Malaysia

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

The Indo-Pacific region — increased interest in the CPTPP by major trading nations; implications for international trade; U.S. policy towards China

The Trans-Pacific Partnership was originally pursued by the United States to improve trade relations with many countries in the Pacific region and as a counter to rising Chinese influence. See, e.g., New York Times, U.S. Allies See Trans-Pacific Partnership as a Check on China, October 5, 2015, https://www.nytimes.com/2015/10/07/world/asia/trans-pacific-partnership-china-australia.html.

After President Trump withdrew the United States from the Agreement at the beginning of his term in 2017, Japan pushed to conclude the agreement among the remaining eleven countries. The revised agreement, the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership, was signed in Santiago, Chile on 8 March 2018 and took effect 30 December 2018, with 8 of the eleven countries who signed now having ratified — Mexico, Japan, Singapore, New Zealand, Canada, Australia, Vietnam and Peru. That leaves Brunei, Chile and Malaysia as signatories who have yet to ratify the agreement.

With Brexit completed, the United Kingdom was the first non-CPTPP country to apply for membership. Its application filed on 1 February 2021 was accepted on 2 June 2021 with the first negotiations held on 28 September 2021. See Government of Canada, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – Joint Ministerial Statement on the occasion of the Fourth Commission Meeting, 2 June 2021, https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/cptpp_meeting_four-ptpgp_declaration_quatre.aspx?lang=eng; Government of the United Kingdom, UK kickstarts talks to join £9 trillion global trade bloc, 28 September 2021, https://www.gov.uk/government/news/uk-kickstarts-talks-to-join-9-trillion-global-trade-bloc. The U.K.’s application is also an extension of the range of countries potentially eligible for membership since the U.K. is not a Pacific bordering country.

In September, both China and Taiwan applied for membership. See, e.g., Ministry of Commerce, People’s Republic of China, China officially applies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), September 18, 2021, http://english.mofcom.gov.cn/article/newsrelease/significantnews/202109/20210903201113.shtml; Nikkei Asia, Taiwan submits bid to join CPTPP trade pact, September 23, 2021, https://asia.nikkei.com/Economy/Trade/Taiwan-submits-bid-to-join-CPTPP-trade-pact; Wall Street Journal, China Seeks to Join Pacific Trade Pact After U.S. Forms New Security Alliance, September 16, 2021, https://www.wsj.com/articles/china-seeks-to-join-pacific-trade-pact-after-u-s-forms-new-security-alliance-11631813201 .

China’s application, while facing hurdles because of challenges to complying with provisions on state owned enterprises, data flows and other issues, is also a major challenge to efforts of the U.S. to have a more important role in the Indo-Pacific region. Because China would more than double the size of the CPTPP if admitted and because of heightened tensions in the Indo-Pacific area in recent years, there has been a great deal written on China’s application.

Some articles have argued for CPTPP countries rejecting China’s application or the likely failure of China to join for substantive reasons. See CNBC, China will likely fail in its CPTPP bid — but it’s a ‘smart’ move against the U.S., say analysts, September 27, 2021, https://www.cnbc.com/2021/09/27/analysts-on-chinas-bid-to-join-cptpp-strategic-competition-with-us.html (“Beijing needs the approval from all 11 CPTPP signatories to join CPTPP, and it may not succeed given its strained relationships with some member countries, said analysts.”); Bloomberg, Editorial Board, CPTPP Trade Block Shouldn’t Welcome China, September 22, 2021, https://www.bloomberg.com/opinion/articles/2021-09-22/cptpp-trade-bloc-shouldn-t-welcome-china.

Others have noted the multiyear effort by China to study the TPP and resulting CPTPP and ongoing efforts to gain support from individual CPTPP members for their application. See Nikkei Asia, Analysis: China’s TPP bid follows carefully scripted 300-day plan, Beijing’s move aims to thwart possible U.S. return to pact, pressure Taiwan, September 23, 2021, https://asia.nikkei.com/Editor-s-Picks/China-up-close/Analysis-China-s-TPP-bid-follows-carefully-scripted-300-day-plan; Brookings, China moves to join the CPTPP, but don’t expect a fast pass, September 23, 2021, https://www.brookings.edu/blog/order-from-chaos/2021/09/23/china-moves-to-join-the-cptpp-but-dont-expect-a-fast-pass/; Foreign Policy, Wendy Cutler, China Wants to Join the Trade Pact Once Designed to Counter It, September 21, 2021, https://foreignpolicy.com/2021/09/21/china-cptpp-trade-agreement/.

Others have focused on the importance of the U.S. reengaging economically in the region or risking losing to China. For example, Wendy Cutler, a former USTR lead negotiator for the Trans-Pacific Partnership, is the Executive Vice President of the Asia Society Policy Institute and has urged the last and current Administrations to stay economically engaged in Asia. See ASPI, Report, Reengaging the Asia-Pacific on Trade: A TPP Roadmap for the Next U.S. Administration, September 2020, https://asiasociety.org/sites/default/files/2020-09/A%20TPP%20Roadmap%20for%20the%20Next%20U.S.%20Administration.pdf. See also Nikkei Asia, Comment, Why U.S. membership in CPTPP makes more sense than ever, Washington risks being locked out and ceding Indo-Pacific influence to China, September 24, 2021, https://asia.nikkei.com/Spotlight/Comment/Why-U.S.-membership-in-CPTPP-makes-more-sense-than-ever; PIIE, Jeffrey Schott, China’s CPTPP bid puts Biden on the spot, September 23, 2021, https://www.piie.com/blogs/trade-and-investment-policy-watch/chinas-cptpp-bid-puts-biden-spot; Inside U.S. Trade’s World Trade Online, Citing China’s CPTPP bid, Carper and Cornyn urge U.S.
trade leadership, September 20, 2021, https://insidetrade.com/daily-news/citing-china%E2%80%99s-cptpp-bid-carper-and-cornyn-urge-us-trade-leadership; Wall Street Journal, Opinion/Comment by Tim Groser, The U.S. Has a Way Back on Pacific Trade, And if Washington doesn’t take it, the Indo-Pacific would likely become China’s for the taking, September 29, 2021, https://www.wsj.com/articles/america-tpp-china-japan-indo-pacific-trade-influence-11632931688. New Zealand’s Former Trade and Environment Minister Tim Groser’s piece is particularly interesting and is copied below.

“It was February 2017 and President Trump’s first address to a joint session of Congress. I was on the floor of the U.S. House as a guest of a pro-trade Republican congressman. As the president announced the U.S. withdrawal from the Trans-Pacific Partnership, I was thinking about a conversation I’d had with a particularly astute Asian ambassador. He’d suggested to me that if a book on the decline of American influence in Asia and the Indo-Pacific were ever written—and he hoped it never would be—its first chapter would be an account of the withdrawal of the U.S. from TPP.

“Largely because of Japan’s courageous decision to proceed without the U.S., TPP survived. With some changes to a few of its provisions and a new moniker—Comprehensive and Progressive TPP, or CPTPP—it went ahead. Nothing would have been possible if Japan, by far the dominant remaining economy in the agreement, had decided differently.

“China’s decision this month to apply for CPTPP membership should be a sharp reminder to Republicans and Democrats alike that if the U.S. is serious about competing with China in the Indo-Pacific it must confront a central reality: Having withdrawn from the TPP, the U.S. doesn’t yet have a trade strategy to back up its military posture in the region. China is the principal trading partner of many countries in the Indo-Pacific. The size of China’s economy, as well as its military and geostrategic ambition, means that Beijing will be at the center of the debate over every regional and global issue in the 21st century, from climate change to trade. Its ability to influence the outcomes of those issues will be determined by the degree—and effectiveness—of U.S.

“We don’t yet know where the new policy script that the Chinese Communist Party is now writing will lead the world’s second-largest economy. When Deng Xiaoping 40 years ago shifted China toward growth and an open economy with his slogan ‘to be rich is glorious,’ it was the beginning of the largest poverty-reduction program in human history. Hundreds of millions of Chinese were lifted out of destitution, and huge opportunities opened up for China’s trading partners. Things have been moving backward lately, in the direction of greater centralization and state control. One could even mount an elegant argument that China itself needs balance from the full engagement of the U.S. in the region.

“The Chinese people have benefited enormously, not from ‘wolf warrior’ diplomacy, but from Beijing’s positive engagement with the U.S.-designed liberal economic architecture. China’s future choices and trade strategies will be fundamentally different if they aren’t constrained by a muscular and successful U.S. economic strategy in the Indo-Pacific.

“Intriguingly, the U.S. is putting in place the elements of regional re-engagement. No foreign policy (or trade policy) is politically sustainable without a solid domestic constituency behind it. Trade has long been a tortured issue in American politics, particularly for Democrats, because economic change creates anxiety for the middle class. When people are under severe economic pressure, trade is always a potential scapegoat.

“In September 2020, the Carnegie Foundation for International Peace published a white paper titled ‘Making U.S. Foreign Policy Work Better for the Middle Class.’ Among the authors was Jake Sullivan, now President Biden’s national security adviser. The White House approach to assuaging traditional Democratic fears of trade-induced economic change seems clear: Shore up domestic policy before moving forward aggressively on any trade deals.

“The recent establishment of the Aukus security arrangement among the U.S., the U.K. and Australia can leave no doubt that the Biden administration views the Indo-Pacific as the most important theater of strategic competition with China. Kurt Campbell, the National Security Council’s coordinator for the Indo-Pacific, has made clear that U.S. strategy in the region must extend beyond a military plan to protect American allies from China’s expansionist ambitions. It needs an economic component.

“In my view, the U.S. is unlikely to rectify the mistake of leaving TPP by asking to join CPTPP. Mr. Biden has said he would oppose joining the original deal without a renegotiation. That alone would make it difficult for the U.S. to waltz back in. But it’s also true that the strategic environment has evolved. Large parts of TPP, such as its provisions on trade and the environment, remain relevant, but the past five years have sharpened the policy world’s understanding of such key issues as digital trade and state-owned enterprises. Plus, there is a new kid on the TPP block: the U.K. The world’s sixth-largest economy, a major intelligence and defense partner of the U.S., wants to join the club. The U.K.’s post-Brexit desire to expand its horizons beyond geographical Europe was the political subtext of the trade deal announced this summer between London and Canberra.

“Whatever next year’s congressional elections bring, active foreign-policy engagement always requires the involvement of both American political parties. The U.S.-Mexico-Canada agreement, updating the North American Free Trade Agreement, passed easily with bipartisan support during the Trump administration. If the U.S. recommits to TPP, it should be rechristened the Indo-Pacific Economic Partnership Agreement. A new name might make it an easier sell politically.

“The regional stakes were high even before China’s aggressive move on Hong Kong, its saber-rattling in Taiwan, and its ramped-up trade war with Australia. We now need to hear American leaders on both sides of the aisle talking about re-engaging in the region, not only on the political and military levels, but on the trade and economic architecture that will shape economic relations over the next decade and beyond. Only then will my friend the astute Asian ambassador be able to rest easy, secure in the knowledge that the decline of American influence in the Indo-Pacific is a book that will never be written.

Mr. Groser served as New Zealand’s trade minister (2008–15) and ambassador to the U.S. (2016–18).

The interest in the CPTPP will be heightened for other countries who are not members or who are already considering joining CPTPP and will be the subject of programs to explore the politics and business implications. See, e.g., Inside U.S. Trade’s World Trade Online, Eyes on Asia: Thailand re-evaluates CPTPP, Peru brings pact into force, September 22, 2021, https://insidetrade.com/trade/eyes-asia-thailand-re-evaluates-cptpp-peru-brings-pact-force; Business Korea, South Korea Planning to Join CPTPP, January 12, 2021, http://www.businesskorea.co.kr/news/articleView.html?idxno=58283; Nikkei Asia, Philippines explores joining TPP to expand free trade network, April 2, 2021, https://asia.nikkei.com/Economy/Trade/Philippines-explores-joining-TPP-to-expand-free-trade-network; The Global Business Dialogue, Inc., CPTPP: PEFORMANCE, PROMISE AND OUTLOOK, October 5 and 7, 2021, https://www.gbdinc.org/.

Likely U.S. Trade Approach Short Term

Despite the groups calling for the U.S. to reengage with the CPTPP countries and the obvious growing importance of the CPTPP for Indo-Pacific trade relations, most analysts believe the United States will not seek to either renegotiate the CPTPP or to join the CPTPP as it is in the near future. While the U.S. has free trade agreements with many of the CPTPP countries (Canada, Mexico, Australia, Singapore, Peru and Chile), with the exception of Canada and Mexico who are party to the USMCA, other FTAs are older and not as comprehensive or addressing all the issues as the CPTPP.

The United States under the Trump Administration and now under the Biden Administration has sought selective trade improvements with some Indo-Pacific countries, including Japan (Phase I deal under the Trump Administration), resolution of 301 disputes on currency and lumber with Vietnam (resolution by the Biden Administration) and bilateral activity with other Asian countries including India, Japan and Australia as members of the Quad. See, e.g., White House Briefing Room, U.S.-India Joint Leaders’ Statement: A Partnership for Global Good, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/u-s-india-joint-leaders-statement-a-partnership-for-global-good/; White House Briefing Room, Joint Statement from Quad Leaders, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/joint-statement-from-quad-leaders/; White House Briefing Room, Quad Principles on Technology Design, Development, Governance, and Use, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/quad-principles-on-technology-design-development-governance-and-use/. These types of initiatives include trade related elements such as supply chain resiliency in areas like semiconductors and pharmaceuticals and other medical products needed to address the COVID-19 pandemic as well as on technical barriers to trade issues flowing from technology developments. And, of course, the U.S. engages with other countries in the region even if there are no specific trade negotiations. See, e.g., USTR, Readout Of Ambassador Katherine Tai’s Meeting with ASEAN Economic Ministers, September 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/september/readout-ambassador-katherine-tais-meeting-asean-economic-ministers.

But these efforts to date don’t ensure U.S. access to many of these markets on the best possible terms for some products and services or ensure the highest standards of the agreements going forward.

China may or may not be accepted into the CPTPP now that it has applied or may decide that the requirements won’t work for its vision of its economy. While the U.S. is seeking cooperation from trading partners at the WTO and in various alliances to deal with some of the major challenges posed by China’s failure to convert its economy to a market economy and to address some of the coercion and failures to comply with bilateral, plurilateral and multilateral commitments, a strong trade agenda and participating in the rule development within important regional groupings would obviously improve the likelihood of improved balance in international trade relations.

That said, the Biden Administration has been reviewing its trade relationship with China, looking to develop a whole of government approach to China.

USTR’s October 4, 2021 articulation of U.S. approach to trade with China

USTR had signaled last week that Amb. Tai would be making a major speech today. The speech at the Center for Strategic and International Studies was at 10 a.m. (ET) this morning. See Office of the United States Trade Representative, Remarks As Prepared for Delivery of Ambassador Katherine Tai Outlining the Biden-Harris Administration’s “New Approach to the U.S.-China Trade Relationship,” October 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/remarks-prepared-delivery-ambassador-katherine-tai-outlining-biden-harris-administrations-new. The Administration also released a fact sheet on the Administration’s policy. See Office of the United States Trade Representative, Fact Sheet: The Biden-Harris Administration’s New Approach to the U.S. – China Trade Relationship, October 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/fact-sheet-biden-harris-administrations-new-approach-us-china-trade-relationship. The fact sheet lists four “initial steps” the U.S. is taking. Those steps as described in the fact sheet are reproduced below.

“Today, we are announcing the initial steps we will take to re-align our trade policies towards the PRC around OUR priorities: 

“•    First, we will discuss with China its performance under the Phase One Agreement. China made commitments that do benefit certain American industries, including agriculture that we must enforce.  President Biden will continue to promote our economic interests – and build confidence for American industry.

•    Second, while pursuing Phase One enforcement, we will restart our domestic tariff exclusions process to mitigate the effects of certain Section 301 tariffs that have not generated any strategic benefits and raised costs on Americans. We will ensure current Section 301 tariffs align appropriately with our economic priorities like boosting American workers’ wages and job opportunities, securing the resilience of critical supply chains, sustaining our technological edge, and protecting our national security interests. 

“•    Third, we continue to have serious concerns with the PRC that were not addressed in the Phase One deal, specifically related to its state-centered and non-market trade practices including Beijing’s non-market policies and practices that distort competition by propping up state-owned enterprises, limiting market access, and other coercive and predatory practices in trade and technology. 

“Even as we work to enforce the terms of Phase One, we will raise our broader concerns with Beijing’s non-market policies and practices like abuse of state-owned enterprises, anti-competitive behavior and subsidies, the theft of American intellectual property directly and in coordination with our allies and partners. We will defend American economic interests using the full range of tools we have and by developing new tools as needed. 

“•    And lastly, we know that we cannot do it alone. We will continue consulting and coordinating with allies and partners who share our strong interest in ensuring that the terms of competition are fair, work collectively to set the rules of the road for trade and technology in the 21st century, and strengthen the global market for our workers and businesses. 

“This work with our allies and partners is already bearing fruit, as evidenced by efforts at the G7, the US-EU Summit, the Quad, the OECD, and the TTC. The Boeing-Airbus deal struck in June of this year is just one example of how this commitment to work with our allies creates more opportunity to sell American products. We will accelerate this progress and look forward to continuing the conversations with our likeminded allies and partners about the impact the PRC’s non-market practices have on them, and how we can work together to find solutions.”

China’s Phase 1 commitments have been met is some areas but widely missed in terms of expanded purchases, particularly on manufactured goods and energy. China’s performance on agricultural goods has been significantly better and close to commitments. There are also large volumes of U.S. exports that are not covered by the Phase I Agreement where China has sharply reduced purchases in 202-2021 despite China’s economic performance. See PIIE, US-China phase one tracker: China’s purchases of US goods, As of August 2021, September 27, 2021, https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods. Thus, it will be interesting to see if outreach to China on the need for ramped up improvements will have any effect in fact.

