industrial subsidies

WTO reform — distortions to market access and the need for better information

Terence P. Stewart · October 30, 2021 · Subsidy disciplines, WTO reform · agriculture subsidies, Canada, China, European Union, industrial subsidies, service sector subsidies, The 28th Global Trade Alert report, United States · No Comments

The WTO’s role in international trade requires timely, accurate and complete information on a wide range of matters covered by existing agreements and the willingness of Members to permit the gathering of information on topics which affect or may affect international competition. While information in some Committees is relatively timely, accurate and complete, many Members have failed to provide information required under existing agreements and have prevented the gathering by the Secretariat of information on topics of potential importance to the functioning of the global trading system and whether certain actions or modes of economic activity operate to create market distortions and distortions in trade patterns. Areas where information has been particularly deficient have been the areas of subsidy notifications both under the Agreement on Subsidies and Countervailing Meausres (“ASCM”) and under the Agreement on Agriculture.

A number of countries have proposed improved transparency requirements as part of the identification of needed WTO reforms. See, e.g., PROCEDURES TO ENHANCE TRANSPARENCY AND IMPROVE COMPLIANCE WITH NOTIFICATION REQUIREMENTS UNDER WTO AGREEMENTS COMMUNICATION FROM ARGENTINA; AUSTRALIA; CANADA; CHILE; COSTA RICA; THE EUROPEAN UNION; ISRAEL; JAPAN; REPUBLIC OF KOREA; MEXICO; NEW ZEALAND;
NORWAY; THE PHILIPPINES; SINGAPORE; SWITZERLAND; THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU; UNITED KINGDOM; AND THE UNITED STATES, 14 September 2021, JOB/GC/204/Rev.7, JOB/CTG/14/Rev.7.

Some countries have attempted to address the perceived inadequacies of subsidy notifications through counternotifications. See USTR, United States Details China and India Subsidy Programs in Submission to WTO, October 2011, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-prog (“U.S. Trade Representative Ron Kirk announced today that the United States has submitted information to the World Trade Organization (WTO) identifying nearly 200 subsidy programs that China has failed to notify as required under WTO rules. Information was also submitted on 50 subsidy programs in India not previously notified. Through these actions at the WTO, the United States is seeking the prompt provision of detailed information and data from China and India regarding the operation of these subsidy programs. ‘The situation was simply intolerable,’ said Ambassador Kirk. ‘Every member of the WTO is required to come clean on its subsidy programs on a regular basis. China has not notified its subsidy programs in over five years. India only recently filed its first notification in almost ten years, and even then notified only three of the many subsidy programs we know to exist. Because China and India have failed to meet their respective obligations, we had to act – as we are entitled to under the WTO rules – and provide the voluminous information we have developed regarding subsidy programs in these two countries.’)(emphasis added); WTO news release, Concerns grow about slippage in subsidy notifications, 25 April 2017, https://www.wto.org/english/news_e/news17_e/scm_25apr17_e.htm (“The United States and the European Union questioned China about what they alleged were some 160 government subsidies or grants listed in the annual reports of six of the largest Chinese steel producers (G/SCM/Q2/CHN/70) which were not included in China’s WTO subsidy notifications. The United States also quizzed China about the non-notification of other alleged subsides in sectors such as steel, aluminium and fisheries, as well as the non-notification of subsidies under China’s ‘Internationally Well-Known Brand’ programme. On fisheries, the United States said China had failed to notify 44 subsidy measures, including tax exemptions for certain operations such as deep water fishing ‘ identifying over 470 Chinese subsidy measures that were not notified to the WTO.”); WTO News, Members express concerns on lack of transparency at WTO subsidies committee meeting, 27 April 2021, https://www.wto.org/english/news_e/news21_e/scm_27apr21_e.htm.

Organizations like the OECD have historically developed trade policy reports that look at subsidies and distortions in agriculture, fossil fuels and fisheries. In recent years, the OECD has done some sector specific reports based on public data on distortions in international markets from subsidies in the aluminum and semiconductor value chains. See OECD (2019-01-07), “Measuring distortions in international markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris.
http://dx.doi.org/10.1787/c82911ab-en; OECD (2019-12-12), “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade Policy Papers, No. 234, OECD Publishing, Paris, http://dx.doi.org/10.1787/8fe4491d-en. The OECD press releases on the two trade policy reports contain information on the reports and historical activity of the OECD.

“Measuring distortions in international markets: the aluminium value chain

“This report builds on the OECD’s longstanding work measuring government support in agriculture, fossil fuels, and fisheries in order to estimate support and related market distortions in the aluminium value chain. Results show that non-market forces, and government support in particular, appear to explain some of the recent increases in aluminium-smelting capacity. While government support is commonly found throughout the aluminium value chain, it is especially heavy in the People’s Republic of China and countries of the Gulf Cooperation Council. Looking across the whole value chain also shows subsidies upstream to confer significant support to downstream activities, such as the production of semi-fabricated products of aluminium. Overall, market distortions appear to be a genuine concern in the aluminium industry, and one that has implications for global competition and the design of trade rules disciplining government support.” ttps://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets-the-aluminium-value-chain_c82911ab-en.

“Measuring distortions in international markets: The semiconductor value chain

“This report builds on the OECD’s longstanding work measuring government support in agriculture, fossil fuels, fisheries, and more recently in the aluminium value chain in order to estimate producer support and related market distortions in the semiconductor value chain. Results for 21 large firms operating across the semiconductor value chain indicate that total government support has exceeded USD 50 billion over the period 2014-18. Government support provided in the form of below-market debt and equity appears to be particularly large in the context of the semiconductor industry and concentrated in one jurisdiction. Other types of support identified include support for R&D and investment incentives, which benefitted all firms studied in this report. The report also discusses the implications that these findings have for trade rules, and in particular for subsidy disciplines in a context of growing government involvement in semiconductor production and poor transparency of support measures.” https://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets_8fe4491d-en.

The 28th Global Trade Alert Report, Subsidies and Market Access

Earlier this week, Simon Evenett and Johannes Fritz released the 28th Global Trade Alert Report entitled “Subsidies and Market Access, Towards an Inventory of Corporate Subsidies by China, the European Union, and the United States.” https://www.globaltradealert.org/reports/gta-28-report. It is an important contribution to the development of a data base of possible government subsidies by the three largest trading nations or blocs. The report has used information from government sources but not the subsidy notifications filed with the WTO. The report claims to have inventoried “18,387 corporate subsidies awarded by China, the EU, and the USA since November 2008.” (page 5)

“Our study should not be read as implying that China, the European Union, and the United States are the only jurisdictions that award subsidies to organisations engaged in business; the Global Trade Alert database currently contains a total of 5,977 subsidy policy changes and awards implemented by other nations.” (Page 5) Many countries provide domestic subsidies on industrial goods and such subsidies are not presently limited by the WTO ASCM although where such subsidies cause distortions or injury to a trading partner, there are potential remedies. Many countries also provide subsidies on agriculture whether reported to the WTO or not, and there is no tracking of what, if any, subsidies are provided by WTO Members to the service industries.

At present, there are no WTO disciplines on service industries receiving subsidies whether domestic or export. Yet, the report released on Monday indicates that “a total of 4,564” of the subsidy actions catalogued “involved the transfer of state resources to service sector firms” with 12.66% to financial service sector firms (578). The service subsidy findings in the report suggest that service subsidies (in number) are more than twice the number of agricultural subsidy items catalogued (2,171) and 42% of the number found for manufacturing companies (10,814). Page 6. Agricultural subsidies are the most actively controlled in the WTO (by the WTO Agreement on Agriculture). There are limited restrictions on manufacturing subsidies under the ASCM and some disciplines on subsidies to the civilian aircraft sector for signatories to the separate plurilateral agreement. And none on subsidies to services providers. I have written in the past on the irrationality of the different subsidy disciplines under the WTO on agriculture, manufactured goods and services. See, e.g., November 23, 2020: WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/23/wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/. The report released yesterday provides a potential measure of why a comprehensive review of subsidy disciplines is needed by the WTO Members for all trade (goods and services).

Observations

breadth of data

There have been many studies of subsidies in particular sectors or by particular governments over the years. Depending on the level of transparency in a country, publications on subsidy sources by a particular government are not unheard of. For example, in Canada there used to be annual reports on government subsidy programs put out by Statistics Canada. See Fraser Institute, Governments go subsidy-wild with $684 billion spent on subsidies since 1981, https://www.fraserinstitute.org/article/governments-go-subsidy-wild-684-billion-spent-subsidies-1981 (“Ever wonder how Canada’s net federal debt reached $671 billion by 2013? Or how net provincial debt among the provinces ended up at $509 billion that same year? Wonder no more. It’s partially due to massive subsidies to corporations, government businesses and even consumers that over three decades amounted to $684 billion. Statistics Canada once collected useful information about such taxpayer-funded government subsidies. The subsidies include funding for corporations (think selected automotive and aerospace companies), or Crown corporations like VIA Rail, or a government-owned ferry system to subsidize consumers’ ferry rides. Statistics Canada stopped tallying up the numbers in 2009 but by looking at what is available from 1981 (and adjusting for inflation to 2013 dollars to get apple-to-apple comparisons), some useful statistics pop out.”).

The usefulness of the 28th Global Trade Alert report is its focus on the three largest trading nations or blocks and a compilation of data points for a lengthy period of time (since 2008). The data base is also available for evaluation. There is partial data for other countries in the data base as well.

Missing is an evaluation of how many of the inventoried items are covered by notified subsidy programs by Members to the WTO. While there are concerns about completeness of notifications and timeliness of notifications, it would have been helpful to flag how many of the items would be covered by the notifications.

Similarly, while the report lays out what it treats as a subsidy, there are likely areas where clarification would be helpful. For example, on export financing, the U.S. has long been a participant in the OECD undertaking on export credits. Yet, of the 5,962 “subsidies” identified by the report, more than 1500 were from U.S. Eximbank. These are not likely prohibited export subsidies. So presumably, any loan from U.S. Exim was treated as a domestic subsidy. Whether that would be factually accurate is an open question. Similarly, more than 1,000 of the subsidy items are actions by the U.S. Department of Agriculture. Since the U.S. has reported every year operating within the limits of its obligations under the WTO, the relevance of the notices would presumably be simply in cataloging subsidies provided. It is not clear how the information would be an improvement on what is reported by the U.S. to the WTO Committee on Agriculture.

2. Rise in trade remedy cases –a reaction to global excess capacity and a source of information on distortions to trade

Countervailing duty investigations by national authorities on imports from a particular country can reveal information on the type and level of subsidies. Much of the information developed in an investigation may not be otherwise publicly available. And GATT Contracting Parties and, now, WTO Members have been able to challenge perceived subsidy practices at the WTO under various agreements.

The 28th Global Trade Alert report notes the increase in CVD investigations and in WTO disputes on subsidies and CVD cases. While the observation is correct that there are more cases in the last decade or so, it is unclear that the authors explored the information from the CVD investigations to determine the extent of subsidy practices in particular industries which may vary considerably from the sources they used. Having been a trade practitioner for 40 years, it is clear particularly for countries like China that there are many programs that are not flagged in corporate documents as having been used and many other state interventions which distorted competition that are not available from public sources in China. Indeed, in at least one CVD case in the U.S., documentation was submitted by a petitioner indicating that the Chinese government was ordering companies not to cooperate — hence minimizing the understanding of subsidy practices in particular sectors in China. Moreover, many of the cases brought involve sectors where China’s (and other countries’) policies resulted in massive global excess capacity.

China has been the subject of 176 of 431 CVD investigations brought by WTO Members since 2008. 285 OF 632 CVD investigations since 1995 involved base metals products of base metals (e.g., steel and aluminum), with higher numbers in recent years. Chemicals, plastics, rubber products were the subject of 127 additional cases since 1995, with more cases in recent years. All of these sectors reflect problems of global excess capacity.

Historically, GATT Contracting Parties were all market economies. Thus, there has never been any question that market economy countries or territories often use domestic or export subsidies. This was true under the GATT and now under the WTO. What is different in 2021 and since 2001 is that with non-market economies like China now in the WTO and with their combination of massive government intervention in the domestic market, industry plans, government funding, tolerance of IP theft, limitations on operations of foreign companies, export restrictions on raw materials and other identified distortions of competition, distortions in global markets have gotten much worse.

