India

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

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

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

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

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

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

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

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

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

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

ST_9208_2020_INIT_EN

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

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

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

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

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

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

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

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

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

Some recent developments

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

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

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

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

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

Trade Considerations

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

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

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

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

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

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

Role of WTO during Pandemic

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

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

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

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

COVID-19 – continued global growth of cases; shift continues to Latin America, parts of Asia and the Middle East

Four months after COVID-19 peaked in China, where the virus started, the world continues to stagger under an expanding case load of confirmed COVID-19 cases. Indeed, in the last two weeks new cases around the world have increased by 1.567 million to reach a current global total since the end of December of 6.835 million as of June 7. These number compare to less than 55,000 global cases (nearly all in China) in early February. During the last two weeks, new confirmed cases increased 22.32% from the prior two weeks and continue a chain of unbroken increases since the beginning of March.

As much of the developed world has seen a peak in the number of cases, the continued growth in new cases reflects shifting centers or hot spots generally to developing countries. In looking at 25 countries that have accounted for more than 80% of all cases through June 7, ten of these countries have not yet reached a peak — Brazil, Chile, Egypt, India, Iran, Mexico, Nigeria, Pakistan, Peru, South Africa — while the other fifteen have peaked and seen declines from peak of between 10% and 99%. These fifteen countries are Canada, China, France, Germany, Italy, Japan, Russia, Saudi Arabia, Singapore, South Korea, Spain, Taiwan, Turkey, United Kingdom and the United States. Still these 25 countries saw a combined increase in total new cases of 18.7% in the last fourteen days. All other countries saw a much larger increase in new cases, 39.61% from 220,812 cases the previous 14 days to 308,293. Some countries of note in this “all other” grouping include Cameroon, Central African Republic, Democratic Republic of the Congo, Ethiopia, Kenya, Sudan, Argentina, Bolivia, Colombia, Guatemala, Haiti, Venezuela, Afghanistan, Bangladesh, Iraq, Nepal, Oman, Qatar, Armenia, and Azerbaijan. See https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases. June 7th report embedded below.

COVID-19-situation-update-worldwide-as-of-7-June-2020

The shifting focus of cases to developing and least developed countries raises increased concerns about access to medical goods, including personal protective equipment, ventilators, and other goods. The WTO’s list of measures applied by Members dealing with COVID-19 either to restrict exports of medical goods or food products or to improve market access , shows dozens of countries applying export restraints on various medical goods (masks, gloves, etc.) including countries where new cases are well past peak (indeed where new cases may be 90% below peak). The WTO information is current as of May 29, 2020. There are also a large number of countries reducing tariffs or streamlining importation of medical goods. https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm.

Moreover, health care infrastructure is often weaker in many of these countries facing growing COVID-19 cases, and the structure of their economies may complicate the ability of governments to address the pandemic even if medical goods are available. A recent article reviews the challenges in Latin America. See https://www.cnn.com/2020/06/06/americas/latin-america-coronavirus-intl/index.html.

Some major players like the United States, the European Union and its member states, and China are both investing large amounts in research and development and also securing early access to any vaccines developed through early commitments and other actions. https://www.biospace.com/article/eu-using-2-7-million-emergency-fund-to-buy-promising-covid-19-vaccines/. With the number of R&D projects ongoing around the world and the efforts of companies and governments to get manufacturing geared up early on promising products, the likelihood of earlier availability of large quantities of vaccines should there be breakthroughs has improved.

The question of equitable and affordable availability for all peoples is certainly there for a global pandemic where major players are funding research and have the resources to get early commitments for supplies. But greater manufacturing capacity earlier should improve global availability. So too the efforts of many countries, organizations and businesses to ensure both availability of vaccines and the distribution of such products to those in need is a major factor in ensuring greater access at affordable prices. As the news from the June 4 GAVI conference in London demonstrates, many are uniting to ensure that small children who have been unable to receive various immunizations against other diseases are able to do so yet this year as well as meet the needs of the pandemic for many developing and least developed countries. See https://www.gavi.org/news/media-room/world-leaders-make-historic-commitments-provide-equal-access-vaccines-all.

Conclusion

The pandemic is continuing to worsen on a global basis even as parts of Asia, Western Europe, Oceania, Canada and the United States are post-peak and starting a process of reopening. The tremendous growth in the number of cases is in developing and least developed countries, those least prepared to handle the health and economic fall out.

The trade news is mixed. Many countries are liberalizing imports of medical goods during the pandemic which is obviously a positive. However, dozens of countries have introduced export restrictions in an environment in which global supply has lagged global demand, and countries have scrambled to protect access to what supplies they can. Many of these restrictions should be removed at this point, at least by countries that are well past peak demand situations.

Ramp up in global production of many medical goods has occurred, though it is unclear if demand/supply balance has been achieved or how/if the world will build the necessary national and regional inventories to handle a second wave or future pandemics. Moreover, without knowing how much larger the number of new cases will become before there is a global peak, it is hard to know if expansion of production of medical goods will be adequate to meet demand in the coming months. Efforts by the G-20 in the trade and investment area are a start but limited in terms of likely actual effect.

Factually, there have substantial declines in global trade flowing from the lock down situation in large parts of the world over the last few months. Trade flows should increase in those parts of the world where reopening is occurring but will likely further decrease in countries where the pandemic is picking up its infection rate. The economic toll on many countries who have come through the worst of the pandemic has been unprecedented and will present challenges to their ability to rebound quickly and to their willingness to increase financial assistance to others.

While success in finding vaccines or therapeutics is never guaranteed (indeed no vaccine for HIV has been found despite efforts for 40 years), there has never been the global focus on R&D and the willingness to risk large amounts of capital to be ready to produce large volumes of doses for any products demonstrating effectiveness. While the global community is not unified in its support of the WHO or in cooperating to achieve equitable and affordable access for all, there has been important support for both which should improve achieving a global solution if vaccines are developed that are effective.

Finally, it is hard to imagine significant forward movement at the WTO on its current negotiations or on WTO reform (including of the dispute settlement system) while Members are struggling to address the fallout from the pandemic. And, of course, with the WTO turning its attention to the selection of a new Director-General in light of DG Azevedo’s departure at the end of August, achieving focus on the normal work of the WTO will be that much harder until a new DG has been selected.

Bottom line – a continued difficult 2020 in the second half of the year.

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

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

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

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

USTR FR notice 301 investigation on digital services

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

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

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

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

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

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

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

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

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

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

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

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

Report_On_France’s_Digital_Services_Tax

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

Conclusion

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

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

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

 

 

 

 

 

COVID-19 Trade and Economic Fallout — Are current projections too optimistic?

The COVID-19 pandemic is not simply a global health crisis but also a global economic crisis of unprecedented proportions.

The WTO has projected that global trade will decline between 13 and 32 percent in 2020 before rebounding in 2021.  https://www.wto.org/english/news_e/pres20_e/pr855_e.htm.

The IMF in its April 2020 update of the global economy modified its projection to show global GDP contraction of 3.0% for 2020 with a 6.1% contraction by advanced economies (U.S., -5.9%; Euro Area, -7.9%; Japan, -5.2) and a 1.0% contraction for emerging markets and developing economies.  https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020.

Developments in global trade and the national economy for the United States and the rising severity of the pandemic in some of the emerging and developing countries will likely cause future downward revisions to the global trade and economic fallout occurring in 2020 and reemphasize the importance of global cooperation both in responding to the pandemic but also in posturing the world for an economic recovery in the second half of 2020 and beyond.

United States data through April as an example

Gross domestic product in the United States declined 5.0% in the first quarter of 2020 based on a May 28, 2020 second estimate provided U.S. Department of Commerce’s Bureau of Economic Analysis.  https://www.bea.gov/sites/default/files/2020-05/gdp1q20_2nd_0.pdf.

With more than 40 million people filing for unemployment benefits between mid-March and the end of May, the projection for second quarter GDP from at least one source on June 1, 2020 is an extraordinary contraction of 52.8%.  See https://www.frbatlanta.org/cqer/research/gdpnow.  This compares to the Congressional Budget Office’s projection of a 39.6% decline in the second quarter.  https://www.cbo.gov/publication/56335.  The CBO estimate uses a 3.5% decline in GDP for the first quarter and an annual projected decline of 5.6% for 2020.

With the current first quarter data GDP contraction in the U.S. at 5.0% and the most recent data from a model similar to that used by the Bureau of Economic Analysis projecting a 52.8% contraction in the second quarter, it is highly likely that the U.S. contraction in 2020 will exceed the 5.9% projected in the April IMF data.

Indeed, with the number of bankruptcies being reported in the U.S. and the large number of small and medium sized companies that may not be able to return to operation as reopening occurs, the economic rebound may not be as strong as current projections estimate either.  The continued large number of new cases in the United States may be a contributing cause as some states either delay the speed of reopening or face larger resurgence of cases once reopening occurs because of the continued high level of COVID-19 in the population.

While the number of cases in the United States has at least stabilized and has been  trending down, the rate of decline is far lower than that experienced in western Europe.  For example, the United States continues to have the largest number of new confirmed cases of any country in the world, many weeks after the U.S. peak.  Indeed in today’s European Centre for Disease Prevention and Control report on the COVID-19 situation update worldwide, as of 2 June 2020, the U.S. has 302,679 cases reported in the last fourteen days of the continuing to grow global total of 1,477,362 new cases in the last fourteen days.  European countries have relatively few (7,973 for Spain; 7,311 for Italy, 9,188 for France and 6,818 for Germany).  https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases.  In a prior post, data were shown for various countries over the period December 31, 2019 – May 24, 2020.  Most European countries show reductions from their peak two week period of 80-90% while the United States has shown declines of only 23.5% through May 24 (slightly more through June 2, 26.0%).  See COVID-19 – new hot spots amidst continued growing number of confirmed cases,  https://currentthoughtsontrade.com/2020/05/25/covid-19-new-hotspots-amidst-continued-growing-number-of-confirmed-cases/.  To the extent that IMF projections are based on infection rates that decline more rapidly than the actual U.S. experience with COVID-19, that would be another reason to believe the IMF projected contractions for the U.S. are too low. 

On the trade front, the United States was doing well until mid-March.  But the COVID-19 challenges that resulted in government actions led to 1st quarter 2020 exports from the U.S. of goods being down 1.2%, services exports down 21.5% for a total contraction of U.S. exports of 6.7%.  U.S. imports of goods were down 11.5%, led by contraction of imports from China due to various additional duties imposed on Chinese goods.  U.S. imports of services were down 29.9% for total imports being down 15.5%.  See Bureau of Economic Analysis, News Release BEA 20-23, May 28, 2020 at 7, https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-second-estimate-corporate-profits-1st-quarter.

The U.S. Department of Commerce, U.S. Census Bureau puts out a “Monthly Advance Economic Indicators Report”.  The April 2020 report was released on May 29th and showed estimated data for imports and exports of goods (seasonally adjusted).  April exports for the U.S. were down 29.9% with individual sectors being down 5.3% (food, feeds and beverages) to 70.8% (automotive vehicles).  Similarly, U.S. imports were down 20.6% for April with sectors varying from being down 5.6% (foods, feeds and beverages) to 57.0% (automotive vehicles).  https://www.census.gov/econ/indicators/advance_report.pdf.

Thus, U.S. trade contractions in April suggest that the range put forward by the WTO (13-32% for the year) is probably the correct range. 

Rising Number of COVID-19 cases in South America and in India

The IMF revised 2020 projections from April likely understate the negative effects that emerging and developing countries are experiencing.  Specifically, Latin America and the Caribbean are seeing major outbreaks of COVID-19 cases with the peak not yet reached in a number of important countries like Brazil, Peru, Chile and Colombia and also in Mexico.  Depending on developments in these major countries and the spread in others, the likely economic contraction in the region could be significantly higher than the 5.2% contained in the April 2020 projections by the IMF.  Brazil was estimated to experience a GDP contraction of 5.3% by the IMF, but recent estimates show a steadily growing projected contraction, latest figures showing 6.25%.  See https://www.statista.com/statistics/1105065/impact-coronavirus-gdp-brazil/.  With the COVID-19 cases still growing in Brazil, the contraction in GDP for 2020 will likely continue to worsen.

Similarly, India was projected to have GDP growth of 1.9% in 2020.  The country’s challenges with COVID-19 cases are just starting with the current total number of confirmed cases at just under 200,000 but with nearly half of the cases reported in the last fourteen days (97,567 of 198,706).   Indeed, some recent projections by Oxford Economics now have India’s GDP contracting in 2020.  See https://www.icis.com/explore/resources/news/2020/06/01/10513907/india-gdp-growth-slows-to-4-2-lockdown-stays-at-manufacturing-hubs.

Other countries are also seeing increasing case numbers and the global totals of new cases have not peaked as yet which likely mean greater numbers of cases than most models have anticipated.  If so global contraction could be significantly worse than the April estimates of the IMF.

High national debt levels are growing higher   

The collapse of economic activity even for a few months is reducing tax revenues, increasing government spending in many jurisdictions and worsening national debt levels.  For example, in the United States the Congressional Budget Office blog from April 24 estimated that the U.S. budget deficit in 2020 and 2021 will be $2.7 billion and $1.1 billion higher than earlier estimates and that federal debt held by the public is likely to grow from 79% of GDP in 2019 to 101% of GDP in 2020 and 108% of GDP in 2021.  https://www.cbo.gov/publication/56335.  The actual deficits and federal debt are likely to be significantly higher as the CBO estimates are based on forecasts for GDP contraction that already understates the severity experienced through the first quarter and assumes no further federal assistance will be required to pull the economy out of the steep contraction being experienced in the second quarter.  As governors across the country have made clear, the serious budget shortfalls being experienced by the states because of closed businesses, reduced revenues and increased expenditures are not sustainable.  If these 2020 shortfalls are not addressed through federal legislation, the outcome will be large reductions in state and local services and massive layoffs of state and municipal employees including police, fire, health care and teachers.  So either the budget shortfall of the federal government is understated because of additional stimulus funding needs or the expected recovery of the economy (and hence government revenues) is overstated because of the challenges for many states.

Virtually every country is facing budget challenges as they attempt to address the COVID-19 pandemic and its economic fallout.  See, e.g., articles on growing budget deficits for France, Italy, Brazil and India; https://www.reuters.com/article/us-health-coronavirus-France-budget/france-more-than-doubles-crisis-package-cost-to-100-billion-euros-idUSKCN21R2J2; https://www.nytimes.com/reuters/2020/05/22/world/americas/22reuters-brazil-economy.html; https://www.reuters.com/article/us-health-coronavirus-italy-budget-exclu/exclusive-italy-sees-2020-budget-deficit-near-10-of-gdp-source-idUSKBN21Y2U9; https://economictimes.indiatimes.com/news/economy/indicators/indias-fiscal-deficit-may-shoot-to-6-2-of-gdp-in-fy21-fitch-olutions/articleshow/74928660.cms?from=mdr#:~:text=NEW%20DELHI%3A%20India’s%20fiscal%20deficit,Fitch%20Solutions%20said%20on%20Wednesday.  

Budget shortfalls, the need to borrow more money and the pressure to reduce national, regional and local services all affect the ability of nations to contribute to international institutions, to provide financial assistance to the poorest countries and to facilitate short-, medium- and longer-term growth.

Conclusion

The global COVID-19 pandemic is creating economic havoc in addition to the heavy health toll on countries around the world.  A global challenge of this magnitude hasn’t been faced since World War II.  The projections that have been made by multilateral and national organizations have been for huge contractions in world trade and in global economic growth.  Unfortunately, the estimates at least on global GDP contraction are likely too optimistic both in terms of the severity of the second quarter 2020 contraction and the anticipated level of  second half 2020 recovery.  Moreover, there is likely to be significantly more national stimulus programs needed to help economies recover increasing already huge national debts for many countries and the likely greater need for trade financing and debt support for many developing and least developed countries because of the severity of the global trade and GDP contraction. 

The challenges being faced affect the health and livelihood of billions of people but are occurring at a time of reduced trust in multilateral institutions, increased trade frictions between major nations and groups of nations and a lack of strong leadership within and among nations.  

How severe the damage to the world turns out to be from the pandemic will depend on –

(1) whether countries come together to ensure open markets;

(2) whether countries both coordinate information about and promote expanded production of essential medical goods to ensure adequate and equitable availability to all at affordable prices,

(3) whether countries support efforts of both public and private players on the development of effective vaccines and therapeutics and facilitate the sharing of information while ensuring equitable availability to all at affordable prices where breakthroughs occur,

(4) whether countries support multilateral organizations’ efforts and individually support the bolstering of health care infrastructure of least developed countries and some developing countries where COVID-19 cases could easily overwhelm internal capabilities;

(5) whether countries cooperate for a strong global recovery by pursuing stimulus programs that don’t distort markets and create other challenges to global participation, and by providing multilateral organizations with the resources to address debt and trade financing needs of the poorest among us.