American businesses have long complained about the tariffs on hundreds of billions of dollars of imports from China that resulted from the 301 investigation on China’s IP and other practices. Businesses viewed USTR’s exclusion process as an ineffective system for seeking exclusions and felt the process ended up penalizing U.S. companies. Congress has applied pressure on the Biden Administration (as it did on the Trump Administration) to restart and improve the exclusion process. Former USTR Lighthizer criticized some of the legislative efforts to weaken Section 301, require a revised exclusion process and renew certain tariff waiver programs that he viewed as significantly advantaging China. See New York Times, Opinion/Guest Essay (Robert Lighthizer), America Shouldn’t Compete Against China With One Arm Tied Behind Its Back, July 27, 2021, https://www.nytimes.com/2021/07/27/opinion/us-china-trade-tariffs.html. While the Biden team identifies actions which could reduce the loss of effectiveness of the 301 tariffs on China, time will tell how well step two of the new approach works in fact.

Press reports indicate that the U.S. will be raising the host of trade problems not addressed in the Phase I Agreement with China but will not be engaged in a Phase II Agreement negotiation. See Inside U.S. Trade’s World Trade Online, U.S. to renew China talks, restart tariff product exclusions, October 4, 2021, https://insidetrade.com/daily-news/us-renew-china-talks-restart-tariff-product-exclusions (“But the administration is not looking to negotiate a phase-two deal, senior administration officials told reporters on Sunday. ‘We’ll focus on phase-one engagement, we will raise concerns on industrial policies, but we are not seeking a phase-two negotiation,’ one said.”).

That said, the U.S. has been pursuing reforms at the WTO on industrial subsidies and other matters along with some major trading partners (e.g., Japan and the EU on industrial subsidies). While reforms are not likely at the WTO any time soon on industrial subsidies, the U.S. is attempting to apply pressure in a number of fora on China’s policies. Thus, the U.S. is actively pursuing alliances to achieve reforms in China’s policies and distortive practices.

In short, today’s announced trade policy to address China appears to be less confrontational than the actions of the Trump Administration while maintaining for the time being the tariffs that were added following the 301 investigation in 2017-2018. While working to get better compliance with the Phase I Agreement is a positive, many provisions were adopted by China based on prior Administration statements. It will be important to know if these granular provisions once adopted have actually been implemented and whether U.S. trade has benefitted as a result. While the purchase commitments other than agriculture have been widely missed (including some commitments by sectors with heavy state ownership, such as energy), there are specific commitments for 17 goods categories only for 2020 and 2021 and some language about continued growth in the future, it is not clear how aggressive the U.S. will be in pursuing compliance in the last three months of 2021 and moving forward. The same is true in services where the pandemic has undoubtedly contributed to declines in U.S. services exports and the dismal performance compared to commitments. It is also not clear if the U.S. will address the sharp contraction of U.S. exports of products not covered by the Phase I purchase commitments. Such contractions in a period of economic growth by China seem likely driven by Chinese action whether formal or informal to reduce U.S. exports regardless of China’s overall growth.

The serious problems China’s economic model and policies are causing the U.S. and other market economies will be difficult to correct simply through discussions. The Biden’s Administration’s focus on domestic policies and reinvesting in infrastructure, R&D and workers is certainly long overdue (if Congress passes funding), The Biden Administration clearly needs China engaged to address the climate crisis and a number of other global issues. This reality may have contributed to the level of action envisioned on trade relations with China. But today’s announced trade policy towards China seems uninspired and unlikely to make a significant difference in rebalancing trade relations.

Coupled with U.S. reluctance to identify a trade policy agenda that can be used with trading partners to generate new agreements and revise existing agreements, the U.S. approach to China raises the specter of a lost opportunity. Let’s hope that concern proves incorrect.

U.S. Department of the Treasury Semi-Annual Report on Trading Partner Currency Practices — a change from the December 2020 Report

Today (April 16, 2021), the U.S. Department of the Treasury released its semi-annual report on trading partner currency practices. See U.S. Department of the Treasury Office of International Affairs, Report to Congress, Macroeconomic and
Foreign Exchange Policies of Major Trading Partners of the United States, April 2021, https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.

The press release from Treasury found three countries/territories to have problematic currency practices — Switzerland, Vietnam and Taiwan — but didn’t find any them to be currency manipulators. This constituted a change of position on Switzerland and Vietnam which had been found to be currency manipulators in the December 2020 report. All three countries are subject to increased scrutiny and interface with Treasury. A number of other countries remain on the monitoring list for currency practices with Mexico and Ireland being added to that list in this report. China was separately identified for transparency concerns. See U.S. Department of the Treasury Press Release, Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 16, 2021, https://home.treasury.gov/news/press-releases/jy0131. The press release is copied below and the April 2021 Report is embedded after that.

“WASHINGTON – The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters through December 2020.

“The Report concluded that both Vietnam and Switzerland continue to meet all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review.  Additionally, the report finds that Taiwan met all three of the 2015 Act criteria for the period under review.  Treasury has conducted enhanced analysis of Vietnam, Switzerland, and Taiwan’s macroeconomic and foreign exchange policies, as reflected in the Report.  Treasury will continue its enhanced engagement with Vietnam and Switzerland, and Treasury will commence enhanced engagement with Taiwan.  This engagement includes urging the development of a plan with specific actions to address the underlying causes of currency undervaluation and external imbalances.

“Under the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Act), Treasury has determined that there is insufficient evidence to make a finding that Vietnam, Switzerland, or Taiwan manipulates its exchange rate for either of the purposes referenced in the 1988 Act.  Nevertheless, consistent with the 1988 Act, Treasury considers that its continued enhanced engagements with Switzerland and Vietnam, as well as a more thorough assessment of developments in the global economy as a result of the COVID-19 pandemic, will enable Treasury to better determine whether either of these economies intervened in currency markets in 2020 to prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade.  For Taiwan, Treasury will initiate enhanced engagement in accordance with the 2015 Act and expects that engagement will help Treasury to make the determination required under the 1988 Act for the period of review. 

“No other major U.S. trading partner met the relevant 1988 or 2015 legislative criteria for currency manipulation or enhanced analysis during the review period.  Treasury urged China to improve transparency regarding its foreign exchange intervention activities, the policy objectives of its exchange rate management regime, the relationship between the central bank and foreign exchange activities of the state-owned banks, and its activities in the offshore RMB market. 

“’Treasury is working tirelessly to address efforts by foreign economies to artificially manipulate their currency values that put American workers at an unfair disadvantage,’ Secretary of the Treasury Janet L. Yellen said today.

“Treasury found that eleven economies warrant placement on Treasury’s ‘Monitoring List’ of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and Mexico.  All except Ireland and Mexico were included in the December 2020 Report.

“Today’s Report is submitted to Congress pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22 U.S.C. § 5305, and Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, 19 U.S.C. § 4421.”

April_2021_FX_Report_FINAL

In prior posts, I have reviewed how Vietnam’s currency practices had resulted in a 301 investigation initiated by USTR (one of two, the other dealing with using illegally harvested timber) with a report issued in mid-January 2021, in the Commerce Department preliminarily finding currency practices of Vietnam were countervailable and in the December 2020 Treasury finding that Vietnam was manipulating its currency. See October 12, 2020, U.S. commences two investigations into Vietnam under Sec. 301 of the Trade Act of 1974, as amended – on currency and on use of illegally harvested timber, https://currentthoughtsontrade.com/2020/10/12/u-s-commences-two-investigations-into-vietnam-under-sec-301-of-the-trade-act-of-1974-as-amended-on-currency-and-on-use-of-illegally-harvested-timber/; December 21, 2020, Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report, https://currentthoughtsontrade.com/2020/12/21/vietnam-and-switzerland-found-to-be-currency-manipulators-in-latest-u-s-treasury-semiannual-report/; January 15, 2021, USTR releases report from Section 301 investigation on Vietnam’s currency valuation, https://currentthoughtsontrade.com/2021/01/15/ustr-releases-report-from-section-301-investigation-on-vietnams-currency-valuation/.

The current Treasury report (pages 3-4) flags the elements examined and what is different in this report versus the prior one for Switzerland and Vietnam.

“In this Report, Treasury has reviewed 20 major U.S. trading partners with bilateral goods trade with the United States of at least $40 billion annually against the thresholds Treasury has established for the three criteria in the 2015 Act:

“(1) Persistent, one-sided intervention in the foreign exchange market occurs when net purchases of foreign currency are conducted repeatedly, in at least 6 out of 12 months, and these net purchases total at least 2% of an economy’s gross domestic product (GDP) over a 12-month period.2

“(2) A material current account surplus is one that is at least 2% of GDP over a 12-month period.

“(3) A significant bilateral trade surplus with the United States is one that is at least $20 billion over a 12-month period.3

“In accordance with the 1988 Act, Treasury has also evaluated in this Report whether trading partners have manipulated the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.

“Because the standards and criteria in the 1988 Act and the 2015 Act are distinct, a trading partner could be found to meet the standards identified in one of the statutes without necessarily being found to meet the standards identified in the other. Section 2 provides further discussion of the distinctions between the 1988 Act and the 2015 Act.

Treasury Conclusions Related to the 2015 Act

“Vietnam again exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has updated its enhanced analysis of Vietnam in this Report. In early 2021, Treasury commenced enhanced bilateral engagement with Vietnam and is working with the Vietnamese authorities to develop a plan with specific actions to address the underlying causes of Vietnam’s currency undervaluation.
Switzerland again exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has updated its enhanced analysis of Switzerland in this report. In early 2021, Treasury commenced enhanced bilateral engagement with Switzerland and is discussing with the Swiss authorities options to address the underlying causes of Switzerland’s external imbalances.

“Taiwan exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has conducted enhanced analysis of Taiwan in this Report and will also commence enhanced bilateral engagement with Taiwan in accordance with the 2015 Act. The bilateral engagement will include urging the development of a plan with specific actions to address the underlying causes of Taiwan’s currency undervaluation.

“Taiwan has maintained a tightly managed floating exchange rate regime since the late 1970s. Although Taiwan has liberalized capital controls in recent decades, the central bank continues to actively intervene in the foreign exchange market. Over many years, these practices have resulted in a structurally undervalued exchange rate that has failed to adjust in the face of Taiwan’s persistently large current account surpluses. Although the New Taiwan Dollar (TWD) has appreciated modestly in nominal and real effective exchange rate terms over the past decade, the authorities’ foreign exchange purchases and other, less formal exchange rate management practices have slowed the pace and scale of external adjustment, preventing the TWD from fully reflecting macroeconomic fundamentals.

Treasury Conclusions Related to the 1988 Act

“The 1988 Act requires Treasury to consider whether any economy manipulates the rate of exchange between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade. In the December 2020 Report, Treasury found that Switzerland and Vietnam each met the standards for currency manipulation for the four quarters through June 2020. For the four quarters ending in 2020, based on initial enhanced engagements with Vietnam and Switzerland under the 2015 Act, further analysis, and data, Treasury has determined that there is insufficient evidence to make a finding that either economy (or any other economy covered in the Report) manipulates its exchange rate for either of the purposes referenced in the 1988 Act. Nevertheless, consistent with the 1988 Act, Treasury considers that its continued enhanced engagements with Switzerland and Vietnam, as well as a more thorough assessment of developments in the global economy as a result of the COVID-19 pandemic, will enable Treasury to better determine whether either of these economies intervened in currency markets in 2020 to prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade. For Taiwan, Treasury will initiate enhanced engagement in accordance with the 2015 Act and expects that engagement will help Treasury to make the determination required under the 1988 Act for the period of review. Meaningful actions to address policy distortions and increase data transparency will be critical for making progress under these engagements. Treasury will also continue to consider whether economies that do not trigger enhanced engagement manipulate their currencies for the purposes referenced in the 1988 Act

“2 The Report covers data from the 12-month period ending in December 2020. These quantitative thresholds for the scale and persistence of intervention are considered sufficient on their own to meet this criterion. Other patterns of intervention, with lesser amounts or less frequent interventions, might also meet this criterion depending on the circumstances of the intervention.

“3 Treasury focuses in this Report on trade in goods only, as it has done in past Reports. The United States has a surplus in services trade with many economies in this Report, including China, Japan, Korea, Singapore, and Switzerland, and to a lesser extent, Taiwan and Vietnam. Taking into account services trade would reduce the bilateral trade surplus of these economies with the United States.”

The Trump Administration did not impose tariffs on Vietnam following the release of the Section 301 report in January leaving the decision on what action to take to the Biden Administration. President Biden’s U.S. Trade Representative, Ambassador Katherine Tai, met virtually with Vietnam Minister of Industry and Trade Tran Tuan Anh on April 1, 2021 and reviewed concerns re China’s currency practice as reviewed in the 301 investigation as well as illegal logging and other issues. See USTR Press Release, Readout of Ambassador Katherine Tai’s virtual meeting with Vietnam Minister of Industry and Trade Tran Tuan Anh. April 1, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/april/readout-ambassador-katherine-tais-virtual-meeting-vietnam-minister-industry-and-trade-tran-tuan-anh (“Ambassador Tai highlighted the Biden Administration’s concerns about currency practices covered in the ongoing Section 301 investigation.  The ministers also discussed U.S. concerns on illegal timber practices, digital trade and agriculture.”). Thus, it is likely that the U.S. and Vietnam will work out bilaterally U.S. concerns on Vietnam’s currency versus imposing additional duties following the Section 301 report, at least at this time.

The first Department of Commerce investigation to look at currency as a countervailable subsidy for Vietnam made a preliminary affirmative determination. The final determination is not due until late May. See Department of Commerce, International Trade Administration, C–552–829, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 FR 71,607 (Nov. 10, 2020); Department of Commerce, International Trade Administration, A–552–828, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Determination of Sales at Less Than Fair Value, Postponement of Final Determination, and Extension of Provisional Measures, 86 FR 504 (January 6, 2021)(final due within 135 days of the preliminary Federal Register). It is unclear what, if any, modification will be made to the countervailability of Vietnam’s currency in the context of the ongoing investigation based on the change in view of Vietnam by Treasury.

Conclusion

Currency misalignment whether intentional or not can have significant effects on trade flows. The U.S. has historically been quite concerned about misaligned currencies although Treasury historically preferred to work with other countries than label them currency manipulators. Early signals from the Biden Administration are that Treasury is reverting to a preference to work bilaterally with countries who actively intervene in currency markets and have an undervalued currency and large trade surplus in goods with the U.S. If so, Treasury will, as it did in the current report, find “insufficient evidence” for countries who satisfy the factual criteria under U.S. law to conclude such actions were for the purpose “of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” While trading partners will undoubtedly prefer the Biden Administration’s apparent approach, the approach will be problematic for many U.S. industries and their workers and remove leverage to get correction of foreign government practices.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

World Trade Organization involvement in addressing the problem

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

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

agric_report_e

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

208R2-3

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

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

Conclusion

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

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


Forced labor and child labor — a continued major distortion in international trade for some products

In recent years, the United States has paid more attention to the trade distortions flowing from forced labor and child labor in other countries, particularly in China. While there has been significant progress in the last twenty years in reducing forced labor and child labor globally according to the International Labor Organization (“ILO”), the COVID-19 pandemic has seen some retrenchment and efforts by China to address minorities in country have created an international backlash and concern.

The ILO webpage on forced labor reflects the global nature of the problem. The webpage states in part,

“Although forced labour is universally condemned, ILO estimates show that 24.9 million people around the world are still subjected toit. Of the total number of victims of forced labour, 20.8 million (83 per cent) are exploited in the private economy, by individuals or enterprises, and the remaining 4.1 million (17 per cent) are in State-imposed forms of forced labour. Among those exploited by private individuals or enterprises, 8 million (29 per cent) are victims of forced sexual exploitation and 12 million (64 per cent) of forced labour exploitation. Forced labour in the private economy generates some US$ 150 billion in illegal profits every year: two thirds of the estimated total (or US$ 99 billion) comes from commercial sexual exploitation, while another US$ 51 billion is a result from forced economic exploitation in domestic work, agriculture and other economic activities (Note 1).

“Vestiges of slavery are still found in some parts of Africa, while forced labour in the form of coercive recruitment is present in many countries of Latin America, in certain areas of the Caribbean and in other parts of the world. In numerous countries, domestic workers are trapped in situations of forced labour, and in many cases they are restrained from leaving the employers’ home through threats or violence. Bonded labour persists in South Asia, where millions of men, women and children are tied to their work through a vicious circle of debt. In Europe and North America, a considerable number of women and children are victims of traffickers, who sell them to networks of forced prostitution or clandestine sweat-shops. Finally, forced labour is still used as a punishment for expressing political views.

“For many governments around the world, the elimination of forced labour remains an important challenge in the 21st century. Not only is forced labour a serious violation of a fundamental human right, it is a leading cause of poverty and a hindrance to economic development. ILO standards on forced labour, associated with well-targeted technical assistance, are the main tools at the international level to combat this scourge.”

ILO, International Labour Standards on Forced labour, https://www.ilo.org/global/standards/subjects-covered-by-international-labour-standards/forced-labour/lang–en/index.htm. See also ILO and Walk Free, 2017, Global Estimates of Modern Slavery, Forced Labor and Forced Marriage, https://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/documents/publication/wcms_575479.pdf.

Child labor involves more people – an estimated 152 million of which 73 million are involved in hazardous work. See ILO, International Programme on the Elimination of Child Labour and Forced Labour (IPEC+), https://www.ilo.org/global/about-the-ilo/how-the-ilo-works/flagships/ipec-plus/lang–en/index.htm.

