OECD

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

· December 6, 2021 · Declaration on the Conclusion of Negotiations on Services Domestic Regulation · , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , · No Comments

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

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

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

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

“Key messages

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Will there be another extension of the WTO Moratorium on customs duties on e-commerce — expanding global trade or creating additional barriers

· November 18, 2021 · 12th Ministerial Conference, Moratorium on customs duties on e-commerce · , , , , , , , , , , , , , , , , , · No Comments

WTO Members have engaged for years in debate over the wisdom of extending the temporary moratorium on customs duties on e-commerce. Each Ministerial Conference has resulted in Members agreeing to an extension of the moratorium until the next Ministerial Conference along with an extension of a moratorium on non-violation TRIPs disputes. While Members have agreed to a draft extension of the moratorium on non-violation TRIPs disputes for the upcoming 12th WTO Ministerial, there is no agreement as yet on extending the moratorium on customs duties on e-commerce. See WTO News Release, Members agree on recommendation to extend moratorium on IP “non-violation” cases, 5 November 2021, https://www.wto.org/english/news_e/news21_e/trip_05nov21a_e.htm; Inside U.S. Trade’s World Trade Online, India, South Africa question WTO e-commerce moratorium ahead of MC12, November 9, 2021, https://insidetrade.com/daily-news/india-south-africa-question-wto-e-commerce-moratorium-ahead-mc12.

In recent years, India and South Africa have cited to information from UNCTAD to support their concern that the moratorium is costing developing countries tax revenues as well as their concern that the moratorium is limited to transmission and not content and doesn’t apply to services. See WORK PROGRAMME ON ELECTRONIC COMMERCE, THE MORATORIUM ON CUSTOMS DUTIES ON ELECTRONIC TRANSMISSIONS: NEED FOR CLARITY ON ITS SCOPE AND IMPACT, 8 November 2021, WT/GC/W/833 (communication from India and South Africa); WORK PROGRAMME ON ELECTRONIC COMMERCE, THE E-COMMERCE MORATORIUM: SCOPE AND IMPACT, Communication from India and South Africa, 11 March 2020, WT/GC/W/798; UNCTAD, RISING PRODUCT DIGITALISATION AND LOSING TRADE COMPETITIVENESS, 2017, https://unctad.org/system/files/official-document/gdsecidc2017d3_en.pdf; UNCTAD Research Paper No. 29, UNCTAD/SER.RP/2019/1, Rashmi Banga, Growing Trade in Electronic Transmissions: Implications for the South, February 2019, https://unctad.org/system/files/official-document/ser-rp-2019d1_en.pdf.

Some of the concerns expressed by India and South Africa and their rebuttal of OECD and other papers which look at upside benefits from the moratorium are captured in the following excerpt from the recent submission (WT/GC?W/833, pages 2-3).

“2.2 Tariff Revenue Loss

“2.4. In our previous submission, WT/GC/W/798, we highlighted that based on the identification of a small number of digitizable goods in five areas, namely, printed matter, music and video downloads, software and video games, UNCTAD estimated a loss in tariff revenue of more than US$10 billion per annum globally because of the moratorium, 95% of which is borne by
developing countries.

“2.5. These submissions attempt to make the revenue foregone on account of the e-commerce moratorium seem insignificant by showcasing this revenue loss in terms of its share in customs revenue and total government revenue. However, even compared in this manner, it is evident that the percentage of government revenue lost for developing countries is higher than that for the
developed countries. The percentage of customs revenue lost for developing countries is 4.35% while that for the developed countries is a mere 0.24%. It is evident that the cost of the moratorium is almost completely borne by the developing countries for extending duty free quota free market access, largely for the developed countries.

“2.6. These submissions conclude that the amount of physical trade replaced by 3D printing is expected to be limited. UNCTAD (2019) provides a deeper analysis on the status of 3D printing though. It indicates that while 3D printing is currently at a nascent stage in developing countries, its market has grown annually by 22% in the period 2014-2018 and it is estimated that if investment
in 3D printing is doubled, it could potentially replace almost 40% of cross-border physical global trade by 20407. Such a growth is expected to significantly increase the potential tariff revenue loss.