There are some efforts to address each of the five items above although the U.S. announced withdrawal from the World Health Organization handicaps efforts reviewed in (3). 

More needs to be done and could be done with greater cooperation among the top 50 countries in the world.  However, we may be at the maximum of what is the art of the possible at the moment.  For the 7.8 billion people living on earth in 2020, let us hope that more is possible quickly. 

 

 

 

 

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trade regulation

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

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

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

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

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

Trade facilitation

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

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

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

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

Transparency

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

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

Operation of logistics networks

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

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

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

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

Longer-term collective actions

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

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

Supporting the multilateral trading system

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

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

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

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

Building resilience in global supply chains

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

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

Strengthening international investment

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

COVID-19 — US International Trade Commission report on U.S. imports and tariffs on COVID-19 related goods

In a post from April 6th, I reviewed a WTO document on medical goods relevant to COVID-19. https://currentthoughtsontrade.com/2020/04/06/covid-19-wto-report-on-medical-goods-fao-report-on-food-security/. As reviewed in that post, the data compiled by the WTO were useful but both over- and underinclusive. Because tariffs are harmonized for most countries at the 6-digit HS level, comparable data was only available at that level for the WTO’s analysis even though virtually every category included many products that are not relevant to treating COVID-19. The list also doesn’t include input materials as recognized by the WTO. I had suggested that it would be useful to have WTO Members supply information at their most disaggregated level of detail to see if a tighter fit of at least finished products could be identified in terms of trade.

The United States has now provided a report that provides its data at the 10-digit HTS level of detail for imports into the United States. It would be helpful if other major trading nations similarly provided their detail data to the WTO and for public release. Hopefully, the U.S. will provide similar data for its exports in the coming months.

Development of U.S. import data

USTR has been exploring possible elimination of duties on medical goods needed for the U.S. response to COVID-19 and is accepting comments through late June. The U.S. International Trade Commission (“USITC”) was asked by the Chairman of the U.S. House of Representatives Ways and Means Committee and the Chairman of U.S. Senate Committee on Finance to conduct “a factfinding investigation to identify imported goods related to the response to COVID-19, their source countries, tariff classifications, and applicable rates of duty.”. The report from the USITC’s Investigation 332-576 was completed in late April and is now available from the USITC webpage. USITC, COVID-19 Related Goods: U.S. Imports and Tariffs, Publication 5047 (April 2020). Updates to the report may be made through June 2020. See https://www.usitc.gov/press_room/news_release/2020/er0504ll1540.htm

In the report, the USITC compiled data on 112 10-digit HTS categories but noted that many of these categories which are generally more detailed than the 6-digit categories used in the WTO paper still contain large quantities of goods that are not relevant to the COVID-19 response. Thus, the U.S. data, while more refined that the 6-digit data used by the WTO are still overinclusive. To the extent major input data for products needed to address COVID-19 are not included in the USITC investigation, the results are underinclusive as well.

The USITC Executive Summary notes that of the 112 HTS categories:

6 cover COVID-19 test kits/testing instruments,

9 cover disinfectants ad sterilization products,

22 cover medical imagining, diagnostic, oxygen therapy, pulse oximeters, and other equipment,

20 cover medicines (pharmaceuticals),

19 cover non-PPE medical consumables and hospital supplies,

27 cover personal protective equipment, and

9 covered other products.

Looking at what tariffs were applied, the ITC looked both at ordinary customs duties (Column 1 rates) and also whether additional duties on products from China were owed because of the 301 investigation and subsequent actions by the Administration. The USITC indicated that 76 products (68%) were duty-free for ordinary customs purposes and that 36 products (32%) were subject to duties, though one or more countries’ goods entered duty free for each of the 36 products.

For goods from China, 59 categories were not subject to additional 301 duties, 55 products were subject to additional duties (39 products at 25% additional duties; 16 products at 7.5% additional duties) although 28 of the 55 categories were subject to exclusions (total exclusions for 13 product categories; partial exclusions for the remaining 15 categories).

The Commission pulled import data for 2017-2019 (including for several categories which expired before 2020 for completeness of the underlying data). The data show US imports by HTS category and then show the top 5 source countries by HTS and the all other country customs value.

The data from the investigation will be used by USTR and Congress to inform Administration decisions on which products should receive tariff reductions/eliminations.

Using the ITC’s list, the trade data can presently be updated through March 2020 as March 2020 data are now publicly available.. The total for the 112 categories for 2019 was U.S. imports for consumption of $105.3 billion up from $81.3 billion in 2017 and $93.7 billion in 2018. Imports in the first quarter of 2020 were $28.6 billion up from $24.6 billion in the first quarter of 2019.

The top 15 sources of imports into the U.S. in 2019 are the following. Data also show the percentage change in the first quarter of 2020 compared to the first quarter of 2019.

Top sources of imports Customs Value 2019 % change 2019-2020

Ireland $14.173 billion +12.77%

China $12.313 billion -14.13%

Germany $12.228 billion +20.35%

Mexico $ 8.791 billion + 4.44%

Canada $ 6.026 billion +19.57%

Belgium $ 5.952 billion +63.21%

Switzerland $ 5.082 billion +39.80%

Japan $ 4.144 billion +28.38%

United Kingdom $ 3.409 billion +11.42%

India $ 2.816 billion +16.71%

South Korea $ 2.694 billion -30.68%

Netherlands $ 2.545 billion +94.16%

Italy $ 2.177 billion +75.66%

Malaysia $ 2.163 billion + 7.65%

Costa Rica $ 1.693 billion +22.50%

All Other $16.574 billion +15.13%

Total $105.267 billion +16.16%

Different supplying countries focus on different parts of the medical goods needs of the United States. For example, the top four HTS categories imports from Ireland accounted for more than $10 billion of the $14.173 billion from the country in 2019 and all were medicines. In comparison, the top two HTS categories of imports into the U.S. from China were basket categories (other articles of plastic; other made up articles) which are presumably personal protective equipment (“PPE”) products and were $5 billion of the $12.313 billion. While ventilators were also a significant item, most other major items appear to fit within the PPE category.

Conclusion

The purpose of the USITC investigation and report are to provide information to the Congress and Administration to help identify which imported products relevant to the COVID-19 response by the United States are dutiable and which products from China are also subject to additional tariffs from the 301 investigation. The Administration and Congress will use the information as part of the Administration’s review of which imported products should face a reduction or elimination of tariffs at least during the pandemic.

However, the data also provide useful information for broader use in understanding the extent of trade in goods actually relevant to the global response to COVID-19. Hopefully, the U.S. will compile comparable data on the country’s exports and other major trading nations will supply comparable data to the WTO and to the public.

Shifting Trade Needs During the COVID-19 Pandemic

As of April 28, the number of confirmed COVID-19 cases around the world is over three million. The EU/UK and U.S. have dominated the number of cases and number of deaths to the present time after the start of the pandemic in China. The EU and UK have more than one million cases and more than 120,000 deaths. The United States will likely surpass one million cases by the end of April 28th with deaths above 55,000. . Together they accounted for roughly 70% of cases through April 27 and 84% of deaths.

But the rate of growth is expanding in other parts of the world while number of new cases is shrinking in Europe and flatlining in the United States. The data below look at the number of cases on April 27 and the percent growth of new cases measuring a fourteen day period ending on April 27 compared to a fourteen day period ending on April 11. What the table makes clear is that Europe has been going through a period of declining numbers (percentage less than 100%), North America (based on the US) is close to zero growth (though Mexico’s 14 day numbers more than tripled) , while parts of Africa, Central and South America and some countries in Asia are experiencing rapid growth, albeit generally from low levels. China has largely gotten through the first wave and so numbers for both fourteen day periods are quite low even though the ratio is close to 100%.

Country/Area Number of cases April 27 ratio 14 day cases 4-27/4-11

EU27 908,316 59.65%

UK 152,840 123.03%

4 (Switz., Nrwy, Icel, Lich) 38,358 31.70%

United States 965,910 102.89%

Canada 46,884 128.99%

Mexico 14,677 320.31%

Japan 13,385 159.30%

South Korea 10,738 20.68%

Singapore 13,624 942.40%

China 84,199 93.57%

India 27,892 285.06%

Iran 90,481 52.41%

Turkey 110,130 128.65%

Russia 80,949 599.02%

21 African countries 29,479 185.71%

8 South & Central America 146,515 249.48%

World Total 2,914,507 104.44%

Source; European Centre for Disease Prevention and Control, situation update worldwide, as of 27 April 2020 and 11 April 2020.

As the growth in the number of new cases slows in many developed countries while ramping up in other countries, there will be increasing needs for medical supplies (medicines, equipment, personal protective equipment and other supplies) in countries or territories that heretofore have not had large supply needs.

At the same time, needs for some types of equipment may be reduced in countries that have gotten past the worst of the first wave. Ventilators would be a case in point. In the United States, as hard hit areas like New York see lower hospitalization rates, the state has been able to forward some ventilators to other states with growing case loads. Similarly, the United States has moved from a situation of buying ventilators abroad to being able to send ventilators abroad. That ability is presumably increasing as expanded U.S. production of ventilators kicks into higher gear as we get to the end of April.

Countries like China that have largely gotten through the first wave of COVID-19 have moved from being large importers of medical supplies to being able to export significant quantities of various supplies, including personal protective equipment. They have also ramped up production of some medical supplies and so should be able to both handle any internal needs and continue to expand exports to the world.

However, for countries that have gotten into a period of declining new cases or even flat growth, needs for personal protective equipment, disenfectant, testing equipment and supplies will continue to grow as these countries deal with both ongoing needs for hospital care and the significant increase in testing and tracing needed for a safe reopening of countries and the likely change in protective gear needed for citizens freed from stay at home orders.

Prior posts have reviewed efforts by the multilateral organizations like the WHO, IMF, World Bank, FAO, WCO and WTO to facilitate transparency, financial and other needs of the world during the pandemic as well as efforts at coordinated actions by the G20.

Faced with the worst pandemic in more than a century, the world was generally caught flat footed and without adequate supplies to address the needs of individual countries or the world as a whole.

Transparency and efforts to keep markets open are two of the trade focuses of governments and the WTO. However, a health crisis during a time of grossly inadequate medical supplies has resulted in many countries taking at least temporary actions to secure medical supplies needed for domestic demand. This has occurred through export restraints, commandeering domestic production, using laws aimed for national emergencies and other actions which favor the large and wealthy over other parties.

There appears to be little or no international efforts to coordinate expansion of critical supplies or to monitor demand vs. supply availability to maximize utilization of the scarce supplies that are available in areas hardest hit. If in fact, the pandemic is gaining steam in developing and least developed countries, there is an increasing need for coordinated action in supporting these countries in the weeks and months ahead.

In that regard, Deputy Director-General Alan Wolff provided virtual remarks on April 20th to an event hosted by the Center for China and Globalization in Beijing on the role of the WTO in assisting in the response to the COVID-19 pandemic. The link to the presentation is here and the materials off of the WTO webpage are embedded below. https://www.wto.org/english/news_e/news20_e/ddgaw_20apr20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff_-Policy-coordina

While DDG Wolff recognizes that any action by the WTO is based upon initiatives from Members, he includes a series of “[a]genda items for a WTO COVID 19 Response”. Some of the agenda items have been pursued by individual WTO members as well as being part of an agreement between Singapore and New Zealand. These would include tariff suspensions on relevant medical supplies and enhanced trade facilitation for medical supplies. The WTO membership has already authorized transparency on actions taken, although Members have at best a spotty performance in providing the transparency agreed to.

The proposed agenda includes items that appear to be more aspirational in nature, at least during the current pandemic, including an agreement on codes of conduct on topics such as “guidelines on allocating scarcity”, “an accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form)”. Such issues will likely have greater likelihood of success after the pandemic has passed.

Of great interest to me is the last posting under “Codes of conduct, best practices and international understandings resulting in” which is “Coordinated efforts to enhance manufacturing of medical equipment and supplies”. It is possible that there are efforts within the WTO or the OECD or other groups to gather information on current capacities and planned expansions. Such an effort if not currently occurring should be made a priority during the pandemic and going forward. As China’s experience demonstrated (where demand in China for masks exceeded China production by ten-to-one during the peak increase in cases), supply is unlikely to meet demand in individual countries without better coordination amongst countries and without a greater global inventory buffer to address extraordinary demand surges.

The last agenda item proposed by DDG Wolff is the “Formation of a WTO Member Emergency Covid 19 Response Committee (ERC) or Task Force”. One would hope that an ERC could be quickly created within the WTO although many Members have shown reluctance during the pandemic (at least during the time where in-person meetings are not possible) to agree to any substantive decisions, although being open to collect information. It is also unclear how quickly an ERC, if created, would be able to advance proposals of interest to Members. But it could certainly be a group focused on gathering greater information relevant to supplies and demand as well as restrictions and liberalizations.

Finally, DDG Wolff in looking at planning for the future advances the idea of creating a WTO Committee for Policy Planning. “It is necessary to assure that there is dedicated policy planning capacity within the WTO Secretariat and networked with Members, including experts in capitals who would be able to participate remotely.” Such a Committee could hopefully, inter alia, help WTO Members come up with policies and rules that would better prepare the world for any future pandemics. While much of what is required to minimize the effects of future pandemics is not within the WTO’s jurisdiction, there are certainly areas that are. Many of those include the items DDG Wolff has included in his suggested agenda for the WTO in response to COVID-19. Hopefully, if not doable during the pandemic, such agenda items will be addressed aggressively after the pandemic, perhaps through a Committee for Policy Planning.

Conclusion

The current health pandemic is continuing at a high level but with growing infections starting to shift geographical areas of interest. As developing countries and least developed countries become areas of increased cases, the challenges of ensuring adequate medical supplies to those in need will become greater and be complicated by health infrastructure in many countries, financial resources, and continued supply/demand imbalances. The best hope for positive outcomes is greater coordination of activity and expanded financial resources available to those in need. The seemingly largest gap in coordinated activity is in the area of current supply abilities, growth in capacity and shifting demand needs. Hopefully international organizations like the WTO can help fill the gap.

Food Security Complications from COVID-19 – Recent UN Information and G20 and WTO Member Statements

With the global health crisis flowing from the COVID-19 pandemic ongoing, the world is also facing the specter of mass starvation flowing from a combination of ongoing armed conflicts, weather events, export restraints on food and potential disruptions in food supply. Export restraints and disruptions in food supply are increasing based on actions to address the COVID-19 pandemic.

Governments of the world are understandably focused on the health pandemic where known deaths since December are approaching 200,000 with confirmed cases over 2.5 million and continuing to increase. To date Europe and the United States and a few other countries account for the vast majority of confirmed cases and deaths from COVID-19, though nearly all countries have some cases and many other countries could see rapidly growing cases in the weeks and months ahead.

In contrast, the number of people in the world facing acute hunger and possible starvation is staggering with death projections for 2020 in key months of likely shortage as high as 300,000/day or more without concerted efforts to prevent! On April 21, David Beasley, the UN World Food Programme Executive Director made a virtual presentation to the UN Security Council. https://www.wfp.org/news/wfp-chief-warns-hunger-pandemic-covid-19-spreads-statement-un-security-council. His statement is reproduced below.

Forgive me for speaking bluntly, but I’d like to lay out for you very clearly what the world is facing at this very moment. At the same time while dealing with a COVID-19 pandemic, we are also on the brink of a hunger
pandemic.

“In my conversations with world leaders over the past many months, before the Coronavirus even became an issue, I was saying that 2020 would be facing the worst humanitarian crisis since World War II for a number of reasons.

“Such as the wars in Syria and Yemen. The deepening crises in places like South Sudan and, as Jan Egeland will no doubt set out, Burkina Faso and the Central Sahel region. The desert locust swarms in Africa, as Director General Qu highlighted in his remarks. And more frequent natural disasters and changing weather patterns. The economic crisis in Lebanon affecting millions of Syrian refugees. DRC, Sudan, Ethiopia. And the list goes on. We’re already facing a perfect storm.

“So today, with COVID-19, I want to stress that we are not only facing a global health pandemic but also a global humanitarian catastrophe. Millions of civilians living in conflict-scarred nations, including many women and children, face being pushed to the brink of starvation, with the spectre of famine a very real and dangerous possibility.

“This sounds truly shocking but let me give you the numbers: 821 million people go to bed hungry every night all over the world, chronically hungry, and as the new Global Report on Food Crises published today shows, there are a further 135 million people facing crisis levels of hunger or worse. That means 135 million people on earth are marching towards the brink of starvation. But now the World Food Programme analysis shows that, due to the Coronavirus, an additional 130 million people could be pushed to the brink of starvation by the end of 2020. That’s a total of 265 million people.

“On any given day now, WFP offers a lifeline to nearly 100 million people, up from about 80 million just a few years ago. This includes about 30 million people who literally depend on us to stay alive. If we can’t reach these people with the life-saving assistance they need, our analysis shows that 300,000 people could starve to death every single day over a three-month period. This does not include the increase of starvation due to COVID-19.