While the incidence of forced labor and child labor is declining, the COVID-19 pandemic has complicated trends as these populations are most vulnerable. See, e.g., ILO, The International Labour Organization
and the US Department of Labor partnership to eliminate child labour and forced labour, 2019, https://www.ilo.org/wcmsp5/groups/public/@ed_norm/@ipec/documents/publication/wcms_710971.pdf (“The ILO’s most recent global estimates of child labour indicate, however, that significant progress is
being made. From 2000 to 2016, there was a net reduction of 94 million children in child labour and
the number of children in hazardous work was halved. In parallel, the ILO Worst Forms of Child
Labour Convention (No. 182) was ratified by 186 countries, reaching almost universal ratification.
The challenges ahead, however, remain formidable: in 2016, 152 million girls and boys were in child
labour and 25 million men, women and children were trapped in forced labour.”); ILO, COVID-19 impact on
child labour and forced labour: The response of the IPEC+ Flagship Programme, 2020, https://www.ilo.org/wcmsp5/groups/public/—ed_norm/—ipec/documents/publication/wcms_745287.pdf (“COVID-19 has plunged the world into a crisis of unprecedented scope and scale. Undoubtedly, restoring global health remains the first priority, but the strict measures required are resulting in massive economic and social shocks. As lockdown, quarantine, physical distancing and other isolation measures to suppress transmission continue, the global economy has plunged into a recession. The harmful effects of this pandemic will not be distributed equally. They are expected to be most damaging in the poorest countries and in the poorest neighbourhoods, and for those in already disadvantaged or vulnerable situations, such as
children in child labour and victims of forced labour and human trafficking, particularly women and girls.
These vulnerable groups are more affected by income shocks due to the lack of access to social protection,
including health insurance and unemployment benefits. * * * Experience from previous crisis situations, such as the 2014 Ebola epidemic, has shown that these factors play a particularly strong role in exacerbating the risk to child labour and forced labour.”).

In China, the government’s efforts to “reeducate” minority populations (e.g., Uyghurs from the western region of Xinjiang) has led to allegations of forced labor on a range of products and actions by the United States to restrict certain imports from China from the region. The Washington International Trade Association is holding a virtual webinar on January 27 looking at the challenges in China and the forced labor problem of the Xinjiang Uyghur Autonomous Region and the resulting U.S. ban on cotton and tomato products. See WITA, WITA’s Friday Focus on Trade, Vol. 206, January 22, 2021 (containing various articles on the China forced labor issue and referencing the webinar on January 27, WITA Webinar: The U.S. Moves Against Forced Labor in Xinjiang).

The U.S. Department of Labor in September released its 2020 list of products believed to be produced in foreign countries with forced labor or with child labor. See USDOL, 2020 List of Goods Produced by Child Labor or Forced Labor, September 2020, https://www.dol.gov/sites/dolgov/files/ILAB/child_labor_reports/tda2019/2020_TVPRA_List_Online_Final.pdf. The report provides the following statement of purpose:

“The U.S. Department of Labor (USDOL or the Department) has produced this ninth edition of the List of Goods Produced by Child Labor or Forced Labor in accordance with the Trafficking Victims Protection Reauthorization Act (TVPRA), as amended. The TVPRA requires USDOL’s Bureau of International Labor Affairs (ILAB or the Bureau) to “develop and make available to the public a list of goods from countries that
[ILAB] has reason to believe are produced by forced labor or child labor in violation of international standards” (TVPRA List or the List; 22 U.S.C. § 7112(b)(2)(C)). It also requires submission of the TVPRA List to the United States Congress not later than December 1, 2014, and every 2 years thereafter (22 U.S.C. § 7112(b)(3)).

“The Frederick Douglass Trafficking Victims Prevention and Protection Reauthorization Act of 2018 expanded ILAB’s mandate to require the TVPRA List to include, ‘to the extent practicable, goods that are produced with inputs that are produced with forced labor or child labor’” (22 U.S.C. 7112(b)(2)(C)).

“The TVPRA directs ILAB ‘to work with persons who are involved in the production of goods on the list … to create a standard set of practices that will reduce the likelihood that such persons will produce goods using [child labor or forced labor],’ and ‘to consult with other departments and agencies of the United States Government to reduce forced and child labor internationally and ensure that products made by forced labor and child labor in violation of international standards are not imported into the United States’ (22 U.S.C. § 7112(b)(2)(D)–(E)).” (pages 1 and 3).

This year’s publication lists 77 countries that have one or more products believed to be produced with child labor, with forced labor or with both child and forced labor. Fourteen countries are listed as having products believed to be produced with forced labor. Thirty-six countries are listed as believed to produce products with child and forced labor. Sixty-four countries produce some products with child labor. The 77 countries are listed below along with whether products are believed produced with child labor, forced labor, or child labor & forced labor.

Afghanistan — child larbor; child labor & forced labor

Angola — child labor & forced labor

Argentina — child labor; child labor & forced labor

Azerbaijan — child labor

Bangladesh – child labor; child labor & forced labor

Belize — child labor

Benin — child labor; child labor & forced labor

Bolivia — child labor; forced labor; child labor & forced labor

Brazil — child labor; forced labor; child labor & forced labor

Burkina Faso — child labor; child labor & forced labor

Burma — child labor; forced labor; child labor & forced labor

Cambodia — child labor; child labor & forced labor

Cameroon — child labor

Central African Republic — child labor

Chad — child labor

China — forced labor; child labor & forced labor

Colombia — child labor; child labor & forced labor

Costa Rica — child labor

Cote d’Ivoire — child labor & forced labor

Democratic Republic of the Congo — child labor; child labor & forced labor

Dominican Republic — child labor; child labor & forced labor

Ecuador — child labor

Egypt — child labor

El Salvador — child labor

Eswatini — child labor

Ethiopia — child labor; child labor & forced labor

Ghana — child labor; child labor & forced labor

Guatemala — child labor

Guinea — child labor

Honduras — child labor

India — child labor; child labor & forced labor

Indonesia — child labor; child labor & forced labor

Iran — child labor

Kazakhstan — child labor & forced labor

Kenya — child labor

Kyrgyz Republic — child labor

Lebanon — child labor

Lesotho — child labor

Liberia — child labor

Madagascar — child labor

Malawi — child labor; child labor & forced labor

Malaysia — forced labor; child labor & forced labor

Mali — child labor; child labor & forced labor

Mauritania — child labor

Mexico — child labor; child labor & forced labor

Mongolia — child labor

Mozambique — child labor

Nepal — child labor & forced labor

Nicaragua — child labor

Niger — child labor; forced labor

Nigeria — child labor; child labor & forced labor

North Korea — forced labor

Pakistan — child labor; forced labor; child labor & forced labor

Panama — child labor

Paraguay — child labor; child labor & forced labor

Peru — child labor; forced labor; child labor & forced labor

Philippines — child labor

Russia — forced labor; child labor & forced labor

Rwanda — child labor

Senegal — child labor

Sierra Leone –child labor; child labor & forced labor

South Sudan — child labor & forced labor

Sudan — child labor

Suriname — child labor

Taiwan — forced labor

Tajikistan — child labor & forced labor

Tanzania — child labor

Thailand — child labor; forced labor; child labor & forced labor

Turkey — child labor

Turkmenistan — child labor & forced labor

Uganda — child labor

Ukraine — child labor

Uzbekistan — forced labor

Venezuela — forced labor

Vietnam — child labor; child labor & forced labor

Yemen — child labor

Zambia — child labor

Zimbabwe — child labor

While the number of products obviously vary by country and category, the report categorized agriculture as having 68 child labor listings and 29 forced labor listings. This compares to manufacturing with 39 child labor and 20 forced labor listings; mining showed 32 child labor and 13 forced labor listings and pornography showed one each.

Looking at specific products for individual countries provides the most information.

As an example, China is shown as having the following products believed to be produced with forced labor — Artificial Flowers, Christmas Decorations, Coal, Fish, Footwear, Garments, Gloves, Hair Products, Nails, Thread/Yarn, and Tomato Products. China is also shown as having the following products believed to be produced with child labor and forced labor — Bricks, Cotton, Electronics, Fireworks, Textiles, and Toys. As a USDOL separate post notes, gloves, hair products, textiles, thread/yarn and tomato products were added in 2020 because of research on the forced labor situation in Xinjiang. See USDOL, Bureau of International Labor Affairs, Against Their Will: The Situation in Xinjiang, Forced Labor in Xinjiang, 2020, https://www.dol.gov/agencies/ilab/against-their-will-the-situation-in-xinjiang. The document is embedded below.

Against-Their-Will_-The-Situation-in-Xinjiang-_-U.S.-Department-of-Labor

Looking at India, products believed to be produced with child labor include the following — Bidis (hand-rolled
cigarettes), Brassware, Cotton, Fireworks, Footwear, Gems, Glass Bangles, Incense (agarbatti), Leather Goods/
Accessories, Locks, Matches, Mica, Silk Fabric, Silk Thread, Soccer Balls, Sugarcane, Thread/Yarn. Products believed produced with child labor & forced labor include the following — Bricks, Carpets, Cottonseed (hybrid), Embellished Textiles, Garments, Rice, Sandstone, Stones.

While the USDOL reports don’t estimate the portion of exports from any country of individual products that are produced with child and/or forced labor, the trade consequences can be significant as such labor is artificially valued creating distortions in competitiveness and resulting trade flows. For example, the list of products for China are either important export products for China or important inputs into exported products. The same would true for India and for many other of the 77 countries on the list.

Conclusion

The U.S. has in place statutory provisions which permit the exclusion from entry into the United states of products produced with forced labor. The Trump Administration did a somewhat better job enforcing U.S. law on imports of products produced with child or forced labor. Much more can be done and should be done domestically.

Similarly, the ILO is working to eliminate forced labor and child labor consistent with UN Sustainable Development Goals. “The objective of the IPEC+ Global Flagship Programme – in line with Target 8.7 of the 2030 Sustainable Development Agenda, adopted by the United Nations in 2015 – is to provide ILO leadership in global efforts to eradicate all forms of child labour by 2025 and all forms of contemporary slavery and human trafficking by 2030. It also aims to ensure that all people are protected from – and can protect themselves against – these gross human rights violations.” ILO, IPEC+ Global Flagship Programme Implementation, Towards a world free from child labour and forced labour, page 4, 2020, https://respect.international/wp-content/uploads/2020/01/wcms_633435.pdf.

The WTO could play a role in the fight against forced labor and child labor. Such labor practices distort global trade flows in addition to the challenges created for countries engaged in such practices in terms of poverty and human rights abuses. The WTO could gather information from Members on the volume of production and exports of products produced with child and forced labor both as finished products and as inputs into other products. Such an exercise would facilitate an understanding of the extent of global trade represented by such products and help focus attention on trade actions that could be taken to help Members eliminate such harmful practices. While it is unlikely that Members will agree to such a data gathering undertaking, one is surely needed and would add transparency to a source of an important global issue with trade as well as non-trade dimensions.

WTO and the World Food Programme — action by 79 Members after a failed December effort at the General Council

The WTO issued a press release on Jnauary 21, 2021 entitled “Group of members issue joint pledge on humanitarian food purchases”. https://www.wto.org/english/news_e/news21_e/agri_21jan21_e.htm. As the press release notes,

“A group of nearly 80 WTO members issued a joint statement on 21 January pledging not to impose export restrictions on foodstuffs purchased by the UN’s World Food Programme (WFP) for humanitarian aid.

“’We recognize the critical humanitarian support provided by the World Food Programme, made more urgent in light of the COVID-19 pandemic and other crises,’ the group said in their statement, available here. ‘We therefore commit to not impose export prohibitions or restrictions on foodstuffs purchased for non-commercial humanitarian purposes by the World Food Programme.’

“Discussions regarding export restrictions on food purchases by the WFP have been taking place in the WTO’s Committee on Agriculture in Special Session as well as the General Council.

“The WFP is the United Nations agency charged with delivering food assistance in emergencies and combatting hunger.”

The submission by the 79 WTO Members is embedded below (WT/L/1109).

1109-1

While the pledge by the 79 WTO Members is a significant event, the fact that the full WTO membership was not willing at the December 2020 General Council meeting to commit to such action is problematic and a reflection of the inability of WTO Members to come together on a broad array of issues. This has reduced the relevance of the WTO as a negotiating forum and prevented the updating of multilateral rules. It has led to a proliferation of free trade agreements and actions outside of the WTO. Considering the role that the World Food Programme plays and the list of beneficiaries, it is also quite extraordinary that there wasn’t an agreed General Council Decision adopted in December.

The UN World Food Programme

The UN’s World Food Programme (“WFP”) has for fifty years supplied food to those in need around the world. Consider the overview from the WFP’s webpage, https://www.wfp.org/overview (emphasis in original).

“The World Food Programme (WFP) is the leading humanitarian organization saving lives and changing lives, delivering food assistance in emergencies and working with communities to improve nutrition and build resilience

“As the international community has committed to end hunger, achieve food security and improved nutrition by 2030one in nine people worldwide still do not have enough to eat. Food and food-related assistance lie at the heart of the struggle to break the cycle of hunger and poverty. 

“For its efforts to combat hunger, for its contribution to bettering conditions for peace in conflict-affected areas and for acting as a driving force in efforts to prevent the use of hunger as a weapon of war and conflict, WFP was awarded the Nobel Peace Prize in 2020

“In 2019, WFP assisted 97 million people – the largest number since 2012 –  in 88 countries. 

“On any given day, WFP has 5,600 trucks, 30 ships and nearly 100 planes on the move, delivering food and other assistance to those in most need. Every year, we distribute more than 15 billion rations at an estimated average cost per ration of US$ 0.61. These numbers lie at the roots of WFP’s unparalleled reputation as an emergency responder, one that gets the job done quickly at scale in the most difficult environments.

“WFP’s efforts focus on emergency assistancerelief and rehabilitationdevelopment aid and special operationsTwo-thirds of our work is in conflict-affected countries where people are three times more likely to be undernourished than those living in countries without conflict. 

“In emergencies, WFP is often first on the scene, providing food assistance to the victims of war, civil conflict, drought, floods, earthquakes, hurricanes, crop failures and natural disasters. When the emergency subsides, WFP helps communities rebuild shattered lives and livelihoods. We also work to strengthen the resilience of people and communities affected by protracted crises by applying a development lens in our humanitarian response.

“WFP development projects focus on nutrition, especially for mothers and children, addressing malnutrition from the earliest stages through programmes targeting the first 1,000 days from conception to a child’s second birthday, and later through school meals.

“WFP is the largest humanitarian organisation implementing school feeding programmes worldwide and has been doing so for over 50 years. In 2019, WFP provided school meals to more than 17.3 million children in 50 countries, often in the hardest-to-reach areas.

“In 2019, WFP provided 4,2 million metric tons of food and US$2.1 billion of cash and vouchers. By buying food as close as possible to where it is needed, we can save time and money on transport costs, and help sustain local economies. Increasingly, WFP meets people’s food needs through cash-based transfers that allow the people we serve to choose and shop for their own food locally.

“WFP also provides services to the entire humanitarian community, including passenger air transportation through the UN Humanitarian Air Service, which flies to more than 280 locations worldwide.

Funded entirely by voluntary donations, WFP raised a record-breaking US$8 billion in 2019. WFP has 20,000 staff worldwide of whom over 90 percent are based in the countries where the agency provides assistance.

“WFP is governed by a 36-member Executive Board. It works closely with its two Rome-based sister organizations, the Food and Agriculture Organization of the United Nations and the International Fund for Agricultural Development. WFP partners with more than 1,000 national and international NGOs to provide food assistance and tackle the underlying causes of hunger.”

The countries in which WFP provides assistance are shown in the list from the WFP webpage, https://www.wfp.org/countries, and include many important trading countries like China, India, Indonesia, Pakistan and many more in Africa, the Middle East, Asia, Central and South America. Beneficiary countries include the following:

Afghanistan, Algeria, Angola, Armenia, Bangladesh, Benin, Bhutan, Bolivia (Plurinational State of), Burkina Faso, Burundi, Cambodia, Cameroon, Central African Republic, Chad, China, Colombia, Congo, Côte d’Ivoire, Cuba, Democratic People’s Republic of Korea, Democratic Republic of the Congo, Djibouti, Dominican Republic, Ecuador, Egypt, El Salvador, Eswatini, Ethiopia, Gambia, Ghana, Guatemala, Guinea, Guinea-Bissau, Haiti, Honduras, India, Indonesia, Iran (Islamic Republic of), Iraq, Jordan, Kenya, Kyrgyzstan, Lao People’s Democratic Republic, Lebanon, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Namibia, Nepal, Nicaragua, Niger, Nigeria, Pakistan, Palestine, Peru, Philippines, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, South Sudan, Sri Lanka, Sudan, Syrian Arab Republic, Tajikistan, Tanzania, The Caribbean, The Pacific, Timor-Leste, Togo, Tunisia, Turkey, Uganda, Yemen, Zambia, Zimbabwe.

The December 2020 General Council meeting and proposed General Council Decision

During the December 2020 General Council meeting, there was an effort to adopt a General Council Decision entitled “PROPOSAL ON AGRICULTURE EXPORT PROHIBITIONS OR RESTRICTIONS RELATING TO THE WORLD FOOD PROGRAMME DRAFT GENERAL COUNCIL DECISION,” WT/GC/W/810, TN/AG/46 (4 December 2020). The draft document was modified three times to add cosponsors. WT/GC/W/810/Rev.1, Rev.2, Rev.3. Concerns were raised by India, Pakistan and some African countries (from the above list, at least India and Pakistan and most, if not all others, were beneficiaries of assistance from the the WFP). Hence there was no agreement on adopting the draft General Council Decision. See Washington Trade Daily, December 16, 2020, pages 3-4, WTO Members Talk Food Procurement, https://files.constantcontact.com/ef5f8ffe501/1b51b4fa-b0a3-4a60-9165-8c5f6d7977a4.pdf; Washington Trade Daily, December 18, 2020, pages 5-6, India Questions WFP Exemption, https://files.constantcontact.com/ef5f8ffe501/ec47c599-5c0c-47fd-80cf-a46244c5af8b.pdf.

While WTO Members always have multiple concerns and agenda items being pursued, the failure of the membership as a whole to agree to something so limited in nature and so critical for addressing global hunger was disappointing to many and reflects the seeming inability of the WTO Membership to move forward as one on the vast majority of issues before the WTO.