Many sectors have found themselves characterized by massive global excess production capacity, often largely driven by China, including in sectors where China has no inherent competitive advantages such as aluminum or steel. Indeed, China has identified sectors where it acknowledges massive excess Chinese capacity since at least 2007. With limited transparency, China will note closed capacity in these sectors but will seldom acknowledge additions to capacity being made at the same time. I testified before the U.S.-China Commission in February 2016 on the problems flowing from the massive global excess capacity created by China’s economic system and multitude of distortions to market forces. See HEARING ON CHINA’S SHIFTING ECONOMIC REALITIES AND IMPLICATIONS FOR THE UNITED STATES, HEARING BEFORE THE
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION, ONE HUNDRED FOURTEENTH CONGRESS, SECOND SESSION, WEDNESDAY, FEBRUARY 24, 2016 at 92-100 (statement of Terence P. Stewart), https://www.uscc.gov/sites/default/files/transcripts/February%2024,%202016_Hearing%20Transcript.pdf; see also Rui Fan, ‘‘China’s Excess Capacity: Drivers and Implications,’’ Stewart and Stewart, June 2015 (cited in USCC 2016 annual report at 104, 116, 134). Excerpts from my prepared statement to the USCC are copied below.

“Generally, an economy that follows state planning has the ability to pour resources into industries on a scale that doesn’t reflect underlying demand patterns or that overshoots actual demand trends. In the past several decades, a massive amount of industrial capacity has been added in China in a large number of manufacturing sectors to enhance the competitive position of the country and to provide employment to large numbers of people, many in state-owned enterprises. These actions have created massive disequilibrium in China and globally in various important manufacturing sectors. This imbalance was exacerbated by the 2007-2008 global financial crisis and recession and has again surfaced as a destabilizing force amidst slowing global demand. In fact, the US and many other countries are suffering the consequences of China’s actions as seen in the closure of aluminum smelters and steel mills and the layoff of thousands of workers.

“Indeed, the scope of the excess capacity in certain major industries is extraordinary by any measure and flows from state planning, funding and subsidization on a massive scale. The central government of China has recognized that the problem is a serious one and has been trying to deal with it, often with little actual effect as planned capacity closures are undermined by local
governments focused on creating or maintaining employment and by central government efforts to add capacity in the western part of the country. So mandated closures have in many sectors been more than offset by other capacity additions in the country.1

“However, with the recent and increasingly slowing internal growth in China, the increasing capacity overhang in China is
creating very real problems for Chinese companies and their international competitors. These capacity increases in a time of declining global demand are destabilizing global markets as exports have increased in some cases by 100% in short periods. The result is depressed global prices for products and waves of dislocations around the world as producers in other markets shift product to export2 as they lose market share at home. Ultimately, China must play a leadership role in the global economy to help find a way to rebalance supply and demand in each of these sectors. While it is doing so, the sectors will be depressed around the world with companies, workers and their local communities paying the price for the massive excess capacity created and maintained by the Chinese economic system.

“Because there are no multilaterally agreed rules to address situations of massive global excess capacity in a rapid or comprehensive manner, Chinese action now to get rid of excess capacity is critical to preventing the serious global dislocations caused by overcapacity in many critical industrial sectors. Otherwise market economy producers will respond to the market signals
flowing from the excess capacity that prices are unsustainable by closing plants, writing off assets and laying off workers even if the plants being closed are in fact internationally competitive.3

“For example, in the aluminum sector, western aluminum producers have been closing aluminum smelters in many parts of the world because of the depressed prices caused in large part by China’s massive excess capacity and inventories of product overhanging the market. In the US, six aluminum smelters have closed or been announced as closing in the last six months, leaving the US with a capacity back at 1950s levels. Yet China has no natural competitive advantage in the production of aluminum and environmentally its production is not desirable being largely coalpowered for energy. Nonetheless, China has expanded its aluminum capacity from 1.75 million tons in 1996 to an estimated 36 million tons in 2015.4 And in 2014 alone, Chinese excess capacity was estimated at more than 10 million tons.5 China now accounts for more than half of the world’s aluminum smelting capacity (52.3% vs. 7.9% in 1996).6

“Meanwhile, US capacity has declined by 52 percent from 4.2 million tons in 1996 to 2 million tons in 2015 and will be much
smaller in 2016 following the announced closures or planned closures of six smelters since September 2015 (one million tons).7
Thousands of aluminum workers in the US have lost or are losing their jobs. America now has less than 3 percent of the world’s primary aluminum production capacity and will have less than 2 percent in 2016.8

“The global steel sector is also in crisis.9 China’s steel capacity has skyrocketed from 145 million tons in 2000 to more than 1 billion tons today (some estimates are as high as 1.4 billion tons) with excess capacity of as much as 40% – equal to the total capacity in the US, EU and Japan.10

“The problem of excess capacity in the steel sector has been studied for a number of years within the OECD,11 has been the subject of bilateral discussion between the US and China12 as well as the EU and China. Over the past few years, the Chinese have announced a series of production cuts with little or no actual net reductions in steel capacity to date. The government of China has announced in recent weeks a program to close 100-150 million tons of capacity in the steel sector over the next five years13 – a huge sum of capacity if actually achieved but as little as one fourth of what is needed in fact.

“Companies harmed by globally depressed prices and rising import levels can seek relief through trade remedies.14 However, for products like aluminum or steel, problems often reflect loss of export markets (China or third country) as well as loss of one’s home market. Trade remedies are generally available for import problems. WTO cases can be brought for loss of third country
markets or loss of the market by the subsidizing country but require the willingness of the home government to bring such a case. However, existing WTO rules do not provide members with quick and effective means to address excess capacity.

“1. See, e.g., Biman Mukherji, Rising Chinese Production Keeps Lid on Aluminum Prices, Wall Street Journal, Nov. 10, 2015 (noting that, since 2010, Chinese producers have closed 3 million tons of annual aluminum production capacity but have added an additional 17 million tons of capacity), http://www.wsj.com/articles/rising-chinese-production-keeps-lid-on-aluminum-prices1447186082 (requires subscription). See also Aluminum producers staggering as factories lack orders, http://china.org.cn/business/2013-08/27/content_29835483.htm; China’s aluminum glut set to continue, http://asia.nikkei.com/Markets/Commodities/China-s-aluminum-glut-set-to-continue.

“2 Will China Finally Tackle Overcapacity?, http://blogs.piie.com/china/?p=3857; OECD China Economic Survey (March 2015),
http://www.oecd.org/eco/surveys/China-2015-overview.pdf.

” 3 The US Trade Representative’s Office, in its December 2015 Report on China, summarized the problem of excess capacity:

“Excess Capacity

“Chinese government actions and financial support in manufacturing industries like steel and aluminum have contributed to massive excess capacity in China, with the resulting over-production distorting global markets and hurting U.S. producers and workers in both the United States and third country markets such as Canada and Mexico. While China recognizes the severe excess capacity problem in the steel and aluminum industries, among others, and has taken steps to try to address this problem, there have been mixed results.

“From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth. Currently, China’s capacity alone exceeds the combined steelmaking capacity of the European Union (EU), Japan, the United States, and Russia. China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued to grow exponentially and is estimated to have exceeded 1.4 billion metric tons (MT) in 2014, despite weakening demand domestically and abroad. While China’s steel production is slowing and China may
produce approximately 2 to 3 percent less steel in 2015 than in 2014, steel demand in China is projected to decrease 5 percent this year. As a result, China’s steel exports grew to be the largest in the world, at 93 million MT in 2014, a 50-percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015, there is rising concern that China’s steel exports are still growing and may have increased 25 percent in the first ten months of 2015, as compared to the same period in 2014.

“Similarly, monthly production of aluminum in China doubled between January 2011 and July 2015 and continues to grow. Large new facilities are being built with government support, including through energy subsidies. China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices, harming U.S. plants and workers.

“Excess capacity in China – whether in the steel industry or other industries like aluminum – hurts U.S. industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable. Domestic industries in many of China’s trading partners have continued to respond to the effects of the trade distortive effects of China’s excess capacity by petitioning their governments to impose trade remedies such as antidumping and countervailing duties.

“2015 USTR Report to Congress on China’s WTO Compliance (December 2015) at 12-13, https://ustr.gov/sites/default/files/2015-
Report-to-Congress-China-WTO-Compliance.pdf.

“4 U.S. Geological Survey, Mineral Commodity Summaries, 1998 and 2016, http://minerals.er.usgs.gov/minerals/pubs/commodity/aluminum/050398.pdf;
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf. See also Attachment 2 (chart and table
showing China’s aluminum capacity).

“5 U.S. Geological Survey, Mineral Commodity Summaries, 2016, http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“6 U.S. Geological Survey, Mineral Commodity Summaries, 1998 and 2016, http://minerals.er.usgs.gov/minerals/pubs/commodity/aluminum/050398.pdf;
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“7 Id.

“8 U.S. Geological Survey, Mineral Commodity Summaries, 2016, http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“9 See generally, Surging Steel Imports Put Up To Half A Million U.S. Jobs At Risk, Terence P. Stewart, Elizabeth J. Drake,
Stephanie M. Bell, and Jessica Wang (Stewart and Stewart), and Robert E. Scott (The Economic Policy Institute),
http://www.epi.org/publication/surging-steel-imports/#iv.-the-future-of-the-domestic-steel-industry-depends-on-effective-traderemedy-enforcement.

“10 See Attachment 2 (chart and table showing China’s steel capacity). See also .Developments in Steelmaking Capacity of NonOECD Economies, http://www.oecd-ilibrary.org/industry-and-services/developments-in-steelmaking-capacity-of-non-oecdcountries_19991606; China’s excess crude steel still a problem, http://asia.nikkei.com/Politics-Economy/Economy/China-sexcess-crude-steel-still-a-problem.

“11 See, e.g., OECD, Steelmaking Capacity, http://www.oecd.org/sti/ind/steelcapacity.htm.

“12 The United States and China engaged in discussions regarding excess capacity in the steel sector at the SE&D meeting in July
2014 and regarding the steel and aluminum sectors at the JCCT meeting in November 2015. See USTR December 2015 Report
on China, at 104-105, https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-Compliance.pdf.

“13 China to cut steel capacity by 100-150 mln tonnes in 5 years, http://news.xinhuanet.com/english/2016-
02/04/c_135075575.htm.

“14 Pain Spreads From China’s Excess Production, http://blogs.wsj.com/chinarealtime/2014/07/16/pain-spreads-from-chinasexcess-production/ (noting that “China’s vast excess capacity makes it the biggest target of [trade] sanctions”).”

Conclusion

For the WTO to regain full relevance, its rule book needs to be updated to reflect both the current developments in world trade but also to ensure that all trade distortions are addressable in a meaningful and timely way by Members. A review of subsidy disciplines is certainly an important topic (including finalizing the GATS to address how subsidies will be handled for services). But there are many other distortions that are not currently fully or even partially addressable within the WTO in a meaningful way. State owned and invested enterprises are a growing factor in a number of countries and can seriously distort trade flows and competition. Government policies that restrict exports of inputs have had dramatic skewing effects on where downstream producers invest. State supported or sanctioned industrial espionage skews competition and drastically reduces the cost of production in countries that permit the theft. Economies that don’t function on market principles fundamentally distort market outcomes and invite use of non-WTO tools to address resulting distorted outcomes. And the WTO has no rules for addressing quickly any sector with massive global excess capacity.

Efforts to get greater transparency, completeness and timeliness in notifications are obviously a necessary and important element of WTO reform. Reports like that put out as the 28th Global Trade Alert report can be an important source of additional information to help WTO Members understand the extent of practices that may be of concern to themselves or others. However, in 2021, the array of market distortions pursued by governments like China (and others) are far broader than simply government subsidies. A road forward must include an analysis and update or creation of rules for all such distortions.

What role China could play in WTO reform — possibilities are real but chances of a positive role are not

Terence P. Stewart · October 16, 2021 · China's Role in WTO Reform · agricultural subsidies, Amb. Alan Wm. Wolff, convergence, Dispute Settlement, European Union, India, industrial subsidies, Joint Statement Initiatives, market oriented policies, negotiations, South Africa, transparency, United States · No Comments

On October 14, 2021, Amb. Alan Wolff (former Deputy Director General of the WTO, former Deputy U.S. Trade Representative and now Distinguished Visiting Fellow at the Peterson Institute for International Economic Policy) spoke to the PIIE-CF40 Young Economist Forum on the topic “China in the World Trade System, The Role of China in WTO Reform”. Amb. Wolff’s paper provides an interesting overview of the many areas where China could provide positive leadership at the WTO to achieve meaningful reform. The paper also identifies what China has identified as its priorities for reform, most of which cut against positive leadership. His paper can be found here. Ala Wm. Wolff, China in the World Trading System, The Role of China in WTO Reform, October 14, 2021, https://www.piie.com/commentary/speeches-papers/china-world-trading-system.