“In a worst-case scenario, we could be looking at famine in about three dozen countries, and in fact, in 10 of these countries we already have more than one million people per country who are on the verge of starvation. In many places, this human suffering is the heavy price of conflict.

“At WFP, we are proud that this Council made the historic decision to pass Resolution 2417 in May 2018. It was amazing to see the council come together. Now we have to live up to our pledge to protect the most vulnerable and act immediately to save lives.

“But this is only in my opinion only the first part of the strategy needed to protect conflict-riven countries from a hunger pandemic caused by the Coronavirus. There is also a real danger that more people could potentially die from the economic impact of COVID-19 than from the virus itself.

“This is why I am talking about a hunger pandemic. It is critical we come together as one united global community to defeat this disease, and protect the most vulnerable nations and communities from its potentially devastating effects.”

Lockdowns and economic recession are expected to lead to a major loss of income among the working poor. Overseas remittances will also drop sharply – this will hurt countries such as Haiti, Nepal, and Somalia just a name a couple. The loss of tourism receipts will damage countries such as Ethiopia, where it accounts for 47% of total exports. The collapsing oil prices in lower-income countries like South Sudan will have an impact significantly, where oil accounts for 98.8% of total exports. And, of course, when donor countries’ revenues are down, how much impact will this have on life saving foreign aid.

The economic and health impacts of COVID-19 are most worrisome for communities in countries across Africa as well as the Middle East, because the virus threatens further damage to the lives and livelihoods of people already put at risk by conflict.

“WFP and our partners are going all-out to help them we’ll do everything we possibly can. For example, we know that children are particularly vulnerable to hunger and malnutrition, so we are prioritizing assistance to them.

“Right now, as you may now 1.6 billion children and young people are currently out of school due to lockdown closures. Nearly 370 million children are missing out on nutritious school meals – you can only imagine when children don’t get the nutrition they need their immunity goes down. Where nutritious school meals have been suspended by school closures, we are working to replace them with take-home rations, wherever possible.

“As you know, WFP is the logistics backbone for the humanitarian world and even more so now for the global effort to beat this pandemic. We have delivered millions upon millions of personal protective equipment, testing kits and face masks to 78 countries on behalf of the World Health Organization. We are also running humanitarian air services to get frontline health professionals doctors, nurses, and humanitarian staff into countries that need help, especially while passenger air industry is basically about shut down.

“But we need to do so much more, and I urge this Council to lead the way. First and foremost, we need peace. As the Secretary-General recently said very clearly, a global ceasefire is essential.

Second, we need all parties involved in conflicts to give us swift and unimpeded humanitarian access to all vulnerable communities, so they can get the assistance to them that they need, regardless of who they are or where they are. We also need in a very general sense humanitarian goods and commercial trade to continue flowing across borders, because they are the lifeline of global food systems as well as the global economy. Supply chains have to keep moving if we are going to overcome this pandemic and get food from where it is produced to where it is needed. It also means resisting the temptation to introduce export bans or import subsidies, which can lead to price hikes and almost always backfire.

“WFP is working hand in glove with governments to build and strengthen national safety nets. This is critical right now to ensure fair access to assistance and help maintain peace and prevent rising tensions among communities.

Third, we need coordinated action to support life-saving humanitarian assistance. For example, WFP is implementing plans to preposition three months’ worth of food and cash to serve country operations identified as priorities. We are asking donors to accelerate the (US) $1.9 billion in funding that has already been pledged, so we can build stockpiles and create these life-saving buffers, and protect the most vulnerable from the effects of supply chain disruptions, commodity shortages, economic damage and lockdowns. You understand exactly what I’m talking about.

“We are also requesting a further USD350 million to set up a network of logistics hubs and transport systems to keep humanitarian supply chains moving around the world. They will also provide field hospitals and medical evacuations to the frontline humanitarian and health workers, as needed and strategically.

“Excellencies, two years ago the Security Council took a landmark step when it recognized, and condemned, the devastating human toll of conflict paid in poverty and hunger. Resolution 2417 also highlighted the need for early warning systems, and today I am here to raise that alarm.

“There are no famines yet. But I must warn you that if we don’t prepare and act now – to secure access, avoid funding shortfalls and disruptions to trade – we could be facing multiple famines of biblical proportions within a short few months.

“The actions we take will determine our success, or failure, in building sustainable food systems as the basis of stable and peaceful societies. The truth is, we do not have time on our side, so let’s act wisely – and let’s act fast. I do believe that with our expertise and partnerships, we can bring together the teams and the programs necessary to make certain the COVID-19 pandemic does not become a humanitarian and food crisis catastrophe. So Mr. President, thank you, thank you very much.

Emphasis added. See also https://news.un.org/en/story/2020/04/1062272.

The 2020 Global Report on Food Crises mentioned in Mr. Beasley’s statement can be found here and is embedded below. https://docs.wfp.org/api/documents/WFP-0000114546/download/?_ga=2.200353390.1965067900.1587648297-1190105299.1587648297.

GRFC_2020_ONLINE_200420

Fifty-six countries or territories are listed as at various levels of concern for hunger in 2019 and potentially for 2020 and are summarized on pages 214-215 of the report. Eleven of the fifty-six countries or territories are categorized as at a phase 4 level (emergency) for the country as a whole or for particular parts. These include Afghanistan, Angola, the Central African Republic, the Democratic Republic of Congo, Haiti, Nigeria, South Sudan, Sudan, Yemen, Zambia, and Zimbabwe. Twenty-one others are categorized as phase 3 (crisis). These include Burkino Faso, Cameron, Chad, Eswatini, Ethiopia, Guatemala, Honduras, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mozambique, Namibia, Niger, Pakistan, Senegal, Sierra Leone, Somalia, Uganada, and the United Republic of Tanzania. Eight countries or territories were ranked phase 2 (stressed). These included Cabo Verde, Cote d’Ivoire, El Salvador, Gambia, Guinea, Guinea-Bissau, Kenya and Nicaragua. Two countries or territories were listed as phase 1 (minimal)(Burundi and Rwanda). The remaining fourteen countries or territories had not been given a specific phase, some because the problem related to the presence of large numbers of refugees and what might happen during the year; for others the descriptions of the hunger challenges would suggest serious problems. These countries or territories include Bangladesh, Colombia, Djibouti, Ecuador, Iraq, Lebanon, Liberia, Libya, Myanmar, Palestine, Syrian Arab Republic, Turkey, Ukraine, and Venezuela.

While the bulk of the concerns raised in the report go to ongoing conflicts and weather problems, trade restrictions are potentially important contributors. As reviewed in an earlier post, a number of countries have imposed export restraints on certain agricultural goods. With the exception of Myanmar and Ukraine who are listed in the 2020 Global Report on Food Crises, the other countries reviewed in my earlier post are not included in the report. These countries include Russia, Kazakhstan, Vietnam, Malaysia, the Philippines, Thailand, Indonsia and Cambodia. The earlier post is linked below.

G20 Agriculture Ministers Communique

Following a virtual meeting on April 21, G20 Agriculture Ministers released a Ministerial Statement that reaffirmed “the importance of working to ensure the continued flow of food, products and inputs essential for agircultural and food production”. The Statement can be found here. https://g20.org/en/media/Documents/G20_Agriculture%20Ministers%20Meeting_Statement_EN.pdf. The statement covers a fair amount of ground but doesn’t prohibit export restraints per se in agriculture but rather repeats the limitations (reflecting existing WTO flexibilities) that trade ministers articulated for medical supplies – any restraints should be targeted, proportionate, transparent, and temporary. The full statement is reproduced below.

“We, the G20 Agriculture Ministers, are deeply saddened by the devastating human losses and suffering caused by the spread of COVID-19. We commit to cooperating closely and taking concrete actions to safeguard global food security and nutrition.

‘We reaffirm the importance of working to ensure the continued flow of food, products, and inputs essential for agricultural and food production across borders in line with our Leaders’ Statement on COVID-19 of March 26, 2020. We acknowledge the challenges of minimizing the risk of COVID-19 while keeping food supply chains functioning. We will continue to work to ensure the health, safety, welfare, and mobility of workers in agriculture and throughout the food supply chain.

We will guard against any unjustified restrictive measures that could lead to excessive food price volatility in international markets and threaten the food security and nutrition of large proportions of the world population, especially the most vulnerable living in environments of low food security. We agree that emergency measures in the context of the COVID-19 pandemic must be targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global food supply chains, and are consistent with World Trade Organization (WTO) rules. We recognise the importance of transparency and commend the Trade and Investment Ministers’ commitment to notify the WTO of any trade-related measures taken, including those related to agriculture and essential foodstuffs. We reaffirm our agreement not to impose export restrictions or extraordinary taxes on food and agricultural products purchased for non-commercial humanitarian purposes by the World Food Programme (WFP) and other humanitarian agencies.

“We emphasize the work of the G20 Agricultural Market Information System (AMIS) and take note of AMIS’ assessment that at present global food supplies are adequate and food markets remain well balanced. As members, we commit and call on other members to continue providing timely and reliable information on global food market fundamentals to help markets, countries, and consumers make informed choices. Where appropriate, we will coordinate policy responses, supported by the AMIS Global Food Market Information Group and the AMIS Rapid Response Forum. We call for continued support for AMIS, including through voluntary financial contributions.

“We will work together to help ensure that sufficient, safe, affordable, and nutritious food continues to be available and accessible to all people, including the poorest, the most vulnerable, and displaced people in a timely, safe, and organized manner, consistent with national requirements. Acknowledging the critical role of the private sector in food systems, we call for enhanced cooperation between the public and private sectors to help mobilize rapid and innovative responses to impacts of this pandemic on the agriculture and food sectors.

“Under the current challenging circumstances, we stress the importance of avoiding food losses and waste caused by disruptions throughout food supply chains, which could exacerbate food insecurity and nutrition risks and economic loss. We stress the need to strengthen the sustainability and resilience of food systems globally, including to future shocks from disease and pest outbreaks, and to the global challenges that drive these shocks. In line with the One Health approach, we call for strengthened mechanisms for monitoring, early warning, preparedness, prevention, detection, response, and control of zoonotic diseases, and developing science-based international guidelines on stricter safety and hygienic measures for zoonosis control.

“We deeply thank farmers and workers, and small, medium and large scale agri-food businesses for their continuous efforts to ensure our food supply. We will intensify our efforts, in line with WTO rules and the 2030 Agenda for Sustainable Development, to support them to sustain their activities and livelihoods during the crisis and to assist their recovery afterwards. Our efforts will support rural communities, especially small-scale farmers and family farms, to be more economically prosperous, resilient and sustainable, and to have improved food security and nutrition, giving special attention to the needs of developing and low-income countries.
We will continue our cooperation with relevant international organizations and within their mandates work to: reinforce international cooperation; identify additional actions to alleviate the impacts of COVID-19 on food security and nutrition; share best practices and lessons learned, such as addressing barriers to supply chains; promote evidence and science-based information and combat misinformation; provide capacity building and technical assistance; and promote research, responsible investments, innovations and reforms that will improve the sustainability and resilience of agriculture and food systems. This work could build on the Food and Agriculture Organization’s (FAO’s) evolving response to COVID-19, the International Fund for Agricultural Development’s (IFAD’s) evolving efforts to support a strong recovery from the effects of COVID-19, policy monitoring and analysis by the OECD, and other relevant initiatives, such as the preparation for the 2021 UN Food Systems Summit.

“We will continue our close cooperation and as necessary update our response to the COVID-19 pandemic and our broader G20 agriculture and food agenda. We stand ready to reconvene as required.” (Emphasis added)

The virtual meeting of G20 Agriculture Ministers included information received from the various UN organizations with expertise. See http://www.fao.org/news/story/en/item/1272058/icode/

The Ministerial Statement is helpful in encouraging nations to maintain open markets, to not tax humanitarian food aid and to provide transparency in actions taken. But the Ministerial Statement does not commit the G20 members to avoid trade restrictions where such restrictions are temporary, targeted, transparent and proportionate. Based on actions taken by China and India during the 2007-2008 food crisis, it is not surprising that the G20 could not get hard commitments to avoid agriculture export restrictions from all G20 members.

As international organizations are serving as transparency fora and are encouraging joint action, it is not surprising that the Ministerial Statement was warmly received by the WTO as the statement supports transparency and WTO consistency of any actions taken.. https://www.wto.org/english/news_e/news20_e/dgra_21apr20_e.htm.

Communique from Various WTO Members

On July 22, twenty-three WTO Members (including the EU) submitted a joint statement to the WTO entitled RESPONDING TO THE COVID-19 PANDEMIC WITH OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS, WT/GC/208, G/AG/30. The statement is embedded below.

WTGC208

The statement cautions countries to avoid actions to address the COVID-19 pandemic that would adversely affect trade in agricultural goods. Absent from the joint statement are important Members who have in the past used or who at present are using export restraints on certain agricultural products including China and India (past export restraints) and Russia, Kazakhstan, Vietnam, Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia (current export restraints).

The joint statement has strong language on keeping markets open (including the negative effects of export restrictions on agriculture and agri-food products), avoiding waste, maintaining effective transport and logistical services, the importance of transparency in actions taken as well as food production and stocks. Nonetheless, because of existing WTO flexibilities provided to Members, the commitments made by the 23 Members include one which maintains the right to emergency measures that are “targeted, proportionate, transparent and temporary, and not create unnecessary barriers to trade or disruption to global supply chains”.

The joint statement is certainly a positive step with eight specific commitments taken by WTO Members who account for 63% of global agricultural exports and 55% of global agricultural imports. Time will tell if the list of supporters of the commitments expands to other major Members.

Conclusion

Based on current and projected food supplies, there should be no crisis in food supplies to the world if there is collective efforts to keep markets open, provide food aid for populations experiencing severe shortages due to conflict, adverse weather events and any adverse effects from the COVID-19 pandemic. Much of what the UN and its World Food Programme seek (cease fires; access to people regardless of conflicts or sanctions) is not likely to happen based on actions by certain major countries. But keeping world markets open and food aid funded hopefully will occur. The consequences of failure in this regard would greatly exacerbate the health and economic costs already experienced from COVID-19.

COVID-19 – G20 Finance Ministers and Central Bank Governors April 15, 2020 Communique and G20 Action Plan

With the COVID-19 pandemic continuing to expand globally, with confirmed cases roughly 2.2 million on April 17 and with deaths exceeding 150,000, the world’s major economies continue to meet to promote policies and take individual and collective actions to address the health, social and economic impacts from the pandemic.

The G20 finance ministers and central bank governors met virtually earlier this week in an effort to push forward the overall objectives of G20 leaders. The communique that was released at the end of the virtual meeting included an Annex containing a “G20 Action Plan – Supporting the Global Economy through the COVID-19 Pandemic”. Below is a lengthy excerpt from the opening remarks of Saudi Arabia’s Minister of Finance, H.E. Mr. Mohammed bin Abdullah Al-Jadaan. Saudi Arabia holds the presidency of the G20 in 2020.

“We have just concluded our second G20 Finance Ministers and Central Bank Governors meeting on the margin of the 2020 spring meetings.

“This pandemic has already taken a great toll on our people and on their economic wellbeing, and we are still faced with extraordinary uncertainty about the depth and duration of this global pandemic.

“G20 Leaders, during the G20 Extraordinary Leaders’ Summit on 26 March 2020, recognized the gravity of the intertwined public health and economic crises. They have therefore committed to a globally coordinated response encompassing all necessary measures to combat the COVID-19 pandemic.

“More recently, G20 Finance Ministers and Central Bank Governors convened two extraordinary meetings to reach a consensus on a roadmap that will implement our G20 Leaders’ commitments in responding to COVID-19.

“Ministers and Governors’ urgent collective priority is to overcome the COVID-19 pandemic and its intertwined health, social and economic impacts. We are determined to spare no effort, both individually and collectively, to protect lives, overcome the pandemic, safeguard people’s jobs and incomes, support the global economy during and after this phase and ensure the resilience of the financial system.

“These are unprecedented times that demand swift, strong and significant global action. G20 members have injected over $7 trillion into the global economy to protect jobs, businesses and economies, billions have been allocated to the hunt for vaccines, research and development, protection of front line health workers and addressing trade issues on vital goods. Our
efforts must continue and be amplified.

“Ministers and Governors are committed to use all available policy tools to support the global economy, boost confidence, maintain financial stability and prevent deep and prolonged economic effects. As mandated by the extraordinary G20 Leaders’ Summit, today Ministers and Governors endorsed a G20 Action Plan in response to the COVID-19 pandemic.

“The Plan sets out our commitments to specific actions to drive forward international economic cooperation as we navigate this crisis and look ahead to a robust and sustained global economic recovery.

“Our aim, with the action plan, is to support the necessary health response and measures to increase our collective health resilience for the future, preventing a liquidity crisis turning into a solvency crisis, and a global recession becoming a global depression.