Conclusion

In a post earlier this month, I argued for the need for the WTO to move to liberalization by the willing without benefits for non-participants but with agreements open to all to join. See January 18, 2021, Revisiting the need for MFN treatment for sectoral agreements among the willing, https://currentthoughtsontrade.com/2021/01/18/revisiting-the-need-for-mfn-treatment-for-sectoral-agreements-among-the-willing/. While the MFN issue doesn’t come into play for the 79 Member pledge not to restrict exports to the WFP, the failure of the full WTO membership to agree to the draft General Council Decision is a further manifestation of the need for new approaches to promote expanded trade liberalization.

In recent speeches, Deputy Director-General Alan Wolff has expressed both the lack of unity at the WTO on an issue of importance like the draft General Council Decision and also welcomed the joint pledge by the 79 WTO Members not to impose restrictions on exports to the WFP. See WTO press release, DDG Wolff outlines possible responses to calls for WTO reform, 13 January 2020, https://www.wto.org/english/news_e/news21_e/ddgaw_13jan21_e.htm (“Less than a month ago, a General Council meeting took place which lasted over 15 hours (over two and a half days), a recent record for length. It had only one substantive trade policy item on its agenda for decision, the consideration of which produced no agreement. The issue was whether Members would agree to forego a modicum of the policy space they now have by agreeing not to impair procurements by the Nobel-Prize-winning World Food Program. A witness to the proceeding could be forgiven for perceiving drift of the organization in its not living up to its potential. Viewed through a different lens, this was no more than sovereigns reaffirming that they could not be bound without their consent.”); WTO press release, DDG Wolff stresses need to make progress in WTO negotiations to enhance resilience of farm sector, 22 January 2021, https://www.wto.org/english/news_e/news21_e/ddgaw_22jan21_e.htm (“I welcome the pledge this week of WTO members accounting for most of world agricultural exports to refrain from imposing export restrictions on foodstuffs purchased by the World Food Programme for non-commercial humanitarian purposes.”).

If there is to be a WTO capable of reform, the Members will need to reconfirm core principles and find ways to agree instead of searching for excuses to oppose. The membership seems far from sharing a common vision or accepting core principles. Too often, Members are engaged in a search for blocking progress. While all Members undoubtedly share blame for the current challenges, on the topic of blocking the minor proposal to ensure the workings of the WFP, one can look to the Members who remain non-participants in the joint pledge as the problem on this particular issue.

Specifically, the list of those WTO Members pledging not to impose export restrictions on foodstuffs to the WFP is made up of 79 WTO Members, meaning 85 Members did not join the pledge (at least not yet). Some of the major Members who are not participating in the pledge include the following — Argentina, China, India, Indonesia, Pakistan, South Africa, the Philippines, Malaysia. the Russian Federation, Hong Kong (China), Turkey. In the WTO’s World Trade Statistical Review 2020, China, Indonesia, Argentina and India are among the top 10 exporters of agricultural products and of food in 2019; China, the Russian Federation and Hong Kong (China) are among the top ten importers in 2019. WTO, World Trade Statistical Review 2020, Tables A-13 and A-14, https://www.wto.org/english/res_e/statis_e/wts2020_e/wts2020_e.pdf. China, India, Indonesia, Pakistan, the Philippines and Turkey are all beneficiaries of assistance from the WFP.

While there is much that needs to be done for the restoration of the WTO’s relevance, the pledge by 79 Members suggests that liberalization by the willing may be the only road forward.

Malaysia files request for consultations with the European Union and Certain Member States on certain measures concerning palm oil and oil palm crop-based biofuels at the WTO on January 15

Malaysia filed the second request for consultations of 2021 on January 15, 2021. The request for consultations addresses the European Union, France and Lithuania and certain enumerated measures pertaining to palm oil and oil palm crop-based biofuels. See WT/DS600/1 (15 January 2021). France and Lithuania have already adopted laws and regulations implementing and EU provision which Malaysia views as violating a wide range of WTO obligations. As other EU members are working on possible implementing laws and regulations, Malaysia is keeping open the possibility of raising issues with additional EU members.

Because the dispute involves the interface of EU efforts to reduce greenhouse gases and trade restricting effects on certain biofuels that the EU views as not sufficiently promoting the reduction greenhouse gases, it will likely draw a lot of attention. The background part of the request for consultations lays out the Malaysian concerns.

A. Background

“1. Malaysia is the world’s second largest producer of palm oil. In 2019, Malaysia produced around 19.86 million metric tonnes of crude palm oil, accounting for 28% of world palm oil production and 33% of world palm oil exports.1 In 2019, Malaysia exported around 1.9 million metric tonnes of palm oil to the EU. The palm oil industry directly employs more than one million Malaysians and 40% of all palm oil plantations in Malaysia are owned or farmed by smallholder farmers, who have benefited from oil palm cultivation.2 Palm oil production and export has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today.

“2. As one of the biggest producers and exporters of palm oil and palm oil products, Malaysia recognises that it has an important role to play in fulfilling the growing global need for oils and fats in a sustainable manner. Malaysia is a responsible producer of palm oil and has long taken the lead in the continuous process of making palm oil production more sustainable and environmentally friendly. As of December 2020, nearly 90% of Malaysia’s total oil palm cultivation has obtained Malaysian Sustainable Palm Oil (MSPO) certification. Additionally, as at that date, 428 of Malaysia’s 452 oil palm mills, corresponding to around 95% of total milling capacity, received the MSPO certification. Most recently, on 1 January 2020, Malaysia made the MSPO certification mandatory.

“3. It is important to recall Malaysia’s commitment at the 1992 Rio Earth Summit, where it pledged to maintain at least 50% of the country’s landmass under forest cover. On the basis of data from 2018, about 55.3% of Malaysia’s 33 million hectares (ha) land areas are under forest cover, exceeding the country’s pledge made at the Rio Earth Summit.

“4. In the context of addressing the environmental risks posed by the extensive use of fossil fuels, the EU and its Member States have, since 2009, adopted a policy of promoting the use of biofuels by setting national targets for the use of renewable energy in various sectors, including the transport sector. This policy led to a rapid increase in the EU consumption of biofuels, produced mainly from food crops.

“5. While the measures taken by the EU and EU Member States under this policy pursue the reduction of greenhouse gas (‘GHG’) emissions and the achievement of commitments under international climate agreements, some of these measures contravene their WTO obligations. In 2018 and 2019, the EU adopted legislative measures that, in simple terms, define palm oil as an unsustainable feedstock for the production of biofuel. The EU further argues that only palm oil production entails a high risk of indirect land-use change (‘ILUC’). On that basis, oil palm crop-based biofuels cannot be counted towards EU renewable energy targets.3

“6. Generally speaking, the measures adopted by the EU, as well as the related measures adopted by EU Member States, confer unfair benefits to EU domestic producers of certain biofuel feedstocks, such as rapeseed oil and soy, and the biofuels produced therefrom, at the expense of palm oil and oil palm crop-based biofuels from Malaysia. These measures may also discriminate against Malaysian palm oil and oil palm crop-based biofuels in favour of ‘like products’ from third countries.

“7. Malaysia submits that the measures adopted by the EU and its Member States currently already limit and will increasingly limit the volume of Malaysian palm oil and oil palm crop-based biofuels that can be counted towards reaching EU renewable energy targets and, consequently, that will be sold in the EU market.

“fn1 Malaysian Palm Oil Council (MPOC), Malaysian Palm Oil Industry. Available at:
http://mpoc.org.my/malaysian-palm-oil-industry/. Malaysian Palm Oil Board, Production 2019. Available at
http://bepi.mpob.gov.my/index.php/en/production/production-2019/production-of-oil-palm-products-
2019.html.

“fn 2 Malaysian Palm Oil Council (MPOC). Available at http://theoilpalm.org/about/http://theoilpalm.org/about/.

“fn 3 See European Commission, Factsheet, Indirect Land Use Change, 17 October 2012, available at https://ec.europa.eu/commission/presscorner/detail/de/MEMO_12_787 (accessed 13 January 2021). See also Recitals 80 and 81 of the RED II.”

The full request for consultations is embedded below.

600-1

The Malaysian request for consultations raises similar allegations of WTO violations by the EU and member states as a case filed by Indonesia in late 2019 where a panel was finally composed on November 12, 2020. See European Union — Certain measures concerning palm oil and oil palm crop-based biofuels, WT/DS593/10 (composition of panel). Malaysia and many other countries are third parties in that dispute.

The WTO alleged violations in Malaysia’s request for consultations are the following for the EU, France, Lithuania and other EU members.

C. Legal basis for the complaint in respect of the EU measures

“31. With regard to the EU measures, as embodied and developed in the respective legal instruments as specified in para. 22 herein and as applied by the relevant authorities, Malaysia considers that these measures are inconsistent with the EU’s obligations under the GATT 1994 and the TBT Agreement. In particular, the measures are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, discriminate among ‘like’ feedstocks and derived biofuels originating in third countries;

“ii. Article III:4 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, accord less favourable treatment to imported palm oil and oil palm crop-based biofuels than they do to ‘like’ domestic feedstocks and derived biofuels, thereby modifying the conditions of competition to the detriment of the imported palm oil and oil palm crop-based biofuels, in particular from Malaysia;

“iii. Article X:3(a) of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, are administered in a manner that is not uniform, impartial and/or reasonable; and

“iv. Article XI:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, and which provide criteria for certifying low ILUC-risk biofuels, restrict the importation of palm oil and oil palm crop-based biofuels.

TBT Agreement

“v. Article 2.1 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, have a detrimental impact on the competitive conditions in the EU market of Malaysia’s imports of oil palm crop-based biofuels compared with ‘like products’ imported into the EU from other countries and compared with ‘like’ domestic products;
vi. Article 2.2 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are more trade-restrictive than necessary to achieve the objectives pursued by the measures;

“vii. Article 2.4 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are not based on the relevant international standards;

“viii. Article 2.5 of the TBT Agreement, because the EU, in preparing, adopting or applying the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, has failed, upon the request of Malaysia, to explain the justification for those measures in terms of Articles 2.2 to 2.4 of the TBT Agreement;

“ix. Article 2.8 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are based on an abstract and unsubstantiated high-ILUC risk concept instead of the performance of such biofuels;

“x. Article 2.9 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, were adopted without the required timely publication and notification of these measures and organising an adequate process for commenting;

“xi. Article 5.1.1 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, treats suppliers of oil palm crop-based biofuels from Malaysia less favourably than domestic suppliers of ‘like’ biofuels or suppliers from other WTO Members in a comparable situation;

“xii. Article 5.1.2 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, creates unnecessary obstacles to international trade;
xiii. Article 5.2 of the TBT Agreement, because the EU failed to make available the conformity assessment procedures to certify low ILUC-risk;

“xiv. Article 5.6 of the TBT Agreement, because the EU, with regards to the measures at issue, which provide criteria for certifying low ILUC-risk, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, neither notified nor enter into meaningful consultations, or allowed for comments on such conformity assessment procedures;

“xv. Article 5.8 of the TBT Agreement, because the EU neither promptly published nor otherwise made available the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement; and

“xvi. Articles 12.1 and 12.3 of the TBT Agreement, because the EU, in the preparation and application of the measures at issue referred to above, failed to take into account the circumstances specific to developing countries, in particular Malaysia, where palm oil and oil palm crop-based biofuels are produced.

D. Legal basis for the complaint in respect of the EU Member States’ measures

a. France

“32. The set of advantages granted by France for oil crop-based biofuels, as embodied and developed in the respective legal instruments, as specified in paragraphs 24 to 27 herein, and as applied by the relevant authorities, are inconsistent with the obligations of France under the GATT 1994 and the SCM Agreement. In particular, the set of advantages described above, as contained in the mentioned legal instruments, are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, discriminates against ‘like’ biofuels by granting an advantage, in the form of a tax reduction, to biofuels of some countries, that is not granted to all WTO Members, and in particular not to Malaysia, and

“ii. Article III:2 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, indirectly applies a tax on imported oil palm crop-based biofuels: (1) in excess to ‘like’ domestic biofuels; or (2) which is not similar to the tax on ‘directly competitive and substitutable’ domestic biofuels, and affords protection to the production of these domestic biofuels.

SCM Agreement

“iii. Articles 3 and 5 of the SCM Agreement, because the measures at issue, under which the French Government reduces the tax on petrol and diesel containing crop-based biofuel other than oil palm crop-based biofuels and excludes petrol and diesel containing oil palm crop-based biofuels from this tax reduction, amount to a subsidy within the meaning of Article 1 of the SCM Agreement which is: (1) a prohibited import substitution subsidy within the meaning of Article 3.1(b); and/or (2) an actionable subsidy causing an adverse effect on the interests of Malaysia within the meaning of Article 5(c) of the SCM Agreement.

b. Lithuania

“33. Concerning Lithuania’s measures (including any annexes thereto, amendments, supplements, replacements, renewals, extensions, implementing measures or any other related measures, and any exemptions applied), as implemented and/or applied by the latter in line with its obligations as a EU Member State regarding the transposition of the RED II, Malaysia claims that those measures are inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.

c. Other EU Member States

“34. Malaysia contends that to the extent that any other EU Member State transposes the RED II and further implement and/or apply any measure(s) according to its obligations as regards the limitation and/or phasing out of oil palm crop-based biofuels from being counted towards reaching renewable energy targets, regardless of whether the said measures are explicit or implicit in their treatment of oil palm crop-based biofuels, such measure(s) shall be inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.”

With the Indonesian case now in the briefing stage, a panel report could be available in late 2021 or in the front half of 2022 depending on delays flowing from the continued limitations imposed by the pandemic. The Malaysian case will likely trail the Indonesian case by six months or more.

Neither Indonesia nor Malaysia are signatories to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 Of The DSU. The EU has in at least one case where the party challenging EU actions was not a signatory opted to file an appeal into the void when it was dissatisfied with the panel report. See 28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7). Thus, whether reform of the Appellate Body moves forward in the next year to address U.S. concerns may be important to a final resolution of the two cases. The WTO is a long distance from resolving the current impasse on the Appellate Body, but perhaps there will be reengagement during the second half of 2021.

Comments

It is surprising that with the pressing importance of working to address climate change and the EU efforts at leadership that the EU appears not to have found a way to work with trading partners like Malaysia or achieve a common science-based understanding as to which biofuels help reduce greenhouse gases. For trade and environment issues to gain a greater role within the WTO (as Members need them to do), all Members working to achieve sustainable development objectives have to feel that the rules of trade will support their effort, provide guidance as to what more is needed and not close those Members out of the market of a trading partner.

2021 – how quickly will COVID-19 vaccines bring the pandemic under control?

News accounts report many countries starting to receive at least some doses of vaccines. In the United States, two vaccines have received emergency use authorization (“EUA”)(the Pfizer/BioNTech and the Moderna vaccines). The Pfizer/BioNTech vaccine has received approval (emergency use or other) in a number of countries (EU, Canada, United Kingdom, Bahrain) and was the first vaccine to receive an EUA from the World Health Organization. See WHO press release, WHO issues its first emergency use validation for a COVID-19 vaccine and emphasizes need for equitable global access, December 31, 2020, https://www.who.int/news/item/31-12-2020-who-issues-its-first-emergency-use-validation-for-a-covid-19-vaccine-and-emphasizes-need-for-equitable-global-access. As the WHO press releases indicates, “The WHO’s Emergency Use Listing (EUL) opens the door for countries to expedite their own regulatory approval processes to import and administer the vaccine. It also enables UNICEF and the Pan-American Health Organization to procure the vaccine for distribution to countries in need.”

AstraZeneca will likely seek emergency use authorization in the United States in January and Johnson & Johnson in February. AstraZeneca has received an emergency use authorization in the United Kingdom. It has also been given EUA by India (along with a vaccine from Bharat Biotech). See New York Times, India Approves Oxford-AstraZeneca Covid-19 Vaccine and 1 other, January 3, 2021, https://www.nytimes.com/2021/01/03/world/asia/india-covid-19-vaccine.html.

A recent Financial Times article includes a graph showing the number of citizens in various countries who have received a first vaccination shot. See Financial Times, European leaders under pressure to speed up mass vaccination, January 1, 2021, https://www.ft.com/content/c45e5d1c-a9ea-4838-824c-413236190e7e. The countries shown as having started vaccinations include China, the U.S., the U.K., Kuwait, Mexico, Canada, Chile, Russia, Argentina, Iceland, Bahrain, Oman, Israel, and fourteen of the 27 members of the EU).

Similarly an article from CGTN on January 1, 2021 shows a number of countries who are buying COVID-19 vaccines from China including Hungary and a number of others while vaccines from China are in stage 3 trials in a number of countries. CGTN, 1 January 2021, Hungary to focus on EU, Chinese coronavirus vaccine purchases, https://news.cgtn.com/news/2021-01-01/Hungary-to-focus-on-EU-Chinese-coronavirus-vaccine-purchases-WHm11NYjni/index.html. “By the end of 2020, UAE became the first country to roll out a Chinese vaccine to the public. Pakistan also announced on Thursday that they will purchase 1.2 million COVID-19 vaccine doses from China’s Sinopharm after China officially approved the vaccine for general public use. Sinovac’s CoronaVac shot, another candidate vaccine in China, has been signed up for purchase deals with Brazil, Indonesia, Turkey, Chile, and Singapore. The company is also in supply talks with Malaysia and the Philippines.”

So the good news at the beginning of 2021 is that effective vaccines are starting to be distributed. Many others are in late stages of trials, giving hope to a significant number of vaccines approved for use in the coming months. The WHO’s list of vaccines in development and their status can be found on the WHO website at this cite. https://www.who.int/publications/m/item/draft-landscape-of-covid-19-candidate-vaccines. How quickly approved vaccines can be produced, distributed and vaccinations given globally will determine when the pandemic will be brought under control. There are many challenges that the world faces in getting to the hoped for situation of a pandemic that is in the past.

