothing in this Decision precludes reaching agreement that in sector-specific negotiations other Members are also ineligible for special and differential treatment.”

The self-designation of developing country within the GATT and the WTO has generally been seen by Members and outside observers as a “third rail” that could not be modified because of the certain opposition from those enjoying S&D benefits. Not surprisingly, the U.S. proposal has met with opposition from some important WTO Members who have declared themselves to be developing countries, including China, India, South Africa, Venezuela, Bolivia, Kenya and Cuba. See, e.g., WT/GC/W/765 and 765/Rev.1 (it does not appear that the U.S. proposal would affect the last four Members listed).

The U.S. has included the topic in each General Council meeting since its submissions, has engaged in discussions with many WTO members, and submitted a revised proposal in November 2019, WT/GC/W/764/Rev.1, which incorporated language reflecting its arguments throughout the year that

(1) the proposal would not require any country to declare itself not a developing country, just limit whether they received blanket S&D coverage in new agreements;

(2) the change would affect new agreements/negotiations and not affect S&D from existing arrangements;

(3) Members had the right to seek special accommodations on issues of particular importance to them.

There was also clarification of the third and fourth criteria for non-eligibility to reflect a three year period of meeting the criteria.

A few WTO Members who would be subject to the elimination of automatic entitlement to new S&D provisions if the U.S. proposal were adopted by the General Council have indicated that they will forego automatic S&D from future negotiations/agreements. These Members to date are Korea, Singapore and Brazil.

While the strong opposition from major WTO Members such as China, India and South Africa would indicate the U.S. proposal is not likely to be adopted in the foreseeable future, the U.S. has also indicate that it will oppose S&D provisions in future agreements if they are applicable to certain Members.

Indeed, President Trump on July 26, 2019 issued a Memorandum on Reforming Developing-Country Status in the World Trade Organization. https://www.whitehouse.gov/presidential-actions/memorandum-reforming-developing-country-status-world-trade-organization/. The Memo notes that many WTO members who have declared themselves developing countries are “patently unsupportable in light of current economic circumstances. For example, 7 out of the 10 wealthiest economies in the world as measured by Gross Domestic Product per capita on a purchasing-power parity basis – Brunei, Hong Kong, Kuwait, Macao, Qatar, Singapore, and the United Arab Emirates – currently claim developing country status. Mexico, South Korea, and Turkey – members of both the G20 and the Organization for Economic Cooperation and Development (OECD) – also claim that status.” “China most dramatically illustrates the point.”

The memo goes on to instruct USTR to use all available means to secure changes at the WTO to prevent unwarranted use of S&D provisions and authorizes USTR to take action after 90 days if substantial progress is not made to no longer treat certain WTO members as developing countries and to not support any such country’s efforts to join the OECD.

USTR Robert Lighthizer issued a statement the day of the President’s Memo that reflected the position of the Administration:

“For far too long, wealthy countries have abused the WTO by exempting themselves from its rules through the use of special and differential treatment. This unfairness disadvantages Americans who ply by the rules, undermines negotiations at the WTO, and creates an unlevel playing field. I applaud the President’s leadership in demanding fairness and accountability at the WTO, and I look forward to implementing the President’s directive.” https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/july/ustr-robert-lighthizer-statement

Obviously trading partners have had an ongoing interest in the President’s Memo and how it is being implemented by the USTR. At the December 9, 2019 General Council meeting, as part of the U.S. discussion of its proposal, Ambassador Dennis Shea (Deputy USTR) stated as follows:

“Finally, I’d like to provide an update on the memorandum to USTR from the President of the United States in July.

“The President instructed USTR to no longer treat as a developing country for the purposes of the WTO any self-declared developing country that, in the USTR’s judgment, can inappropriately seek S&D in current and
future WTO negotiations. Some Members have asked how the USTR will carry this out.

“USTR consulted with the interagency Trade Policy Staff Committee on this issue. The interagency agreed that if a S&D provision is introduced in a WTO negotiation, the United States will indicate that it will not agree to that provision unless certain Members forego use of that provision. The United States will also use the TPR process to continue to press countries that we believe should not be claiming blanket S&D in future agreements. In addition, USTR is continuing to review additional steps that can be taken.

“The President issued two other instructions to the USTR.

“The USTR will not support the application for OECD membership of any self-declared developing country that, in the USTR’s judgment, can inappropriately seek S&D in current and future WTO negotiations.

“Also, USTR shall publish on its website a list of all self-declared developing countries that the USTR believes can inappropriately seek S&D in WTO negotiations.

“Members have asked when USTR will publish the list. USTR is consulting on this issue. The memo did not require USTR to publish the list by a speci􀃌c date.

“I’d like to emphasize two important aspects about the memo and the U.S. proposal that we would like Members to keep in mind.

“First, the President’s memo did not instruct USTR to ask any Member to change its self-declared development status. The U.S. proposal does not ask this of any Member, either.

“Second, the President’s memo did not instruct USTR to ask any Member to forego S&D in existing WTO agreements. The U.S. proposal does not ask this of any Member, either.”

https://geneva.usmission.gov/2019/12/09/ambassador-shea-procedures-to-strengthen-the-negotiating-function-of-the-wto/

As S&D provisions are part of every negotiation, the U.S. position obviously creates challenges to completing ongoing negotiations in any area, such as negotiations on fish subsidies, agriculture, digital trade without more countries agreeing not to seek S&D privileges or at least foregoing such privileges in certain agreements where there is U.S. opposition.

A quick look at some of the countries whom the U.S. proposal would remove from automatic S&D eligibility for new negotiations include the following:

Member of the OECD or in the accession process:

Chile, South Korea, Mexico, Turkey, Colombia, Costa Rica.

Member of the G-20:

India, South Africa, Turkey, Argentina, Brazil, Mexico, China, Indonesia, South Korea.

Classified by World Banks as “high income” for 2016-2018 (includes):

Antigua and Barbuda, Bahrain, Brunei Darussalam, Chile, Hong Kong, South Korea, Kuwait, Macao, Panama, Qatar, Seychelles, Singapore, St. Kitts and Nevis, Trinidad and Tobago, United Arab Emirates, Uruguay.

0.5% of Merchandise Trade (includes):

China, South Korea, Hong Kong, Mexico, Singapore, United Arab Emirates, Thailand, Malaysia, Vietnam, Brazil, Indonesia, Turkey, South Africa.

In light of the experience of the last two years on the need to reform the WTO Appellate Body, there should be little doubt that the United States will continue to push hard to achieve a more rational approach to the assumption of obligations at the WTO in terms of who should be eligible for S&D benefits in new agreements. Without movement by some major countries who currently enjoy S&D benefits to forego automatic eligibility in new agreements, the challenging negotiating environment at the WTO that has prevailed for many years now will become more challenging in 2020.