“Ministers and Governors have worked as well to deliver international financial assistance to the developing countries.

“Our actions today include a G20 initiative to suspend debt service payments for the poorest countries. All bilateral official creditors will participate in this initiative, which is an important milestone for the G20. The multilateral development banks are also expected to further explore the options for their participation in this initiative. And through this platform, I also call on private creditors, working through the Institute of International Finance, to participate in this initiative on comparable terms.
In addition, our collective actions today resulted in a comprehensive IMF financial support package and implementing urgently the support proposed by the WBG and the Multilateral Development Banks, amounting to USD 200 billion. Ministers and Governors have also taken exceptional measures to develop bilateral swap lines and repo facilities by central banks.”

The Communique and its Annexes can be found here, http://www.g20.utoronto.ca/2020/2020-g20-finance-0415.html, and the document is embedded below.

Communiqué_-G20-Finance-Ministers-and-Central-Bank-Governors-April-15-2020

The action plan provides a number of useful agreed actions to address the three broad needs for governmental action to respond to the pandemic – the health response (saving lives), pages 3-4; the economic and financial response (supporting the vulnerable and maintaining conditions for a strong recovery), pages 4-6; and returning to strong, sustainable balanced and inclusive growth once containment measures are lifted, pages 6-7. The action plan also reviews what is being done to provide international support to countries in need, pages 7-8, and actions needed to learn from the current pandemic, pages 8-9. Actions through multilateral organizations like the World Bank and IMF and additional actions through regional development banks provide hope for many least developed countries and many developing countries that assistance is forthcoming for each area of primary need. How successful the assistance will be will depend in part on private sector participation in debt payment deferrals and whether G20 governments increase the level of funding made available to the World Bank and IMF.

Not surprisingly, few of the actions outlined in the G20 action plan are trade specific. Most deal with the types of actions needed to help countries and territories get through the pandemic without the collapse of their economies. The focus is on financial needs. However, there is one trade specific action listed in each of the three areas reviewed.

For health – “We agree that emergency trade measures designed to tackle COVID-19, if deemed necessary, must be targeted, proportionate, transparent and temporary, and that they do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules. We are actively working to ensure the continued flow of vital medical supplies and equipment.” Page 4.

For economic and financial response – “As agreed by Trade and Investment Ministers, we will continue to work together to deliver a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.” Page 5.

For returning to strong, sustainable, balanced and inclusive growth — “We look forward to work by the G20 Trade and Investment Working Group to identify, among other things, longer term actions that should be taken to support the multilateral trading system and expedite economic recovery.” Page 6.

As reviewed in prior posts, the lack of greater specificity on trade actions the G20 can agree on reflects in part the existing flexibilities within the WTO permitting governments to take trade restricting actions for certain purposes, including protecting human health. It is also the case that a number of the G20 countries (e.g., China, EU countries, India and the US) have used export restraints already as part of their response to COVID-19. In such a situation, language other than that calling for trade restrictive measures taken to be “targeted, proportionate, transparent and temporary” was unlikely to win agreement from the G20 countries as a whole.

The G20 action plan released by the finance ministers and central bank governors constitutes important ongoing steps by the G20 to provide some coordinated leadership to addressing at least certain global needs flowing from the pandemic.

IMF, OECD and FSB policy tracking tools for government actions to address COVID-19

Attachment I to the G20 Action Plan are links to policy tracking sites on the IMF and the OECD websites. The Attactment also reviews information that is available from the Financial Stability Board. Pages 11-12 describes the policy tracking sites as follows:

“The International Monetary Fund: This policy tracker summarizes the key economic responses governments are taking to limit the human and economic impact of the COVID-19 pandemic as of end-March 2020. The tracker includes 193 economies. Available here: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19.

“The Organization for Economic Co-operation and Development: This series brings together policy responses spanning a large range of topics, from health to education and taxes. It is updated daily. Available here:
http://oecd.org/coronavirus/en/#country-policy-tracker.

“The Financial Stability Board: Compilation of regulatory, supervisory and other financial policy measures in response to COVID-19. Circulated to FSB members.” See, e.g., FSB, COVID-19 pandemic: Financial stability implications and policy measures taken, https://www.fsb.org/wp-content/uploads/P150420.pdf

Below is an excerpt from the IMF tracker for China:

“China, People’s Republic of

“China has been hit hard by the outbreak with over 81,865 confirmed COVID-19 cases and 3,335 deaths as of April 9, 2020 (mainland). The government imposed strict containment measures, including the extension of the national Lunar New Year holiday (ending on Feb 2 extended from Jan 30), the lockdown of Hubei province, large-scale mobility restrictions at the national level, social distancing, and a 14-day quarantine period for returning migrant workers. The domestic transmission of the virus has slowed significantly, and mobility restrictions have been largely removed. while policy has tightened to contain the virus transmission of asymptomatic cases.

“Key Policy Responses as of April 9, 2020

“FISCAL

“An estimated RMB 2.6 trillion (or 2.5 percent of GDP) of fiscal measures or
financing plans have been announced, of which 1.2 percent of GDP are
already being implemented. Key measures include: (i) Increased spending on epidemic prevention and control. (ii) Production of medical equipment. (iii) Accelerated disbursement of unemployment insurance. (iv) Tax relief and waived social security contributions. The overall fiscal expansion is expected to be significantly higher, reflecting the effect of already announced additional measures such as an increase in the ceiling for special local government bonds of 1.3 percent of GDP, improvements of the national public health emergency management system, and automatic stabilizers.

“MONETARY AND MACRO-FINANCIAL

“The PBC provided monetary policy support and acted to safeguard financial market stability. Key measures include: (i) liquidity injection into the banking system via open market operations, including RMB 3 trillion in the first half of February and 170 billion in late-March, (ii) expansion of re-lending and rediscounting facilities by RMB 1.8 trillion to support manufacturers of medical supplies and daily necessities micro-, small- and medium-sized firms and the agricultural sector at low interest rates, (iii) reduction of the 7-day and 14-day reverse repo rates by 30 and 10 bps, respectively, as well as the 1-year medium-term lending facility rate by 10 bps, (iv) targeted RRR cuts by 50-100 bps for large- and medium-sized banks that meet inclusive financing criteria which benefit smaller firms, an additional 100 bps for eligible joint-stock banks, and 100 bps for small- and medium-sized banks in April and May to support SMEs, (v) reduction of the interest on excess reserves from 72 to 35 bps, and (vi) policy banks’ credit extension to micro- and small enterprises (RMB 350 billion).

“The government has also taken multiple steps to limit tightening in financial conditions, including measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties. Key measures include (i) delay of loan payments and other credit support measures for eligible SMEs and households, (ii) tolerance for higher NPLs for loans by epidemic-hit sectors and SMEs, (iii) support bond issuance by financial institutions to finance SME lending, (iv) additional financing support for corporates via increased bond issuance by corporates, (v) increased fiscal support for credit guarantees, (vi) flexibility in the implementation of the asset management reform, and (vii) easing of housing policies by local governments.

“EXCHANGE RATE AND BALANCE OF PAYMENTS

“The exchange rate has been allowed to adjust flexibly. A ceiling on crossborder financing under the macroprudential assessment framework was raised by 25 percent for banks, non-banks and enterprises.”

As noted, the IMF tracks the same type of information for 193 economies. The IMF data do not include trade-related actions by governments.

More surprising is that the OECD policy tracker doesn’t review trade-related actions since the OECD does review trade policy issues within its overall activities. In an earlier post, I had noted that the OECD indicates that it shares trade information with the WTO, but neither the WTO nor the OECD present information is as detailed and comprehensive a way as the tracking done by the IMF or done by the OECD on matters they do cover. Below is the OECD tracking information for Italy as an example of the depth of information provided for each country monitored:

“Italy Beta Updated on 17-Apr-2020

Containment measures/Quarantine/Confinement


“On April 10, the government extended the lockdown to 3 May. People can only leave the home for prescribed, essential purposes. Movement out of the municipality of residence remains prohibited.

“On March 23, movements restrictions reinforced, with fewer exceptions and a limited range of industrial and commercial activities permitted to continue operating.

“Industrial and commercial activity prohibited apart from those assessed as ‘essential’, with a list that includes about 30% of private employment and activity.

Travel bans/restrictions

“Strict travel restrictions nation-wide, reinforced from March 23 and, on April 10, were extended to May 2. These prohibit movements out of the municipality where individuals reside. Non-nationals or residents cannot enter Italy except for limited, prescribed reasons.

Closure of schools/universities

“Closure of schools and universities from March 4 until April 3, extended to at least April 14.

Cancellation of public events / Closure of public places

“- Bars and restaurants along with many other retail trade activities (e.g. shopping centres; indoor and outdoor markets) closed from March 10 until at least 14 April, and all sporting competitions suspended over the same period along with other public gatherings.

“- All but prescribed essential production activities suspended from March 23, with the list of permitted activities further limited from March 26.

“- On March 30, closures extended from April 3 to 30 April for sports, bars and similar activities.

Support measures – Health

“EUR 3.2 billion for the national health service and to support civil protection. Within this package:

“- EUR 1.4 bn to raise funding for the health care system for 2020, including EUR 845 m to recruit 20 000 more health workers.

“- Ease burden of hospitals: dedicate entire facilities to patients infected with Covid-19, while redirected non-infected patients for other facilities.

“- Increased cleaning of public transportation facilities, such as metro transit, buses, boats.

“- Measures to increase purchases and production of medical materials (masks, ventilation machines).

“- Repurposing of medical equipment and buildings (e.g. hotels) for the medical emergency.

“- The production of face masks is incentivised

“- Retired medical personnel are encouraged to come back to work

“- Smart working has been extensively favoured, both in the private and in the public sector.

Fiscal measures – overall

“EUR 25 billion of measures, including EUR 20 billion of net debt measures. 1) EUR 3.2 bn for health care and civil protection; 2) EUR 10.3 bn for employment and incomes; 3) EUR 5.1 bn support to raise liquidity for businesses and households; 4) EUR 1.6 bn tax payment support. EUR 540 m for 60% tax credit on commercial rents.

Fiscal measures – people specific

“Over EUR 10 bn allocated:

“- EUR 5.0 bn to strengthen the wage supplementation scheme for furloughed employees, and increase to a last-resort fund for workers not qualifying for these measures. This includes about EUR 1.3 bn for ordinary wage supplementation schemes, EUR 300 m for wage supplementation schemes to firms that already participate in the ‘cassa integrazione guadagni straordinaria’ supplementation scheme, and EUR 3.3 bn for firms already that already participate in of the ‘cassa integrazione in deroga’. A Last Resort scheme is established for workers not qualifying (EUR 300 m).

“- EUR 2.3 bn for one-off EUR 600 payment to various categories of self-employed and seasonal workers. A Last Resort scheme has been established for those not qualifying.

“- EUR 400 m for one-year suspension in the repayment of real estate mortgages by workers having lost their job.

“- Allowance of EUR 500 per month for up to 3 months for self-employed workers in the municipalities most affected.

“- EUR 1.3 bn to strengthen childcare support for children up to 12 years old (15 extra days at a 50% wage replacement rate, compared with 0% or 30% of the ordinary leave) or, alternatively, a EUR 600 transfer to pay childcare services.

“- EUR 30 m for EUR 1000 childcare payment to employees in the healthcare and law enforcement sectors.

“- EUR 0.5 bn to raise by 12 days the paid leave for disabled workers and workers caring for a disabled relative.

“- EUR 130 m to extend sick leave to cover days spent in quarantine.

“- EUR 900 m for a EUR 100 one-off bonus to workers who continued to work at their workplace.

“- Moratorium on debt payments, including mortgages.

“- EUR 400 m for one-year suspension in the repayment of real estate mortgages by workers having lost their job.

“- Moratorium on debt payments, including mortgages.

Fiscal measures – company specific

“- EUR 540 m for 60% tax credit on commercial rents.

“- EUR 50 m for incentives to firms to sanitise workplaces.

“- Suspension for 2 months of tax and social security payments in the municipalities most affected.

“- For firms with an annual turnover below EUR 2 m, suspension of all the tax and social security payments coming due in March (valued at EUR 10 bn in deferred payments).

“- Non-application of withholding tax for professionals without employees, with revenues below EUR 400 000 until 31 May 2020.

“- Suspension of collection of tax collection files (valued at EUR 0.6 bn).

“- EUR 50 m allocation for one-year suspension in repayment of loans to Invitalia to support SMEs in the most affected municipalities.

“- Suspension of 2 months (until end of April) in the payment of the electricity, gas, water and waste bills in the most affected municipalities.

“- Increase to EUR 1.7 bn for the Fund to provide fee-free guarantee for SMEs loans. Eligibility has been enlarged, admission fees and costs reduced. Private individuals can contribute to the SMEs Fund’s financing. Maximum guarantees raised from EUR 2.5 m to EUR 5 m.

“- Further guarantees for firms most affected by the virus. Facilitate guarantees for self-employed workers, freelancers and individual entrepreneurs.

“- Suspension of 6 months (until end of September) of loan repayment by SMEs.

“- State guarantee for up to EUR 10 bn in new loans for medium-large firms.

“- EUR 500 m to support exporting firms.

“- Incentive to sell impaired loans (NPLs) by converting deferred tax assets (DTA) into tax credits for financial and industrial companies.

“- Establishment of a Fund to support the cultural sector. Increase in advances from the 2014-2020 Development and Cohesion Fund.

“- Increase to EUR 1.7 bn for the Fund to provide fee-free guarantee for SMEs loans. Eligibility has been enlarged, admission fees and costs reduced. Private individuals can contribute to the SMEs Fund’s financing. Maximum guarantees raised from EUR 2.5 m to EUR 5 m.

“- Further guarantees for firms most affected by the virus. Facilitate guarantees for self-employed workers, freelancers and individual entrepreneurs.

– Suspension of 6 months (until end of September) of loan repayment by SMEs.

“- State guarantee for up to EUR 10 bn in new loans for medium-large firms.
Information not available.

“- Increase to EUR 1.7 bn for the Fund to provide fee-free guarantee for SMEs loans. Eligibility has been enlarged, admission fees and costs reduced. Private individuals can contribute to the SMEs Fund’s financing. Maximum guarantees raised from EUR 2.5 m to EUR 5 m.

“- Further guarantees for firms most affected by the virus. Facilitate guarantees for self-employed workers, freelancers and individual entrepreneurs.

“- Suspension of 6 months (until end of September) of loan repayment by SMEs.

“- State guarantee for up to EUR 10 bn in new loans for medium-large firms.
Information not available.

Monetary policy / Macro-prudential regulation

“Information not available

“Less significant banks and non-bank intermediaries are allowed to operate temporarily below the level of the Pillar 2 Guidance, the capital conservation buffer and the liquidity coverage ratio. Their deadline to submit their revised NPL reduction plans is postponed to 30 June. Other reporting and inspection deadlines are delayed.”

World Customs Organization Tracks Certain Trade-Related Actions Related to COVID-19

In an earlier post, I had reviewed transparency concerns in tracking trade actions related to COVID-19. As the above information shows, other international organizations (IMF and OECD) provide pretty detailed information on certain aspects of government actions related to COVID-19. While the WTO has a page dedicated to COVID-19 and has compiled a list of notifications from Members of trade actions taken (both trade restricting and trade liberalizing), the data on the WTO website are limited. The limitation flows in large part from the failure of Members to provide full notifications. As mentioned, the OECD should be able to supplement what it puts out to include information on trade actions it has access to from OECD member governments.

Similarly, the World Customs Organization compiles customs related actions taken by governments on its website. The information on India is linked to below and then embedded. http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/facilitation/activities-and-programmes/natural-disaster/covid_19/best-practices_india_en.pdf?la=en.

best-practices_india_en

The International Trade Centre in Geneva has a “dashboard” that is updated daily showing COVID-19 temporary trade actions taken by governments. https://www.macmap.org/en/covid19.

It would useful if there was a compilation of trade-related actions from either the WTO or a consortium of international organizations so that there is much greater transparency on efforts (both trade restricting and trade liberalizing).

Conclusion

The COVID-19 data on confirmed cases show that the vast majority of the cases to date have been in Europe, the U.S., China and a few other countries although nearly all countries have some cases. With an unprecedented (at least in the last 100 years) pandemic, the breadth and complexity of the needs of G20 countries and the rest of the world are breathtaking. While some have criticized the G20 for the lack of specific commitments in the trade area of COVID-19 responses, the G20 Action Plan released earlier this week is an important step by the world’s major economies to address not only the health needs of the global community but also the interrelated economic survival of economies both within the G20 and around the world. While more undoubtedly needs to be done, the Action Plan is a start and will hopefully be updated and expanded in the coming weeks and months.