For example, even in developed countries, governments are finding that there are significant hurdles in getting production volumes up to promised levels, and much greater challenges in going from production to distribution to vaccinations. In the United States, the Trump Administration had aimed at having 20 million vaccinations accomplished by the end of 2020. Only 13.071 million doses were distributed by the end of the year according to the US CDC and only 4.2 million vaccinations (first shot of two shots) occurred. See Center for Disease Prevention and Control, COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (viewed Jan. 3, 2021). President-elect Biden is talking about an aggressive program to get 100 million vaccinations (as the current vaccines require 2 shots, this means 50 million people) vaccinated in the first 100 days of his Administration (by the end of April). To achieve this objective will require cooperation from Congress in providing sufficient funding to build up the capabilities at the state and local levels. Health care infrastructure has been reduced over the last dozen years with a reduction of some 50,000 health care workers in the U.S. The huge COVID-19 case load in the United States and record hospitalizations also have health care operations across the United States overextended. So despite having sufficient vaccines on order from four companies where EUAs have been or will likely be granted in the near future to permit vaccination of all Americans by fall, there are enormous practical challenges to making the vaccinations happen in fact. And that is before the challenges of convincing portions of the population of the safety of the vaccines and the need for the vast majority of people to be vaccinated to achieve herd immunity.

Similar challenges exist in many other parts of the world as well. For example, in both the EU and India the roll out of vaccines is proceeding slower than desired. See, e.g., The Guardian, BioNTech criticises EU failure to order enough Covid vaccine, January 1, 2021, https://www.theguardian.com/world/2021/jan/01/france-to-step-up-covid-jabs-after-claims-of-bowing-to-anti-vaxxers; Politico, France under pressure to speed up coronavirus vaccine rollout, January 3, 2021, https://www.politico.eu/article/france-under-pressure-to-speed-up-coronavirus-vaccine-rollout/; New York Times, India Approves Oxford-AstraZeneca Covid-19 Vaccine and 1 other, January 3, 2021, https://www.nytimes.com/2021/01/03/world/asia/india-covid-19-vaccine.html (“The Serum Institute, an Indian drug maker that struck a deal to produce the Oxford vaccine even before its effectiveness had been proven, has managed to make only about one-tenth of the 400 million doses it had committed to manufacturing before the end of the year.”).

The WHO/GAVI/CEPI effort to get vaccines to the world on a equitable basis has much of its vaccine commitments in products still in the testing stage although roughly one billion doses can be available for a vaccine currently approved on an emergency use basis in the U.K. and India (the AstraZeneca vaccine) through COVAX agreements with AstraZeneca directly and with an Indian producer who can be asked to produce one of two potential vaccines, including the AstraZeneca one. See WHO, COVAX Announces additional deals to access promising COVID-19 vaccine candidates; plans global rollout starting Q1 2021, 18 December 2020, https://www.who.int/news/item/18-12-2020-covax-announces-additional-deals-to-access-promising-covid-19-vaccine-candidates-plans-global-rollout-starting-q1-2021.

“Geneva/Oslo, 18 December 2020

“COVAX, the global initiative to ensure rapid and equitable access to COVID-19 vaccines for all countries, regardless of income level, today announced that it had arrangements in place to access nearly two billion doses of COVID-19 vaccine candidates, on behalf of 190 participating economies. For the vast majority of these deals, COVAX has guaranteed access to a portion of the first wave of production, followed by volume scales as further supply becomes available. The arrangements announced today will enable all participating economies to have access to doses in the first half of 2021, with first deliveries anticipated to begin in the first quarter of 2021 – contingent upon regulatory approvals and countries’ readiness for delivery.

“Given these are arrangements for 2 billion doses of vaccine candidates which are still under development, COVAX will continue developing its portfolio: this will be critical to achieve its goal of securing access to 2 billion doses of safe and effective, approved vaccines that are suitable for all participants’ contexts, and available by the end of 2021. However, today’s announcements offer the clearest pathway yet to end the acute phase of the pandemic by protecting the most vulnerable populations around the world. This includes delivering at least 1.3 billion donor-funded doses of approved vaccines in 2021 to the 92 low- and middle-income economies eligible for the COVAX AMC.

“The new deals announced today include the signing of an advance purchase agreement with AstraZeneca for 170 million doses of the AstraZeneca/Oxford candidate, and a memorandum of understanding (MoU) with Johnson & Johnson for 500 million doses of the Janssen candidate, which is currently being investigated as a single dose vaccine.. These deals are in addition to existing agreements COVAX has with the Serum Institute of India (SII) for 200 million doses – with options for up to 900 million doses more – of either the AstraZeneca/Oxford or Novavax candidates, as well as a statement of intent for 200million doses of the Sanofi/GSK vaccine candidate.

“In addition to this, COVAX also has – through R&D partnership agreements – first right of refusal in 2021 to access potentially more than one billion doses (based on current estimates from the manufacturing processes under development) that will be produced, subject to technical success and regulatory approval, by candidates in the COVAX R&D Portfolio.”

* * *

“The COVAX Facility currently has 190 participating economies. This includes 98 higher-income economies and 92 low- and middle-income economies eligible to have their participation in the Facility supported via the financing mechanism known as the Gavi COVAX AMC. Of the 92 economies eligible to be supported by the COVAX AMC, 86 have now submitted detailed vaccine requests, offering the clearest picture yet on actual global demand for COVID-19 vaccines.

“In addition to gathering detailed information on participating economies’ vaccine requests, COVAX, through Gavi, UNICEF,WHO, the World Bank, and other partners has been working closely with all countries in the Facility, particularly AMC-eligible participants, to help plan and prepare for the widespread roll out of vaccines. Conditions that determine country readiness include regulatory preparedness as well as the availability of infrastructure, appropriate legal frameworks, training, and capacity, among other factors.

“’Securing access to doses of a new vaccine for both higher-income and lower-income countries, at roughly the same time and during a pandemic, is a feat the world has never achieved before – let alone at such unprecedented speed and scale,’ said Dr. Seth Berkley, CEO of Gavi, the Vaccine Alliance, which leads on procurement and delivery for COVAX. ‘COVAX has now built a platform that offers the world the prospect, for the first time, of being able to defeat the pandemic on a global basis, but the work is not done: it’s critical that both governments and industry continue to support our efforts to achieve this goal’.

Early pledges towards 2021 fundraising targets

“To achieve this ambitious goal, COVAX currently estimates it needs to raise an additional US$ 6.8 billion in 2021 – US$ 800 million for research and development, at least US$ 4.6 billion for the COVAX AMC and US$ 1.4 billion for delivery support.

“Support for the COVAX AMC will be critical to ensuring ability to pay is not a barrier to access. Thanks to the generous support of sovereign, private sector, and philanthropic donors, the AMC has met its urgent 2020 fundraising target of US$ 2 billion, but at least US$ 4.6 billion more is needed in 2021 to procure doses of successful candidates as they come through the portfolio.”

In the United States and in the EU, governments are looking to expand volumes of proven vaccines while awaiting approval of other vaccine candidates. See Pfizer press release, PFIZER AND BIONTECH TO SUPPLY THE U.S. WITH100 MILLION ADDITIONAL DOSES OF COVID-19VACCINE, December 23, 2020, https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-supply-us-100-million-additional-doses; Pfizer press release, PFIZER AND BIONTECH TO SUPPLY THEEUROPEAN UNION WITH 100 MILLIONADDITIONAL DOSES OF COMIRNATY®, December 29, 2020, https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-supply-european-union-100-million; HHS, Trump Administration purchases additional 100 million doses of COVID-19 investigational vaccine from Moderna, December 11, 2020, https://www.hhs.gov/about/news/2020/12/11/trump-administration-purchases-additional-100-million-doses-covid-19-investigational-vaccine-moderna.html.

Conclusion

The world is anxiously awaiting the resolution of the pandemic through the approval and distribution of effective vaccines on a global basis in 2021. The good news is that a number of vaccines have been approved in one or more countries and billions of doses of approved vaccines will likely be produced in 2021. The efforts of the WHO, GAVI and CEPI and the generosity of many nations, private and philanthropic organizations will mean people in nearly all countries will receive at least some significant volume of vaccines in 2021. As most vaccines require two shots, the number of people vaccinated in 2021 in an optimistic scenario is probably less than two billion. The world population at the beginning of 2021 is 7.8 billion people. Thus, 2021, even under an optimistic scenario, will not likely result in the eradication of the pandemic around the world.

Even in countries like the United States, the United Kingdom and the 27 members of the European Union where advance purchases should result in sufficient doses being available to vaccinate all eligible members of society, there are massive challenges in terms of distribution and vaccinating the numbers of people involved and educating the populations on the safety and benefits of the vaccines. Thus, even in wealthier countries it will be optimistic to achieve the desired levels of vaccination by the end of 2021.

The Director-General of the WHO in his year-end message laid out the likely situation for the world in 2021, the availability of vaccines but the continued need to be vigilant and adhere to preventive measures to control the pandemic and the need to work collectively to ensure equitable and affordable access to vaccines for all. See WHO,COVID-19: One year later – WHO, Director-General’s new year message, December 30, 2020, https://www.who.int/news/item/30-12-2020-covid-19-anniversary-and-looking-forward-to-2021 (Dr Tedros Adhanom Ghebreyesus, WHO Director-General)

“As people around the world celebrated New Year’s Eve 12 months ago, a new global threat emerged.

“Since that moment, the COVID-19 pandemic has taken so many lives and caused massive disruption to families, societies and economies all over the world.

“But it also triggered the fastest and most wide-reaching response to a global health emergency in human history.

“The hallmarks of this response have been an unparalleled mobilization of science, a search for solutions and a commitment to global solidarity.

“Acts of generosity, large and small, equipped hospitals with the tools that health workers needed to stay safe and care for their patients.

“Outpourings of kindness have helped society’s most vulnerable through troubled times.

“Vaccines, therapeutics and diagnostics have been developed and rolled out, at record speed, thanks to collaborations including the Access to COVID-19 Tools Accelerator.

“Equity is the essence of the ACT Accelerator, and its vaccine arm, COVAX, which has secured access to 2 billion doses of promising vaccine candidates.

“Vaccines offer great hope to turn the tide of the pandemic.

“But to protect the world, we must ensure that all people at risk everywhere – not just in countries who can afford vaccines –are immunized.

“To do this, COVAX needs just over 4 billion US dollars urgently to buy vaccines for low- and lower-middle income countries.

“This is the challenge we must rise to in the new year.

“My brothers and sisters, the events of 2020 have provided telling lessons, and reminders, for us all to take into 2021.

“First and foremost, 2020 has shown that governments must increase investment in public health, from funding access to COVID vaccines for all people, to making our systems better prepared to prevent and respond to the next, inevitable, pandemic.

“At the heart of this is investing in universal health coverage to make health for all a reality.

“Second, as it will take time to vaccinate everyone against COVID, we must keep adhering to tried and tested measures that keep each and all of us safe.

“This means maintaining physical distance, wearing face masks, practicing hand and respiratory hygiene, avoiding crowded indoor places and meeting people outside.

“These simple, yet effective measures will save lives and reduce the suffering that so many people encountered in 2020.

“Third, and above all, we must commit to working together in solidarity, as a global community, to promote and protect health today, and in the future.

“We have seen how divisions in politics and communities feed the virus and foment the crisis.

“But collaboration and partnership save lives and safeguard societies.

“In 2020, a health crisis of historic proportions showed us just how closely connected we all are.

“We saw how acts of kindness and care helped neighbors through times of great struggle.

“But we also witnessed how acts of malice, and misinformation, caused avoidable harm.

“Going into 2021, we have a simple, yet profound, choice to make:

“Do we ignore the lessons of 2020 and allow insular, partisan approaches, conspiracy theories and attacks on science to prevail, resulting in unnecessary suffering to people’s health and society at large?

“Or do we walk the last miles of this crisis together, helping each other along the way, from sharing vaccines fairly, to offering accurate advice, compassion and care to all who need, as one global family.

“The choice is easy.

“There is light at the end of the tunnel, and we will get there by taking the path together.

“WHO stands with you – We Are Family and we are In This Together.

“I wish you and your loved ones a peaceful, safe and healthy new year.”

We all want to have the COVID-19 pandemic in the rearview mirror as 2021 progresses. There is hope for significant progress this year. How much progress will depend on the will of governments and peoples to focus on the eradication of the pandemic and to support the dramatic ramp up of production, distribution and vaccination of the world’s people.

World COVID-19 pandemic peaks on November 26 and starts to slowly recede

The most recent surge in COVID-19 cases (up from 3.57 million cases over a fourteen day period in early August to over 5 million for fourteen days on October 22 to over 8 million new cases for fourteen days on November 17), seems to have peaked on November 26 with 8,296,264 new cases over fourteen days and has been slowly receding for the last three days, down to 8,142,629 new cases during the period November 16-29. Total cases since the end of December 2019 now stand at 62,271,031 as of November 29 according to the European Centre for Disease Prevention and Control (ECDC) publication “COVID-19 situation update worldwide, as of 29 November 2020”.

The World Health Organization puts out a publication that tracks cases and deaths on a weekly basis. COVID-19 Weekly Epidemiological Update (data as of 22 November). While it breaks countries and territories into different configuarations that the ECDC, the publication shows new cases in the period November 16-22 declining 6% in Europe and in South East Asia while increasing 11% in the Americas, 5% in the Eastern Mediterranean, 15% in Africa and 9% in the Western Pacific. Because of the large spike in cases in the September – November period in many parts of the world, deaths in the November 16-22 period increased in all regions — up 10% in Europe, 15% in the Americas, 4% in South-East Asia, 10% in the Eastern Mediterranean, 30% in Africa and 1% in the Western Pacific. The latest report is embedded below.

20201124_Weekly_Epi_Update_15

The graphs in the WHO publication show by region the trajectory of new cases and deaths over time. The chart showing aggregate data show a flattening of total new cases in the last weeks of November while the number of deaths globally are sharply increasing.

The WHO Africa region peaked in the summer and has declined until the last few weeks when there has been some increase in both cases and deaths.

The Americas saw a peak in both new cases and deaths in the July period with some declines in new cases until the second half of September when the current surge started and accelerated in November. Deaths declined until early October before starting to grow again.

The Eastern Mediterranean peaked in May-June for both cases and deaths, declined through August/September and have surged to new heights with continued upward trajectory as of November 22.

The WTO European Region had an early surge of cases and deaths in the March-April period. Deaths receded sharply through August. While new cases have increased since summer, there was a massive increase in the September – end of October period in new cases and rising deaths through November.

The WHO South-East Asia region saw a huge increase in cases and deaths in the May-August period, peaking in early September and declining since then. Much of the data for the region reflect activity in India.

The Western Pacific Region has had several peaks in terms of deaths and in new cases, though the numbers are the lowest of any WHO region. The latest peak in new cases was in early August with some increase in the October-November period. Deaths last peaked in early September and have declined through November.

The United States

Turning back to the ECDC data, the United States continues to have more confirmed cases (13,246,651) than any other nation and more confirmed deaths from COVID-19 (266,063) than any other nation. The United States is also still experiencing a surge in new cases and rising deaths. October 31 was the first day that ECDC data show the U.S. recording 100,000 new cases in a single day. Since November 5, the U.S. has had more than 100,000 new cases every day up to November 29. It is the only country to record one million new cases in a week and the only country to record two million new cases in fourteen days. For the last fourteen days, the U.S. recorded 2,341,760 new cases. The U.S., which accounts for 4.3% of the global population, accounts for 21.27% of all COVID-19 cases that have been reported since December 2019 and accounted for 28.76% of new cases in the last two weeks. The rate of increase remains high for the United States — up 31.67% from the 1,778,530 new cases in the two weeks ending November 15. There are concerns that the number of new cases will continue to increase into the new year based on the high rate of infections in many parts of the country, major potential spreading events around holidays in November (Thanksgiving) and December, and limited compliance with basic requirements for limiting the spread of the virus.

The number of deaths from COVID-19 that the U.S. accounts for has declined from roughly 20% to 18.30% as of November 29. In the last two week, while the U.S. has the largest number of deaths in the two weeks, the percent of total deaths accounted for by the U.S. in the November 16-29 period was 14.65%. However, many cities, communities and even states are at or nearing the limits of the health care capacity with hospitalizations now about 90,000, limits on health care professionals with the surging cases and some challenges on personal protective equipment. Thus, models used by the government projects a continued rise in the number of deaths in the coming months.

While the first vaccine could receive emergency approval for distribution in the U.S. as early as December 10, and the U.S. could have two or three vaccines in distribution in early 2021, the United States will unfortunately likely be a major part of the continued high rate of infections and deaths well into 2021.

Europe

While Europe had faced early challenges in a number of western European countries in February-April and very high death rates in a number of countries, the second wave of cases following the relaxation of restrictions in time for summer vacations accounted for the vast majority of the incrase in new cases during the October and early November time period. In earlier posts, I showed that Europe and the U.S. accounted for nearly all of the increase from 5 million new cases in the two weeks ending October 22 to the more than 8 million new cases in the two weeks ending November 17. See November 17, 2020, New COVID-19 cases over a fourteen day period continue to soar past eight million, up from five million on October 22, https://currentthoughtsontrade.com/2020/11/17/new-covid-19-cases-over-a-fourteen-day-period-continue-to-soar-past-eight-million-up-from-five-million-on-october-22/

While some of the major countries, including France, Italy, Spain, the United Kingdom and others have seen significant reductions in the number of new cases in recent weeks from the extraordinary figures recorded in late October, early November, numbers remain very high for a number of countries including Poland, Portugal, Serbia, Croatia, Hungary, Lithuania and Luxembourg — all of whom had new cases/100,000 population in the last fourteen days that were higher than the United States.

Because deaths lag new cases by a number of weeks, it is perhaps less surprising that much of Europe had deaths/100,000 population in the last fourteen days that were higher than the United States, most at rates that were two-three times the U.S. rate. The rate for the world in total was 1.82 deaths per 100,000 population for the November 16-29 period. The U.S. was 3.38 times the global average at 6.22 deaths per 100,000 population in that two week period. The following 25 European countries exceeded the U.S. rate: France (11.76 deaths/100,000 population); Italy (16.04); Spain (8.31); United Kingdom (9.40); Armenia (12.81); Austria (13.47); Belgium (18.84); Moldova (6.50); Poland (16.65); Portugal (10.30); Romania (11.50); Serbia (7.11); Switzerland (14.98); Bulgaria (23.69); Croatia (15.92); Czechia (18.74); Greece (11.08); Hungary (16.12); Lithuania (8.12); Luxembourg (13.19); Malta (6.79); Slovenia (19.85); Bosnia and Herzegovina (20.75); Georgia (13.19); and North Macedonia (20.12).