“2.3 Impact on SMEs and Digital Industrialization

“2.7. Interestingly, when assessing the total trade of electronic transmissions, these submissions consider only digitizable goods and conclude that these remain modest but when estimating the impact of the moratorium on exports, especially of SMEs, these submissions considers the extended scope of the moratorium by including services8 and find the impact to be huge. Defining the scope of the moratorium is therefore important in order to estimate its impact.

“2.8. These submissions state that the use of 3D printing is growing slowly since the opportunities for mass production and economies of scale are limited and the inputs, materials and time required for 3D printing further constrain its use for manufacturing complex items. In this context, it is highlighted that with recent technological advances, namely high-speed sintering, mass production is becoming possible with 3D printers, where mass-producing up to 100,000 (smaller) components
in a day will be possible at a speed which is 100 times faster9. According to D’Aveni (2015)10, the advent of additive manufacturing in the US hearing aid industry meant that, in less than 500 days, 100% of the industry was transformed and not one company stuck to the traditional mode of manufacturing.

“2.9. These submissions do not reflect the impact that new technologies such as 3D printing can have on domestic industries especially MSMEs in developing countries. As outlined before, while 3D printing is currently at a nascent stage in developing countries, its market is expected to grow at a rapid pace. The most affected sectors could include sectors such as textiles and clothing, footwear, auto-components, toys, mechanical appliances, and hand tools, etc. which generate large scale employment for low skilled workers and are sectors in which most MSMEs operate. This could have a catastrophic effect on the ability of developing countries to protect their nascent domestic industries including MSMEs11.

“2.10. If, ‘customs duties on electronic transmissions’ cover not only digitised and digitizable goods but also digitally transmitted services, as asserted by a couple of institutions recently, then the negative impact of continuing with the moratorium on developing countries would be even greater. Effectively, this implies that the economy of the future (the digital economy) is totally liberalised. History has shown that trade policies are integral to successful economies’ development trajectory and are critical in advancing industrial policy.

“7 UNCTAD Research Paper No 47 (2020).
“8 UNCTAD Research Paper No 58 (2021).
“9 Ibid.
“10 Richard D’Aveni, ‘The 3-D Printing Revolution’ (2015) Harvard Business Review
https://hbr.org/2015/05/the-3-d-printing-revolution accessed 1 June 2021.
“11 UNCTAD Research Paper No 58 (2021).”

There are many WTO Members who support the continuation of the moratorium on customs duties on e-commerce, and there have been studies by the OECD taking a position opposite that of UNCTAD. See, e.g., WORK PROGRAMME ON ELECTRONIC COMMERCE BROADENING AND DEEPENING THE DISCUSSIONS ON THE MORATORIUM ON IMPOSING CUSTOMS DUTIES ON ELECTRONIC TRANSMISSIONS, Communication from Australia; Canada; Chile; Colombia; Hong Kong, China;
Iceland; Republic of Korea; New Zealand; Norway; Singapore; Switzerland; Thailand and Uruguay, 29 June 2020, WT/GC/W/799/Rev.1; Andrenelli, A. and J. López González (2019-11-13), “Electronic transmissions and international trade – shedding new light on the moratorium debate”, OECD Trade Policy Papers, No. 233, OECD Publishing, Paris. http://dx.doi.org/10.1787/57b50a4b-en. An excerpt from the submission of various WTO Members in WT/GC/W/799/Rev.1 is presented below characterizing some of the OECD analysis (pages 2-3).

“3 AN INSIGHTFUL WELFARE ANALYSIS OF ELECTRONIC TRANSMISSIONS

“3.1. Members have been referring to many different estimates in past discussions on this matter, which did not take into consideration the benefits associated with relevant reductions of trade costs, potential gains in productivity and increased consumer welfare. The welfare analysis in the study provides a clear illustration of what is induced by the absence of duties on electronic transmissions in terms of both revenue loss and the welfare surplus for consumers. Taking into consideration consumer welfare would bring depth to the discussion and could help move them forward.

“3.2. The welfare analysis outlines that the reduction in production and transportation costs associated with digital deliveries, as well as the removal of the tariff, can lead to a reduction in price. In consequence, the increase in demand leads to a rise in imports and an increase in consumer surplus, part of which is associated with redistribution from the domestic producer and part of which is from government revenue to the consumer. The study is unambiguous: the overall impact to the economy is ‘positive and large’.