Export restraints vs. trade liberalization during a global pandemic — the reality so far with COVID-19

The number of confirmed coronavirus cases (COVID-19) as of March 26, 2020 was approaching 500,000 globally, with the rate of increase in cases continuing to surge in a number of important countries or regions (e.g., Europe and the United States) with the locations facing the greatest strains shifting over time.

In an era of global supply chains, few countries are self-sufficient in all medical supplies and equipment needed to address a pandemic. Capacity constraints can occur in a variety of ways, including from overall demand exceeding the supply (production and inventories), from an inability or unwillingness to manage supplies on a national or global basis in an efficient and time responsive manner, by the reduction of production of components in one or more countries reducing the ability of downstream producers to complete products, by restrictions on modes of transport to move goods internationally or nationally, from the lack of availability of sufficient medical personnel or physical facilities to handle the increased work load and lack of facilities.

The reality of exponential growth of COVID-19 cases over weeks within a given country or region can overwhelm the ability of the local health care system to handle the skyrocketing demand. When that happens, it is a nightmare for all involved as patients can’t be handled properly or at all in some instances, death rates will increase, and health care providers and others are put at risk from a lack of adequate supplies and protective gear. Not surprisingly, shortages of supplies and equipment have been identified in a number of countries over the last three months where the growth in cases has been large. While it is understandable for national governments to seek to safeguard supplies of medical goods and equipment to care for their citizens, studies over time have shown that such inward looking actions can be short sighted, reduce the global ability to handle the crisis, increase the number of deaths and prevent the level of private sector response that open markets would support.

As we approach the end of March, the global community receives mixed grades on their efforts to work jointly and to avoid beggar-thy-neighbor policies. Many countries have imposed one or more restraints on exports of medical supplies and equipment with the number growing rapidly as the spread of COVID-19 outside of China has escalated particularly in March. Indeed, when one or more countries impose export restraints, it often creates a domino effect as countries who may depend in part on supplies from one or more of those countries, decides to impose restraints as well to limit shortages in country.

At the same time, the G-7, G-20 and others have issued statements or other documents indicating their political desire to minimize export restraints and keep trade moving. The WTO is collecting information from Members on actions that have been taken in response to COVID-19 to improve transparency and to enable WTO Members to identify actions where self-restraint or roll back would be useful. And some countries have engaged in unilateral tariff reductions on critical medical supplies and equipment.

Imposition of Export Restraints

The World Customs Organization has developed a list of countries that have imposed some form of export restraint in 2020 on critical medical supplies. In reviewing the WCO website today, the following countries were listed: Argentina, Bulgaria, Brazil, Colombia, Ecuador, European Union, India, Kazakhstan, Kyrgyzstan, Russia, Serbia, Thailand, Ukraine and Vietnam. Today’s listing is copied below.

List-of-Countries-having-adopted-temporary-export-control-measures-Worl.._

While China is not listed on the WCO webpage, it is understood that they have had some restrictions in fact at least during the January-February period of rapid spread of COVID-19 in China.

While it is surprising to see the European Union on the list, the Official Journal notice of the action indicates that the action is both temprary (six weeks – will end around the end of April) and flows in part from the fact that sources of product used by the EU had been restricting exports. The March 15, 2020 Official Journal notice is attached below.

EC-Implementing-Regulation-EU-2020-402-of-14-March-2020-making-the-exportation-of-certain-products-subject-to-the-production-of-an-export-authorisation

Professor Simon Evenett, in a March 19, 2020 posting on VOX, “Sickening thy neighbor: Export restraints on medical supplies during a pandemic,” https://voxeu.org/article/export-restraints-medical-supplies-during-pandemic, reviews the challenges posed and provides examples of European countries preventing exports to neighbors — Germany preventing a shipment of masks to Switzerland and France preventing a shipment to the U.K.

In a webinar today hosted by the Washington International Trade Association and the Asia Society Policy Institute entitled “COVID-19 and Trade – A WTO Agenda,” Prof. Evenett reviewed his analysis and noted that the rate of increase for export restraints was growing with 48 of 63 actions occurring in March and 8 of those occurring in the last forty-eight hours. A total of 57 countries are apparently involved in one or more restraints. And restraints have started to expand from medical supplies and equipment to food with four countries mentioned by Prof. Evenett – Kazakhstan, Ukraine, Russia and Vietnam.

Efforts to keep markets open and liberalize critical medical supplies

Some countries have reduced tariffs on critical medical goods during the pandemic and some countries have also implemented green lane approaches for customs clearance on medical supplies and goods. Such actions are clearly permissible under the WTO, can be undertaken unilaterally and obviously reduce the cost of medical supplies and speed up the delivery of goods that enter from offshore. So it is surprising that more countries don’t help themselves by reducing tariffs temporarily (or permanently) on critical medical supplies and equipment during a pandemic.

Papers generated by others show that there are a large number of countries that apply customs duties on medical supplies, equipment and soaps and disinfectants. See, e.g., Jennifer Hillman, Six Proactive Steps in a Smart Trade Approach to Fighting COVID-19 (graphic from paper reproduced below), https://www.thinkglobalhealth.org/article/six-proactive-steps-smart-trade-approach-fighting-covid-19

Groups of countries have staked out positions of agreeing to work together to handle the pandemic and to keep trade open. For example, the G20 countries had a virtual emergency meeting today to explore the growing pandemic. Their joint statement can be found here and is embedded below, https://www.wto.org/english/news_e/news20_e/dgra_26mar20_e.pdf.

dgra_26mar20_e

There is one section of the joint statement that specifically addresses international trade disruptions during the pandemic. That language is repeated below:

“Addressing International Trade Disruptions

“Consistent with the needs of our citizens, we will work to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders, and work to resolve disruptions to the global supply chains, to support the health and well-being of all people.

“We commit to continue working together to facilitate international trade and coordinate responses in ways that avoid unnecessary interference with international traffic and trade. Emergency measures aimed at protecting health will be targeted, proportionate, transparent, and temporary. We task our Trade Ministers to assess the impact of the pandemic on trade.

“We reiterate our goal to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.”

The WTO Director General Roberto Azevedo participated in the virtual meeting with the G20 leaders and expressed strong support for the commitment of the G20 to working on the trade related aspects of the pandemic. https://www.wto.org/english/news_e/news20_e/dgra_26mar20_e.htm.

Separately, New Zealand and Singapore on March 21st issued a Joint Ministerial Statement which stated in part,

“The Covid-19 pandemic is a serious global crisis.

“As part of our collective response to combat the virus, Singapore and New Zealand are committed to maintaining open and connected supply chains. We will also work closely to identify and address trade disruptions with ramifications on the flow of necessities,”

https://www.thestar.com.my/news/regional/2020/03/21/new-zealand-works-closely-with-singapore-to-maintain-key-supply.

The Joint Ministerial Statement was expanded to seven countries (Australia, Brunei Darussalam, Canada, Chile, Myanmar, New Zealand and Singapore), on March 25th and is reportedly open to additional countries joining. See https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2020/03/updated-joint-ministerial-statement-25-mar.pdf

Conclusion

When a pandemic strikes, many countries have trouble maintaining open trade policies on critical materials in short supply and/or in working collaboratively to address important supply chain challenges or in taking unilateral actions to make critical supplies available more efficiently and at lower costs.

The current global response to COVID-19 presents the challenges one would expect to see – many countries imposing temporary restrictions on exports — while positive actions in the trade arena are more limited to date with some hopeful signs of a potential effort to act collectively going forward.

Time will tell whether governments handling of the trade dimension of the pandemic contributes to the equitable solution of the pandemic or exacerbates the challenges and harm happening to countries around the world.

WTO Reform – U.S. Objectives from 2020 Trade Policy Agenda

The United States Trade Representative annually releases the Administration’s Trade Policy Agenda and prior year’s Annual Report. The report is released during February each year. On February 28, 2020, USTR released the 2020 Trade Policy Agenda and 2019 Annual Report of the President of the Untied States on the Trade Agreements Program. https://ustr.gov/sites/default/files/2020_Trade_Policy_Agenda_and_2019_Annual_Report.pdf.

This year’s trade policy agenda reviews activities at the WTO, including certain important disputes (pages 9-11), a review of where the U.S. perceives it led efforts to change the World Trade Organization (pages 13-15), and identifies priorities for 2020 at the WTO. Such priorities include pursuing disputes through the WTO where appropriate and pushing “for a WTO that reflects current economic realities and strengthens free-market economies”. Pages 18-19. As stated in the report,

“The United States will continue to lead the effort on WTO reform. In addition to addressing the Appellate Body, seeking a new fisheries agreement, pursuing a digital commerce agreement, enforcing notifications
obligations, and seeking reform of ‘special and differential treatment’ for “developing” countries, the United States will advocate for other changes at the WTO that will have the WTO working for its Members. A number of features at the WTO reflect out-of-date assumptions and do not reflect current realities. The United States has already submitted papers focused on market access and tariff issues with the intent of updating our understanding of the current state of agriculture trade and the challenges farmers are facing today. Through our agriculture ‘reset’ efforts, the United States is trying to break the bad habit of taking the same entrenched positions and expecting a different outcome.

“The United States will also explore a broader reset at the WTO. The WTO currently locks-in outdated tariff determinations that no longer reflect deliberate policy choices and economic realities. As a result, many countries that have large economies that have developed significantly over the past two decades continue to maintain very high bound tariff rates, far in excess of the rates applied by the United States or to which the United States is bound. For example, the U.S. average bound tariff rate and applied Most Favored Nation rate are both 3.4 percent. In comparison, Brazil’s bound tariff rate is 31.4 percent, and its applied rate is 13 percent. India’s bound and applied tariff rates are 48.5 percent and 17 percent, respectively.
Members need to fundamentally rethink tariffs and their role, recognizing that commitments on tariffs should reflect current economic conditions.

“In addition, the United States will continue to push for a close review of the WTO’s budget, which, as demonstrated by egregious Appellate Body member salaries, requires greater scrutiny. The WTO must ensure that there is accountability and that expenditures reflect the priorities of its Members.

“Finally, the United States will advocate for changes that allow for additional and more effective plurilateral agreements. There is an urgent need for a new political and legal understanding at the WTO that enables
the pursuit of less-than-fully multilateral outcomes while preserving the characteristics of the WTO.”

The importance of the U.S. focus on a “broader reset” to the functioning of the WTO should be obvious. The GATT and WTO have worked on a system of periodic enlargement of liberalization with members undertaking specific additional obligations through tariff bindings or service sector commitments or through changes to agreements. The U.S. is seeking a fundamental modification in the approach to obligations, one which reflects changing capacities of the members and one which reflects the organizing principle of agreements among market economies. In a consensus-based system, any of the fundamental reforms that the U.S. has been seeking are not achievable without a major crisis and most likely not even then.

The WTO dispute settlement system is in the throes of a crisis over the proper functioning of the Appellate Body. The United States has provided a detailed review of the problems over the last two years, the history of when problems developed and how the problems identified constitute deviations from the purpose and structure of the Dispute Settlement Understanding. Despite some efforts by other WTO Members, resolution of the impasse seems a long way off based on the different positions of major players.

Similarly, that the GATT and WTO are premised on market-based economies is hardly controversial. Yet, the rise in importance of nonmarket or state-directed economies as Members has created distortions in the functioning of markets and challenges the viability of the WTO and certainly the adequacy of current WTO rules. The issue of different economic systems within the WTO has created a second crisis in fact.

While the United States, the European Union and Japan have been working on proposals to address certain drivers of the distortions created by nonmarket economies, the recent General Council meeting shows the challenge to having movement even on the rules needed to address such distortions. Compare statements of the United States and China from the General Council meeting of March 3, 2020. https://geneva.usmission.gov/2020/03/03/statements-by-ambassador-dennis-shea-at-the-march-3-2020-general-council-meeting/ (agenda item 9); http://wto2.mofcom.gov.cn/article/chinaviewpoins/202003/20200302941477.shtml.

U.S. Views on the WTO at 25 and What are the U.S. Interests

The 2020 Trade Policy Agenda and 2019 Annual Report from USTR contains an important chapter, “The World Trade Organization at Twenty-Five and U.S. Interests”, which reviews the Trump Administration’s views of whether U.S. interests have been served by the WTO as it has functioned and what is needed to make the WTO function as intended. The sixteen page section of the report provides a concise review of U.S. concerns with the WTO and the Administration’s objectives for WTO reform. A lengthy excerpt (pages 4-8) follows:

2. Straying from the Original Mandate

“The past quarter century has demonstrated that the WTO fails to act in accordance with its aspirational goals and is incapable of dealing with many of the major challenges facing the modern international trading
system. This is due in large part to the difficulty the organization has faced when it has attempted to negotiate improvements to the system since the Uruguay Round in 1994.

“Under the GATT system, between 1947 and 1994, there were eight negotiating rounds – each of which led to lower tariffs and fewer trade barriers among all GATT Members. But in the twenty-five years since the
WTO began operation—though there have been some positive agreements that address discrete aspects of trade—Members have not reached a significant new multilateral market access agreement. As a result, most of the fundamental rules that govern global trade were negotiated before the WTO even came into existence.

“The last major effort to modernize these rules under the WTO – the Doha Round – started to collapse in 2008, and has now been dead for more than a decade. Despite all of the dramatic changes that have taken place in the last quarter century – the rise of China, the evolution of the Internet, and the emergence of new, potentially disruptive technologies – the WTO is still largely operating under the same framework from the early 1990s. This has resulted in several major failures of the WTO to live up to its mandate.

“a. Failure to Converge: The Challenge of Non-Market Economies

“The political, economic, and trade landscape in 2020 differs greatly from those that existed in 1994. At the time the WTO came into existence, many in the West hoped that most nations of the world would coalesce around a model of open societies, free markets, and democratic values. It was hoped that such a movement would usher in an era of relative peace in which geopolitical considerations would become less of a factor, and competition would exist primarily at the commercial rather than the political level. This optimism prevailed in Washington and other Western capitals despite warning signs that some nations were not committed to openness.

“Twenty-five years later, a starker reality has come into view as non-market economies like China continue to perceive advantages in maintaining state-directed economic policies. The growing influence of these non-market economies in world trade amplifies the need for the WTO to update its rulebook with new disciplines on industrial subsidies, state-owned and state-influenced enterprises, forced technology transfer, and intellectual property theft. The WTO must also meaningfully address issues like digital trade and labor and environmental standards.

“The WTO’s failure to keep pace with new developments in the global economy has resulted in significant advantages for non-market economies to the detriment of market economies like the United States. As just one example, scholars estimate that China’s accession to the WTO has contributed to the loss of millions of jobs in the United States, primarily in the manufacturing sector.

“Moreover, the establishment of the WTO has ushered in an era of massive global trade imbalances. While neutral market factors contribute to these long-running imbalances, that the imbalances remain unchanged for decades, despite varying periods of growth and recession, indicates there are other, non-market factors at play. Unfortunately, the global trade system under the WTO currently enables these distortions and imbalances, and the benefits enjoyed by some countries at the expense of others under the current system create serious barriers to reform.

“While China is not the only country that has benefitted from the WTO’s deficiencies, it remains the primary example of the non-market economies thriving under the current system. China’s economic practices are incompatible with the norms the WTO sought to establish at its founding,
and the organization has demonstrated an inability to respond effectively to the challenges it poses.

“b. Failure to Develop: Outdated Standards and Rules for Developing Countries

“No one expected in 1994 that the Uruguay Round and Marrakesh Agreement would be the final word on world trade policy. As with the previous era of world trade under the General Agreement on Tariffs and Trade of 1947, parties assumed there would be additional rounds of agreements to update rules and address new challenges in world trade over time. This process has not occurred, leaving in place outdated rules that have failed to keep pace with the changing world.

“The significant advantages some countries enjoy over others under the current system have completely undermined incentives for Members to agree to meaningful changes and reforms. While there are several examples of these unfair advantages, many stem from two structural issues.
First, current WTO rules allow large and advanced economies to claim special and differential treatment as “Developing Countries” during negotiations. Second, the bound tariff rates established at the time Members entered the agreement are essentially permanent under current rules.

“i. Treatment of Advanced Economies as “Developing Countries”

“Despite the substantial growth of the global economy since 1994, the WTO continues to rest on an outdated and oversimplified dichotomy between developed and developing countries. This framework has allowed some WTO Members to maintain unfair advantages in the international trade arena.

“Under the current system, countries merely need to self-declare as “developing” – regardless of their GDP or role in global trade – to seek flexibilities under WTO rules. This special and differential treatment can take the form of generous transition periods, higher tariff bindings, and the ability to use prohibited subsidies, among others.

“Today, nearly two-thirds of WTO Members claim developing-country status, arguing they are entitled to blanket special and differential treatment as a matter of right. While some developing-country designations are certainly legitimate, many are entirely unreasonable in light of current economic circumstances. For example, advanced economies like China,
India, Mexico, Saudi Arabia, South Africa, and Turkey continue to insist they are automatically entitled to special and differential treatment. A similar claim is made by some of the richest nations in the world, including Brunei, Kuwait, Qatar, and the United Arab Emirates.