Amb. Wolff, when he was Deputy Director General at the WTO made points on the need for reform, key values of the WTO, some of which to be continued would require China to make some important adjustments to its economic system. See November 10, 2020: The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/. As DDG, Amb. Wolff spoke often on the future of the WTO, reforms needed, and more. He has continued that since leaving the WTO. See, e.g., May 1, 2021: Alan Wolff’s vision for saving the WTO — aspirational but is it achievable?, https://currentthoughtsontrade.com/2021/05/01/alan-wolffs-vision-for-saving-the-wto-aspirational-but-is-it-achievable/.

Among the values of the WTO identified by Amb. Wolff while serving as DDG were two that remain critical in the continued relevance of the WTO:

“The primacy of market forces — Commercial considerations are to determine competitive outcomes.

“Convergence —The WTO is not simply about coexistence; differences among members affecting trade which deviate from the principles governing the WTO, its core values, are to be progressively overcome.”

These two issues are among the areas where Amb. Wolff identifies the opportunity for China to take an active role in ensuring WTO relevance and WTO reform. But there are many areas where China could be active in a positive maner.

Many of the suggested areas for Chinese action are straight forward. For example, China is not a member of the Pharmaceutical Agreement but is now a very important producer and trader of pharmaceutical products. Joining would be an important step. Similarly, Amb. Wolff urges China to participate in updating the Information Technology Agreement to include medical equipment and eliminate duties on such equipment.

On the negotiating function, Amb. Wolff states,

“There are a number of important opportunities for Chinese leadership in negotiations.

“A positive substantive outcome is necessary in the fisheries subsidies negotiations, which it is hoped will be concluded shortly. China has by far the world’s largest long distance fishing fleet. China’s full and active participation is essential to attaining this objective.

“Another marine issue in which China is prominent is its co-sponsoring with Fiji of an environmental initiative targeting the problem of plastic waste in the oceans. This is a praiseworthy endeavor in which all should join.

“China should also take a lead in re-starting and concluding an Environmental Goods Agreement (EGA).” (pages 10-11).

On the Joint Statement Initiatives, China has the ability to determine the level of ambition in the e-commerce negotiations on issues like privacy, cross border data flow and forced localization of servers. It also is involved in JSIs on Investment Facilitation for Development and on Domestic Regulation of Service. Amb. Wolff notes that China will need to take a position on whether JSIs become part of the WTO acquis or not –

“Any results from the JSIs will add to the world trade rule book and constitute reform. It remains to be seen how valuable these agreements will be, and it is not yet clear how they will be incorporated into the WTO acquis. Either the WTO will be a venue for the negotiation of these crucial open plurilaterals or it will not, and China will have to make a choice as to its position on
the subject. Open plurilateral agreements are essential to the future health of the international trading system.” (page 12)

On WTO reform, both in terms of new rules and restoring the dispute settlement system, Amb. Wolff notes that the two areas will be intertwined and will require addressing “industrial subsidies, state intervention in the economy and technology transfer.” China views these issues defensively which will not help restore the system.

“As a major economy and important stakeholder in the multilateral trading system, China has a pivotal role to play which it should approach positively and constructively – rather than defensively, engaging actively in deliberations on reform. There is a choice between seeing areas of emerging rules as targeting or threatening China’s practices or, more fruitfully, seeing how they can serve the trading system more broadly. Either the WTO will be the venue for setting the rules of engagement or it will be done regionally, bilaterally or unilaterally. It should be in China’s interest to seek resolutions where it has a seat at the table.” (page 13)

On transparency, China will play an important role in whether the WTO 12th Ministerial Conference requires greater transparency and whether Members requires the Secretariat to “independently and aggressively report on all measures affecting trade flow, those that impede trade and those that facilitate it.” (page 14)

Amb. Wolff then addresses several sensitive issues: self-designation of developing country, “market-oriented policies” (what the U.S. would term China’s non-market economy). Amb. Wolff views the self-designation issue as less important for China since China “states that it will accept obligations commensurate with its capacity.” (page 14)

On the question of “market oriented policies,” Amb. Wolff has a long section.

“More serious than the rhetorical issue of whether China is or is not a developing country is the heated discussion over ‘market-oriented policies’. The Riyadh Initiative for the Future of the WTO reached a highly interesting outcome in its November 2020 G20 meeting. The Saudi chair reported that all members agreed to the following list as part of the principles of the WTO under the heading of ‘Rule of Law’:

“o Transparency

“o Non-discrimination

“o Inclusiveness

“o Fair competition

“o Market openness

“o Resistance to protectionism

“o Reciprocal and mutually advantageous arrangements, acknowledging that agreements provide for differential and more favorable treatment for developing economies, including special attention to the particular situation of least developed countries

“The Saudi chair reported that Members could not reach agreement that ‘market-oriented policies’ is a principle of the WTO.

“China defends the role of the state in its economy. However, whether it should be as sensitive as it is to the adoption of this principle is questionable. China already committed in the Working Party Report accompanying its Protocol of Accession that its state-owned enterprises (SOEs) would behave in effect in a market-oriented manner:

“‘44. In light of the role that state-owned and state-invested enterprises played in China’s economy, some members of the Working Party expressed concerns about the continuing governmental influence and guidance of the decisions and activities of such enterprises relating to the purchase and sale of goods and services. Such purchases and sales should be based solely on commercial considerations, without any governmental influence or application of discriminatory measures. . . …

“‘46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.‘

“This commitment already applies to government influence over private or quasi-private enterprises as well, foreign or domestic, where the role of the state is even less overt, because any government intervention that favors national goods, services, or IP, or treats one foreign supplier less favorably than another, violates fundamental and binding WTO non-discrimination rules: National Treatment and the Most-Favored Nation Principle. The hurdle is often not the legal principle involved but adducing proof of the influence.

“China’s Accession Protocol itself, providing other Members with additional flexibilities to restrict imports from China, indicates a belief of the negotiators for China’s entry into the WTO that there would be continuing progress toward China allowing market forces to determine competitive outcomes in its market, to determine investment, and to avoid artificially supporting
its exports.

“The golden rule of the multilateral trading system is that competitive outcomes should be determined by market forces and not state intervention. Without this rule, the system cannot function as intended. As the world’s largest exporting country, China should recognize that this fundamental principle is in its commercial interest. Its enterprises require access to markets around the world. That market forces are to determine competitive outcomes is the basis for the WTO and the GATT before it. Were this precept not accepted and applied, there would no effective alternative but to adopt additional interface mechanisms, far beyond the transitional antidumping and safeguard flexibilities applied to China in the first 12-15 years of its WTO membership under the terms of its accession.” (pages 15-16)(Emphasis added)

Amb. Wolff flags climate change and how WTO Members chose to deal with it as a possible third major area of disagreement, focusing on carbon border adjustment measures.

Amb. Wolff then looks at what the WTO would look like if China’s proposals for reform were adopted. See page 17-19. While some of the proposals are noncontroversial, China argues for self-designation of developing country status, right to have as much state involvement in the economy without WTO scrutiny as a Member wishes, selective reductions in agricultural subsides (US and EU but not China or India), no disciplines on industrial subsidies among others which clearly are contrary to what Amb. Wolff has identified as the necessary course for maintaining WTO relevance.

The paper identifies a series of statements on “What can and should be anticipated going forward with respect to WTO reform, including China’s role in it?” (page 21; nine statements). The list identifies both what needs to be done and what is likely if such actions are not achieved.

“1) Despite the valuable everyday work of the WTO — from standards notifications, assisting developing countries with a wide variety of challenges posed by trade, to trade policy reviews that are among the most civilized interactions of sovereign nations in accepting scrutiny of their policies — absent negotiation of new agreements the WTO will continue to lose credibility. In particular the WTO Members must act to allow their organization to rise to the trade challenges of pandemics and climate change and conclude the fisheries subsidies negotiations. China is central to making the WTO responsive to current challenges.

“2) China is active in JSIs. It should press for open plurilaterals to become a regular and accepted feature of the WTO system.

“3) There will be no restoration of an appellate function for dispute settlement without dealing with issues surrounding China’s trade practices. This will of necessity include addressing substantive rules, and not just how the appellate and panel functions are managed. It will be a difficult negotiation.

“4) The WTO must adopt and implement an explicit rule that market-forces will determine competitive outcomes. China is already pledged to this. This prospective fight can be avoided because it is unnecessary and because it cannot be won by China.7 But then China would have to have its economy be consistent with any resulting new rules that might be constructed. China is not the only economy with state involvement, although it is more pervasive and has more global systemic relevance than is true for any other country. For the sake of the future of the WTO, for the multilateral trading system, this challenge, however daunting, must be met for the WTO to survive as an effective system of rules for global trade.

“5) China, the U.S. and the EU each need to recognize the essential value of the WTO and invest in it accordingly. (This goes for India, South Africa, and others as well.)

“6) De-globalization, were it more than a correction for overly lean and extended supply lines, is not in the interests of any of the WTO Members, least of all, China. It is, avoidable. Re-balancing too far inward, over-emphasizing near-shoring, will hurt all
economies, disproportionately for the largest trading WTO Members. Some shortening of supply lines as a hedge against disruptions can be expected but will be limited by the need to avoid unnecessary costs.

“7) International agreements function on trust. It is up to the Members with the largest trade to increase the level of trust in the system. Trust is not created by stipulating it; it must be earned by experience. To say that there is a trust deficit between the two
largest trading nations would be a gross understatement. Within the WTO, it is time to consider how they can engage in putting into place confidence-building measures.

“8) If the WTO is not able to function, regional agreements will be where serious trade negotiations take place. This will be against the interests of all, including the big three.

“9) China needs to become an effective champion in the cause of preserving and enlarging the scope and effectiveness of the WTO. A major objective of China’s national interest must remain integration into, not retreat from, the world economy.
This can only be achieved through investing in the multilateral trading system. “

“7 Two distinguished academics, Mavroidis and Sapir, have written that the WTO Members must reinforce the
WTO’s fundamentals, which means market-based trade. They say that China must evolve its system to be
compatible. There is little belief in academia that this will occur. It does not seem to be the direction of change in
China at present.” (pages 21-23)(Emphasis added)

Amb. Wolff adds “A cautionary note” several paragraphs of which are copied below

“The life span of any trade agreement, including the WTO acquis, depends on the underlying evolution of the commerce of the parties toward greater openness. If there is stasis, or retreat from openness, then the duration of the agreement will be short.

“The WTO is about convergence not coexistence. That is why transition periods exist to deal with differences rather than permanent exclusions. The rules emerging from a process of ‘WTO reform’ will either trend toward reinforcing convergence or increasing the use of interface mechanisms, the safeguards against governmental measures that distort the market. There is no middle ground if the WTO is to be effective. What we do not know is how long the multilateral trading system can endure if convergence is not going to take place.” (page 24)(Emphasis added)

Comments and Conclusion

Trade and the WTO have obviously been highly beneficial to China and to many other Members. Nonetheless, China has been working hard not to have its economic system evolve to a market-based one. It has generally not pursued liberalization that benefits all versus favoring China. It insists on coexistence vs. convergence. It uses the consensus system to prevent evaluation of its practices which distort trade It has limited transparency of its actions and has engaged in actions against individual Members that are retaliatory and coercive. As the world’s largest exporter, China has a critical role in global trade. But the dangers Amb. Wolff has outlined in his speech where market principles and convergence are not the core values are manifesting themselves in the world marketplace as countries look for alternative approaches to deal with China’s trade distortions.

Amb. Wolff’s speech outlines a number of ways that China can improve the functioning of the WTO and exhibit leadership in WTO reform. His speech is an important one which hopefully has had a receptive audience in China. Unfortunately, while there are some identified actions that China may take, it is unlikely that China will do anything to address the critical differences that its economic system poses to the survival of the global trading system.