“3.3. The study finds that the imposition of equivalent duties on electronic transmissions could negate those positive effects by increasing the price of the digital delivery, which shifts some of the consumer welfare back to the domestic producers and the government. Governments and producers would recover some of the revenue foregone but the amount recovered would depend on the elasticity of demand. The study also highlights that this would occur at the expense of consumer surplus. The positive welfare impact would decrease as the price of the digital product increases. Consequently, by introducing equivalent duties on electronic transmissions, governments would create a “deadweight loss” to the economy. The overall benefits associated with digitization
(i.e. lower trade costs) would be reduced and weaker economies would miss an opportunity to overcome their trade cost disadvantages.

“4 THE APPLICATION OF INTERNAL NON-DISCRIMINATORY TAXES AS AN ALTERNATIVE TO TARIFFS

“4.1. The study not only provides important elements regarding who bears the burden of tariffs, but also regarding the potential alternative sources of government revenue which would be better suited to the digital economy. The study notes that tariffs increase the price of a product to the domestic consumer. The extent to which the domestic price increases is dependent on the tariff pass-through, which ranges from full pass-through to none. If there is no pass-through, then the foreign company fully absorbs the tariff through reduced revenue. If there is full pass-through, then the domestic price increases in proportion to the tariff. Recent work quoted by the study notes that quasi complete-pass tends to be the most common – that is, foreign companies fully pass-on the price increase to domestic consumers. Moreover, recent work conveyed in the study has also demonstrated that tariff increases, in the medium-term, negatively affect domestic output and productivity, employment and lead to higher inequality and real exchange rate appreciation.

“4.2. The study highlights other means for governments to generate revenue. The use of consumption taxes, such as value added taxes (VAT) or goods and services taxes (GST) could represent a better alternative. Examples of VAT/GST applied to digital services and intangibles are provided and point out that internal non-discriminatory taxes provide a broader tax base, and thus more stable. According to the study, evidence indicates developing countries that adopt indirect taxes such as VAT experience 40 to 50% less tax revenue instability than countries that do not use indirect taxes. The OECD study suggests that consumption taxes are a feasible alternative to customs duties for generating revenue.

“4.3. In this respect, it should be noted that the OECD International VAT/GST Guidelines have been adopted by the G20 leaders and endorsed by more than 100 jurisdictions and organisations. Furthermore, the OECD has produced a report on best practices to implement international VAT/GST collection schemes.2

“2 Mechanisms for the Effective Collection of VAT/GST, OECD, 2017 http://www.oecd.org/tax/consumption/mechanisms-for-the-effective-collection-of-vat-gst.htm.”

A recent report by Prof. Simon J. Evenett

On November 12, 2021, Prof. Simon Evenett (founder of the St. Gallen Endowment for Prosperity Through Trade) released a paper looking at the question, “Is the WTO Moratorium on customs duties on e-commerce depriving developing countries of much needed revenue?”. The abstract for the paper states –

“Abstract  This note vitiates assertions by UNCTAD staff that developing countries have lost significant government revenues as products previously delivered physically are supplied digitally. Taking for the sake of argument UNCTAD’s revenue loss estimates, this note shows that they represent small shares of tax revenues from sources other than customs duties. Forgone revenues would have financed less than 5 days of government spending in the Least Developed Countries and Sub-Saharan African nations. Moreover, domestic tax takes needed only to grow marginally faster to offset UNCTAD’s estimates of forgone customs duties. Low per-capita income status is not a barrier to successful national tax reform, calling in question the relevance of public finance objections to participation in multilateral trade initiatives to integrate economies.”

 The paper from Prof. Evenett is embedded below.

S.-Evenett_-WTO-Moratorium-12-Nov-2021_-finalised

Conclusion

There are obviously large differences in view on the costs and benefits of a moratorium on customs duties on e-commerce between India and South Africa on the one hand (and others supporting their view) and the group of WTO Members supporting the continuation of the moratorium.