“The clear purpose of special and differential treatment is to help truly disadvantaged countries ease their economies into the global trade system. This does not work if large or wealthy countries abuse this framework and seek to take advantage of benefits meant for countries whose economies are truly just getting off the ground.

“The lack of differentiation among self-declared developing countries has also severely hampered the WTO’s ability to achieve meaningful negotiated outcomes that expand market access, as certain large and advanced economies feel entitled to claim exemption from new rules, avoid engagement on substantive issues, and maintain outdated asymmetries that work to their advantage.

“ii. Permanent Disparate Tariff Rates

“The WTO has failed to harmonize tariffs over time. As a result, many significant global traders continue to have very high bound tariff rates, far in excess of U.S. bound or applied tariff rates.

“The U.S. average bound tariff rate and applied most-favored-nation (MFN) rate are both 3.4 percent. In comparison, Brazil’s bound tariff rate is 31.4 percent, and its applied rate is 13 percent. India’s bound and applied tariff rates are 48.5 percent and 17 percent, respectively.

“Under current WTO rules, these rates are locked in place with no sunset clause or meaningful mechanism to allow the United States and other Members to address enormous differences. It is not reasonable to accept that because the United States agreed to such disparities many years ago, when economic and geopolitical conditions were very different, that the United States should tolerate them in perpetuity. Commitments on tariffs should keep pace with the realities of the global economy rather than locking certain countries into nonreciprocal rates.

“c. Failure to Enforce: A Breakdown in the Rules as Originally Agreed

“The WTO has strayed from the system agreed to by WTO members and has appropriated to itself powers that WTO Members never intended to give it. This drift has primarily taken place in relation to transparency require- ments and the dispute settlement system.

“i. Transparency

“All WTO Members undertake significant commitments to provide regular notifications of subsidy programs and other information critical to assessing trade conditions around the world. Despite these clear obligations, many U.S. trading partners – including significant economies like China and India – choose to ignore them. As of December 2019, more than 70 percent of Members had not submitted their most recent questionnaire on their import licensing procedures, and over a quarter of agriculture notifications from 1995-2016 were outstanding. This poor adherence to notification obligations has created a lack of transparency at the WTO, which has led to the failure of many Members to implement
existing commitments and the breakdown of negotiations. When countries cannot adhere to these most basic of existing obligations, it is unsurprising that they cannot achieve consensus on new, more ambitious commitments.

“ii. The Dispute Settlement Process

“The United States signed on to the Uruguay Round Agreements with the understanding that its sovereignty would be respected and its existing domestic laws dealing with unfair foreign trade practices would remain fully effective. Instead, the WTO’s Appellate Body has imposed new rules never agreed by the United States or approved by the Congress, dramatically undermining this understanding.

“Article 3.2 of the Dispute Settlement Understanding plainly states, ‘Recommendations and rulings of the Dispute Settlement Body cannot add to or diminish the rights and obligations provided in the [WTO] covered agreements.’ In other words, the dispute settlement process was never intended to make new rules that would become binding on Members. It
was instead designed to help Members resolve specific disputes among themselves about the application of existing rules, as set out in the text of the agreements. These limitations remain vital to U.S. sovereignty because they ensure the United States does not become bound by obligations that Congress has not approved.

“Over the last quarter century, the United States has become the chief target of litigation at the WTO, and has at least partially lost the overwhelming majority of cases brought against it. 155 disputes have been filed against the United States, while no other Member has faced even a hundred disputes. According to some analyses, up to 90 percent of the disputes pursued against the U.S. have resulted in a report finding that a U.S. law or other measure in question was inconsistent with WTO agreements. This averages out to five or six successful WTO disputes against the United States every year.

“In other words, the WTO has effectively treated one of the world’s freest and most open economies – with an enormous and growing trade deficit – as the world’s greatest trade outlaw. In so doing, the WTO’s Appellate Body has repeatedly created new obligations from whole cloth. For example:

“ The Appellate Body has attacked U.S. countervailing duty laws, making it easier for other countries to provide market distorting subsidies through non-market policies and practices.

“ The Appellate Body has interpreted WTO rules in a manner that puts the U.S. tax system at an unfair and illogical disadvantage compared to that of many trading partners.

“ The Appellate Body has interpreted the Agreement on Safeguards – an agreement critical to addressing global import surges that can overwhelm a particular industry – in a manner that significantly limits the ability of Members to use that vital provision.

“ The Appellate Body has interfered with the appropriations process by limiting Congress’s ability to spend money collected through antidumping and countervailing duties.

“In many cases, the Appellate Body’s interpretations of WTO rules would prevent the United States from taking action to address unfair trade practices that hurt U.S. workers In this sense, it has also usurped the U.S. government’s accountability to those who are truly sovereign – the American people.

“For many years, U.S. Administrations under both parties have warned trading partners of the harm resulting from Appellate Body activism. The Appellate Body simply cannot be allowed to flaunt basic rules of operation to which all Members have agreed. Thus far, U.S. concerns have largely been ignored.

“These lapses have incentivized WTO Members to rely on litigation through the Appellate Body to get results rather than negotiation. This, in turn, has greatly undermined the negotiating process at the WTO because countries now believe they can obtain better outcomes through litigation than through negotiation, especially with the United States. Such countries have no incentive to negotiate in good faith if they believe there are easier
avenues to pursue their interests.

“Furthermore, in its day-to-day operations, the Appellate Body has developed a troubling pattern of ignoring mandatory deadlines for deciding appeals, dragging some – such as those in the U.S.-EU Large Civil Aircraft disputes – out for over a year each; making impermissible findings on issues of fact, including fact-finding related to Member’s domestic laws; issuing unnecessary advisory opinions rather than facilitating negotiations
between parties; treating prior Appellate Body interpretations as binding precedent for dispute settlement panels; extending Appellate Body members’ terms without authority; and compensating Appellate Body members excessively and opaquely.

“These actions represent a tendency by the Appellate Body to both institute rules to which WTO Members have not agreed and ignore or evade existing rules written in plain language. This has led to a significant decline in trust in the Appellate Body, which has opened the entire dispute settlement system to serious vulnerabilities. The WTO simply cannot claim to stand for a rules-based trading system if its own institutions fail to follow clear and explicit rules. Any action beyond these rules undermines the WTO’s role as a negotiation forum, lacks legitimacy, and usurps Members’ sovereignty.

3. Summary

“Despite the serious challenges facing the World Trade Organization, the United States values the WTO and is working diligently within the organization to find solutions. For example, the United States is actively engaged in negotiations to discipline harmful fishing subsidies and to develop new rules to govern digital trade. The United States has called attention to unequal bound and applied tariff rates, and continues to press other Members for additional market access. The United States has also offered specific proposals to improve transparency, address the lack of compliance with existing notification obligations, and promote greater differentiation among self-declared developing countries. The United
States continues to press longstanding concerns with the Appellate Body and the dispute settlement system, including its lack of transparency. The United States has taken each of these steps in an attempt to ensure that the WTO retains its relevance to trading nations.”

Chances for Meaningful Reform are Slim at Best

Many WTO Members recognize that WTO reform is important. The WTO Director-General and his team have noted the need for reform and the fact that reform has become an important topic in the last year or so. See, e.g., DDG Wolff: An update of multilateral trade rules is needed to increase their relevance, https://www.wto.org/english/news_e/news20_e/ddgaw_03mar20_e.htm;

However, few, if any, Members other than the United States, have expressed the view that fundamental reform is needed to ensure the relevance of the WTO going forward. The U.S. objectives for reform are sweeping and would require many Members to accept broader liberalization, rules on nonmarket economy distortions, loss of historic privileges based on changed economic situations and a return to a system largely focused on negotiations to achieve changes in the status quo. Under rules of consensus and the views expressed by many Members, it is unlikely that the collective will for fundamental reform exists even if there is agreement that some reform is desirable.

For the Trump Administration fundamental reform is critical to making the WTO a viable organization and ensuring that trade relationships under multilateral rules are fair in an ongoing sense. What the U.S. seeks is an ambitious reform outcome. The USTR conclusion to its review of the WTO’s first 25 years (page 16, provided below) summarizes the concerns and indicates a continued U.S. commitment to the WTO. The U.S. is certain to continue to use all tools at its disposal to pursue meaningful reform or obtain reciprocity bilaterally. The message from the U.S. is clear. Let’s hope that meaningful reform will occur even if the likelihood of such reform seems remote.

CONCLUSION

“It is difficult now, twenty-five years after its inception, to declare the WTO a success for American interests. Indeed, the organization in many ways ignores and enables unbalanced trade and unfair trade practices. If the WTO is to be credible as a vibrant negotiating, implementation, and dispute settlement forum, it must be limited to its original mandate and address areas in need of structural reform. This means Members must recognize and reaffirm that the WTO is an organization committed to promoting the adoption of market-based policies by its Members. The goal of the organization must continue to be a greater convergence around market-based principles, not the co-existence of radically different economic systems. The WTO – and its dispute settlement system – must also respect the rules as agreed to by Members, embrace its role as a negotiating forum rather than a litigating entity, and stop its infringement on the sovereignty of the United States and other Members.

“Looking ahead to the Twelfth Ministerial Conference this year, the United States believes that Members must identify opportunities to make meaningful progress on these objectives. To remain a viable institution
that can fulfill all facets of its work, the WTO must also find a means of effectively pursuing negotiations between Ministerial Conferences, focus its work on structural reform, and adapt to address new challenges to the 21st Century world trade system. The United States looks forward to continuing its leadership role in advancing these changes and the broader mission of the World Trade Organization.”

The U.S. Modifies the List of Developing and Least Developed Countries Under U.S. Countervailing Duty Law

During the Uruguay Round, various special and differential treatment provisions were included in the agreements being negotiated. The Agreement on Subsidies and Countervailing Measures (“ASCM”) included provisions that would give developing countries and least developed countries higher subsidy de minimis levels and higher negligibility levels. See ASCM Art. 11.9 (de minimis level of subsidies is 1%; negligible imports not subject to orders), Art. 27.10 (de minimis level of subsidies is 2% for developing countries; negligibility is 4% of total imports for developing countries or 9% for multiple developing countries).

The Uruguay Round Agreements Act implemented these requirements within U.S. law. Negligible imports from any country are 3% of total imports (7% for multiple countries each less than 3%) and 4% and 9% for developing/least developed countries. De minimis subsidy levels are 1% generally but 2% for developing and least developed countries. See 19 U.S.C. 1671b(b)(4) and 19 U.S.C. 1677(24)(A) and (B).

Under U.S. law, the U.S. Trade Representative is charged with developing a list of developing and least developed countries for purposes of U.S. countervailing duty law. Such a list should be published and should be updated as necessary. 19 U.S.C. 1677(36). While some criteria are listed in the statute, USTR is given discretion on what other criteria to consider.

The first list was published in 1998 on June 2, 63 FR 29945-29948. https://www.govinfo.gov/content/pkg/FR-1998-06-02/pdf/98-14737.pdf. A revised list was published on February 10, 2020, 85 FR 7613-7616. https://www.govinfo.gov/content/pkg/FR-2020-02-10/pdf/2020-02524.pdf.

The New List Brings Forward the U.S. Position at the WTO on Need for Differentiation Among Countries

The Federal Register notice of February 10, while not referencing the U.S. position at the WTO on the need for differentiation for purposes of which WTO Members take advantage of special and differential treatment, largely uses the same factors proposed at the WTO for determining which countries should not be afforded developing country/least developed country status for purposes of U.S. countervailing duty law.

Specifically, USTR for its new list looked to (1) per capita GNI excluding any country listed as a high income country by the World Bank, (2) share of world trade (reduced from 2% in 1998 to 0.5% in 2020), (3) membership or application for membership in the OECD, (4) G20 membership, (5)(not in the WTO differentiation proposal) membership in the EU and (6) any WTO members who did not declared itself a developing country during accession to the WTO where its per capita GNI is lower than high income. A country that satisfied any of the five criteria are excluded from the higher de minimis and higher negligibility standards

High income countries based on World Bank June 2019 data

The World Bank list shows 218 countries/territories and identifies whether they are high income or lower income countries on a per capita GNI. The last data for June 2019 shows 80 of 218 countries being high income. See https://blogs.worldbank.org/opendata/new-country-classifications-income-level-2019-2020.

Various countries or territories like Korea, Taiwan, Saudi Arabia, UAE, Qatar, Hong Kong, Macao, Singapore, Oman, Chile are listed as high income and would not be eligible for increased de minimis or higher negligibility standards under U.S. countervailing duty law based on this criteria.

Share of world trade (0.5% or greater)

Besides Korea, Hong Kong and Singapore which had been excluded from the 1998 list based on their share of global trade, the new list excludes Brazil, India, Indonesia, Malaysia, Thailand and Viet Nam based on share of world trade figures. 85 FR at 7615.

Membership in or application to the OECD

Colombia and Costa Rica are excluded from higher de minimis and negligibility levels under U.S. countervailing duty law based on their application for membership to the OECD. 85 FR at 7615.

Membership in the G20

The G20 came into existence in 1999, thus after the 1998 list was published by USTR. China has not been treated as eligibile for higher de minimis or higher negligibility levels and continues not to be considered for eligibility. Other G20 countries (besides China) who are not eligible despite per capita GNI levels below high income are Argentina, Brazil, India, Indonesia, and South Africa. 85 FR at 7615.

Membership in the EU

Several EU member countries are not high income countries on the World Bank list but are excluded from higher de minimis and negligibility levels on the new list — Bulgaria and Romania. 85 FR at 7615.

WTO Members who have not claimed developing country status at accession

While the U.S. would not have flagged countries who did not claim developing country status at accession but whose per capita GNI was below high income as needing to be addressed in its differentiation papers at the WTO, such countries are not included in the list of countries eligible for higher de minimis and negligibility levels under U.S. countervailing duty law. This list includes Albania, Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Montenegro, North Macedonia and Ukraine.

Likely Importance of the Changes in the USTR List

Data compiled by the WTO from country notifications of investigations brought under national countervailing duty laws, shows that between January 1, 1995 and June 30, 2019 (latest data presently available), the U.S. initiated 254 countervailing duty investigations. One or more investigations were brought against imports of products from 37 countries. See the WTO chart below.

CV_InitiationsRepMemVsExpCty

While there have been no countervailing duty cases in the United States against the vast majority of WTO Members during the first twenty-five years of the WTO, the changes in the list could be relevant for some countries where there have been CVD cases in the past — Argentina, Brazil, India, Indonesia, Malaysia, South Africa, Vietnam being the most likely countries affected. Any changes in results would depend on the underlying facts and may be relevant in only some cases or for one or more producers in a given case.

Conclusion

Monday’s Federal Register notice from the U.S. Trade Representative will not result generally in significant changes in how U.S. countervailing duty law operates. It could be important in particular cases or against particular exporters.

The real importance would appear to be the Administration’s taking its views on differentiation and applying them to an important U.S. trade remedy as a sign of the seriousness of the need to obtain a modification to who is eligible for special and differential treatment. The larger issue is viewed by the United States as critical to restoring the negotiating function at the WTO.

U.S. modifies its regulations to provide path for countervailing undervalued currencies in certain circumstances

On February 4, 2020, the Commerce Department’s modification of its countervailing duty (“CVD”) regulations was published in the Federal Register specifically to outline when Commerce would investigate allegations of subsidies on certain imported goods flowing from undervalued foreign currency achieved at least in part through government action. 85 Fed. Reg. 6031-6044. The modification to the U.S. CVD regulations “will apply to all segments of proceedings initiated on or after April 5, 2020”. The modification to the U.S. regulation is enclosed below.

85-FR-6031-2-4-2020-ITA-FR-final-rule-re-benefit-and-specificity-re-currency

The U.S. Department of Commerce International Trade Administration published its proposed modification of its regulations on May 28, 2019 (84 FR 24406) and received some forty-seven written comments on the proposal, including from some foreign governments (Brazil and India) and various business groups and law firms in China as well as from domestic parties (industries, workers, companies, law firms representing parties, trade associations, individuals) supporting or opposing or seeking modifications to the proposal.

Many domestic industries and their workers competing with imports believed to benefit from undervalued currencies had been seeking for years a modification to U.S. law to address what have been viewed over the years as periods of very active government interference in the market to achieve undervalued currencies by major trading partners. In recent years, China has been the main concern, but there have been ongoing concerns about past actions of the governments of Japan, Korea and others. Thus, the Commerce Department’s decision to develop modifications to its regulations has generally been viewed as a positive development by industries and workers who have competed with undervalued imported goods.

Article VI of the GATT, dealing with antidumping and countervailing duties, has had an Ad note to Paragraphs 2 and 3 which recognized that certain currency practices could be addressed by GATT Contracting Parties as either countervailable subsidies or as a form of dumping. Specifically, “2. Multiple currency practices can in certain circumstances constitute a subsidy to exports which may be met by countervailing duties under paragraph 3 or can constitute a form of dumping means of a partial depreciation of a country’s currency which may be met by action under paragraph 2. By ‘multiple currency practices’ is meant practices by governments or sanctioned by governments.” Article VI and the Ad notes remain part of the WTO.