G20 Trade and Investment Ministerial Statement of October 12 and Amb. Tai’s comments on the WTO from October 14 — the ongoing divide among major Members makes a meaningful WTO MC12 less likely

Terence P. Stewart · October 15, 2021 · 12th Ministerial Conference · agricultural market access, agricultural subsidies, Australia, Canada, China, e-commerce, European Union, fisheries subsidies, G20 Trade and Investment Ministerial Meeting, India, industrial subsidies, Joint Statement Initiatives, level playing field, MSMEs, Namibia, South Africa, trade and environment, trade and health, United Kingdom, United States, USTR Katherine Tai, WTO Reform · No Comments

In prior posts, I have reviewed the challenges facing the WTO as it approaches the 12th Ministerial Conference in Geneva at the end of November, beginning of December. See, e.g., October 8, 2021: The gap between WTO activity and the needs of businesses and workers for the international trading system, https://currentthoughtsontrade.com/2021/10/08/the-gap-between-wto-activity-and-the-needs-of-businesses-and-workers-for-the-international-trading-system/; September 18, 2021: The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance, https://currentthoughtsontrade.com/2021/09/18/the-wtos-12th-ministerial-conference-in-late-november-early-december-2021-the-struggle-for-relevance/; May 10, 2021: World Trade Organization — possible deliverables for the 12th Ministerial Conference to be held in Geneva November 30-December 3, 2021, https://currentthoughtsontrade.com/2021/05/10/world-trade-organization-possible-deliverables-for-the-12th-ministerial-conference-to-be-held-in-geneva-november-30-december-3-2021/.

The G20 Trade and Investment Ministerial Statement of October 12, 2021

WTO Reform

While the vast majority of WTO Members profess an interest in a successful MC12 beginning in late November, the reality is that success means very different things to different Members. The G20 countries have repeatedly called for a successful MC12, but this week’s meeting in Sorento Italy and resulting Ministerial statement on trade and investment shows limited actual convergence on what should be achieved at the upcoming WTO Ministerial Conference. See G20 TRADE AND INVESTMENT MINISTERIAL MEETING – OCTOBER 12, 2021, G20 MINISTERIAL STATEMENT ON TRADE AND INVESTMENT, https://www.g20.org/wp-content/uploads/2021/10/G20-TIMM-statement-PDF.pdf.

Paragraph 6 of the G20 Trade and Investment Ministerial statement reiterates support for a successful MC12.

“We commit to a successful and productive WTO 12th Ministerial Conference as an important opportunity to advance WTO reform to revitalise the organisation. We commit to active engagement in this work to provide the political momentum necessary for progress.”

Yet the statement is short on specific areas of reform other than improving rule making and dispute settlement — areas where there has been no meaningful forward movement ahead of MC 12 and where there are major divisions among G20 countries.

Trade and Health

On the topic of “trade and health” there is support among G20 countries for equitable access to vaccines, therapeutics, diagnostics and personal protective equipment, and G20 countries are making belated contributions to increased supplies to the most vulnerable. However, with the exception of export restraints where there is language recognizing the right of countries to take actions in limited circumstances, the divisions amongst the G20 make specifics on WTO issues merely aspirational.

“10. We will work actively and constructively with all WTO members in the lead up to the 12th Ministerial Conference and beyond to enhance the capacity of the multilateral trading system to increase our pandemic and disaster preparedness and resilience by adopting a multifaceted response. Trade-related aspects of intellectual property rights, contributions to international efforts to expand production and delivery of vaccines, therapeutics and essential medical goods, diversifying manufacturing
locations and fostering equitable distribution, trade facilitation measures, export restrictions, encouraging regulatory compatibility, are among the areas where our constructive engagement in the WTO, notably in the TRIPS Council, the Council for
Trade in Goods, the Council for Trade in Services, and other relevant bodies and processes, can enhance global public health efforts.”

While there may be language in an MC12 declaration and a work program for the future, there will not likely be any meaningful results announced at MC12.

Services and Investments

Embarrassingly for the WTO, Members, efforts to develop multilateral rules for digital trade and e-commerce continue to be far from concluded. This has led to the Joint Statement Initiative (“JSI”) on E-Commerce and other JSIs being launched at the 11th WTO Ministerial Conference in Buenos Aires in 2017 amongst a subset of WTO Members but open to all. Two of the other JSIs are Investment Facilitation for Development and Services Domestic Regulation. The JSI on Services Domestic Regulation has reportedly reached an agreement that will be presented at MC12. However, within the G20, there are some countries who oppose bringing JSIs into the WTO — most notably, India and South Africa. See WTO News, Participants in domestic regulation talks conclude text negotiations, on track for MC12 deal, 27 September 2021, https://www.wto.org/english/news_e/news21_e/serv_27sep21_e.htm; THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, submission from India, Namibia and South Africa, 30 April 2021, WT/GC/W/819/Rev.1. This difference of views is reflected in the G20 Trade and Investment Ministerial Statement.

“14. G20 participants in the Joint Statement Initiatives on E-Commerce, Investment Facilitation for Development and Services Domestic Regulation encourage and support the active participation of all WTO members in the initiatives and look
forward to meaningful progress in the lead up to the 12th WTO Ministerial conference. Concerns have been expressed on rule-making by some G20 members that are not part of the JSIs.”

Government Support and Level Playing Field

The section of the Ministerial Statement looking at government support and level playing field issues recognizes that there are “structural problems in some sectors, such as excess capacities” which cause problems and note that “Many G20 members affirm the need to strengthen international rules on industrial subsidies and welcome ongoing international efforts to improve trade rules affecting agriculture.” As is clear “many of us” means a number of G20 countries don’t agree. Industrial subsidy rule improvement is intended to address the distortions caused by China’s programs (and of others). Agriculture market access and agricultural subsidies and transparency are also issues where there is a significant division among G20 countries.

Trade and Environmental Sustainability

The challenges to the world from a warming climate are existential. The Ministerial Statement contains useful language of a general nature in terms of the importance of addressing environmental issues and that “trade and environmental policies should be mutually supportive”. The G20 support reaching a conclusion to the fisheries subsidies negotiations even though there have been recent actions by some G20 countries — again, India and South Africa — to weaken disciplines on “developing” countries which threaten the achievement of a meaningful agreement 20 years after negotiations commenced.

MSMEs

Micro-, small- and medium-sized enterprises are a critical part of most countries economies and make up a larger share of business in lower income countries. While the Ministerial Statement addresses MSMEs importance and need for additional assistance, there is no mention of the Joint Statement Initiative on MSMEs among some WTO Members and the fact that an agreement is ready for presentation at MC12 with the agreement being open to all. See WTO News, Working group on small business finalises MC12 draft declaration, 27 September 2021, https://www.wto.org/english/news_e/news21_e/msmes_28sep21_e.htm. India and South Africa and others have raised the same objection to the MSME JSI as they have to the others.

Conclusion on G20 Trade and Investment Ministerial Statement

The deep divisions within the WTO membership are reflected as well among the G20 countries with China, India, South Africa and others having much different priorities that the historic leadership of the GATT/WTO including the U.S., EU, Canada, United Kingdom, Australia and others. It is the lack of a common purpose and agreement on basic principles that has largely paralyzed the negotiating function at the WTO. The disappointing G20 Trade and Investment Ministerial Statement reflects that same lack of common purpose and agreement on basic principles.

USTR Katherine Tai’s October 14, 2021 Prepared Remarks on the WTO

The U.S. Trade Representative traveled to Geneva after the G20 Trade and Investment Ministers meeting in Italy and spoke on the WTO at an event hosted by the Graduate Institute of International and Development Studies’ Geneva Trade Platform on October 14. Ambassador Tai’s prepared statement is available on the USTR webpage and is reproduced below. See USTR,Ambassador Katherine Tai’s Remarks As Prepared for Delivery on the World Trade Organization, October 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/speeches-and-remarks/2021/october/ambassador-katherine-tais-remarks-prepared-delivery-world-trade-organization.

” Good afternoon. Thank you to Dmitry and Richard, the Geneva Trade Platform, and the Graduate Institute of International and Development Studies for hosting me today and putting together this event.

“It is a pleasure to be back in Geneva. I have looked forward to making this trip since becoming the United States Trade Representative in March, and I am grateful to be here with all of you today.

“I spent a lot of time in this city earlier in my career representing the United States Government with pride before the World Trade Organization.

“I appreciate the importance of the institution. And I respect the dedicated professionals representing the 164 members, as well as the WTO’s institutional staff working on behalf of the membership. I also want to thank Director-General Dr. Ngozi for leading this organization through a difficult and challenging year.

“Let me begin by affirming the United States’ continued commitment to the WTO.

“The Biden-Harris Administration believes that trade – and the WTO – can be a force for good that encourages a race to the top and addresses global challenges as they arise.

“The Marrakesh Declaration and Agreement, on which the WTO is founded, begins with the recognition that trade should raise living standards, ensure full employment, pursue sustainable development, and protect and preserve the environment.

“We believe that refocusing on these goals can help bring shared prosperity to all.

“For some time, there has been a growing sense that the conversations in places like Geneva are not grounded in the lived experiences of working people. For years, we have seen protests outside WTO ministerial conferences about issues like workers’ rights, job loss, environmental degradation, and climate change as tensions around globalization have increased.

“We all know that trade is essential to a functioning global economy. But we must ask ourselves: how do we improve trade rules to protect our planet and address widening inequality and increasing economic insecurity?

“Today, I want to discuss the United States’ vision for how we can work together to make the WTO relevant to the needs of regular people.

“We have an opportunity at the upcoming 12th ministerial conference – or MC12 – to demonstrate exactly that.

“Throughout the pandemic, the WTO rules have kept global trade flowing and fostered transparency on measures taken by countries to respond to the crisis. But many time-sensitive issues still require our attention. We can use the upcoming ministerial to deliver results on achievable outcomes.

“The pandemic has placed tremendous strain on peoples’ health and livelihoods around the world. The WTO can show that it is capable of effectively addressing a global challenge like COVID-19, and helping the world build back better.

“There are several trade and health proposals that should be able to achieve consensus in the next month and a half.

“I announced in May that the United States supports text-based discussions on a waiver of intellectual property rights for COVID-19 vaccines. The TRIPS Council discussions have not been easy, and Members are still divided on this issue. The discussions make certain governments and stakeholders uncomfortable. But we must confront our discomfort if we are going to prove that, during a pandemic, it is not business as usual in Geneva.

“The United States is also working on a draft ministerial decision aimed at strengthening resiliency and preparedness through trade facilitation. Our proposal would improve the sharing of information, experiences, and lessons learned from COVID-19 responses to help border agencies respond in future crises.

“It is important that our work on trade and health does not end at MC12. This pandemic will not be over in December, and it will not be the last public health crisis we encounter. In the next six weeks, we also have an opportunity to conclude the two-decades-long fisheries subsidies negotiations and show that the WTO can promote sustainable development.

“We want to continue working with Members to bridge existing gaps in the negotiations.

“To this end, the United States is sharing options to respond to developing countries’ request for flexibilities. We believe that any agreement must establish effective disciplines that promote sustainability.

“It must also address the prevalence of forced labor on fishing vessels. We call on all Members to support these goals.

“I recognize that discussing these complex issues during a pandemic is hard. Despite this challenge, we can reach meaningful outcomes and set ourselves up for candid and productive long-term conversations on reforming the WTO.

“As I mentioned earlier, the reality of the institution today does not match the ambition of its goals. Every trade minister I’ve heard from has expressed the view that the WTO needs reform.

“The Organization has rightfully been accused of existing in a ‘bubble,’ insulated from reality and slow to recognize global developments. That must change.

“We are used to talking to each other, a lot. We need to start actually listening to each other.

“We also must include new voices, find new approaches to problems, and move past the old paradigms we have been using for the last 25 years.

“We need to look beyond simple dichotomies like liberalization vs. protectionism or developed vs. developing. Let’s create shared solutions that increase economic security.

“By working together and engaging differently, the WTO can be an organization that empowers workers, protects the environment, and promotes equitable development.

“Our reform efforts can start with the monitoring function. In committees, Members deliberate issues and monitor compliance with the agreements. This important work is a unique and underappreciated asset of the WTO.

“Increasingly, however, Members are not responding meaningfully to concerns with their trade measures. The root of this problem is a lack of political will. But committee procedures can be updated to improve monitoring work.

“At MC12, Ministers can direct each committee to review and improve its rules.

“It is also essential to bring vitality back to the WTO’s negotiating function. We have not concluded a fully multilateral trade agreement since 2013.

“A key stumbling block is doubt that negotiations lead to rules that benefit or apply to everyone. But we know that negotiations only succeed when there is real give and take.

“We can successfully reform the negotiating pillar if we create a more flexible WTO, change the way we approach problems collectively, improve transparency and inclusiveness, and restore the deliberative function of the organization.

“Over the past quarter century, WTO members have discovered that they can get around the hard part of diplomacy and negotiation by securing new rules through litigation.

“Dispute settlement was never intended to supplant negotiations. The reform of these two core WTO functions is intimately linked.

