Kuwait

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

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

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

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

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

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

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

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

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

Member of the OECD or in the accession process:

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

Member of the G-20:

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

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

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

0.5% of Merchandise Trade (includes):

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

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

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

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

“Developed Countries”

United States: 3.4%

European Union: 5.1%

Japan: 4.7%

Canada: 6.4%

“Developing Countries”

China: 10.0%

Brazil: 31.4%

Chile: 25.2%

Costa Rica: 43.1%

Republic of Korea: 16.5%

India: 50.8%

Indonesia: 37.1%

Singapore: 9.5%

South Africa: 19.2%

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

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

Dr. Jesus Seade Kuri (Mexico)

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

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

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

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

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

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

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

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

Dr. Ngozi Okonjo-Iweala (Nigeria)

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

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

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

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

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

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

Mr. Abdel-Hamid Mamdouh (Egypt)

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

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

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

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

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

Amb. Tudor Ulianovschi (Moldova)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

H.E. Amina C. Mohamed (Kenya)

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

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

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

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

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

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

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

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

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

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

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

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

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

“Concerning Special and Differential Treatment, the bottom line is, without negotiations that include incentives for everyone to participate actively, I do not think it will be possible for Members to address the issue of SDT. This is one of the main reasons that the negotiating function needs to start working. Members have various capacities to implement and take advantage of new rules and commitments, so it is clear that each Member must decide for itself what is in its own interest.”

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

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

The Rt Hon Dr. Liam Fox MP

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

Growth in new cases among developing countries

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

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

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

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

Vaccines and therapeutics – developments and challenges for access

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

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

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

Conclusion

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

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

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

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

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

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

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

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

United States 2,839, 542

Brazil 1,577,004

Russia 674,515

India 673,165

Peru 299,080

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

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

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

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

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

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

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

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

Trade implications

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

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

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

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

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

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

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

supply-chain-taskforce-nfrs-20200623

20200207233119365

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

Vaccines and therapeutics – developments and challenges for access

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

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

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

novel-coronavirus-landscape-covid-19-1

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

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

Some recent developments

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

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

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

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

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

Trade Considerations

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

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

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

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

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

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

Role of WTO during Pandemic

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

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

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

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

COVID-19 — new hotspots amidst continued growing number of confirmed cases

On May 25th, there is continued global growth in the number of COVID-19 cases despite apparent control of the virus in its origin, China, and in a number of Asian countries that had early case loads. There also has been a sharp contraction in western Europe which had been a major hot spot for March and April and some decline in the United States, the country with the largest number of cases. Despite the positive news from some parts of the world, there have been sharp upticks in South America, in Russia, in various countries in the Middle East and in parts of Asia. While the numbers remain relatively low in Africa, there are also countries in Africa going through significant growth in the number of cases.

The European Centre for Disease Prevention and Control puts out a daily compilation of the global situation and includes epidemiological curves for the world broken by continents (as they have characterized countries and continents). The link to today’s issue is here and shows the bulk of the volume of new confirmed cases continuing to be from the Americas, with increasing volumes of new cases also coming from Asia. The data show reduced volumes of new cases from Europe and growing volumes of new cases (though still quite small) from Africa. https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases.

In South America, Brazil’s case load is skyrocketing, and the country now has the second most cases after the United States. Peru, Chile, Colombia, Argentina, and Bolivia are other countries in South America going through rapid growth rates in the number of new COVID-19 cases in the last two weeks.

In North America, Mexico’s cases are increasing rapidly, and the U.S., while having apparently peaked and started a decline, still shows the largest number of new cases of any country in the last two weeks.

In Europe, Russia, while appearing to have peaked, still has very large numbers of new cases and has the third largest number of cases of any country.

In the Middle East, a number of countries have large increases in the number of new cases, including Saudi Arabia, Kuwait, Qatar and the UAE.

In Asia, India and Pakistan are seeing large increases in the number of new cases.

In Africa, just two countries have as many as 10,000 confirmed cases — South Africa with 21,343 cases and Egypt with 16,613. Both countries have seen large increases in the last two weeks.

So the bottom line is that five months since data started to be collected on COVID-19 cases, the world is seeing continued growth in the number of new cases reported daily with a significant shift in the number of cases from China, Western Europe and parts of Asia to new hot spots in Russia, South America, the Middle East, certain large countries in Asia and in Africa.