A problem with the UNCTAD studies and papers is the definition of developing countries used. As is clear from the 2017 UNCTAD report, the largest cross border e-commerce sales for any country by far is China with 40% of such sales in 2015 (UNCTAD, Rising Product Digitalisation and Losing Trade Competitiveness, 2017 at 12) and largest customs revenue loss from the moratorium (id at 16). China should not be viewed as a developing country as reviewed in a recent post. See November 15, 2021:  The folly of self-selection as a developing country at the WTO, https://currentthoughtsontrade.com/2021/11/15/the-folly-of-self-selection-as-a-developing-country-at-the-wto/. Moreover, China is not understood to be opposing the continuation of the moratorium.

The UNCTAD report also lists as developing countries a number which clearly aren’t classified as such or that shouldn’t be, including — Saudi Arabia, Greece, Egypt, Israel, Romania, Russian Federation, Iceland, Bulgaria, Mexico, Norway, Thailand, Turkey, Portugal (see id, Table 2, Net Exports of Developing Countries of ET Products, pages 13-14; November 15, 2021:  The folly of self-selection as a developing country at the WTO, https://currentthoughtsontrade.com/2021/11/15/the-folly-of-self-selection-as-a-developing-country-at-the-wto/).

While WTO Members should be concerned about the digital divide that exists for some Members, the answer to addressing the divide is not to erect barriers to e-commerce. Rather Members should focus on technical assistance and other actions to help least developed countries and some developing countries who are behind develop the infrastructure and technical skills to actively participate in e-commerce.

Extending the moratorium on customs duties on e-commerce is one more hurdle in front of WTO Members as they get ready for the 12th Ministerial Conference which starts in 12 days.

Recent World Bank and OECD forecasts show deeper 2020 economic contraction, need for increased global cooperation

· June 13, 2020 · COVID-19, G20, transparency · , , , , · No Comments

The year 2020 is now forecast to result in the sharpest economic contraction since World War II. This is the first recession in 150 years flowing entirely from a health pandemic. With data collected over the last five and a half months (Dec. 31 – June 13), confirmed COVID-19 cases are more than 7.625 million globally and total deaths are more than 425,000 (with both numbers viewed as significantly understated). The global trend line on new cases continues to rise as of June 13 while the number of reported deaths has declined from its peak and stabilized at a high rate.

The International Monetary Fund’s forecast for 2020 went from affirmative growth at the beginning of the year to a decline of 3.5% in April. A recent report from the World Bank now projects global GDP contraction of 5.2% while a June OECD report shows estimates of global GDP contraction of 6.0% if COVID-19 is limited to a “single-hit” scenario and 7.6% contraction if there is a second wave of COVID-19 cases in 2020. See World Bank, Global Economic Prospects, June 2020 at 4, Table 1.1, Real GDP, https://www.worldbank.org/en/publication/global-economic-prospects; OECD Economic Outlook, June 2020, at 13, Table 1.1, https://www.oecd-ilibrary.org/sites/0d1d1e2e-en/index.html?itemId=/content/publication/0d1d1e2e-en.

The OECD outlook data show for a single pass of COVID-19, declines for the world at 6.0%, the G20 at 5.7%, OECD at 7.5%, the U.S. at 7.3%, the Euro area at 9.1%, Japan at 6.0%, non-OECD at 4.6%, China at 2.6%, India at 3.7%, and Brazil at 7.4%. Id at 13, Table 1.1. The projections if there is a second wave of COVID-19 cases are significantly worse for all countries.

The OECD’s projection for the U.S. is for greater contraction than the recent estimate from the Federal Reserve of 6.5% in 2020. See, e.g., https://www.politico.com/news/2020/06/10/fed-economy-shrink-65-percent-2020-311212.

The World Bank’s estimates for 2020 are similar for some areas and lower for the United States (-6.1%) but shows China growing versus the OECD projected contraction. Here are the data for 2020 for selected countries from the World Bank publication:

United States -6.1%

Euro Area -9.1%

Japan -6.1%

China +1.0%

Indonesia 0.0%

Thailand -6.0%

Russia -6.0%

Turkey -3.8%

Poland -4.2%

Brazil -8.0%

Mexico -7.5%

Argentina -7.3%

Saudi Arabia -3.8%

Iran -5.3%

Egypt +3.0%

India -3.2%

Pakistan -2.6%

Bangladesh +1.6%

Nigeria -3.2%

South Africa -7.1%

Angola -4.0%

The World Bank and OECD also have different levels of trade contraction projected for 2020 in their June publications. The World Bank’s projection is for a contraction of 13.4% (page 4) while the OECD’s projection is for a contraction of 9.5% in 2020 (pae 13). These projections compare to the latest WTO projections of contractions between 13% and 32%. April 8, 2020, WTO press release, Trade set to pluge as COVID-19 pandemic upends global economy, https://www.wto.org/english/news_e/pres20_e/pr855_e.htm.