“The objective of the dispute settlement system is to facilitate mutually agreed solutions between Members. Over time, ‘dispute settlement’ has become synonymous with litigation – litigation that is prolonged, expensive, and contentious.

“Consider the history of this system.

“It started as a quasi-diplomatic, quasi-legal proceeding for presenting arguments over differing interpretations of WTO rules. A typical panel or Appellate Body report in the early days was 20 or 30 pages. Twenty years later, reports for some of the largest cases have exceeded 1,000 pages. They symbolize what the system has become: unwieldy and bureaucratic.

“The United States is familiar with large and bitterly fought WTO cases. Earlier this year, we negotiated frameworks with the European Union and the United Kingdom to settle the Large Civil Aircraft cases that started in 2004.

“We invoked and exhausted every procedure available. And along the way, we created strains and pressures that distorted the development of the dispute settlement system.

“With the benefit of hindsight, we can now ask: is a system that requires 16 years to find a solution ‘fully functioning?’

“This process is so complicated and expensive that it is out of reach for many – perhaps the majority – of Members.

“Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.

“It is about revitalizing the agency of Members to secure acceptable resolutions.

“A functioning dispute settlement system, however structured, would provide confidence that the system is fair. Members would be more motivated to negotiate new rules.

“Let’s not prejudge what a reformed system would look like. While we have already started working with some members, I want to hear from others about how we can move forward.

“Reforming the three pillars of the WTO requires a commitment to transparency. Strengthening transparency will improve our ability to monitor compliance, to negotiate rules, and to resolve our disputes.

“I began these remarks with an affirmation of commitment. I’d like to conclude with an affirmation of optimism.

“I am optimistic that we can and will take advantage of this moment of reflection.

“In reading over the Marrakesh Agreement’s opening lines, I was struck by the founding Members’ resolve to develop ‘a more viable and durable multilateral trading system.’

“These words are just as relevant today as they were then. We still need to work together to achieve a more viable and durable multilateral trading system.

“It is easy to get distracted by the areas where we may not see eye to eye. But in conversations with my counterparts, I hear many more areas of agreement than disagreement.

“We all recognize the importance of the WTO, and we all want it to succeed.

“We understand the value of a forum where we can propose ideas to improve multilateral trade rules. We should harness these efforts to promote a fairer, more inclusive global economy.

“WTO Members are capable of forging consensus on difficult, complicated issues. It’s never been easy, but we’ve done it before. And we can do it again.

“Thank you.”

Comments on USTR Tai’s statement on the WTO

The Biden Administration has been supportive of multilateral institutions, and that support is relfected in Amb. Tai’s comments. At the same time, the U.S. has believed that a small package of deliverables is achievable for MC12 with hopefully a work program for the serious reform that is needed also being agreed to at MC12. Amb. Tai’s comments reflect both optimism and a limited set of deliverables being sought.

The Fisheries Subsidies negotiations has made limited progress on a range of important issues. The U.S. is attempting to find answers to problems raised by others while still achieving a meaningful outcome. With the limited time remaining, this suggests either a less robust agreement or movement by others to a higher level of ambition or to no agreement being finalized. Addressing forced labor in fishing and more broadly should be important to all WTO Members, was raised by the U.S. (and is important to Democratic leadership in the Congress) but is opposed by some, including China. If the U.S. continues to pursue the addition of this issue to the fisheries subsidies text,

On greater transparency, Members agreeing to have Committees review their procedures to improve the monitoring function are important steps that could be taken to improve Member confidence in actions of trading partners and affect negotiations and dispute settlement as well. Even such seemingly simple steps, however, may not move forward as at least one major country — China — has as one of its negotiating priorities not changing transparency obligations.

Revitalizing the negotiating function and restoring a dispute settlement system are longer term efforts, with the U.S. vision on dispute settlement (focus on what dispute settlement is doing vs. ensuring a two stage process) far apart from that of the EU and many other Members.

And, of course, the U.S. is supportive of some form of outcome on addressing the pandemic and trade and health moving forward. Whether there will be outcomes in this area are dependent more on flexibility by others as the U.S. has been looking for solutions that will meet the pandemic needs and prepare for the future.

Conclusion

With very limited time until the 12th WTO Ministerial Conference begins at the end of November, it is hard to see an ambitious outcome emerging from the efforts of WTO Members. The G20 Trade and Investment Ministerial Statement from October 12 reflects the divisions amongst the major WTO Members. Amb. Tai’s statement yesterday in Geneva while positive on the WTO and its important role tees up a relatively limited outcome as likely for MC 12. Even Amb. Tai’s more realistic set of expectations are likely to be challenging to achieve.

Katherine Tai, USTR designate, on addressing WTO reform including dispute settlement if confirmed; the USTR 2021 Trade Policy Agenda

Terence P. Stewart · March 2, 2021 · Uncategorized · Airbus-Boeing disputes, Appellate Body reform, COVID-19, digital services taxes, e-commerce plurilateral negotiations, Environmental Goods Agreement negotiations, Government Procurement Agreementro, industrial subsidies, state capitalism, WTO Reform · No Comments

President Biden’s nominee for U.S. Trade Representative had a hearing on her nomination before the U.S. Senate Finance Committee on Thursday, February 25, 2021. Written questions to the nominee were due to the Chairman of the Committee on February 26 by 5:00 p.m. Questions with answers were returned to the Committee by the USTR nominee on March 1. Ms. Tai will be one of three nominees who will be voted on by the Senate Finance Committee on March 3 at 10:00 a.m. See Reuters, Senate panel to vote Wednesday on three Biden nominees, including trade pick Tai, March 1 2021, https://www.reuters.com/article/us-usa-biden-nominations/senate-panel-to-vote-wednesday-on-three-biden-nominees-including-trade-pick-tai-idUSKCN2AT3K4?il=0; Inside U.S. Trade’s World Trade Online, Finance Committee to vote on Tai’s nomination on Wednesday, March 1, 2021, https://insidetrade.com/trade/finance-committee-vote-tai%E2%80%99s-nomination-wednesday (includes link to answers to questions from Senate Finance Committee by the nominee).

It is expected that Ms. Tai will receive an affirmative vote and be referred to the full Senate for a confirmation vote in the near future. It is expected that she will be confirmed by the Senate in the coming days.

I had reviewed the February 25th hearing in an earlier post. See February 25, 2021, U.S. Trade Representative nominee Katherine Tai confirmation hearing before the U.S. Senate Finance Committee, https://currentthoughtsontrade.com/2021/02/25/u-s-trade-representative-nominee-katherine-tai-confirmation-hearing-before-the-u-s-senate-finance-committee/. The 95-page compilation of questions for the record and Ms. Tai’s answers contains a little more explanation of her view of the approach of the Biden team on trade issues of importance to the WTO membership. Yesterday was also the day that USTR released the 2021 Trade Policy Agenda and 2020 Annual Report of the President of the United States on the Trade Agreements Program.

While the bulk of questions to Ms. Tai were on the U.S.-China relationship and a wide array of issues flowing from various Chinese practices, there were also a number of questions going to WTO reform and, in particular, on dispute settlement and the Appellate Body. There were also a series of questions on the U.S.-EU WTO disputes on Airbus/Boeing. There were also questions about U.S. actions that are subject to WTO dispute (though the questions didn’t focus on the WTO disputes) — Section 232 tariffs on steel and aluminum; Section 301 tariffs on large parts of imports from China. There were questions on the Environmental Goods Agreement negotiations which stopped in 2016 and whether plurilateral negotiations should be on a non-MFN basis. There were also several questions about the WTO Government Procurement Agreement and U.S. notification of its intent to withdraw coverage from certain medical goods. In addition most of the topics raised in the hearing were covered by specific written questions (e.g., USMCA enforcement, US-EU issues on digital services taxes, negotiations with the U.K., Kenya, CPTPP countries, market access issues with countries like India, Japan and others).

On WTO reform and problems with the WTO dispute settlement system, Ms. Tai’s responses indicate that the Biden Administration will be actively engaged in search for reforms. This is the first affirmative indication that the Biden Administration is likely to move past identifying the myriad problems with the dispute settlement system (something the Trump team identified with great specificity) to engaging in identifying reforms needed. Similarly, Ms. Tai’s response on the WTO disputes on Airbus-Boeing indicates the Biden Administration will be focusing on finding a negotiated solution with the European Union. Similarly, the Biden Administration will focus on enforcement of existing obligations our trading partners have at the WTO or bilaterally or plurilaterally. With China this means the U.S. will seek compliance through the WTO or through bilateral agreements (such as the U.S.-China Phase I Agreement) where there are specific commitments not being complied with, and the U.S. will seek through negotiations new rules where there is a lack of clarity in current agreements or lack of existing rules.

The 2021 Trade Policy Agenda looks at how trade policy can address core Biden Administration priorities — tackling the COVID-19 pandemic and restoring the economy; being worker centric; putting the world on a sustainable environment and climate path; advancing racial equity and supporting underserved communities; addressing China’s coercive and unfair economic trade practices through a comprehensive strategy; partnering with friends and allies; standing up for American farmers, ranchers, food manufacturers and fishers; promoting equitable economic growth around the world; and making the rules count (enforcement). While many of the Administration’s priorities from a trade perspective include areas for potential WTO action, the main discussion of WTO activity is in the partnering with friends and allies section. A three page fact sheet from USTR released yesterday provides a summary on the 2021 trade policy agenda and is embedded below.

fact-sheet-on-2021-Trade-Policy-Agenda-report

Senate Finance Committee Questions and Ms. Tai’s Responses dealing directly with the WTO or the US-EU Airbus-Boeing disputes

I have copied below the questions and responses that deal directly with the WTO or the US-EU Airbus-Boeing disputes. I include the name of the Senator asking the question. Italics (questions) and bold (name of Senator and answers of Ms. Tai) in the materials is from the original text.

“Chairman Wyden

“Question 2 – Boeing/Airbus Dispute:

“As a longtime trade professional, you’re well aware of the history of the Boeing/Airbus dispute, a case that has spanned well over a decade. At the end of the WTO process, American businesses continue to be in an untenable position. The Europeans are continuing to subsidize Airbus to the detriment of U.S. competitors, while small American businesses—already suffering from COVID-related challenges—are facing extra tariffs on a variety of European products.

“The Boeing/Airbus dispute is just one “trade irritant” between the United States and Europe. There are numerous others—including digital services taxes, biotech authorization processes that aren’t based on science, and protectionist policies in standards development.

“What’s going to change under the Biden Administration – and a USTR Tai – to ensure that Washington and Brussels can bring this dispute to a meaningful and timely conclusion? And ultimately, what would a positive outcome look like?

“Answer: The Boeing/Airbus WTO litigation has been ongoing for more than 15 years. If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field.

“Question 3 – WTO Reform:

“It was not always clear that the previous administration saw the value in the WTO. In contrast, the Biden Administration has pledged to work with our allies and re-engage in multilateral institutions like the WTO.

“That said, there has been bipartisan agreement that the WTO is in need of reform. There are numerous issues with the institution—from the lack of meaningful negotiations, to failure to comply with notification and transparency requirements, to ongoing concerns regarding the Appellate Body.

“Where do you recommend the United States start in restoring the WTO to a functioning and useful institution?

“Answer: If confirmed, I will work to re-engage with like-minded partners who similarly recognize the importance and necessity of WTO reform. Since the founding of the General Agreement on Tariffs and Trade (GATT) in 1947, U.S. leadership has been critical at every juncture when the global trade system has required a major update. This will be difficult work that may take some time, but I remain hopeful that with proper U.S. leadership, we can achieve the necessary reforms.

“How can the United States support the incoming Director General, Dr. Okonjo-Iweala, in building consensus and ultimately ensuring that the WTO makes the needed reforms?

“Answer: If confirmed, I will work closely with Dr. Okonjo-Iweala, following her own historic appointment, to tackle these challenges in a practical and constructive manner. Dr. Okonjo-Iweala brings a wealth of knowledge from her 25 years of experience at the World Bank and her two terms as Nigeria’s Finance Minister. She is widely respected for her leadership and management skills. The U.S. stands ready to assist her in building the consensus required to achieve the much-needed reforms.

“Ranking Member Crapo

“Question 4:

“I have concerns about the power of technology companies. However, I am concerned that the EU is using such concerns as fig-leaf for discriminatory measures against U.S. businesses, including unreasonable digital services taxes or through measures that appear to target American companies in particular, like the Digital Services Act.

“Are you willing to aggressively challenge these types of measures whether through use of Section 301 or through WTO dispute settlement?