While the multiple currency practices of the 1930s and 1940s are not the currency problems of the last thirty years, there is nothing in the WTO agreements that prohibits Members from addressing currency practices under the Agreement on Subsidies and Countervailing Measures (“ASCM”) where the terms of the Agreement are met. The Commerce Department modified regulations place certain undervalued currency situations within U.S. law which in turn reflects the U.S. understanding of its obligations under the ASCM.

The revisions modify the Commerce regulations on specificity and on benefit. 19 C.F.R. 351.502, dealing with specificity of domestic subsidies, is modified by adding a new subsection (c) which states that “In determining whether a subsidy is being provided to a ‘group’ of enterprises or industries within the meaning of section 771(5A)(D) of the Act, the Secretary will consider enterprises that buy or sell goods internationally to comprise such a group.” 85 FR at 6043.

A new section, 19 C.F.R. 351.528, is added to identify when exchanges of undervalued currencies will be viewed as countervailable. Commerce will examine whether there is a potentially actionable subsidy only where a country’s currency is undervalued during the relevant period. If that condition is met, Commerce will make an affirmative determination only where “there has been government action on the exchange rate that contributes to an undervaluation of the currency.” Government action will not generally include “monetary and related credit policy of an independent central bank or monetary authority”. Commerce may consider the foreign “government’s degree of transparency regarding actions that could alter the exchange rate.” 85 FR at 6043. This latter provision is presumably a reflection of the need for transparent actions by trading partners or the potential need to use adverse facts available where the actual actions of the foreign government can not be ascertained.

Finally, if there is currency undervaluation caused in part by government action, Commerce reviews how a benefit will be measured. Commerce will look to see if there is a difference between the nominal, bilateral United States dollar rate consistent with the equilibrium real effective exchange rate (REER) and the actual rate during the period of investigation or review. If yes, the benefit is the difference between the amount received by the foreign company and the amount that would have been received by the company if the currency had not been undervalued.

Commerce will seek input from the U.S. Department of Treasury on the questions of currency undervaluation, government action, and any difference between the equilibrium REER and the actual exchange rate. Treasury has expertise in exchange rate matters, but the determination of whether undervaluation constitutes a domestic subsidy is for Commerce to make. Information submitted by Treasury will be on the record and subject to comment and rebuttal by parties to the proceeding.

Part of the regulatory process in the United States includes the agency promulgating the regulations addressing issues raised by those who submit comments on the proposal. There were eleven categories of issues raised on the modifications to the CVD regulations. As the full Federal Register notice is available above, this note simply lists the range of issues addressed by Commerce in its final notice and encourages the reader to review the full Federal Register for the details of the Commerce Department comments on specific issues:

  1. Whether the CVD Law is an Appropriate Tool To Remedy Subsidies From Currency Undervaluation
  2. Statutory Authority to Promulgate This Rule
  3. Financial Contribution
  4. Determination of Undervaluation
  5. Government Action on the Exchange Rate
  6. Calculation of the Benefit
  7. Other Calculation Issues
  8. The Role of Treasury
  9. Specificity
  10. General Comments (Commerce’s Proposal Infringes on the IMF’s Authority, Possible Retaliation by U.S. Trading Partners, Other Methods To Combat Currency Manipulation/Misalignment May Be More Effective, Relationship to the Antidumping Law)
  11. Economic Impact

When Commerce published its proposal in May 2019, it noted that of the nineteen countries where the U.S. had one or more countervailing duty orders outstanding, twelve of the countries in 2017 were shown by either the IMF or by the Peterson Institute as having an undervalued currency (84 FR at 24411 n.13):

“13 In FY 2018, countervailing duties were deposited on various products imported from 19 countries. For 12 of these 19 countries, at least one of the two sources (IMF or Peterson Institute for International Economics) deemed
the domestic currency undervalued during 2017. Based on information from Customs and Border Protection, the total value of imports from these 12 countries with potentially undervalued currencies equaled roughly 32 percent of the total value of imports from all 19 countries.”

As reviewed, undervaluation is but the first step in any evaluation. Government action is another critical element and generally won’t cover monetary policy actions of governments. Nonetheless, using 2017 data, twelve countries had potentially undervalued currencies and hence could be subject of investigations or reviews to determine if the currency undervaluation constitutes a countervailable subsidy.

Conclusion

It is likely that 2020 will see one or more petitions or administrative reviews of existing orders where a petitioning party seeks to explore whether undervalued currencies constitute actionable subsidies under U.S. law. With Japan, Korea and China having changed the extent of government interference in their exchange rates in recent years, the first case or cases may go after other countries where government actions to depress currency value is identified by domestic industries or their workers. As is true in any area of new exploration, there are many unknowns that will presumably be answered as cases are brought and investigations or reviews conducted: whether Commerce will deem any such petitions or requests in administrative review to be sufficient to proceed on currency undervaluation; how the development of a record will proceed including provision of information from foreign governments whose practices are under investigation; how Treasury will proceed in providing information and its views and the extent of independent review by Commerce versus simple adoption of Treasury views — are just a few of the unknowns.

Trading partners may opt to challenge the modification in U.S. regulations as such at the WTO or may pursue as applied challenges should Commerce investigate their currency for undervaluation in a particular case. China has warned the U.S. that going after its currency would be problematic for any Phase 2 negotiations. The Director-General in response to a question about the new US regulations has opined that the WTO is not the right forum for currency issues (this despite the AD note to Article VI of the GATT).

But for domestic producers and their workers who face various forms of trade distortions through subsidies and/or dumping, the modification to U.S. countervailing duty regulations is a potentially important advance in permitting at least individual industries and their workers to obtain a more level trading field going forward.

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.

U.S. Additional Tariffs on Imports of Steel and Aluminum “Derivative” Products — Presidential Proclamation 9980

The United States conducted two investigations under Section 232 of the Trade Expansion Act of 1962, as modified, in 2017 with findings that imports of steel and aluminum products were a threat to U.S. national security. Import relief (25% on covered steel products and 10% on covered aluminum products) was imposed by mid-2018. Retaliation by many trading partners followed without resort to WTO dispute settlement. Dispute settlement cases were also filed by a number of countries. The U.S. also filed disputes against those countries who had retaliated without obtaining final reports or decisions from the WTO panels or Appellate Body and authorization if the U.S. did not comply with any loss that might have happened. All the disputes that are ongoing are at the panel stage at the WTO.

A number of countries agreed to other arrangements with the U.S. or were excluded from coverage. These included Argentina, Australia, Canada and Mexico for aluminum products and those countries plus Brazil and South Korea for steel products.

On January 24, 2020, President Trump issued a Presidential Proclamation “on Adjusting Imports of Derivative Aluminum Articles and Derivative Steel Articles into the United States”. https://www.whitehouse.gov/presidential-actions/proclamation-adjusting-imports-derivative-aluminum-articles-derivative-steel-articles-united-states/. The Proclamation (No. 9980) will be published in the Federal Register on January 29, 2020 and will apply to imports from subject countries beginning on February 8 (25% on steel derivative products and 10% on aluminum derivative products listed in Annexes II and I respectively). The inspection version of the Federal Register for January 29 is available today and the document is attached below. In the Proclamation, the President lays out the history of the 232 investigations and actions previously taken as well as the President’s intention to have Commerce monitor developments in case other actions were warranted. The action laid out in Proclamation 9980 is responsive to information reportedly provided by Commerce of possible evasion/circumvention of the duties. Countries who are excluded or who have arrangements with the U.S. on the original 232 actions are also excluded subject to certain conditions being present suggesting a need to address imports from those countries as well.

1-29-2020-FR-of-presidential-proclamation-on-steel-and-aluminum-derivatives

The purpose of this note is not to review the legal basis for the U.S. action (there have been a number of judicial actions in the United States challenging various aspects of the steel and aluminum national security case), but rather to examine the U.S. trade data to understand the breadth of the term “derivatives” and which countries appear to be the main targets of the additional duties.

Prior Proclamations Sought Review by Commerce and Others of Developments in Case Additional Action Was Deemed Necessary

The President in Proclamation 9980 references the fact that the Secretary of Commerce was directed to monitor imports of aluminum and steel and identify any circumstances which might warrant additional action. For example, paragraph 5(b) of the Steel Proclamation (No. 9705) of March 8, 2018 contained the following language:

“(b)  The Secretary shall continue to monitor imports of steel articles and shall, from time to time, in consultation with the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the USTR, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Management and Budget, and such other senior Executive Branch officials as the Secretary deems appropriate, review the status of such imports with respect to the national security.  The Secretary shall inform the President of any circumstances that in the Secretary’s opinion might indicate the need for further action by the President under section 232 of the Trade Expansion Act of 1962, as amended.  The Secretary shall also inform the President of any circumstance that in the Secretary’s opinion might indicate that the increase in duty rate provided for in this proclamation is no longer necessary.”

https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states/.

Similar language was in the aluminum proclamation.

How Broad is the Term Derivative Aluminum or Derivative Steel Product?

The aim of the Proclamation is to deal with products that undermine the purpose of the earlier proclamations. Proclamation 9980 reviews (paragraph 6) how the term “derivative” is used for purposes of the proclamation:

“For purposes of this proclamation, the Secretary determined that an article is ‘derivative’ of an aluminum article or steel article if all of the following conditions are present: (a) the aluminum article or steel article represents,
on average, two-thirds or more of the total cost of materials of the derivative article; (b) import volumes of such derivative article increased year-to-year since June 1, 2018, following the imposition of the tariffs in Proclamation 9704 and Proclamation 9705, as amended by Proclamation 9739 and Proclamation 9740, respectively, in comparison to import volumes of such derivative article during the 2 preceding years; and (c) import volumes of such derivative article following the imposition of the tariffs
exceeded the 4 percent average increase in the total volume of goods imported into the United States during the same period since June 1, 2018.”

What is the Volume of Imports Covered and Which are the Major Exporting Countries?

When one looks at the products that are covered by the two Annexes, one will see relatively few tariff categories covered by the new Proclamation. There are two HS categories that contain products that may be either steel or aluminum – bumper stampings and body stampings. There are significant imports of bumper stampings (though the data are not broken between steel, aluminum and other material). Imports from all counttries of bumper stampings in the first eleven months of 2019 were $394.3 million (of which $199.6 million are from countries not excluded for aluminum; $198.4 million if steel). Body stamps were significantly smaller, $5.2 million from all countries in Jan.-Nov. 2019 ($2.4 million covered if all are aluminum; $2.3 million covered if all are steel). The 8708 categories may have met the Commerce criteria but show a decline in 2019 vs. 2018 of 8.63% for the covered products/countries.

The other aluminum products identified — stranded wire, cables, plaited bands and the like (HS 7614.10.50, 7614.90.20, 7614.90.40, 7614.90.50) are relatively small in value – $43 million for all countries in 2019 (11 months)($26.9 million for countries subject to the additional 10% duties). The products/countries covered increased over the first 11 months of 2018 by 41.45%.

The other steel products identified – nails, tacks (other than thumb tacks), drawing pins, corrugated nails, staples and similar articles (HTS 7317.00.30.00, 7317.00.5503, 7317.005505, 7317.00.5507, 7317.00.5560, 7317.00.5580, 7317.00.6560) were $331.8 million in the first eleven months of 2019 for all countries ($276.9 million for countries covered by the new 25% duty). However, the rate of increase for covered products/countries was only 7.03% in 2019 versus 2018 (but had large increases vs. 2016 and 2017).

Countries with large exports in 2019 of the aluminum products (other than bumpers and body stampings) include Turkey at $7.4 million, India at $7 million, China at $5.0 million, Indonesia at $1.6 million, Italy at $1.35 million.

Countries with large exports in 2019 of the steel derivative products (other than bumpers and body stampings) include Oman at $59.5 million, Taiwan at $31 million, Turkey at $28.4 million, Thailand at $26.0 million, India at $25.3 million, Sri Lanka at $22.2 million, China at $20.4 million, Liechtenstein at $13.0 million, Malaysia at $12.5 million, Austria at $9.9 million and Saudi Arabia at $9.4 million.

On bumpers and body stampings, a number of the excluded countries are major suppliers — imports from Canada were $151.9 million in the first eleven months of 2019. Imports from Mexico were $44.6 million. For countries facing higher tariffs of 10% or 25% depending on whether the exported bumper stamping or body stamping is steel or aluminum, some of the large suppliers in 2019 were Taiwan at $87.4 million, Japan at $41.4 million, China at $39.4 million, Germany at $12.1 million, South Africa at $4.5 million, Italy at $3.8 million and Thailand at $3.6 million.

Conclusion

While any import measure by the President should be periodically reviewed for effectiveness and the need to maintain, the current action by the President in essence is a minor tweak with only $504 million of imports covered by the modified coverage of the Section 232 Proclamations — likely less than 1% of imports of steel and aluminum covered by the original proclamations.

It is true that the domestic steel and aluminum industries are not operating at the levels viewed as optimal and the problem of massive excess capacity in China and other countries is little changed in fact. But if a revision were needed, the level of ambition reflected in the Proclamation seems inadequate to the task.

So perhaps the way to read the proclamation is a recognition by the Administration that the existing relief hasn’t achieved the full measure of relief intended and to give trading partners warning that more is possible if the underlying problems aren’t addressed.

The Proclamation will certainly engender more disputes and increased tension with many of our trading partners. It is hard to understand the calculus (divorced from 2020 election posturing) of taking such a modest step, but time will tell if this is simply a prelude to a larger action in the coming months.

WTO Reform – Developments from Davos and What Might Be on U.S. Agenda

This year’s World Economic Forum had the usual side meetings of trade ministers and an unexpected meeting between President Trump and WTO Director-General Azevêdo. Trade ministers are discussing what needs to be accomplished ahead of the 12th Ministerial Conference (“MC12”) to be held in Kazakhstan in June 2020 with a focus on how to achieve agreement on fisheries subsidies to address illegal, unrecorded and unregulated fishing and overfishing and hence deliver on the UN sustainable development goal 14.6 during 2020. There are, of course, many other issues potentially on the agenda for MC12.

The potentially more interesting development out of Davos was the meeting between President Trump and DG Azevêdo. The President and the Director-General spoke about the meeting and need for WTO reform at a press conference the President held before leaving Davos. Here is the relevant exchange:

“[President Trump]: One of the people that was very important for me to meet from the World Trade Organization is Roberto Azevêdo. And he is a highly respected man. He happens to be this gentleman right here. I
thought I’d have him say a few words.

“But the World Trade Organization — as you know, I’ve had a dispute running with them for quite a while, because our country hasn’t been treated fairly. China is viewed as a developing nation.

“India is viewed as a developing nation. We’re not viewed a developing nation. As far as I’m concerned, we’re a developing nation, too. But they got tremendous advantages by the fact that they were considered “developing” and we weren’t. And they shouldn’t be. But if they are, we are.

“And we’re talking about a whole new structure for the deal, or we’ll have to do something. But the World Trade Organization has been very unfair to the United States for many, many years. And without it, China wouldn’t be China, and China wouldn’t be where they are right now. I mean, China — that was the vehicle that they used. And I give them great credit. And I also don’t give the people that were in my position great credit, because, frankly, they let that all happen. But the vehicle was the World Trade Organization.
And Roberto and I have a tremendous relationship, and we’re going to do something that I think will be very dramatic. He’ll be coming with a lot of his representatives to Washington sometime — maybe next week or the week after — and we’ll start working on it.

“So I’d like to introduce, just for — briefly — Roberto, and say a few words on behalf of the WTO. And then I’m going to introduce Larry Kudlow to say exactly where we are, in terms of our economy. Some of you know, but we’ve had some tremendous numbers just over the very recent past.

“So, please, Roberto.

“DIRECTOR-GENERAL AZEVÊDO: Well, thank you, Mr. President. And I think it’s fair to say that we have been saying, for quite some time, that if the multilateral system, if the WTO is to deliver and perform its role in today’s global economy, it has to be updated. It has to be changed. It has to be
reformed.

“This is an agenda that is squarely before members. I don’t think anybody in Geneva misses the point. I think they understand that the — the system has not been functioning properly in many areas. That’s something that we’re trying to address.

“I’m very happy that, in the conversation today with President Trump, he agreed that this is something that needs to happen; the WTO has to change. We are committed to effect those changes. And this is something we are serious about.

“And I am going to be, together with President Trump, as soon as possible, discussing what needs to change, what needs to be effected in the WTO, and we are committed to doing that.

“And, of course, I will be talking to all of the other WTO members, making sure that they all understand that this is serious. This is a path that we all have to be on together if we want to make the WTO relevant and performing to today’s requirements, frankly.