With new restrictions in recent weeks bringing new cases down in a number of European countries, death rates should start to decline as well in the coming weeks. Challenges in terms of superspreader events in Europe include holiday travel and events and winter holidays and sports. Germany has proposed placing restrictions on the ski season to try to minimize increased cases from a sport popular across much of Europe. See DW, 26 November 2020, Coronavirus: Germany seeks EU-wide ban on ski trips, https://www.dw.com/en/coronavirus-germany-seeks-eu-wide-ban-on-ski-trips/a-55732273.

The EU has contracts with at least six pharmaceutical companies or groups for vaccines if approved. The EU and United Kingdom will start to see vaccine dosages within weeks assuming approval in their jurisdictions.

Other countries

While much of the rest of the world has not seen great increases in the number of cases that is not true for all countries. For example, Iran which had 136,753 new cases in the November 2-15 period showed 186,274 new cases in the November 16-29 period (+36.21%). Jordan, which has a total number of cases of 210,709 since the end of December has recorded 65.54% of that total in the last four weeks (68,698 new cases during November 2-15; 69,404 new cases during November 16-29). Similarly, Morocco which has a total of 349,688 cases since December 2019 has more than 37% recorded in the last four weeks (69,127 during November 2-15; 61,477 during November 16-29).

In the Americas the following countries in addition to the United States have two week totals to November 29 greater than 100,000 new cases: Argentina (108,531); Brazil (441,313); Colombia (108,609). The following countries besides the United States have more than one million cases since late December 2019: Argentina (1,413,362); Brazil (6,290,272); Colombia (1,299,613), Mexico (1,100,683). Eleven other countries have more than 100,000 cases (with Peru having 960,368). Other than the U.S., countries are facing different trend lines, many down, some showing increases (e.g., Brazil, Canada, Dominican Republic, Paraguay).

In Asia, while India continues to see declines in the number of new cases, Indonesia, Israel, Japan, Kazakhstan, Malaysia, Pakistan, Palestine, South Korea, showed increased in the most recent two weeks, some quite large. This is in addition to Iran reviewed previously.

In Africa, South Africa has the most cases and saw an increase from 23,730 new cases during November 2-15 to 35,967 during November 16-29. Morocco was reviewed above. Most other major countries in Africa saw declines in recent weeks.

Conclusion

The world in the first eleven months of 2020 has struggled to get the COVID-19 pandemic under control with several major surge periods. The global number of new cases seems to have plateaued over the last week or so at extraordinarily high levels and the death rates has been climbing after a long period where deaths appeared to be declining. It is likely that the death rate will continue to increase for the rest of 2020.

After a period during the summer and early fall where restrictions in a number of countries were being relaxed, many countries in the norther hemisphere are reimposing various restrictions in an effort to dampen the spread of the coronavirus. While trade has significantly rebounded from the sharp decline in the second quarter of 2020, services trade remains more than 30% off of 2019 levels driven by the complete collapse of international travel and tourism. Many WTO members have put forward communications on actions that could be considered to speed economic recovery. The most recent was the Ottawa Group’s communication about a possible Trade and Health Initiative. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/.

The WTO TRIPS Council has a request for a waiver from most TRIPS obligations for all WTO Members on medical goods and medicines relevant to COVID-19 on which a recommendation is supposed to be forwarded to the General Council by the end of 2020 though it is opposed by a number of major Members with pharmaceutical industries. See November 2, 2020, India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

With vaccines very close to approval in major markets like the United States and the European Union, there will be increased focus on efforts to ensure availability of vaccines and therapeutics and diagnostics globally on equitable and affordable terms. GAVI, CEPI and the WHO have been leading this initiative with the support of many governments and private sector players. Pharmaceutical companies also have global distribution plans being pursued in addition to the above efforts.

So there hopefully is light at the end of the tunnel that the COVID-19 pandemic has imposed on the world. But vaccines without vaccinations won’t solve the pandemic’s grip. So communication and outreach globally will be critical to seeing that available vaccines are properly used. And all peoples need to be able to access the vaccines, some of which will be less available simply because of the infrastructure needs to handle the vaccines.

Trade policy options to minimize trade restrictions coupled with global cooperation and coordination should result in the world being able to rebuild in 2021 and beyond as more and more of the world is vaccinated.

Multilateral efforts to help the poorest countries deal with debt, make available trade finance and other actions continue to be a pressing need. Better plans and preparation for pandemics of the future are clearly needed. Reports suggest that many of the poorest countries have experienced loss of a decade or more of economic advancement during the pandemic. Building back greener and in a sustainable manner is critical for all.

The efforts of developed country governments and others to provide the stimulus domestically to reduce the downward spiral of the individual national economies and the global economy has been critical to limiting the damage at home and abroad. But the assumption of large amounts of debt will also pose significant challenges moving forward because of the greatly heightened national debt/GDP ratios that have developed and may restrict options for individual governments moving forward.

What is certain is that 2020 will be remembered as a year in which a virus inflicted enormous damage to the global health and to the global economy. Collectively, the level of spread has been far greater than should have been possible. Many nations were not prepared. Some, like the United States, exacerbated the problems through a lack of national government planning and messaging. Others like many in Europe, having done a good job of controlling the spread in the early months, made major mistakes as they opened up for summer vacations and didn’t deal with the problems that resulted from the reopening and experienced breathtaking surges which roughly doubled the global daily rate of new cases in five-six weeks and have led to the reimposition of a series of restrictions to try to tame the pandemic a second time. We collectively are better than the results achieved to date. The number of deaths in advanced countries is simply disgraceful.

2021 offers the opportunity for the world to come together and put COVID-19 behind us. Whether we will come to the end of 2021 and feel that this global nightmare is behind us and that there are national and global game plans to rebuild in a greener and more sustainable manner with greater opportunities for all is the question. Hopefully, the answer will be yes.

Third Round of Consultations in Selecting new WTO Director-General – eight days to go, political outreach continues at high level

The last WTO Director-General, Roberto Azevedo, departed at the end of August. The existing four Deputy Directors-General are overseeing WTO operations awaiting the outcome of the selection process for a new Director-General. While eight candidates were put forward by early July and had two months to “become known” to WTO Members, the process of winnowing down the candidates started in September and has gone through two rounds where the candidate pool went from eight to five to two. Which brings the WTO to the third and final round of consultations by the troika of Chairs of the General Council, Dispute Settlement Body and Trade Policy Review Body with the WTO Membership to find the one candidate with the broadest support both geographically but also by type of Member (developed, developing, least developed).

The third round started on October 19 and will continue through October 27. While the process is confidential, with each Member meeting individually with the troika and providing the Member’s preference, Members can, of course, release information on the candidate of their preference if they so choose.

The two candidates who remain in contention are Minister Yoo Myung-hee of the Republic of Korea and Dr. Ngozi Okonjo-Iweala of Nigeria. While all eight of the candidates who were put forward in June and July were well qualified, Minister Yoo and Dr. Okonjo-Iweala have received high marks from WTO Members from the very beginning. While Minister Yoo has the advantage in terms of trade background, Dr. Okonjo-Iweala has an impressive background as a former finance minister, 25 years at the World Bank and her current role as Chair of GAVI.

The procedures for selecting a new Director-General which were agreed to in late 2002 by the General Council put a primary focus on qualifications as one would assume. However, where there are equally well qualified candidates then geographical diversity is specifically identified as a a relevant criteria. There has never been a Director-General from Africa and there has only been one Director-General from Asia (although there was also a Director-General from the Pacific area outside of Asia). With the UN Sustainable Development Goals including one on gender equality (SDG #5), many Members have also been interesting in seeing a Director-General picked from the women candidates. Since both of the two remaining candidates are women, geographical diversity will likely have an outsized role in the third round .

Both remaining candidates are receiving strong support from their home governments in terms of outreach to foreign leaders seeking support for their candidate. The candidates, of course, are also extremely busy with ongoing outreach.

Thus, Minister Yoo traveled back to Europe last week and had a meeting with the EC Trade Commissioner Dombrovskis on October 13, among other meetings. See https://ec.europa.eu/commission/presscorner/detail/en/cldr_20_1935; Yonhap News Agency, Seoul’s top trade official to visit Europe to drum up support her WTO chief race, October 12, 2020, https://en.yna.co.kr/view/AEN20201012003300320?section=business/industry;

Similarly, the Korean President Moon Jae-in, Prime Minister Chung Sye-kyun and the ruling Democratic Party (DP) Chairman Lee Nak-yon are engaged in outreach for Minister Yoo’s candidacy. Korea JoongAng Daily, October 12, 2020, Moon, allies intensify campaign for Yoo Myung-hee to head WTO, https://koreajoongangdaily.joins.com/2020/10/12/national/politics/Yoo-Myunghee-WTO-Moon-Jaein/20201012172600409.html. Contacts have been made with heads of state or senior officials in Malaysia, Germany, Brazil, Colombia, Sri Lanka, Guatemala, Japan and the U.S. among others. See The Korea Times, October 20, 2020, Government goes all out for Yoo’s WTO election Government goes all out for Yoo’s WTO election, https://www.koreatimes.co.kr/www/nation/2020/10/120_297887.html. President Moon has also raised the issue of support with new ambassadors to Korea — including the German, Vietnamese, Austrian, Chilean, Pakistani and Omani ambassadors. Yonhap News Agency, October 16, 2020, Moon requests support for S. Korea’s WTO chief bid in meeting with foreign envoys, https://en.yna.co.kr/view/AEN20201016008600315.

Minister Yoo is reported to be having problems in solidifying support from some major Asian Members — including China and Japan — for reasons at least partially separate from her qualifications and is facing what appears to be block support by African WTO Members for Dr. Okonjo-Iweala. Thus, broad outreach in Asia, the Americas and in Europe will be important for Minister Yoo if she is to be the last candidate standing on October 28-29.

Dr. Okonjo-Iweala is similarly receiving strong support from her government where President Muhammadu Buhari indicated full support by the Nigerian government. See The Tide News Online, Ocotber 14, 2020, Buhari Backs Okonjo-Iweala For WTO Job, http://www.thetidenewsonline.com/2020/10/14/buhari-backs-okonjo-iweala-for-wto-job/. Press accounts report that Dr. Okonjo-Iweala has the full backing of the African Union as well as support in both the Americas and Asia. See RTL Today, October 19, 2020, ‘I feel the wind behind my back’: Nigerian WTO candidate, https://today.rtl.lu/news/business-and-tech/a/1596831.html. Many have felt that Dr. Okonjo-Iweala is the candidate to beat, and she is certainly helped by the support of the African Union WTO Members but will also need broad support in the other regions of the world to be the one remaining candidate.

With just eight days to go to the conclusion of the third round of consultations, the remaining two candidates and their governments are turning over every stone in their effort to generate the support needed to come out of the third round as the sole candidate left.

While the candidate announced on October 29 as the remaining candidate still has to be put forward to the General Council for consensus adoption as the new Director-General, it seems unlikely at the moment that either candidate, should she emerge as the preference of the WTO membership, would be blocked by a Member from becoming the next Director-General. While such blockage is always a possibility, the 2002 agreed procedures have prevented such blockage and hopefully will result in a clean conclusion this year as well.

It is certain to be an interesting end of October.

WTO remaining candidates for the Director-General position — Questions and Answers from the July 15 and 16 meetings with the General Council

The third round of consultations with WTO Members on which of the two remaining candidates is preferred and hence may be the most likely to obtain consensus to become the next Director-General gets started next Monday, October 19 and ends on October 27.

Both Minister Yoo of Korea and Dr. Okonjo-Iweala of Nigeria are in the process of seeking support from WTO Members and have the full support of their governments which are making calls and sending letters to government officials in many of the WTO Members.

Minister Yoo is back in Europe seeking support in this third round (she and Dr. Okonjo-Iweala both received preferences from the EU in the second round). Press reports indicate that China is believed to be supporting Dr. Okonjo-Iweala, and Japan is understood to have concerns with both candidates. Thus, Minister Yoo is working to bolster support in other regions of the world to supplement what is assumed to be only partial support within Asia.

Dr. Okonjo-Iweala has received the support from Kenya after Kenya’s candidate did not advance to the third round. It is not clear whether she will receive support from all African Members of the WTO, although Kenya’s action is obviously an imortant positive for her.

So the next eleven days will be an active time as each of the remaining candidates seeks support in the final round of consultations from Members in different geographical areas as well as in different categories (developed, developing and least developed countries).

One source of information about the candidates that hasn’t been available to the public but is now available is the questions and answers provided to the General Council meetings with each candidate on July 15 (Dr. Okonjo-Iweala) and July16 (Minister Yoo). While there were three days of meetings with the General Council to accommodate the eight candidates, the two remaining candidates appeared during the first two days. The Minutes of the Meeting of the General Council, 15-17 July 2020 are contained in WT/GC/M/185 (31 August 2020). The procedures for each candidate were reviewed by the General Council Chairman David Walker (New Zealand).

“Each candidate would be invited to make a brief presentation lasting no more than fifteen minutes. That would be followed by a question-and-answer period of no more than one hour and fifteen minutes. During the last five minutes of the question-and-answer period, each candidate would have the opportunity to make a concluding statement if she or he so wished.” (page 1, para. 1.5).

Dr. Ngozi Okonjo-Iweala’s statement, questions asked, answers given and closing statement are in Annex 2 on pages 16-26. Minister Yoo Myung-hee’s statement, questions asked, answers given and closing statement are in Annex 5 on pages 51-60. The statements have previously been reviewed in my posts and are available on the WTO webpage.

Questions are picked randomly from Members who indicated an interest in asking questions. Dr. Okonjo-Iweala received questions during the meeting from nineteen Members with another thirty-nine Members having submitted their names to ask questions of her. Minister Yoo received questions during her meeting from seventeen Members with another forty-four Members having submitted their names to ask questions of her.

Dr. Okonjo-Iweala’s questions came from Afghanistan, Ireland, Kazakhstan, Ukraine, Norway, New Zealand, South Africa, European Union, Paraguay, Estonia, Australia, Latvia, Guatemala, Japan, Mongolia, Brazil, and Malaysia. The questions dealt with a range of issues including the following sample:

  • The negative impact of the COVID-19 pandemic on developing countries, LDCs and small vulnerable economies (SVEs).
  • How to ensure the benefits of open trade are distributed equitably?
  • What steps will you undertake to ensure a multilateral outcome at the next Ministerial?
  • Role of the Director-General (DG) in addressing lack of trust among Members.
  • Role of the DG in facilitating economic recovery and resilience.
  • What is necessary to restore functioning of a binding, two-step dispute settlement system in the WTO?
  • Do transparency and notification obligations need to be strengthened?
  • Focus in the first 100 days.
  • Your initial approach to the reform of the WTO.
  • What kind of approach and efforts would you like to make to advance the subject of e-commerce?
  • Role of plurilaterals in the WTO.
  • How to deal with the different views on special and differential treatment?
  • What are your plans relating to empowering women in the future WTO agenda?

Minister Yoo’s questions came from Guatemala, Belgium, United States, India, Germany, El Salvador, Chinese Taipei, Sri Lanka, Spain, Qatar, Lithuania, Gabon, Botswana, China, Barbados, Malaysia, and Zimbabwe. The questions dealt with a range of issues including the following sample:

  • Do you have any proposal on how to overcome the current crisis?
  • How do you plan to include measures to respect sustainable trade in an agenda focused on free trade and trade liberalization?
  • In looking at interim arbitration agreement of EU and other countries, is it appropriate for WTO resources to be used for activities that go beyond what is contemplated by the DSU?
  • How to convince Members that the multilateral trading system is still best way forward over bilateral and plurilateral trading arrangements?
  • Is there a gap in the WTO rulebook with regard to level playing field issues such as subsidies, economic action by the State and competition?
  • Do you have a multilateral solution to issues like e-commerce which are being tackled in the Joint Statement Initiatives that would be of interest to a large number of Members?
  • WTO is lagging behind in pursuing the development dimension; what is the path forward?
  • Role of DG re fighting protectionism and unilateral measures.
  • How to strike a balance between public stockholding and food security and the avoidance of unnecessary trade restrictions?
  • What is your view on the Doha Development Agenda?
  • What role the WTO can play to help drive Africa’s integration agenda?
  • What is the most important issue to achieve results?

Both candidates gave extensive answers to the questions posed while avoiding staking out a position on any issue that is highly controversial within the WTO. The answers are worth reading in their entirety. As a result the minutes of the meeting are embedded below.

WTGCM185

Each candidate in their summing up at the end of her meeting with the General Council circled back to their prepared statement. Their short summing up statements are copied below.

Dr. Ngozi Okonjo-Iweala (page 26):

“The nature of the questions that I have heard and the nature of the discussions give me hope. Members are clearly interested in a WTO that works, in a WTO that is different from what we have now, in a WTO that shows a different face to the world. I can see it and I can feel it. And if ever I am selected as Director-General, that gives me hope that there is a foundation to work on. Before coming in here, I have spoken to several Members, but I did not really know that. From listening to all of you and fielding your questions, I now know that there is a basis to work on. And I want to thank you for it.

“And I really want to end where I began. Trade is very important for a prosperous and a recovered world in the 21st century. The WTO is at the centre of this. A renewed WTO is a mission that we must all undertake, and we need every Member, regardless of economic size, to participate in this. If we want the world to know who we are as the WTO, we have to commit. Having listened to you, I hear the commitment and I want to thank you sincerely for that.”