“Answer: The previous Administration started Section 301 investigations in response to the digital service taxes introduced by a number of countries, but it then suspended the introduction or implementation of specific remedies to allow time for negotiations. If confirmed, I will review the status of those actions and will work with my colleagues at the Treasury Department to address digital services taxes as part of the multilateral effort to address base erosion and profit shifting through the OECD/G20 process.

“Question 10:

“WTO reform is of great interest to many Members of this Committee. In particular, there are bipartisan concerns about overreach by the WTO Appellate Body. While I see some utility in second-level review, we need to ensure reforms that stop activism by the Appellate Body, including through rulings that have undercut our trade remedy laws and environmental conservation measures.

“What are some concrete reforms that you think are necessary to ensure the Appellate Body operates as intended?

“Answer: Over the years, the Appellate Body has overstepped its authority and erred in interpreting WTO agreements in a number of cases, to the detriment of the United States and other WTO members. In addition, the Appellate Body has failed to follow existing rules created to ensure that disputes are resolved in a timely manner. Reforms are needed to ensure that the underlying causes of such problems do not resurface and that the Appellate Body does not diminish the rights and obligations of WTO members.

“Question 12:

“I am deeply concerned about data localization requirements. The European Union attempts to be invoking privacy concerns in the WTO E-commerce negotiations as an excuse to allow it to engage in protectionist practices with respect to data.

“Do you agree that that United States should not accept the EU’s proposed exception to allow countries to engage in data localization?

“Answer: To participate in today’s global economy, U.S. companies need the ability to access networks, transfer data and use secure data centers of their choice. If confirmed, I commit to using the tools at my disposal to ensure that American workers and innovators are able to compete effectively abroad.

“Senator Grassley

“Question 1:

“If confirmed, how will you use the tremendous leverage the United States has to revitalize the WTO’s negotiating function so that the rules reflect the modern economy, including e-commerce?

“Answer: The WTO negotiating function has failed to keep pace with changes in the global economy. WTO rules need to be updated to reflect developments that have unfolded over the past quarter-century, particularly in the digital economy. If confirmed, I commit to work with like-minded partners to ensure that any new rules are high-standard ones that reflect the Build Back Better agenda.

“What reforms would the Biden Administration be interested in pursuing to WTO’s Appellate Body?

“Answer: Over the years, the Appellate Body has overstepped its authority and erred in interpreting WTO agreements in a number of cases, to the detriment of the United States and other WTO members. In addition, the Appellate Body has failed to follow existing rules created to ensure that disputes are resolved in a timely manner. If confirmed, I commit to seeking a comprehensive range of reforms to address these shortcomings.

“Do you think China should be accorded developing country status at the WTO?

“Answer: If the WTO is going to succeed in promoting equitable economic development, it is critical that the institution rethink the ability of countries to self-select developing country status. The rules for special and differential treatment should be reserved for those countries whose development indicators and global competitiveness actually warrant such flexibilities; they should not be abused by countries that are already major trading powers.

“Question 7:

“The European Union is in the process of implementing legislation that will impose new EU antibiotic use restrictions on producers of animal products that export to the EU, a move that could cause serious disruptions. EU regulators are refusing to take into account relevant data from countries outside the EU or to consider use restrictions already in place in the U.S. and elsewhere, as required under WTO rules.

“How do you intend to deal with this type of EU regulatory protectionism?

“Answer: I understand the importance of this issue. If confirmed, I commit to holding our trading partners to their WTO commitments with respect to sanitary and phytosanitary measures, the application of standards and other obligations that impact our agricultural exporters.

“Senator Cantwell

“Question 4 – Boeing-Airbus Dispute/Europe:

“Aerospace has been a leading U.S. export for many years. The future of aerospace matters to U.S. jobs. There are more than 100,000 aerospace jobs in Washington state and before the pandemic there were even more.

“In 2006, the United States brought a case at the World Trade Organization (WTO) because Europe provided $22 billion in illegal subsidies for the development of Airbus commercial aircraft (A350 and A380).

“The Europeans countered with a case against the United States. The WTO ruled for the United States in 2012 and 2016 and for the EU in 2019. As a result of the WTO cases, the United States imposed WTO-approved tariffs of up to 25% on a range of products including European aircraft, wine and spirits, and dairy. The European Union still imposed tariffs of up to 25% on U.S. aircraft and a range of agricultural products including Pacific salmon, wine, wheat, and berries.

“The EU has kept sanctions in place even though in March 2020 Washington State repealed the tax provision that the WTO found to be out of compliance. Last year, the Trump administration failed to reach an agreement with the Europeans on commercial aircraft subsidies that would finally end the dispute and the tariffs.

“As it seeks to rebuild the transatlantic alliance, the Biden administration has a real opportunity to resolve this dispute, finally end harmful Airbus subsidies, and establish a level playing field for America’s aerospace industry.

“Will you prioritize reaching an agreement on commercial aircraft subsidies to end European and U.S. tariffs and finally end the Boeing Airbus dispute?

“Answer: The Boeing/Airbus WTO litigation has been ongoing for more than 15 years. If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field.

“Do you anticipate reaching separate agreements with the United Kingdom and the European Union?

“Answer: The United Kingdom left the European Union on January 31, 2020. If confirmed, I look forward to working with the United Kingdom on a range of trade issues, including the disputes regarding Boeing and Airbus.

“Will you commit to resolving the Boeing-Airbus dispute and tariffs prior to finalizing any U.S. – EU Trade Agreement or U.S. – United Kingdom Trade Agreement?

“Answer: If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field. I commit to working with Members of Congress on trade priorities with the European Union and the United Kingdom.

“Question 5 – Digital Trade/Europe:

* * *

“What steps will you take to cooperate with Europe on addressing intellectual property and market access challenges in China?

“Answer: While there are differences between the U.S. and the EU on some important issues, the U.S. and the EU share broad concerns about China’s unfair practices, including policies that in practice condition market access on technology transfer. It is a priority of the Biden Administration to work with our allies, including our European allies, to address the many challenges posed by China.

“Will you re-engage on the WTO negotiations on e-commerce and will you make it a priority?

“Answer: The WTO negotiating function has failed to keep pace with changes in the global economy. WTO rules need to be updated to reflect developments that have unfolded over the past quarter-century, particularly in the digital economy. If confirmed, I commit to work with like-minded partners to ensure that any new rules reflect the values of the Build Back Better agenda.

“Question 6 – Environmental Goods:

“Climate Change is a global challenge that no nation can solve on their own. For this reason, I appreciate President Biden rejoining the Paris Agreement so the U.S. can resume its role as a leader in reducing the world’s dangerous levels of carbon pollution.
Being part of the global solution on climate will also help ensure the U.S. has access to a rapidly growing trillion-dollar annual market that could create thousands of high-wage trade and manufacturing jobs in Washington state.

“But that market opportunity is currently constrained by a variety of tariffs that make environmental goods and services more expensive and less accessible then they should be, especially in the developing world where most future carbon pollution will come from.

“That’s why I think it’s imperative that we work to make it easier for all countries to adopt lower carbon technologies. Examples include goods and services that address air pollution control, renewable energy, water and waste management, environmental monitoring, and carbon capture and storage technologies.

“Ideally with America being the ones manufacturing and selling those technologies to the rest of the world.

“In 2001, the Doha Ministerial Declaration directed WTO members to negotiate the elimination of tariffs on environmental goods. In 2014 the U.S. and its global trading partners began negotiations on an Environmental Goods Agreement (EGA) under the WTO with the goal of eliminating tariffs on environmental products and services. That was a big deal, because the 46 WTO members negotiating that Agreement account for 90% of environmental goods traded worldwide. Unfortunately, discussions stalled in 2016 and were not pursued by the last Administration.

“Ms. Tai, do you support the goals of the Environmental Goods Agreement?

“Answer: Combatting climate change and developing green enterprises and jobs are key priorities for the Biden-Harris Administration. In July 2014, the United States and 13 additional Members of the World Trade Organization (WTO) officially launched negotiations on the proposed Environmental Goods Agreement (EGA) to eliminate tariffs on green technologies. If confirmed, I will pursue a trade agenda that supports the Biden Administration’s comprehensive vision of reducing greenhouse gas emissions and achieving net-zero global emissions by 2050, or before, by fostering U.S. innovation and production of climate-related technology and promoting resilient renewable energy supply chains.

“As U.S. Trade Representative, will you seek to restart negotiations on this vital pact that could make the products we need to combat climate change cheaper and more accessible worldwide?

“Answer: If confirmed, I will seek stakeholder input on the EGA and evaluate the agreement for its consistency with the Build Back Better agenda and its potential contribution to the Biden-Harris Administration’s goal of achieving net-zero global emissions by 2050.

“Will you commit to looking into existing tariff levels with other WTO members to determine which countries have tariffs on environmental goods that differ or exceed corresponding US tariffs? And will you share that analysis with the members of this Committee?

“Answer: If confirmed, I commit to working closely with you to identify barriers to reciprocal market access for U.S. producers of environmental goods.

“Senator Cornyn

“Question 1:

“Since June 2018, certain American spirits exports to the EU and UK have faced a 25% tariff in response to the U.S. imposition of tariffs on steel and aluminum, and in connection with the WTO dispute concerning Boeing. Absent a resolution to the steel tariffs, the EU’s tariff on American Whiskey will automatically double to 50% in June. The U.S. has imposed a 25% tariff on certain EU and UK wines and spirits imports since October 2019 in connection with the WTO Airbus dispute. The negative impact of these tariffs are being felt across the U.S. from farmers, to suppliers, retailers, and the hospitality sector.

“Will you commit to taking these views into account?

“What is the Administration’s plan to negotiate resolutions to the various trade disputes with the EU and UK to ensure that these tariffs are quickly removed?

“Answer: The purpose of WTO dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The Boeing/Airbus WTO litigation has been ongoing for more than 15 years. If confirmed, I will make it a priority to resolve this long-running dispute in a way that ensures Boeing and its workers can compete on a level playing field and that takes into account all affected stakeholders.

“Question 8:

“The Biden Administration has announced its intention to increase government procurement of domestically manufactured goods and services. At the same time, the United States is a party to the WTO Government Procurement Agreement (GPA), which limits the United States’ ability to apply robust Buy America requirements to government procurement. Some have proposed suspending U.S. obligations under the GPA on a temporary, emergency basis to shore up critical domestic supply chains and spur economic recovery in the wake of the COVID pandemic.

“What are your thoughts on such a concept?

“Should the U.S. renegotiate any of its U.S. GPA commitments to ensure that the Administration can achieve its “Buy America” objectives?

“Answer: As a part of its review of the implementation and efficacy of laws, regulations, and policies related to federal procurement, the United States should also examine procurements made under our trade agreement obligations to ensure that they serve the interests of the United States, its businesses and workers. If confirmed, I commit to undertake this review.

“Question 9:

“Both the Obama and Trump Administrations recognized the existence of serious deficiencies in the WTO dispute settlement process. WTO members have used the dispute settlement process to achieve what they could not achieve in negotiations, including the severe weakening of antidumping and countervailing duty laws. In addition, the Appellate Body has repeatedly failed to address China’s dangerous combination of government subsidies, state-owned enterprises and distortive non-market behavior. The United States needs to engage in serious and meaningful negotiations to resolve these issues prior to considering any reestablishment of the Appellate Body.

“What are your plans for addressing the serious deficiencies in the WTO’s dispute settlement process?

“Do you agree that the Appellate Body should not be revived until these problems are fully addressed?

“Answer: If confirmed, I will re-engage like-minded partners who similarly recognize the importance and necessity of reform of the WTO, including its dispute settlement process. This will be difficult work, but I remain hopeful that with proper U.S. leadership, we can achieve the necessary reform that resolves our long-standing, bipartisan concerns.

“Question 10:

“Domestically produced steel is among the cleanest in the world.

“How do you plan to ensure that the WTO cannot block or weaken the administration’s efforts to promote and expand markets for domestically produced steel?

“Answer: If confirmed, I commit to examining any potential barriers to the expanding the exportation of domestically produced steel, including at the WTO, and working with Congress to address those barriers.

“Senator Portman

“Question 3:

“In Choruses from the Rock, T.S. Elliot wrote of creating ‘a system so perfect that no one will need to be good.’ That sentiment might also be applied to the World Trade Organization (WTO), which despite having clear, agreed upon rules has found itself drifting from the obvious meaning of those rules. For systems, or organizations, to be sustainable they need active engagement and not just passive reliance on their underlying institutional architecture. One of the dilemmas facing the WTO reform agenda is the fact that the existing rules are quite clear, and yet the development of new rules may suffer from the same jurisprudential drift as the existing rules have.