“So thank you very much, Mr. President. It’s an honor to be with you and with everybody else.

“Thank you.”

https://www.whitehouse.gov/briefings-statements/remarks-president-trump-press-conference-davos-switzerland/

U.S. Objectives for WTO Reform – Articulated and Possible

In the first three years of the Trump Administration, the Administration has identified a range of areas for reform and provided some specifics as well as identifying areas of key negotiating interest.

Dispute Settlement

WTO dispute settlement reform has been a top priority for the Administration with a wide range of issues of importance but an overriding issue of preventing panels and the Appellate Body from creating rights or obligations not contained in the negotiated agreements. This is also an area of priority for other WTO members for the different reason of wanting to get the Appellate Body functioning again. While the U.S. has not articulated specifics in terms of what type of reform is needed, the problem areas are clear. The U.S. position has been that the existing DSU text is clear and that proposals to date do nothing more than restate the existing requirements. Without understanding why the system has deviated from the plain language of the DSU, it is not possible to identify the reforms that are needed has been the Administration’s position. Much has been written about this area and one can assume it will be an important part of the upcoming discussions between the Administration and the WTO Secretariat. Broader reform of the WTO is unlikely if reform of the dispute settlement system isn’t achieved. It would be unacceptable to many WTO Members not to find a solution to the dispute settlement system.

Improved transparency

Much of the value of the WTO flows from the requirement of WTO Members to provide notifications on a wide range of topics, notifications which are important for other WTO Members to understand what trading partners are doing and whether there are potential WTO problems with the actions of particular trading partners.

Unfortunately, many WTO Members have failed to file required notifications in a timely manner, and, in many cases, notifications that are filed are demonstrably incorrect. In the areas of subsidies, the United States has over the past decade filed counternotifications on subsidy programs on China and India believing that the notifications submitted by those two countries were woefully incomplete. The counternotifications were an effort to identify the magnitude of the problem of under reporting.

While the WTO Secretariat has been tasked with providing periodic updates on notifications by Members, the present system has no consequences for failure to file notifications in a timely manner or for filing incomplete notifications.

How to address the transparency issue is of importance to many WTO Members. Indeed, lack of transparency and full notifications can complicate efforts to move specific issues forward. For example, the United States has raised concerns about the lack of information on cotton subsidies from China and India within the discussions on addressing concerns of cotton producting Members in Africa.

The U.S. and other countries have put forward proposals on modifying notification requirements and potential consequences for failure to keep notifications up to date. Because of the importance to the overall operation of the WTO, one can expect some effort in any reform package to ensure greater likelihood of notification requirements being met in fact.

Who gets Special and Differential Treatment under New Agreements

During the history of the GATT and the WTO to date, whether a Member was a developing country was a matter of self-selection, and, as a result, there have never been criteria that would help Members decide on eligibility. Nor has the organization had any system for graduating Members as their economies grew. Over the years, this has led to the situation where some of the wealthiest countries, largest exporting countries and others have maintained developing country status and hence taken lower levels of commitments through special and differential treatment provisions contained in agreements for developing countries.

As the comments of President Trump indicate, the United States has felt that the WTO system has permitted a number of countries not to assume responsibilities commensurate with their state of development and importance to the global trading system.

The United States has put forward proposals to have various countries, based on objective criteria, be ineligible for special and differential treatment for new agreements. Three WTO Members have indicated that they will not seek special and differential treatment in future agreements, though not agreeing that they are not developing countries — Korea, Singapore and Brazil.

While the need to have advanced economies carry their weight as part of the system would seem to be obvious, this is a highly sensitive issue where a number of major economies will fight hard against modifications of the current system. China, India and South Africa are three who have opposed any changes.

Obviously there has been some positive movement by the actions of three WTO Members. At a minimum, hopefully more Members will make similar commitments. And the United States has indicated that special and differential treatment provisions will not be agreed to in future agreements if certain countries don’t opt out of receiving such benefits. Thus, this issue will be an important and ongoing one that will generate a great deal of debate within the WTO and, hopefully, a meaningful advancement through its outcome. As the United States has indicated in statements at the WTO’s General Council, failure of many Members to carry their proper weight in liberalization has frustrated the ability of the WTO’s negotiating function to achieve the types of success that the system needs.

Update Rules to Address Different Economic Systems

For the United States, the European Union and other countries, the GATT and now WTO rules were written for and are applicable to market economies. WTO Members with different economic systems historically were not significant players in the global economy or when they joined the GATT or WTO undertook obligations which held the promise of the Member’s economy shifting to market economy principles.

The rise in importance of non-market economies like China engaged in different versions of state capitalism has created major challenges for the global trading system and for the viability of the WTO. The size and extent of industrial subsidies, forced technology transfer, role of state-owned and state-invested enterprises, state planning and resulting massive global excess capacity and targeting of technologies are just a few of the challenges market economy countries around the world have been confronting. Existing WTO rules don’t adequately address the many distortions flowing from the actions of the WTO members with non-market economies.

The United States, European Union and Japan announced an initiative at the 11th Ministerial Conference in Buenos Aires to address some of these issues. They recently released a joint statement outlining actions needed on industrial subsidies in particular.

The United States has also indicated that there is need for the WTO to address the disconnect that flows from major economies being within the WTO without being market economies.

While one would hope that a major trading nation, like China, who has benefitted enormously from WTO membership would understand the need for their to be an understanding on how different economic systems can coexist and rules to deal with major distortions or differences, this is an area where it is hard to see meaningful reform under a consensus system such as that used in the WTO.

Updated Rule Book to Address Current Commercial Realities

The Uruguay Round was the last major update of the global trading system’s rule book and occurred over 1986-1994. Technology and the organization of much of business today is dramatically different than the world that existed in the 1980s. There are few rules within the WTO dealing with electronic commerce. The plurilateral effort underway to come up with rules for the e-commerce field is important and long overdue.

Similarly, the world is facing issues of critical importance to the maintenance of food supplies, commercial activity and survival of islands, coast lines and much more. For example, more than one third of fish species are overfished. The oceans of the world are suffering massive pollution with waste areas in some locations being the size of states or smaller countries. Similarly, water temperatures are rising and weather patterns are shifting with consequent effects on agricultural productivity, on human and animal health and much more.

A few of these issues are being pursued within the WTO at the present time, including fisheries subsidies (negotiations now in their 19th year) and the plurilateral talks on e-commerce. Other topics are receiving consideration as well including domestic regulation of services, facilitating investment, the role of women and of small and medium sized enterprises.

Much more can and should be done to address the changes we are currently facing and that can be predicted. Where trade is affected, the WTO should have an important role. But a system that takes decades to work through a single issue, like fishery subsidies, will need a serious review as to how to permit much more timely responses and rule setting that can be ahead of the curve.

Free Trade Agreements and MFN

While Article XXIV of GATT 1994 deals with customs unions and regional trade agreements, the reality is that there are now hundreds of free trade agreements that have been negotiated and are in place of various breadth and different levels of coverage. While such agreements can permit countries to address bilaterally or plurilaterally issues not covered by the WTO, there is no doubt that free trade agreements lead to significant trade diversion as large volumes of trade are done at tariff rates that are more advantageous that the most favored nation rates negotiated during the GATT rounds. For some countries, the bulk of their trade may be at non-MFN rates. Do such facts favor additional efforts at bilateral or plurilateral liberalization even if not on an MFN basis?

Moreover, as many WTO members are opting not to contribute to further liberalization on new topics, there is the challenge of Members willing to liberalize providing benefits to non-participating members. While this is not a new problem, WTO reform may need to explore whether MFN has continuing relevance in a world of bilateral and plurilateral deals and/or whether plurilateral deals on topics not presently covered by WTO agreements should permit participating Members only to be the beneficiaries of the texts.

Conclusion

Other countries have raised a series of topics that they would like to see addressed in WTO reform talks that are not addressed in this note. What is clear is that if the United States is going to find satisfaction in a WTO reform effort, some major changes to the system will be needed. Deputy Director-General Alan Wolff had indicated in the past that WTO reform by 2025 was possible (looking at being ready for adoption by the 15th WTO Ministerial). https://www.wto.org/english/news_e/news19_e/ddgaw_13nov19_e.htm That timeline, while ambitious for the WTO based on past experience, is almost certainly unacceptable to the current U.S. Administration.

WTO Reform – Joint Statement of January 14, 2020 of Japan, the U.S. and the EU

At the last WTO Ministerial Conference held in December 2017 in Buenos Aires, Argentina, the U.S., the EU and Japan announced efforts to cooperate to develop WTO reforms to address concerns in areas such as industrial excess capacity, massive government subsidies, state owned enterprises, forced technology transfers, local content requirements and other matters. The joint statement released on December 12, 2017 is included in a press release from USTR and is reproduced below:

“Joint Statement by the United States, European Union and Japan at MC11

“12/12/2017

“Mrs. Cecilia Malmström, European Commissioner for Trade, Mr. Hiroshige Seko, Minister of Economy, Trade and Industry of Japan and Ambassador Robert E. Lighthizer, United States Trade Representative met in Buenos Aires, Argentine Republic on the 12th of December 2017 and agreed to strengthen our commitment to ensure a global level playing field.

“They said:

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

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

Japan, the EU and the U.S. have had a series of meeting over the last two years to seek agreement amongst themselves on reforms to the WTO to address the areas covered by the joint statement. There have also been other areas of cooperation including on working towards a more robust set of notification requirements and on how advanced developing countries can better contribute to the WTO by taking on full commitments and by not participating in special and differential treatment under new agreements or new negotiations.

On January 14, 2020, officials from Japan, the EU and the U.S. issued a joint statement that lays out some of the reforms, most in the area of subsidy disciplines, that the three have been able to agree on. While they are still working on proposed text, it is expected that the three major WTO Members will start an outreach process to broaden the support for the proposals. The USTR Press Release which contains the joint statement is attached below.

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

One can expect a busy 2020 in Geneva and in capitals around the world as proposals for WTO reform are vetted with various members and the topics get taken up in the WTO. While it is unlikely that any significant movement will occur by the 12th WTO Ministerial scheduled for early June 2020 in Kazakhstan, the topic of WTO reform has seen increased interest and activity throughout 2019.

What are the proposed increased disciplines on subsidies?

Prohibited Subsidies

Industrial subsidies have been the focus of the trilateral discussions. The Joint Statement recommends expanding the list of prohibited subsidies in Article 3.1 of the Agreement on Subsidies and Countervailing Duty Measures (“ASCM”) to include the following four categories (and have indicated that they are still exploring whether additional categories should be added):

  1. “unlimited guarantees”;
  2. “subsidies to an insolvent or ailing enterprise in the absence of a credible restructuring plan”;
  3. “subsidies to enterprises unable to obtain long-term financing or investment from independent commercial sources operating in sectors or industries in overcapacity”;
  4. “certain direct forgiveness of debt”.

These types of subsidies have been major concerns in a number of industries and certainly would pertain to China, but would be applicable to all Members.

Reversal of burden on certain actionable subsidies

The Joint Statement also recommends reversing the burden of proof on certain actionable subsidies that are not prohibited but where the three Members believe the types of subsidies can cause significant harm to competing producers in other countries. The proposal would impose on the subsidizing Member the burden of demonstrating “that there are no serious negative trade or capacity effects and that there is effective transparency about the subsidy in question.” While the list of such subsidies is still being developed, the list currently includes four categories:

  1. “excessively large subsidies”;
  2. “subsidies that prop up uncompetitive firms and prevent their exit from the market”;
  3. “subsidies creating massive manufacturing capacity, without private commercial participation”; and
  4. “subsidies that lower input prices domestically in comparison to prices of the same goods when destined for export.”

China has been pouring vast subsidies into a range of manufacturing sectors, has created massive excess capacity in dozens of industries, has created “zombie” companies which are prevented from exiting the market, and engages in various practices which have the effect of lowering input prices domestically far below world prices. Similar problems have been experienced with other trading partners as well.

Additional example of serious prejudice

The joint statement also reviews the desire to expand the situations in which serious prejudice under Article 6.3 of the ASCM should be found. The joint statement proposes adding a provision that serious prejudice would exist where the subsidy under investigation distorts capacity. Again, while such a provision would be applicable to all WTO Members, it would obviously be important for economies with the large state role such as China.

Other subsidy proposals

There are three other important proposals contained in the joint statement.

First, the serious problem of inadequate notifications is addressed by proposing that any non-notified subsidies will be treated as prohibited subsidies where other WTO Members provide a counter-notification unless all required information is provided by the subsidizing Member within a certain period of time. The U.S. has provided counter-notifications of subsidies on China and on India in the past. There is still a belief that large numbers of subsidies are not reported by these two countries and others. Lack of complete notifications hampers the ability of trading partners to understand the competitive environment and whether particular Members are acting consistent with their ASCM obligations.

Second, the joint statement addresses one of the challenges flowing from the existing ASCM and dispute settlement decisions, namely the lack of clarity for determining benchmarks for evaluating whether benefits are provided when the home market is distorted. The U.S. and others have gone out of country in certain circumstances, and WTO disputes have limited options for investigating authorities. This has proven to be an important issue in countervailing duty cases looking at subsidies for a number of countries, though China is obviously a major concern. Clarification is very much needed.

Third, the joint statement proposed ensuring that subsidies provided by state owned enterprises can be captured by the term “public body” in ASCM Article 1.1(a)(1). Such clarification is needed in light of a WTO dispute settlement decision which limited the scope of public body. All WTO members with significant state-owned and state-invested enterprises would be affected. Again, China is a major focus of the concern.

Forced Technology Transfer

Forced technology transfer has been a matter of concern for all three of the trilateral Members issuing the joint statement. The joint statement reviews the harm such actions have on other trading partners but does not provide a proposal as yet on what steps need to be taken, including on enforcement. Obviously, as far as China is concerned, these concerns have been a central part of the Section 301 investigation and actions by the U.S. Administration and is reportedly being addressed in one of the chapters in the Phase 1 Agreement that will be signed on January 15. It is not clear if the EU, Japan and the U.S. will be looking to multilateralize whatever provisions the United States has negotiated with China into the WTO.

Other items mentioned in the joint statement

Japan, the EU and the United States have been active on a range of other reform issues and agreed to continue to cooperate on them going forward. There are four items flagged:

  1. “the importance of market oriented conditions for a free, fair, and mutually advantageous trading system”;
  2. “reform of the WTO, to include increasing WTO Member compliance with existing WTO notification obligations and pressing advanced WTO Members claiming developing country status to undertake full commitments in ongoing and future WTO negotiations”;
  3. “international rule-making on trade-related aspects of electronic commerce at the WTO”; and
  4. international forums such as the Global Forum on Steel Excess Capacity and the Governments/Authorities’ Meeting on Semiconductors.”

The WTO system was built by market economy countries and does not address many of the distortions that “state capitalism” such as that practiced by China creates. While proposals such as those on subsidies can address (potentially) some of the distortions that state capitalism systems create, pursuing greater coherence to market economy principles is undoubtedly to the benefit of global trade. If very different economic systems are to continue to coexist, major reform to the WTO will be needed to have any hope of reciprocal trade happening, and such trade may well need to be managed in part.

The second group of issues have been being pursued by the U.S. aggressively in Geneva and bilaterally with the support of various countries. Korea, Singapore and Brazil have all agreed not to seek special and differential treatment in future negotiations or agreements.

For the WTO to remain relevant going forward it needs to be able to address major changes in the global trade environment. The importance of e-commerce is one such example. The plurilateral negotiations that are underway by many WTO members need to be both ambitious and reach an early conclusion.

China has walked away from the Global Forum on Steel Excess Capacity without a resolution to the serious global excess capacity problem largely created by China. Separately, a recent OECD report on subsidies to the semiconductor industry globally shows the importance of addressing the challenges in that sector on a comprehensive basis to avoid massive distortions in outcomes. OECD (2019), “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade Policy Papers, No. 234, OECD Publishing, Paris, https://doi.org/10.1787/8fe4491d-en.

Conclusion

The joint statement released today has an importance beyond the specific proposals it contains. It demonstrates that Japan, the EU and the U.S. have a large set of issues on which there is a common vision and willingness to work together for the good of the global system. The proposals on additional subsidy disciplines address real shortfalls in the existing ASCM and reflect the emergence of subsidy practices by state-capital countries like China that need to be addressed. They also identify important corrections to WTO dispute settlement decisions that need to be made to permit the ASCM to function as intended.

Many countries have concerns with forced technology transfer practices of some countries. While hopefully the U.S.-China Phase 1 Agreement to be signed on January 15, 2020 will provide a roadmap for a successful approach to these issues, the trilateral efforts will be important to multilateralize an approach that will address all permutations of forced technology transfer that are identified by Members.

Finally, the WTO has gone through its first 25 years and is in need of significant reforms to remain relevant as global trade moves forward. The issues covered by the Joint Statement represent a good group of issue to breathe life back into the WTO.

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

WTCOMTDW239C1

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.