Minister Yoo Myung-hee (page 60):

“I spent the past few days meeting with Ambassadors and delegates in Geneva. When I listen to your views, together with the questions today, it seems that there are diverse views and priorities of Members – whether it concerns the negotiations, how to pursue development objectives and special and differential treatment, the plurilaterals or restoring the Appellate Body function. So, how can we, a dynamic group of 164 Members with different social and economic environments, come to an agreement? This brings me back to my original message. We need to rebuild trust in the WTO. How? Amid these divergent and different views of Members, I would share the commitment and hope to restoring and revitalizing the WTO.

“This pandemic has forced us to reflect upon what is needed from the multilateral trading system. Despite the current challenges, I have a firm belief in the multilateral trading system and what we can actually achieve in the future if we put our heads together and also our hearts into it. We are embarking on a new journey towards a new chapter for the WTO. Building on the past twenty-five years, when we embark on the new journey for the next twenty-five years, I am ready to provide a new leadership that will harness all the frustrations but most importantly all the hopes from Members to make the WTO more relevant, resilient and responsive for the next twenty-five years and beyond.”

Conclusion

The process that WTO Members agreed on in 2002 to promote a process for finding a candidate for a new Director-General is cumbersome, time consuming and burdensome for candidates brave enough to put their hat in the ring. To date, the 2002 process has resulted in Members agreeing by consensus on a new Director-General (2005 and 2013). The process in 2020 has worked remarkably smoothly as well despite the deep divisions in the membership and the multiple-pronged crisis facing the organization.

The two finalists bring different backgrounds and skill sets to be considered by Members. Each started strong in the General Council meetings in mid-July as can be seen from their answers to questions posed, and each has continued to impress many Members in the subsequent months. There are political considerations in the selection process of the Director-General (just as in any major leadership position of an international organization). Both candidates are getting active support of their home governments. Fortunately, the membership has two qualified and very interesting candidates to consider. Whoever emerges as the candidate most likely to achieve consensus among the Members will still face the hurdle of whether any Member (or group of Members) will block the consensus. While that seems unlikely at the present time, one never knows.

Whoever becomes the next Director-General will face the daunting challenges of an organization with all three major functions not operating as needed, deep divisions among major players and among major groups. The lack of forward movement and the lack of trust among Members will weigh heavily on the new Director-General with a narrow window before the next Ministerial Conference likely to take place next June. It is remarkable that talented individuals with long histories of accomplishments would be willing to take on the problems the WTO is weighed down with at the present time. Hopefully, the next Director-General will be known in the next three weeks.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Concluding comments

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

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

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

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

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

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

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

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

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

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

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

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

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

Member of the OECD or in the accession process:

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

Member of the G-20:

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

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

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

0.5% of Merchandise Trade (includes):

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

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

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

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

“Developed Countries”

United States: 3.4%

European Union: 5.1%

Japan: 4.7%

Canada: 6.4%

“Developing Countries”

China: 10.0%

Brazil: 31.4%

Chile: 25.2%

Costa Rica: 43.1%

Republic of Korea: 16.5%

India: 50.8%

Indonesia: 37.1%

Singapore: 9.5%

South Africa: 19.2%

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

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

Dr. Jesus Seade Kuri (Mexico)

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

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

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

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

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

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

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

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

Dr. Ngozi Okonjo-Iweala (Nigeria)

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

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

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

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

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

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

Mr. Abdel-Hamid Mamdouh (Egypt)

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

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

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

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

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

Amb. Tudor Ulianovschi (Moldova)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

H.E. Amina C. Mohamed (Kenya)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Rt Hon Dr. Liam Fox MP

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

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

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

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

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

Conclusion

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

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

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

APEC Trade Ministers’ Virtual Meeting on July 25 — Declaration on Facilitating the Movement of Essential Goods during COVID-19

The Asia-Pacific Economic Cooperation (APEC) has twenty-one members whose territories borders the Pacific Ocean. The twenty-one members include Australia; Brunei Darussalem; Canada; Chile; China; Hong Kong, China; Indonesia; Japan; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; the Philippines; Republic of Korea; Russia; Singapore; Chinese Taipei; Thailand; United States; and Viet Nam. According to a 2019 USTR note on U.S.-APEC Trade Facts, APEC countries account for 38% of the world’s population, 60% of the world’s GDP and 47% of world trade. See https://ustr.gov/trade-agreements/other-initiatives/asia-pacific-economic-cooperation-apec/us-apec-trade-facts#:~:text=APEC%20has%2021%20members%2C%20referred,percent%20of%20the%20world’s%20trade.

In May 2019, APEC Ministers Responsible for Trade (“MRTs”) issued a statement on COVID-19 recognizing both the centrality for all members in halting the spread of the pandemic and the need for members to also focus on remedying the economic challenges flowing from the pandemic. Like the G20 and other groups, APEC MRTs recognized the importance of keeping markets open, of limiting emergency restrictive measures and ensuring such measures are “targeted, proportionate, transparent, temporary and should not create unnecessary barriers to trade, and are consistent with WTO rules.” APEC MRTs encouraged cooperation and the sharing of information and more. See Statement on COVID-19 by APEC Ministers Responsible for Trade, 5 May 2020, WT/GC/213. The May 2019 statement is embedded below.

213

At the July 25, 2020 virtual meeting of MRTs, the ministers issued a joint statement and included as Annex A the Declaration on Facilitating the Movement of Essential Goods. See MRTs joint statement, https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT; Annex A,https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT/Annex-A. Both are embedded below.

Ministers-Responsible-for-Trade-Virtual-Meeting-Joint-Statement-2020

Declaration-on-Facilitating-the-Movement-of-Essential-Goods-by-the-APEC-Ministers-Responsible-for-Trade-MRT

The joint statement reiterates the May 2019 key points and incorporates the Declaration on Facilitating the Movement of Essential Goods “which is a clear indication of the region’s continued support for WTO work.” The MRTs “recognize the need for discussions to reduce non-tariff barriers which restrict trade in essential goods.” There are other supportive statements about the importance of WTO work. “We encourage continued constructive engagement on WTO issues, including in the lead-up to the 12th WTO Ministerial Conference.” At the same time, the MRTs are looking to the development of a “post-2020 Vision” which they are hopeful leaders can launch at the end of 2020. Presumably, such a vision will include trade- related components which may include reforms at the WTO or simply be regional cooperation on certain important topics (supply chain issues on adequacy of supplies, e-commerce, movement of people as region recovers from COVID-19, etc.).

The Declaration on Facilitating the Movement of Essential Goods has ten specific actions that are declared.

The first two deal with export restrictions and prohibitions. The first is that each APEC member will ensure that any emergency trade measures introduced to address COVID-19 are consistent with WTO rules. The second commits APEC members to notify all such measures in accordance with WTO obligations.

The third declared action addresses non-tariff barriers. Specifically APEC members “are encouraged to work together to identify and resolve any unnecessary barriers to trade in essential goods.”

The next five declared actions pertain to trade facilitation — to expedite and facilitate the flow and transit of essential goods; to enhance coordination, efficiency and transparency of border clearance of essential goods; expediting the release of essential goods upon arrival; facilitating the entry, transit and departure of air cargo dealing with essential medical goods; abiding by the International Health Regulations of 2005.

The ninth declared action deals with tariffs and while not committing APEC members to liberalize tariffs for essential medical supplies, notes that some economies have taken such liberalizing actions and notes that the business community supports such action.

The last statement deals with reviewing progress on the APEC initiatives annually until COVID-19 is no longer a public health emergency.

Conclusion

Many countries and customs territories around the world have expressed objectives which are generally not significantly different than those put forward by APEC members.

With the large share of global trade accounted for by APEC members and with similar-type commitments by the G20 (which includes major members of the EU and has the EU participating), one would think it should be possible to obtain WTO commitments along similar lines to the APEC Declaration. The Declaration would need to have added some of the developing country and least developed country needs that have been already presented to the WTO so that the concerns of all are addressed.

While the WTO is doing an excellent job of providing information about the pandemic and trade measures taken by Members (at least those notified), the WTO Members have yet to get behind a set of principles that all Members can sign off on. Perhaps the APEC MRT joint statement and Declaration on Facilitating the Movement of Essential Goods provides a good starting point for the full WTO membership. While some WTO Members have not wanted to address COVID-19 issues during the pandemic, obviously collective action during the pandemic would be most effective. The post-pandemic needs also should be addressed but can await individual and group developments of views.

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

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

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

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

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

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

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

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

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

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

ST_9208_2020_INIT_EN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Development of U.S. import data

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

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

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

6 cover COVID-19 test kits/testing instruments,

9 cover disinfectants ad sterilization products,

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

20 cover medicines (pharmaceuticals),

19 cover non-PPE medical consumables and hospital supplies,

27 cover personal protective equipment, and

9 covered other products.

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

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

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

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

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

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

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

Ireland $14.173 billion +12.77%

China $12.313 billion -14.13%

Germany $12.228 billion +20.35%

Mexico $ 8.791 billion + 4.44%

Canada $ 6.026 billion +19.57%

Belgium $ 5.952 billion +63.21%

Switzerland $ 5.082 billion +39.80%

Japan $ 4.144 billion +28.38%

United Kingdom $ 3.409 billion +11.42%

India $ 2.816 billion +16.71%

South Korea $ 2.694 billion -30.68%

Netherlands $ 2.545 billion +94.16%

Italy $ 2.177 billion +75.66%

Malaysia $ 2.163 billion + 7.65%

Costa Rica $ 1.693 billion +22.50%

All Other $16.574 billion +15.13%

Total $105.267 billion +16.16%

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

Conclusion

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

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

COVID-19 – WTO report on medical goods; FAO report on food security

The World Trade Organization has a page on its website that is dedicated to COVID-19 including references to statements from various governments, international organizations, business groups, information from the WTO itself including a compilation of notifications by Members of actions (whether trade limiting or trade expanding) taken in response to COVID-19, and links to a range of websites providing important information on the pandemic. Joint statements are also included. See today’s joint statement between the WTO and the World Customs Organization, https://www.wto.org/english/news_e/news20_e/igo_06apr20_e.htm.

Last Friday, April 3rd, the WTO released a sixteen page note entitled “Trade in Medical Goods in the Context of Tackling COVID-19”. https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf. The note is very useful in terms of providing some definition to a range of products relevant to handling the COVID-19 crisis, identifying major importers and exporters of various product types and providing information on tariffs on the product categories for all WTO Members. The note identifies the following “key points”:

“• Germany, the United States (US), and Switzerland supply 35% of medical products;

“• China, Germany and the US export 40% of personal protective products;

“• Imports and exports of medical products totalled about $2 trillion, including intra-EU trade, which represented approximately 5% of total world merchandise trade in 2019;

“• Trade of products described as critical and in severe shortage in COVID-19 crisis totalled about $597 billion, or 1.7% of total world trade in 2019;

“• Tariffs on some products remain very high. For example, the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%;

“• Protective supplies used in the fight against COVID-19 attract an average tariff of 11.5% and goes as high as 27% in some countries;

“• The WTO has contributed to the liberalization of trade medical products in three main ways:

“➢ The results of tariff negotiations scheduled at the inception of the WTO in 1995;

“➢ Conclusion of the plurilateral sectoral Agreement on Pharmaceutical Products (“Pharma Agreement”) in the Uruguay Round and its four subsequent reviews;

“➢ The Expansion of the Information Technology Agreement in 2015.”

As is true with any analysis of data, the reader needs to understand what is covered and what is not and how good a fit the data provided have with the topic being discussed.

For example, the note reviews four categories of products relevant to the world addressing the COVID-19 pandemic (page 1):

  • “medicines (pharmaceuticals) – including both dosified and bulk medicines;
  • “medical supplies – refers to consumables for hospital and laboratory use (e.g., alcohol, syringes, gauze, reagents, etc.);
  • “medical equipment and technology; and
  • “personal protective products -hand soap and sanitizer, face masks, protective spectacles.”

While the four categories are, of course, relevant to addressing the COVID-19 pandemic, the products covered by the tariff schedule categories are both over- and underinclusive if one is trying to understand the size of global trade in medical products directly relevant to the global efforts to address COVID-19.

The report’s data are overinclusive because the Harmonized System of Tariffs used by most nations is only harmonized to the six-digit level of specificity. The categories included in the WTO note cover both COVID-19 related products and many others. Stated differently, nearly all of the product categories identified in Annex 1 to the note include at least some items that are not germane to the current pandemic. This is a limitation on the usefulness of the data flowing from the lack of more specific classifications that all countries adhere to. As the six-digit data are all that are available with a consistent definition around the world, it is not surprising that the WTO relied on the data. Arguably better, but not uniform data could have been derived by reviewing the 8-, 9- or 10-digit statistical data for imports and exports of at least major Members, but that was not done.

Similarly, the product coverage is underinclusive as recognized in the WTO note (page 2). “It should be noted that this note focuses solely on the final form of these products and does not extent to the different intermediate products that are used by global value chains in their production. The protective garments for surgical/medical use are not included in the analysis, because it is impossible to distinguish them from general clothing product in the HS classification.”

As governments and companies have articulated over the last several months, many of the key final products (e.g., ventilators) require a large number of inputs which are often sourced from a variety of suppliers around the globe. For example, one ventilator company which assembles the ventilators in the United States is reliant on circuit boards from its facility in China to maintain or increase production. Other companies bring various inputs in from Canada or Mexico or other countries as well as shipping U.S. components to other countries for final assembly. The same reality is obviously true for producers of medical goods in other countries as well. Thus, an inability to cover inputs significantly understates global trade volumes of products relevant to addressing the COVID-19 pandemic.

Similarly, there are shortages in many countries of the protective garments for which no data are included. These are important products traded that are directly relevant to the world’s ability to respond to COVID-19. The lack of coverage of those products understates the importance of personal protective products to the total and understates global trade.

The above is simply to say, the sections of the WTO note that look at trade patterns (imports, exports, leading players) are helpful in identifying possible breaks between products and possible major players but the data may be significantly off from the actual split among products or role of major players if complete data limited to products relevant for addressing COVID-19 were available. It may also understate the importance of keeping markets open even if there are relatively few imports of finished products.

To explore how overstated data may be, if one looks at the HS categories shown in Annex 1 for personal protective products and looks at the United States U.S. imports for consumption for 2019 at the 10-digit HTS level of detail, the top seven 10-digit categories by customs value accounted for more than 72% of the $17 billion in imports. Yet each of the categories would contain many products not actually relevant to efforts to address COVID-19. In fact five of the seven categories are basket categories.

3926.90.9990OTHER ARTICLES OF PLASTIC, NESOI
6307.90.9889OTHER MADE-UP ARTICLES NESOI
3824.99.9297CHEMICAL PRODUCTS AND PREPARATIONS AND RESIDUAL PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES, NESOI
9004.90.0000SPECTACLES, GOGGLES AND THE LIKE, CORRECTIVE, PROTECTIVE, NESOI
3926.90.7500PNEUMATIC MATTRESSES & OTHR INFLATABLE ARTICLES,NESOI
3824.99.3900MIXTURES OF TWO OR MORE INORGANIC COMPOUNDS
3926.90.4590OTHER GASKETS AND WASHERS & OTHER SEALS

Similarly, the analysis of applied tariff rates is useful in showing rates for product groupings and the rates for individual countries for those product groupings but may be less useful in identifying the assistance tariff reductions would have in the present time of the pandemic. Obviously, tariff reductions by any Member that imposes them on imported products relevant to the pandemic would reduce the cost for the importing country of the needed materials. But the extent of assistance varies significantly depending on the Member as the data in Annex 2 show.

As the EU/EEA/United Kingdom and the United States account for 73.9% of the confirmed cases in the world as of April 6, 2020, a review of the applied rates for those countries would identify likely benefit from tariff reductions by the countries with the major outbreaks at the moment. The EU has an average applied rate of 1.5%, the U.S. an average applied rate of 0.9%, Norway 0.6% and Switzerland 0.7%. These rates don’t include any special duties, such as US duties on China flowing from the Section 301 investigation (with some products being subject to potential waiver of additional duties). Thus, for the vast majority of current cases, the importing countries’ applied rates are very low and hence not a significant barrier to trade.

https://www.ecdc.europa.eu/en/geographical-distribution-2kistan019-ncov-cases; https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea

Other countries where the reach of the pandemic may intensify typically have much higher applied tariffs. As case loads intensify in other countries or in anticipation of such potential eventualities, countries with higher tariffs should be exploring autonomous duty reductions to make imported products more affordable. India has an average applied tariff of 11.6%; Pakistan an average rate of 10.0% and Malaysia a rate of 11.7% to flag just three Members with rates at or above 10%.

The WTO note is embedded below.

rese_03apr20_e

Food security and the FAO analysis of current agricultural product availability

In a prior post, I reviewed the compounding problems during the COVID-19 pandemic of some countries starting to impost export restraints on selected products (e.g., rice, wheat) to protect food supplies. Countries reported to be imposing export restraints on food had been Russia, Ukraine, Kazakhstan and Vietnam. A series of articles in Asian and European press have noted that Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia have also introduced various restraints as well. Major agricultural groups in Asia are warning that disrupting movement of food (including movement of workers to help harvest, etc.) could lead to food shortages in Asia and have reviewed that Asian countries import some 220 million tons of agricultural products which underlines the need to keep markets open. See, e.g., https://www.scmp.com/week-asia/politics/article/3078376/coronavirus-food-security-asias-next-battle-post-covid-world; https://www.dairyreporter.com/Article/2020/03/30/Major-food-shortages-possible-in-Asia-says-FIA#.

While fear can lead to panic and various border measures, the actual situation globally as laid out by the Food and Agriculture Organization of the United Nations (“FAO”) in a recent paper is that there are more than sufficient supplies of food. The key is minimizing disruptions to production and distribution. This is not a period where major disruptions from drought or floods have caused shortages of products. Specifically, the FAO’s Chief Economist prepared a document entitled “COVID-19 and the risk to food supply chains: How to respond?” which was released on March 29. http://www.fao.org/3/ca8388en/CA8388EN.pdf. The paper starts with a section entitled “What we know”:

“Countries have shut down the economy to slow the spread of the coronavirus. Supermarket shelves remain stocked for now. But a protracted pandemic crisis could quickly put a strain on the food supply chains, a complex web of interactions involving farmers, agricultural inputs, processing plants, shipping, retailers and more. The shipping industry is already reporting slowdowns because of port closures, and logistics hurdles could disrupt the supply chains in coming weeks.