Looking at twenty-two countries who were either early countries with COVID-19 confirmed cases or countries who have seen large increases in the first five months, there are other take-aways. The table in the embedded document below was compiled from the ECDC data base through May 24 (with updates for the U.K. and Spain for 5/24 since the 5-24 publication stopped at 5-23 for those two countries). The table has eleven columns of fourteen day periods from Jan. 6, 2020 through May 24, 2020 and a twelfth column showing data for the six day period Dec. 31, 2019 – January 5. The twenty-two countries shown accounted for 4,289,037 confirmed cases of the 5,273,572 global total cases shown in the May 24th publication (81.33% of all cases). Yet despite the presence of China, Japan, South Korea, Singapore, Taiwan, France, Germany, Italy and Spain among the 22 (all of whom show sharp declines in new cases in the last month or so), the number of new cases from the 22 countries collectively continues to increase each two weeks.

COVID-19-geographic-disbtribution-worldwide-2020-05-24

Countries who have dealt with COVID-19 most successfully had relatively short periods of peak numbers of new cases and sharp contractions of new cases within a month of the peak. The United States has had a relatively longer-term plateau of high infection rates and more limited reductions after the peak. Some of the new hot spots are still growing and so haven’t even peaked. If their internal efforts to control the spread of COVID are not more successful than the experience of the United States, the world is likely to continue in a period of upward growth of global cases which will keep extreme pressure on the global supply of medical goods needed by first responders and the public more generally. New hot spots will also necessarily mean a shifting of where health care systems are overwhelmed by rising numbers of cases.

In a prior post, I reviewed the recent G20 Trade and Investment Ministers statement and agreed program to support keeping trade flowing during the COVID-19 pandemic and addressing longer term needs, including increased capacity for medical goods. See G20 Trade and Investment Ministerial Meeting – Meaningful Help for COVID-19 Response and WTO Reform? https://currentthoughtsontrade.com/2020/05/17/g20-trade-and-investment-ministerial-meeting-meaningful-help-for-covid-19-response-and-wto-reform/.

There have been various articles reviewing some of the increased production occurring in China, in the EU and in the United States, among other countries. Such increased production provides the hope that the gap between supply and demand has been reduced or eliminated for some products. Declining number of new cases for many countries also means that their internal needs have decreased, which should permit redirecting supplies to countries in need.

For example, with the expansion of U.S. production of ventilators and the peaking of new cases about a month ago in the U.S., the U.S. has shifted from searching the world for ventilators to indicating it will export ventilators to countries in need (including the recent export of 50 U.S.-made ventilators to the Russian Federation). The level of increased production in the United States, an increase of more than 100,000 units, should significantly reduce any global supply deficiency for ventilators going forward. See https://www.npr.org/sections/coronavirus-live-updates/2020/05/21/860143691/u-s-sends-ventilators-to-russia-in-5-6-million-coronavirus-aid-package; https://www.politico.com/news/2020/04/21/trump-ventilators-africa-aid-199006.

One risk that remains is whether any increased production will be maintained over time or permitted to atrophy once the pandemic’s first phase has run its course.

Another risk goes to whether countries will address whatever barriers or disincentives exist to develop the needed capacity, increase the reliability of supply chains (with the possibility of some reshoring or building in greater redundancies in supply chain capabilities), or develop the inventories of medical supplies needed for addressing a phase 2 or some subsequent pandemic.

Finally, dozens of countries have imposed export restraints on medical goods to address domestic demand needs as the number of cases were increasing in the individual country. While the WTO provides flexibilities for countries to impose such restraints, the flexibilities are intended to be used only for temporary purposes. Many of the restraints imposed have not been removed by countries even if their current situation should permit the reduction or elimination of the restrictions. Hopefully the WTO review process and agreements by G20 and other groups will facilitate a rapid elimination of such restraints when no longer needed or justified.

Conclusion

Most of the developed world has come through the first phase of the COVID-19 pandemic in terms of controlling the spread and reducing the number of new confirmed cases. Countries who have gotten past their peak infection rates are now starting to reopen their economies to reduce the economic damage that has already been extraordinary for many countries.

Unfortunately, other countries, who have not been the hot spots for COVID-19, see increases in cases that surpass the declines in those who have gotten through the peaks of infections in their countries. Thus, total new cases continue to increase even after five months since data were first collected.

The growing number of confirmed cases make collective efforts to keep markets open and any export restraints imposed temporary in fact, to expand production of medical supplies, to share best practices, to ensure adequate financial resources for the world’s poorest countries and to expedite development of vaccines and therapeutics critical if the extent of the economic and human damage from this pandemic is to be capped and reduced going forward in the second half of 2020.