“Aside from tacking on a clause that says ‘and we mean it’ to a number of provisions in the WTO agreements, how do you believe new rules should be written to avoid the pitfalls that the United States has seen with respect to Appellate Body activism? And what mechanisms, if any, should be created to ensure that those who interpret such agreements remain faithful to the text of the agreement and neither expand or diminish obligations created by the agreement?

“Question 4:

“The previous two administration have, on a bipartisan basis, blocked appointments to the Appellate Body (AB) of the World Trade Organization (WTO) over concerns about AB activism. Restoring the AB without addressing the underlying issues that sparked U.S. concerns would likely not be a sustainable solution to the problem of AB overreach.

“How do you intend to approach issues related to the stalled AB? Do you believe that resuscitating the AB should come with reforms to guard against future overreach? What might some of those reforms be?

“Answer: Yes, it is absolutely critical that any solution to the existing impasse be one that seeks to address the underlying problems, including longstanding concerns of overreach and jurisprudential drift. If confirmed, I will seek to work with other countries that share U.S. concerns about WTO dispute settlement to craft reforms to guard against such problems re-emerging in the future.

“Question 5:

“Last summer I introduced a bipartisan resolution, which articulated some proposed reforms to the World Trade Organization (WTO). One of those solutions is to pursue more plurilateral agreements without Most Favored Nation (MFN) requirements. This would allow the United States to pursue trade opening opportunities with like-minded nations while preventing those not party to the agreement from benefiting.

“Do you agree about the value of non-MFN plurilaterals? If confirmed, do you intend to explore such arrangements with like-minded countries?

“Answer: Given the negotiating challenges that the WTO has encountered in recent years, I agree that non-MFN plurilaterals need to be explored as a possible path forward. If confirmed, I commit to exploring the possibility of such arrangements with like-minded countries. Developing countries are hesitant to accept them, however, and getting these arrangements accepted within the WTO will not be easy.

“Question 21:

“For roughly the past two and a half years, the European Union (EU) and the United Kingdom (UK) have levied a 25 percent tariff on American whiskey imports in response to the United States’ Section 232 tariffs. These tariffs are set to double to 50 percent in June 2021. At the same time, the United States has imposed a 25 percent tariff on certain wine and spirit imports from the EU and UK in connection to the Boeing-Airbus dispute

“How do you propose to solve the Boeing-Airbus dispute in order to ensure WTO compliance by the EU, while prioritizing the removal of tariffs on products such as American whiskey subject to 232 retaliation?

“Answer: The purpose of WTO dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The focus must be on the resolution of the issue that has been found to impact our industry and workers. If confirmed, I will make it a priority to review the status of this long-term dispute and seek a resolution that finally addresses the unfair practices found through the WTO process that disadvantage U.S. industry and workers.

“Question 22:

“The United Kingdom (UK) is no longer a member of the European Union. Yet, the UK continues to face Airbus-related tariffs. Since the UK cannot advocate for policy change in Brussels on this issue, and as a gesture of goodwill in the interest of bringing our countries closer together, these tariffs on the UK should be removed.

“Do you believe that these tariffs should be removed from the UK?

“Question 23:

“Wheels of Jarlsberg cheese are produced in Ireland by a Norwegian company. These wheels are subject to a 25 percent tariff as a result of the Boeing-Airbus dispute. The same company makes loaves of Jarlsberg cheese in Ohio. The tariff on the wheels threatens the entire company and therefore the U.S. production of loaves. The last six-month statutory review of these tariffs did not benefit from public input, therefore did not account for the impacts on Jarlsberg cheese.

“When do you plan to review the items that are subject to Boeing-Airbus tariffs, and will you seek public input? How will you decide what stays on the tariff list and what is removed?

“Answer: If confirmed, I will work to make sure our trade enforcement actions consider the impact of tariffs on U.S. businesses and workers. When action taken under the Section 301 process leads to the imposition of tariffs on certain imports, USTR requests public input through a notice and comment period. This statutorily required practice will continue if I am confirmed as U.S. Trade Representative.

“Question 31:

“The World Trade Organization’s Government Procurement Agreement (GPA) opens up parts of the U.S. procurement market to other countries. Yet, the GPA is also a uniquely helpful model for bringing like-minded allies together on a plurilateral basis. In this way, the GPA can be both a limiting and empowering factor when it comes to restoring the resiliency of our supply chains.

“To what extent do you intend to pursue changes to U.S. GPA commitments as part of the administration’s broader Buy American agenda?

“Answer: It is the policy of the Biden-Harris Administration that the United States should seek to maximize the use of goods made in the United States for federal procurement and financial assistance awards, consistent with applicable law. As a part of its review of the implementation and efficacy of laws, regulations, and policies related to federal procurement, the United States should also examine procurements made under our trade agreement obligations to ensure that they serve the interests of the United States, its businesses and workers. If confirmed, I commit to undertaking this review.

“Question 32:

“In May 2020, President Trump signed an Executive Order directing the Food and Drug Administration (FDA) to identify essential medical countermeasures and require the U.S. Trade Representative (USTR) to withdraw coverage under U.S. trade agreements for these products. USTR has since notified the Government Procurement Agreement (GPA) Committee and our trade agreement partners of the intent to withdraw coverage for these medical countermeasures. This drew objections from some of our trading partners.

“Do you intend to pursue this withdrawal of coverage?

“Answer: As part of a review of whether our trade agreement obligations serve the interests of the United States, if confirmed, I will review the action taken to withdraw coverage of certain essential medical countermeasures from the Government Procurement Agreement and our trade agreements.

“Question 37:

“In 2018, China began to indulge protectionist impulses with respect to imports of certain waste and scrap paper. Just the other month, China banned imports of recovered paper. As you know, the United States has raised with China the inconsistency of China’s import restrictions on recyclable materials with World Trade Organization (WTO) rules. These new restrictions seem to likely to further constitute a violation of those rules.

“Will you commit to looking into these new import restrictions on recycled paper, and work with domestic industry who has been affected by these restrictions? Do you see an opportunity to include these import restrictions on paper within the scope of any future negotiations with China?

“Answer: If confirmed, I commit to engaging in a review of how trade policy can advance the development of the circular economy. As part of that process, I will engage in close consultations with domestic industry and Congress. Given the importance of China to these discussions at the global level, I would hope that China would be interested in active discussions with the U.S. on this matter.

“Senator Brown

“Question 4 – World Trade Organization:

“As was discussed during Thursday’s hearing, many agree that it is past time for World Trade Organization (WTO) reform to ensure that both dispute settlement panels and the Appellate Body are not used as a venue for foreign governments and competitors to subvert the will of Congress and perpetuate unfair trade practices.

“If confirmed, how will you approach WTO reform and how will you ensure that U.S. trade laws remain effective and are not weakened as a result of WTO dispute settlement proceedings?

“Answer: If confirmed, I will work to re-engage with like-minded partners who similarly recognize the importance and necessity of reform of the WTO. Since the founding of the General Agreement on Tariffs and Trade (GATT) in 1947, U.S. leadership has been critical at every juncture when the global trade system has required a major updating. This will be difficult work that may take some time, but I remain hopeful that with proper U.S. leadership, we can achieve the necessary reforms. This includes reforming WTO dispute settlement to prevent diminishing the rights and obligations of countries to use their trade remedy laws to counteract unfair trade practices.

“Senator Bennet

“Question 8:

“The Airbus/Boeing dispute tariffs are significantly affecting the Colorado small businesses. Restaurants in particular, which are already struggling due to the pandemic, are facing substantial costs on European food, wine, and spirits.

“If nominated, what will be your first steps regarding the EU Airbus/Boeing dispute?

“Answer: If confirmed, I will make it a priority to review the status of these long-term disputes and seek a resolution that finally addresses the unfair practices found through the WTO process that disadvantage U.S. industry and workers.

“Will you work with a wide range of interests to understand the tariffs’ impacts on their industries, including restaurants?

“Answer: The purpose of the dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The focus must be on the resolution of the issue that has been found to impact our industry and workers. If confirmed, I will ensure that our trade enforcement actions consider the impact of tariffs on U.S. businesses and workers.

“Senator Cassidy

“Question 4 – Sugar – WTO Quota Allocation Methodology:

“There have been indications over the past year or so that USTR and USDA are considering revising the methodology used by the United States to allocate our WTO sugar quota. This quota has traditionally been allocated in varying amounts to 40 countries based on a longstanding formula, with reallocations being carried out later in the fiscal year to account for nonperformance. While it is understood there may be some inefficiencies built into the current methodology, there are also elements to the arrangement that benefit the overall operation of existing sugar policy.

“Can you provide your assurance that USTR will engage in thorough consultations with both USDA program managers and industry stakeholders regarding potential changes to the existing allocation process before any such changes are instituted?

“Answer: If confirmed, I commit to consulting with USDA program managers and industry stakeholders before any changes to the current allocation process take place.

“Question 5 – Spirits:

“What are your thoughts on how this situation can be improved?

“Answer: The purpose of the WTO dispute resolution process is to ensure that other countries play by the rules so that our businesses, workers, farmers and ranchers can compete on a level playing field. Tariffs may be a tool to achieve these ends, but they are not the goal. The focus must be on resolving the issue that has harmed has our industry and workers. If confirmed, I will make it a priority to review the status of these long-term disputes and evaluate the use of tariffs, including their impact on unrelated industries, to ensure U.S. trade tools maximize the benefit and minimize the cost for U.S. industries, workers, and consumers.

“Senator Daines

“Question 4:

“As you know, many agricultural commodities have been targeted by the European Union with retaliatory tariffs due to disputes over Boeing/Airbus and other issues. In particular, Hard Red Spring wheat has been harmed by WTO sanctioned punitive tariffs on U.S. grown non-durum wheat. Until the Airbus/Boeing dispute is resolved, or the tariffs are lifted in negotiations, U.S. wheat growers will be at a disadvantage in the marketplace relative to competitors in Canada and elsewhere.

“What steps can be taken to find a negotiated solution and put the respective tariffs on hold?

“Other agriculture commodities have been impacted as well. Will you commit to working to lift these retaliatory tariffs?

“Senator Warren

“Question 1:

“The Covid-19 pandemic has been the worst public health crisis facing our nation and the world in over a century. Now that safe and effective vaccines are available, it is vital that all people around the world have access to vaccines and any future treatments for Covid-19. Unfortunately, the Trump administration put the profits of pharmaceutical manufacturers ahead of global public health. Too many people in low- and middle-income countries may have to wait years to get vaccinated because of the high prices being charged for Covid-19 vaccines, and an insufficient supply that is currently being bought up disproportionately by wealthy nations. No one should die because drug company profits are prioritized over the health and wellbeing of human beings.

“Countries that can manufacture pharmaceuticals should be given the opportunity to produce Covid-19 vaccines and treatments as quickly as possible in order to bolster global supplies and ensure equitable distribution. In October, South Africa and India proposed a temporary waiver of the WTO’s Trade-Related Intellectual Property Rights (TRIPS) agreement, to increase the global supply of COVID vaccines and treatments and save lives throughout the world. That proposal is now supported by a large number of low and middle income countries. Under the Trump administration, the United States was one of the wealthy nations working to block this emergency waiver.

“Will you as United States Trade Representative reverse the Trump-era decision that is putting lives at risk, and instead support the TRIPS waiver so that Covid-19 vaccines and medications can be made widely available in low and middle-income countries?

“Answer: Responding to the COVID-19 pandemic is the top priority of the Biden Administration. I recognize the critical importance of ensuring widespread access to life-saving vaccines, diagnostics, therapeutics, treatments, and other key products worldwide in order to counter the pandemic and enable global economic recovery. If confirmed, I commit to examining the TRIPS waiver proposal thoroughly to determine its efficacy in enhancing our global health security and saving lives.

“Senator Barrasso

“Question 4 – Sugar:

“The current world sugar market is highly dysfunctional, driven by production and trade distorting practices employed by nearly all sugar-producing countries.

“It is more important than ever that the United States maintain its current no-cost sugar policy which provides a stable and predictable economic environment for U.S. producers, an environment necessary for capital investments and long-run sustainability.

“How would you envision taking on a multilateral challenge like the reform of the global sugar market, and

“Answer: If confirmed, any reforms I pursue regarding the global sugar market will be consistent with maintaining the current no-cost U.S. sugar policy.

“Do you think the World Trade Organization (WTO) is equipped now, or can be made equipped going forward, to effectively address the underlying issues among all members?