“In order to avoid food shortages, it is imperative that countries keep the food supply chains going. Unlike the 2007-2008 global food crisis, scarcity is not an issue this time. The supply of staple commodities is functioning well, and the crops need to be transported to where they are needed most. Restricting trade is not only unnecessary, it would hurt producers and consumers and even create panic in the markets. For high-value commodities that require workers (instead of machines) for production, countries must strike a balance between the need to keep production going and the need to protect the workers.

“As countries combat the coronavirus pandemic, they must also make every effort to keep the gears of their food supply chains moving.”

The paper then goes on to identify five actions needed to minimize the likelihood of food shortages arising during the pandemic. These actions are:

“Expand and improve emergency food assistance and social protection programs

“Give smallholder farmers support to both enhance their productivity and market the food they produce, also through e-commerce channels

“Keep the food value chain alive by focusing on key logistics bottlenecks

“Address trade and tax policies to keep the global trade open

“Manage the macroeconomic ramifications”.

With the number of countries already taking actions that are inconsistent with keeping global markets open for the movement of food supplies, the world is at risk of having a major complication added to the extrordinary economic shocks already being felt to address the health needs of the COVID-19 pandemic. Such a major complication would, as it did in 2007-2008, directly harm developing and least developed countries, countries least able to absorb additional shocks.

The report and a powerpoint from FAO are embedded below.

COVID-19-and-the-risk-to-food-supply-chains_-How-to-respond_

ca8308en

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

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

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

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

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

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

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

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

High income countries based on World Bank June 2019 data

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

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

Share of world trade (0.5% or greater)

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

Membership in or application to the OECD

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

Membership in the G20

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

Membership in the EU

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

WTO Members who have not claimed developing country status at accession

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

Likely Importance of the Changes in the USTR List

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

CV_InitiationsRepMemVsExpCty

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

Conclusion

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

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

Fisheries Subsidies – Will the WTO Members Reach Agreement Before June 2020?

When WTO Members launched the Doha Development Agenda in November 2001, one of the topics to be explored was fisheries subsidies as outlined as part of the Rules paragraph 28:

“In the context of these negotiations, participants shall also aim to clarify and improve WTO disciplines on fisheries subsidies, taking into account
the importance of this sector to developing countries.” Ministerial Declaration, para. 28, WT/MIN(01)/Dec/1.

Fisheries subsidies were also mentioned in paragraph 31 of the Declaration dealing with topics within trade and environment that would be explored.

More than 18 years later, WTO members are pushing to reach agreement on new disciplines on fisheries subsidies by the time of the 12th Ministerial Conference to be held in Nur-Sultan, Kazakhstan in early June 2020.

The push is related to the 2020 deadline included in the September 2015 UN Sustainable Development Goals (“SDG”) 14.6: “by 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU fishing, and refrain from introducing new such subsidies, recognizing that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the WTO fisheries subsidies negotiation.” The term “IUU” refers to “illegal, unreported, and unregulated” fishing.

At the 11th WTO Ministerial Conference, WTO members adopted a decision to complete fisheries subsidies negotiations by the next Ministerial Conference. See WT/MIN(17)/64; WT/L/1031:

“FISHERIES SUBSIDIES

“MINISTERIAL DECISION OF 13 DECEMBER 2017

“The Ministerial Conference

Decides as follows:

“1. Building on the progress made since the 10th Ministerial Conference as reflected in documents TN/RL/W/274/Rev.2, RD/TN/RL/29/Rev.3, Members agree to continue to engage constructively in the fisheries subsidies negotiations, with a view to adopting, by the Ministerial Conference in 2019, an agreement on comprehensive and effective disciplines that prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU-fishing recognizing that appropriate and effective special and differential treatment for developing country Members and least developed country Members should be an integral part of these negotiations.

“2. Members re-commit to implementation of existing notification obligations under Article 25.3 of the Agreement on Subsidies and Countervailing Measures thus strengthening transparency with respect to fisheries subsidies.”

Why the interest in fisheries subsidies?

For decades, the world has been experiencing overfishing of various species of fish in different parts of the world. The U.N.Food and Agriculture Organization (FAO) reports that between 1974 and 2015 fish stocks that are not within biologically sustainable levels increased from 10% in 1974 to 33.1% in 2015. FAO, The State of World Fisheries and Aquaculture 2018 (“2018 Report) at 6. This decline has occurred despite efforts made by various countries to regulate capture/production.

“Despite the continuous increase in the percentage of stocks fished at biologically unsustainable levels, progress has been made in some regions. For example, the proportion of stocks fished within biologically sustainable levels increased from 53 percent in 2005 to 74 percent in 2016 in the United States of America, and from 27 percent in 2004 to 69 percent in 2015 in Australia.” 2018 Report at 6.

Because of, inter alia, the importance of the fishing industry to many countries and fish to the diets of many peoples, there has been concern for many years with actions needed by nations to ensure the sustainability of fish captures.

The FAO’s 2018 Report provides a great deal of information on the importance of fish to developing and least developed countries and the various actions being taken to address meeting the Sustainable Development Goals (“SDGs”) pertaining to fish and the oceans.

The WTO’s negotiations on fisheries subsidies are just one part of the much larger group of SDGs being pursued by countries as part of the UN targets and only deals with ocean/sea wild caught fish, not with aquaculture and not with inland caught fish. The FAO’s 2018 Report is attached below.

2018-FAO-the-state-of-world-fisheries-and-aquaculture

As Table 1 in the 2018 Report shows, there has been a rapid growth in aquaculture so that by 2016, there was greater volume from aquaculture than there was from “marine caught”. Specifically, in 2016 aquaculture accounted fro 80.0 million metric tons (46.8%) of the total production/ capture, marine capture was 79.3 million metric tons (46.4%) and inland capture was 11.6 million metric tons (6.8%) – for a total of 170.9 million metric tons. Data do not include information on aquatic mammals, crocodiles, alligators, caimans, seaweeds and other aquatic plants. 2018 Report, Table 1, page 4.

While aquaculture has grown, marine capture has declined or stagnated over time and with growing levels of overfishing, longer term decline will occur in this sector absent concerted steps to manage the volume pursued at sea. Overfishing is believed due to overbuilding of fishing fleets and the level of fishing that contravenes national laws, is unrecorded and/or unregulated. Thus, the efforts within the WTO to impose disciplines on subsidies benefiting IUU fishing and/or contributing to overfishing are an important element in achieving catch rates that are sustainable versus unsustainable and declining.

Importance of marine fishing to developed, developing and least developed countries

The FAO gathers information on the amount of marine capture (as well as inland capture and aquaculture) annually. The latest data available from FAO are for 2017. FAO, Fishery and Aquaculture Statistical Yearbook 2017, http://www.fao.org/fishery/static/Yearbook/YB2017_USBcard/index.htm. The average marine caught volumes for the years 2015-2017 from the FAO data base were summarized for WTO Members in a July 11, 2019 submission to the WTO rules negotiations addressing fisheries subsidies. The submission was made by Argentina, Australia, the United States and Uruguay. Top marine caught Members are presented below in millions of metric tons and percent of world production:

CountryProduction (mm tonnes)% of World Production
China13.8 17.30%
Indonesia 6.2 7.76%
European Union 5.3 6.68%
United States 5.0 6.25%
Russian Federation 4.4 5.53%
Peru 4.2 5.31%
India 4.6 4.57%
Japan 3.2 4.06%
Vietnam 3.0 3.71%
Norway 2.2 2.80%
Chile 1.7 2.18%
Malaysia 1.5 1.90%
Republic of Korea 1.4 1.82%
Morocco 1.4 1.73%
Mexico 1.4 1.73%
Thailand 1,3 1.65%
Myanmar 1.2 1.49%
Iceland 1.2 1.48%
Chinese Taipei 0.8 1.04%
Canada 0.8 1.03%
Argentina 0.8 0.98%
Ecuador 0.7 0.84%
Bangladesh 0.6 0.78%
Mauritania 0.6 0.74%
South Africa 0.6 0.71%
Subtotal 68.8 86.36%
All Other 10.9 13.64%
World Total 79.7 100.00%

TN/RL/GEN/197/Rev.2, pages 4-7, Annex I (11 July 2019). Data for the EU and the US contain data from various islands referenced on page 4 in fotnotes a and b. The Annex lists 136 of the 164 WTO members and their production/volumes although no data are available for 28 WTO members (some of which are landlocked and hence may have no marine caught fish). The full listing is attached below.

TNRLGEN197R2

As reviewed in the 2018 Report (page 2), fish make up an increasing share of animal protein for humans, with 100% of the increase being accounted for by expanding aquaculture:

“The expansion in consumption has been driven not only by increased production, but also by other factors, including reduced wastage. In 2015, fish accounted for about 17 percent of animal protein consumed by the
global population. Moreover, fish provided about 3.2 billion people with almost 20 percent of their average per capita intake of animal protein. Despite their relatively low levels of fish consumption, people in developing countries have a higher share of fish protein in their diets than those in developed countries. The highest per capita fish consumption, over 50 kg, is found in several small island developing States (SIDS), particularly in Oceania, while the lowest levels, just above 2 kg, are in Central Asia and some landlocked countries.”

Fishing/fisheries are an important source of employment for many countries, with the vast majority of such employment being in countries in Asia, Latin America and Africa. Specifically in 2016 worldwide fisheries employment was estimated at 40.338 million people (no breakout between marine and inland caught). Of this number, 31.990 million were in Asia ((79.3%), 5.367 million were in Africa (13.3%) and 2.085 million were in Latin America and the Caribbean (5.2%) , with just 896,000 jobs in North America, Europe and Oceania. Several important individual countries are shown in the 2018 Report — China with 14.5 million jobs in fisheries in 2016 (36% of global) and Indonesia with 2.7 million folks employed in fisheries (6.7% of global employment in the sector). 2018 Report at 32-33. Much of the employment in fisheries around the world is from family run operations, often subsistence in nature, and mainly using small boats (less than 12 meters in length and a large portion of which are not motorized).

The 2018 Report indicates that in 2016 the number of fishing vessels in the world were 4.6 million, 2.8 million of which were motorized. Of the 4.6 million vessels, 75.4% were in Asia, 14.0% in Africa, 6.4% in Latin America and the Caribbean, 2.1% in Europe, 1.8% in North America and 0.3% in Oceania. 100% of Europe’s vessels were motorized, more than 90% of those in North America, but only some 25% in Africa. See pages 36-38 of the 2018 Report.

WTO Efforts at Increasing Disciplines on Marine Fisheries Subsidies

Negotiations at the WTO have had periods of greater activity since 2001 than in other periods. 2005-2011 was a particularly active period according to the WTO webpage, with an uptick in efforts beginning in late 2016 and continuing to the present time. See https://www.wto.org/english/tratop_e/rulesneg_e/fish_e/fish_intro.htm.

The negotiations have been complicated by many issues that are not typical for trade negotiations. Here are a few of the perceived problem issues:

(a) problem being addressed relates to depletion of scarce global resources through overfishing flowing from subsidies that create excess capacity;

(b) production occurs not only in national waters but in the open seas and through contracts to capture fish in third countries’ waters;

(c) concerns about effect of negotiations on outstanding territorial disputes/claims;

(d) the challenge of disciplining subsidies provided by one country on fishing vessels which are flagged in a different country;

(e) the lack of meaningful data from many developing and least developed countries which complicates understanding the level of marine capture;

(f) for many developing and least developed countries, the large part of fishing fleets which are subsistence or artisanal in nature;

(g) the large portion of global capture which is developing and least developed country in origin vs. desire for special and differential treatment for such countries;

(h) challenge of whether traditional S&D provisions (exclusion from disciplines, lesser reductions, longer implementation periods) are actually harmful to developing and least developed countries where continued erosion of marine catch from overfishing will actually hurt the fishermen and fisherwomen of the countries receiving S&D consideration;

(i) whether dispute settlement as applicable to other WTO agreements (whether SCMA or other) will serve the underlying objectives of any negotiated agreement or needs to be modified to reflect the unique objectives of the agreement.

On the question of level of subsidization, there are the usual questions of what, if any, subsidies will be allowed as not causing concerns re growing capacity or overfishing and whether there is some level of acceptable subsidies even if adding to capacity.

While the set of public documents from the negotiations are reasonable through much of 2018, the resort to Room Documents (which are not made public) and other classification of documents, means that much of the current drafts of sections of a possible agreement are not publicly available. For example, there were ten documents identified as made available to WTO Members for the May 8, 2019 Informal Open-ended Negotiating Group on Rules (Fisheries Subsidies). Seven of the ten documents are not available to the public as “Room Documents” even if the documents were generated weeks or months before the meeting. See, e.g., RD/TN/RL/72 (17/12/2018); RD/TN/RL/81 (21/03/2019); RD/TN/RL/77/Rev.1 (21/03/2019); RD/TN/RL/82 (08/04/2019); RD/TN/RL/79/Rev.1 (18/04/2019); RD/TN/RL/83 (02/05/2019); RD/TN/RL/84 (06/05/2019).

Similarly, WTO Members have done a relatively poor job of notifying the subsidies provided to marine fisheries. Even with improvements in notifications in 2019, as late as November 2019, nine of the 26 largest providers of fisheries subsidies had not provided notifications and some who had done so in 2019 submitted the first notifications of such programs in 20 years. Members welcome progress in notification of fisheries subsidies, https://www.wto.org/english/news_e/news19_e/scm_19nov19_e.htm.

There is a draft document from the Chair of the negotiations from 14 November 2018, TN/RL/W/274/Rev.6 which lays out the Chair’s understanding of negotiations as of that date. The document is attached below and is heavily bracketed meaning that at the time of the draft there was not agreement on the bracketed text or options were shown.

TNRLW274R6

Some public submissions show that countries or groups of countries are still putting forward approaches on topics of importance. For example there are 2019 submissions on the following topics: fishing vessels not flying the member’s flag (e.g., TN/RL/GEN/201/Rev.1 (proposed prohibiting subsidies to such vessels)(Argentina, Australia, Indonesia, Japan, New Zealand, the United States, and Uruguay), on a cap-based approach to addressing certain fisheries subsidies [(TN/RL/GEN/197/Rev.2) and TN/RL/GEN/203)(Argentina, Australia, the United States, and Uruguay) vs. different approach put forward by China (TN/RL/199)], on whether different dispute settlement principles need to be considered (TN/RL/GEN/198, Canadian discussion paper), the breadth of special and differential treatment for developing and least developed countries (TN/RL/200, submission from India).

Interestingly, a submission from New Zealand and Iceland in 2018 warned other WTO members that a focus on fishing in international waters vs. marine catch in national waters would result in any agreement addressing very little of the marine catch volume as would other overly narrow scope approaches:

‘6.SDG Target 14.6 is clear that subsidies that contribute to both overcapacity and overfishing must be prohibited. An outcome which excluded the most harmful types of subsidies which contribute to overcapacity and overfishing would therefore not satisfy SDG Target 14.6. An outcome that addressed capacity or overfishing in just a hortatory way or in a manner that applied disciplines only to a small subset of subsidies or the world’s fishing fleet would similarly fail to meet the requirements of SDG Target 14.6.

“7. For example, the current emphasis on subsidies to fishing beyond national jurisdiction is warranted given the weaker governance and resource and development impacts of such fishing. This however must not be at the exclusion of waters under national jurisdiction where the vast majority of global catch – 88% – is taken.1 Similarly, the emphasis on overfished stocks should not equate to an exception for other stocks as doing so would exclude nearly 70% of the world’s fisheries.2 Taken together, these two approaches alone would result in barely 8% of the world’s fisheries being subject to subsidy prohibitions.3
“2 FAO. 2016. The State of World Fisheries and Aquaculture 2016.
“3 Two thirds of fish stocks managed by RFMOs are overfished or depleted: Cullis-Suzuki, S. & Pauly, D. (2010). Failing the high seas: a global evaluation of regional fisheries management organization. Marine Policy 34: 1036–1042.”

Advancing Fisheries Subsidies Prohibitions on Subsidies Contributing to Overcapacity and Overfishing, TN/RL/W/275 at 2 (8 May 2018)(New Zealand and Iceland).

Will WTO Members Deliver Meaningful Fisheries Subsidies Reform

The fact that the negotiations have taken more tan 18 years and that major countries appear to remain widely apart on many key issues suggests that the road to success will be challenging.

For example, India’s proposal for S&D would result in large amounts of fisheries subsidies not being addressed by the agreement (whatever the scope of subsidies addressed) rendering any agreement of minimal assistance in fact if adopted following that approach.

There are significant differences in approaches to limiting subsidies as can be seen in the different cap approaches presented by China and a group of other countries (Argentina, Australia, the United States and Uruguay).

Similarly, there is a disconnect between the problems being addressed (overcapacity and overfishing) and the traditional role of S&D to eliminate, reduce and/or delay obligations. For the fisheries subsidies negotiations to achieve a meaningful result, the WTO Members need to revisit what the role of special and differential needs to be to achieve better marine catch for developing and least developed countries. The focus needs to be on helping LDCs and developing countries develop accurate data on marine catch, developing the capacity to participate in regional management programs, finding assistance to fishermen and fisherwomen affected by depleted marine catches to survive/choose alternative work until such time as sustainable levels of wild caught fish are again available. But all countries need to contribute to limiting fisheries subsidies where excess capacity or overfishing are the likely result.

And there is the U.S. position that S&D will only be approved in any new agreement if it is limited to those countries with an actual need (i.e., certain countries would not take such benefits). Considering the role of major countries like China and India in marine catch, one can expect challenges in having those countries (and possibly others) agree to forego S&D provisions.

Net/net – as most Members seem to be focused on the wrong questions, there is a reasonable probability that the Kazakhstan Ministerial will not see a meaningful set of disciplines adopted on fisheries subsidies to address the challenges to marine catch from overcapacity and overfishing.

Let’s hope that the above forecast proves wrong.