Oil and gas sector suffers declining demand, collapsing prices, expanded state involvement — skewed economic results damage much of the global economy

The United States and many other countries view the World Trade Organization as the forum for global trade rules that support market economies. One of the challenges for the WTO going forward is what to do with the important Members whose economic systems are not anchored in market economic principles. While China is the most frequently mentioned WTO Member whose economic system is causing massive disruptions for market economies, there are other countries with important sectors that are state-owned, controlled and directed. The United States, European Union and Japan have been working on proposals for modifications of WTO rules to address distortions flowing from massive industrial subsidies and state controlled sectors that do not operate on market principles.

While WTO reform is not likely to see serious engagement by WTO Members before the COVID-19 pandemic is brought under control, the sharp contraction of economic activity in many countries is highlighting the importance for WTO Members actually addressing the role of the state in industry and rule changes needed to avoid the massive distortions that state involvement too often created.

Oil and Gas as an Example

Few industrial sectors have as much state ownership and control as the oil and gas sector. While there are countries with privately owned producers, much of the world operates with producers that are state owned or state controlled. Since the 1960s, a number of countries have engaged in cartel-like activity to collectively address production levels to achieve desired price levels. While many of these countries are part of the Organization of Petroleum Exporting Countries (“OPEC”), OPEC meets with other countries as well in an effort to achieve production and pricing levels. Current OPEC members include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela.

The activity has resulted in artificial pricing levels in export markets as compared to prices in home markets of OPEC members and periodic price shocks based on collective action. Large price increases in the 1970s led to high levels of inflation and rapid changes to manufacturing operations in some countries.

  1. Economic contraction as countries struggle to limit spread of the coronavirus

There has been a sharp contraction in demand for petroleum products in 2020 as countries have shut down movement of people in an effort to control the spread of COVID-19. Air travel has been decimated in many parts of the world and there are significant reductions in automobile travel. Manufacturing has also seen significant reductions. The contractions have resulted not only in national reductions in use of petroleum products but also international reductions both directly (reduced air traffic and ship traffic) and because of disruptions to supply chains which have reduced downstream production.

The U.S.-China Economic and Security Review Commission released a staff research report on April 21, 2020 entitled “Cascading Economic Impacts of the COVID-19 Outbreak in China” which reviews information on the wide range of economic impacts from the COVID-19 pandemic as felt in the U.S. https://www.uscc.gov/sites/default/files/2020-04/Cascading_Economic_Impacts_of_the_Novel_Coronavirus_April_21_2020.pdf. The report includes a section entitled “Turmoil in Energy Markets” which states,

“The standstill in Chinese production and halt in flows of goods and people has drastically depressed Chinese demand for energy products such as crude oil and liquified natural gas (LNG), adding pressure to an oil supply glut that had materialized at the end of 2019.99 In December of 2019, Institute of International Finance economist Garbis Iradian had forecasted a supply glut, pointing to high output from Brazil, Canada, and the United States.100 The COVID-19 outbreak exacerbated this challenging outlook. As the Organization of the Petroleum Exporting Countries (OPEC) reported in April 2020: ‘The largest ever monthly decline in petroleum demand in China occurred in February 2020.’101 Chinese oil demand ‘shrank by a massive 3.2 million barrels per day’ over the prior year.102 Research by OPEC forecasted China’s 2020 demand for oil will decrease by 0.83 million barrels per day over 2019.103 As the largest oil importer,104 Chinese oil consumption has a significant impact on global demand. In 2019, China accounted for 14 percent of global oil demand and more than 80 percent of growth in oil demand.105 Following the outbreak in China, the OPEC Joint Technical Committee held a meeting on February 8 to recommend new and continued oil production adjustments in light of “the negative impact on oil demand” due to depressed economic activity, “particularly in the transportation, tourism, and industry sectors, particularly in China.”106 In LNG markets, on February 10, Caixin reported Chinese state-owned oil giant China National Offshore Oil Corp. (CNOOC) requested a reduction of an unknown quantity in LNG shipments, invoking a “force majeure” clause due to COVID-19.107 S&P Global Platts, an energy and commodities analysis group, stated China’s LNG imports in January and February fell more than 6 percent over the same period in 2019.108

Prices have also dropped in this period. OPEC’s reference price index fell from $66.48 per barrel in December 2019 to $55.49 per barrel in February 2020, a drop of 19.8 percent.109 These price cuts are causing financially strapped* U.S. energy producers to cut back investment in oil and gas projects as profits erode. The U.S. Energy Information Administration forecasts that the current drop in oil prices will lead to lower U.S. crude oil production beginning in the third quarter of 2020.110″

The complete report is embedded below (footnotes 99-110 can be found on page 22 of the report).