“Answer: WTO rules need to be updated to reflect long-standing agricultural issues that have not been rectified under the WTO’s current construction. If confirmed, I will work with like-minded partners to ensure that any new rules are consistent with U.S. domestic sugar goals.“

The full set of questions and answers is embedded below.

USTR-nominee-answers-to-written-questions

Excerpts from USTR’s 2021 Trade Policy Agenda and 2020 Annual Report of the President of the United States on the Trade Agreements Program

The section of the 2021 Trade Policy Agenda dealing with “partnering with friends and allies” is copied below. However, other priorities correspond with priorities for major trading partners like the EU and with the priorities identified by the WTO’s Director-General Ngozi Okonjo-Iweala, including dealing with the COVID-19 pandemic and recovery, having trade play a role in addressing climate change, addressing China’s many trade distortive practices and more.

“Partnering with Friends and Allies

The Biden Administration will seek to repair partnerships and alliances and restore U.S. leadership around the world. The Biden Administration will reengage and be a leader in international organizations, including the World Trade Organization (WTO). The United States will work with Director-General Ngozi Okonjo-Iweala and like-minded trading partners to implement necessary reforms to the WTO’s substantive rules and procedures to address the challenges facing the global trading system, including growing inequality, digital transformation, and impediments to small business trade. The Biden Administration will also work with allies and like-minded trading partners to establish high-standard global rules to govern the digital economy, in line with our shared democratic values.

“The Biden Administration will also coordinate with friends and allies to pressure the Chinese Government to end its unfair trade practices and to hold China accountable, including for the extensive human rights abuses perpetrated by its state-sanctioned forced labor program. In addition, the trade agenda will seek to collaborate with friends and allies to address global market distortions created by industrial overcapacity in sectors ranging from steel and aluminum to fiber optics, solar, and other sectors to which the Chinese Government has been a key contributor.”

The complete publication from USTR is embedded below.

USTR-2021-trade-policy-agenda-and-2020-annual-report

Conclusion

President Biden’s nominee for U.S. Trade Representative is likely to be confirmed in the coming days after being voted out of the Senate Finance Committee tomorrow. Her confirmation hearing before the Committee and responses to questions asked cover a very wide array of topics. But a significant number pertain to WTO reform including addressing distortions flowing from China’s state capital system and changing special and differential treatment away from self-selection, addressing the problems of the Appellate Body reviewed by prior Administrations including the overreach problem, working to resolve long running disputes (US-EU on Airbus-Boeing), getting results in the e-commerce/digital trade plurilateral negotiations, addressing the growing conflict over digital services taxes (although likely through the OECD/G20 process) and other issues. Her answers are consistent with the 2021 Trade Policy Agenda released by USTR yesterday and show strong interest in using trade policy to help address the COVID-19 pandemic and restore global economic growth, addressing the existential threat from a warming planet and other Biden Administration priorities. The Biden Administration, and Ms. Tai as the next USTR, will work with trading partners in the WTO to help restore relevance and hopefully create rules for the 21st century. Both the answers to questions and the 2021 Trade Policy Agenda should be good news for our trading partners looking at the future of multilateralism.

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

Terence P. Stewart · September 1, 2020 · Selection of WTO Director-General · Appellate Body reform, China, Dr. Ngozi Okonjo-Iweala, European Union, industrial subsidies, Nigeria, United States · No Comments

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

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

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

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

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

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

“Ngozi Okonjo-Iweala

* * *

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

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

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

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

“Q: Could you talk about your visions for reforms?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

Future posts will look at additional materials for other candidates.

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

Terence P. Stewart · August 31, 2020 · Selection of WTO Director-General · Appellate Body reform, China, Dr. Jesus Seade Kuri, European Union, industrial subsidies, Mexico, small and vulnerable economies, United States · No Comments

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

In prior posts I have provided a summary of statements made at the General Council meetings during July 15-17 and the press conferences that followed and then did a series of posts looking at each candidate’s publicly expressed views on four issues of importance drawing from the same two sources as well as a series of webinars hosted by the Washington International Trade Association and the Asia Society Policy Institute. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/; August 10, 2020 [updated August 27], The race to become the next WTO Director-General – where candidates are on important issues: reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/10/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-reform-of-the-appellate-body/; August 13, 2020 [updated August 27], The race to become the next WTO Director-General – where candidates are on important issues: eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/; August 17, 2020, The race to become the next WTO Director-General – where the candidates stand on important issues: convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/; August 19, 2020 [updated August 27], The race to become the next WTO Director-General – where the candidates stand on important issues: convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates, https://currentthoughtsontrade.com/2020/08/19/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-addre/; August 23, 2020 [updated August 27], The race to become the next WTO Director-General – where the candidates stand on important issues: fisheries subsidies and e-commerce/digital trade, https://currentthoughtsontrade.com/2020/08/23/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-fisheries-subsidies-and-e-commerce-digital-trade/.

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

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

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

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

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

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

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

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

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

“POSSIBLE TO SUPPORT SVEs (small and vulnerable economies)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Jesus Seade

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

Future posts will look at additional materials for other candidates.

Continued Stress in U.S.-China relations — Reduced Cooperation in Multilateral Fora

Terence P. Stewart · May 22, 2020 · Selection of WTO Director-General, State Ownership and State Investment, U.S. - China relationship, U.S.-China Phase I Agreement · China, industrial subsidies, self-selection as a developing country, state directed economy, state investment, transparency, United States · No Comments

The two largest economies in the world view each other as competitors and potential adversaries. With significantly different political and economic systems and ideologies, the United States and China have had different perspectives on commitments and obligations undertaken in the economic sphere.

U.S. concerns

Specifically, the United States has viewed its bilateral trade negotiations with China and the later conclusion of China’s accession to the World Trade Organization (“WTO”) as having created a commitment by China to continue on market-based reforms with the eventual conversion of the Chinese economy into a market-economy consistent with the basic rules of the WTO. There have been high level dialogues between the two countries for years with a feeling in the U.S. that repeated commitments by China to fulfill commitments have not been honored and that the bilateral relationship had growing serious problems.

China concerns

China has had a different view of the world and its obligations to other countries through its joining the WTO. Reforms continued for a while but were replaced with a growing focus on state direction, state investment and heavy subsidization of a widespread number of sectors. China has viewed the United States as attempting to prevent its economic growth and global role and as not respecting its “right” to view itself as a developing country within the WTO and hence to have fewer obligations than a developed country.

Trump Administration changes approach

Under the Trump Administration, the United States has taken a more aggressive approach to dealing with what it perceives as distortions in economic competition and lack of meaningful reciprocity in the bilateral trade relationship. The U.S. has also looked at bilateral and multilateral approaches to address the problems it perceives China has created and is creating with the functioning of the global trading system.

Bilaterally, the U.S. has conducted its 301 investigation on a host of longstanding concerns of the U.S. business community on Chinese policies and practices. The adverse findings from the USTR investigation has led to the U.S. imposing additional tariffs on Chinese goods when resolution of the underlying issues was not achieved followed by retaliation by China and a series of additional rounds of more tariffs and more retaliation. The U.S. and China did engage in negotiations to see if they could resolve the underlying concerns of the United States. A phase 1 agreement was signed in January 2020, with a phase 2 process supposed to have commenced by May.

At the same time, the United States has pursued reform at the WTO (1) to address longstanding and bipartisan concerns with the WTO dispute settlement system, (2) to address rule changes to address some of the distortions that flow from China’s nonmarket economy, (3) to modify the self-selection nature of which Members are “developing” and (4) to improve transparency.

On transparency, many countries are not current on the various notification requirements, but major concerns have existed with China and India in terms of the number and dollar value of subsidy programs that are not being reported in their notifications to the WTO.

Some of the reforms of interest to the United States are being pursued as well by others, such as the EU and Japan on state-invested companies and industrial subsidies and various other countries on transparency.

But the WTO has been struggling to achieve forward movement on many issues of importance to different Members in part due to lack of consensus on issues and a lack of leadership/coordination among major players.

COVID-19 Complicates the Bilateral Relationship

The COVID-19 pandemic has complicated the situation for the WTO and for U.S.-China relations both because of the global reach of the health problem resulting in reduced functionality of the Missions in Geneva and the current inability to hold face-to-face meetings and the widespread use of export restraints on medical goods (including personal protection equipment like masks, gloves, shields, gowns, etc.) as demand in nations with significant number of infections has grossly exceeded existing inventories and production capabilities both in country and globally.

In terms of U.S.-China relations, the lack of complete transparency by the Chinese in the early months of the COVID-19 outbreak, some slowness of action by the World Health Organization, and both missteps on testing and slowness of initial action within the United States (and resulting massive unemployment, costs to the economy and multiple trillion dollar government response) has added finger pointing on the pandemic to the already tense bilateral relations. It has also resulted in the U.S. distrusting the WHO and temporarily suspending U.S. funding for the organization.

With the collapse in global trade, the pandemic has also made it far less likely that China will honor its increased import commitments from the U.S. in 2020 as contained in the Phase 1 Agreement. See U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/. That said, the U.S. continues to identify important advances being made at least in agriculture with China. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/usda-and-ustr-announce-continued-progress-implementation-us-china-phase-one-agreement.

On trade, the pandemic has crippled the economies of many countries with the resulting declines in imports and exports in the March-April time frame and likely going forward for some period, though China as the first country through the outbreak and a major producer of medical goods actually saw increased overall exports to the world in April.

United States Strategic Approach to The People’s Republic of China

Earlier this week, the White House forwarded to Congress a document required by the 2019 National Defense Authorization Act, United States Strategic Approach to The People’s Republic of China. On the trade/economic front, the paper repeats the concerns that the Administration has laid out in other documents most of which are summarized above (not including the COVID-19 issues). The U.S. views challenges from China to three broad areas — (1) economic challenges (largely failure to continue reforms to become a market economy, failure to honor commitments made to the US, use of predatory practices, insistence on being a developing country, etc.); (2) challenges to U.S. values; and (3) security challenges. The link to the document is here and the text is embedded below. https://www.whitehouse.gov/wp-content/uploads/2020/05/U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20.pdf.

U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20

Challenges for the WTO

The WTO remains able to move forward where issues are limited to a subset (the “willing”) as progress on e-commerce talks would support. But in a consensus based system, distrust between major players will paralyze large parts of any agenda. Indeed, with the large number of WTO Members (164) at various stages of economic development, there will almost always be a wide divergence of views on any issue. In such a situation, leadership and cooperation among major economies become important to develop a consensus. So it is hard to see how the WTO advances a reform agenda without improved relations between the organization’s two largest Members.

With the recently added challenge for the WTO of selecting a new Director-General, the sour relationship the U.S. and China will likely make finding a candidate who would be supported by a consensus of the Membership that much harder, suggesting at a minimum a process that takes the full six-month time for selection (versus any hoped for expeditious resolution in light of DG Azevedo’s departure at the end of August) and perhaps extended time lines. If the selection process breaks down into highly polarized camps (the existing procedures were developed to try to prevent such an outcome), the ability to move forward the WTO’s reform and existing negotiating agenda will be delayed by certainly months and perhaps longer.

Conclusion

At a time when the world is struggling with a global pandemic which continues to cause huge health challenges to many countries in the world and has devastated the global economy at least temporarily, costing tens of millions of workers jobs, and likely closing hundreds of thousand of businesses around the world while requiring government financial support that will likely exceed ten trillion dollars, there is an unfortunate lack of global cooperation between the major economic players and distrust at least from the U.S. of multilateral institutions viewed as either ineffective to deal with China’s economic system or not operating in an unbiased manner.

A major part of the challenge flows from the distrust that exists between the world’s two largest economies that precedes the pandemic but that has been worsened by the pandemic’s development and handling. The two countries have different economic systems which are essentially non-compatible, have different political systems and different ideologies and view each other as competitors and potential adversaries.

In a change of approach, the United States has decided to take a more aggressive approach to achieve reciprocity in fact with China and not merely on paper or from spoken promises. The change in approach has resulted in the U.S. acting unilaterally in certain situations. China has appeared unable to understand or agree with the concerns raised by the U.S. (and others) and harbors a belief that the real motive behind U.S. actions is “to keep China down”. This mutual distrust has resulted in both hard feelings and an inability to achieve cooperation on a large number of trade, economic and other issues.

The current U.S.-China relationship increases the problems for many multilateral organizations, but certainly for the WTO both in terms of selecting a new Director-General and in developing WTO reforms and moving ongoing negotiations forward.

Look for a challenging second half of 2020.