USCC-staff-research-Cascading_Economic_Impacts_of_the_Novel_Coronavirus_April_21_2020

2. State-owned or controlled oil companies create further crisis

With a sharp contraction in oil demand, one would expect falling oil prices and reductions in global production over time. OPEC efforts to achieve reductions in production amongst themselves and Russia didn’t work out with Russia walking out of talks to reduce production to prevent further price declines. Russia and Saudi Arabia then engaged in a price war which resulted in further sharp price reductions in March and early April, large surpluses of oil in the market, with dwindling storage capacity for surplus production. See, e.g., https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war (and sources cited therein). Below is a graph of crude oil prices from 2015 through April 2020.

3. April Agreement to Reduce Production Beginning in May and June 2020

The United States, concerned with the collapse of oil prices and the effects on U.S. producers and oil/gas field companies, engaged in outreach to both Saudi Arabia and Russia to seek a solution. OPEC members, Russia and many others (including the United States) agreed to global production reductions of close to 10 million barrels/day beginning in May and carrying through June, with smaller reductions for later periods, in an effort to bring about balance between supply and demand. See, e.g., April 12, 2020, AP article, “OPEC, oil nations agree to nearly 10M barrel cut amid virus,” https://apnews.com/e9b73ec833e9a5ad304a69e3b9b86914. The U.S. Department of Energy has a webpage that reviews statements by members of Congress and others on the OPEC+ deal.

Because the agreement kicks in at the beginning of May, the continued production and reductions in available storage for oil resulted in further declines in oil prices, with prices on April 20 going negative for the first time in history. Prices have recovered somewhat in the last several days. https://www.cnbc.com/2020/04/24/oil-prices-could-remain-under-pressure-according-to-satellite-imagery-analysis.html; https://oilprice.com/Latest-Energy-News/World-News/OPECs-No3-Already-Started-Cutting-Oil-Supply.html.

WTO Challenges

Joint action during the global COVID-19 pandemic may be understandable and in keeping with the resort to extraordinary measures by governments during the crisis to preserve health and economies. Nonetheless, the extraordinary distortions that flow to global commerce from joint government activity limiting production of oil and gas products or establishing minimum prices for export have been ignored within the GATT and now the WTO for decades. This is unfortunate as the distortions affect both competing producers of the products in question in other countries and also downstream users and consumers more broadly. The overall distortions over time are certainly in the trillions of dollars.

GATT Art. XX(g) permits governments to enforce measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.” While there have been some cases where Art. XX(g) has been examined, actions by OPEC or OPEC+ countries to limit production (and hence exports) have never been challenged.

While there are national antitrust laws in many countries, such laws (such as those in the United States) don’t make government interference in the economy or government restrictions on export actionable despite the harm to consumers and to downstream manufacturers.

In a consensus based system like the WTO, the likelihood of obtaining improved rules on state-owned or state-invested companies or to restrict governments’ ability to unilaterally or jointly restrict production and exports seems implausible. This is especially true on oil and gas with Saudi Arabia and Russia as WTO Members. The US-EU-Japan initiative hasn’t yet fleshed out possible rule changes for state entities, so one may see some efforts in the coming years that could be useful if accepted by the full membership. But if there is to be meaningful WTO reform, agreeing on rules for the actions of governments that affect production and trade in goods and services is clearly of great importance. Without such rules, the WTO will not actually support market economies in critical ways.

Modifying antitrust laws is the other option, but one which legislators have been unwilling to address over the last fifty years. It is not clear that there are current champions of such modifications in the United States or in other major countries.

Conclusion

There are many sectors of economies that are being seriously adversely affected by efforts to control the spread of COVID-19. Governments are taking extraordinary actions to try to prevent their economies from collapsing under the strains of social distancing.

The oil and gas sector is one where there has been significant negative volume and price effects. Unfortunately the extent of the negative volume and price effects is driven in large part by the actions of governments who are preventing the global market for these products from functioning correctly, just as government actions have interfered in the functioning of these markets for the last fifty-sixty years.

The recent agreement to slash global production by nearly 10 million barrels per day was needed in light of the extensive government interference that has characterized the market and the actions by Russia and Saudi Arabia in March and early April.

More importantly, the long-term government involvement and interference with the functioning of the sector should cause trade negotiators and legislators to be looking at how to reform the WTO and/or modify national laws to prevent government ownership, control or cartel-like actions from distorting trade flows and economies. The need is pressing, but don’t hold your breath for action in the coming years.

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

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

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

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

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

WTCOMTDW239

WTCOMTDW239C1

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

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

“The General Council,

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

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

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

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

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

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

Agrees as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“The President issued two other instructions to the USTR.

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

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

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

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

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

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

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

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

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

Member of the OECD or in the accession process:

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

Member of the G-20:

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

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

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

0.5% of Merchandise Trade (includes):

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

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