Foreward to the World Bank’s Global Economic Prospects

The World Bank’s recent report in its foreward by the Bank’s President David Malpass provides a stark summary of the challenges for many emerging markets and developing economies and the efforts of the World Bank in finding solutions. The foreward (pages xiii – xiv) is reproduced below:

“Foreword

“The COVID-19 pandemic and the economic shutdown in advanced economies and other parts of the globe have disrupted billions of lives and are jeopardizing decades of development progress.

“This edition of the Global Economic Prospects assesses the impacts of the pandemic and analyzes possible courses and outcomes. It presents clear actions needed by the global community and national policymakers—to limit the harm, recover, and rebuild better and stronger than before.

“The report describes a global economy suffering a devastating blow. Our baseline forecast envisions the deepest global recession since World War II. The report also includes an exhaustive analysis of the outlook for emerging market and developing economies, many of which are now fighting on two fronts—containing the domestic outbreak and its consequences while coping with the economic spillovers from the deep recessions in advanced economies.

“Looking a layer deeper, the report investigates the depth and breadth of the economic and humanitarian storm. The COVID-19 recession is the first since 1870 to be triggered solely by a pandemic. The speed and depth with which it has struck suggests the possibility of a sluggish recovery that may require policymakers to consider additional interventions. For many emerging market and developing countries, however, effective financial support and mitigation measures are particularly hard to achieve because a substantial share of employment is in informal sectors.

“Beyond the staggering economic impacts, the pandemic will also have severe and long-lasting socio-economic impacts that may well weaken long-term growth prospects—the plunge in investment because of elevated uncertainty, the erosion of human capital from the legions of unemployed, and the potential for ruptures of trade and supply linkages.

“The World Bank Group is committed to helping alleviate financing breakdowns from the COVID-19 crisis in ways that work toward a more resilient recovery. Some examples include expanding and increasing the coverage of safety net programs, providing trade finance, and supporting the working capital needs of small and medium-sized enterprises. In the broad COVID-19 response for the poorest nations, World Bank Group resources are being scaled up dramatically and debt service payments by official bilateral creditors were suspended on May 1, with comparable treatment expected by commercial creditors.

“Yet these steps toward financing and liquidity will not be enough. Even before the pandemic, development for people in the world’s poorest countries was slow to raise their incomes, enhance living standards, or narrow inequality. The pandemic and economic shutdown in advanced economies and elsewhere are hitting the poor and vulnerable the hardest – through illnesses, job and income losses, food supply disruptions, school closures and lower remittance flows.

“Thus, policy makers face unprecedented challenges from the health, macroeconomic and social effects of the pandemic. To limit the harm, it is important to secure core public services, maintain a private sector and get money directly to people. This will allow a quicker return to business creation and sustainable development after the pandemic has passed. During this mitigation period, countries should focus on targeted support to households and essential public and private sector services; and remain vigilant to counter potential financial disruptions.

“During the recovery period, countries will need to calibrate the withdrawal of public support and should be attentive to broader development challenges. The Global Economic Prospects report discusses the importance of allowing an orderly allocation of new capital toward sectors that are productive in the new post-pandemic structures that emerge. To succeed in this, countries will need reforms that allow capital and labor to adjust relatively fast—by speeding the resolution of disputes, reducing regulatory barriers, and reforming the costly subsidies, monopolies and protected state-owned enterprises that have slowed development.

“To make future economies more resilient, many countries will need systems that can build and retain more human and physical capital during the recovery—using policies that reflect and encourage the post-pandemic need for new types of jobs, businesses and governance systems.

“Emerging market and developing economies are devoting more public resources to critical health care and support for livelihoods during the shutdown, adding to the urgency of their allowing and attracting more private sector investment. This makes the financing and building of productive infrastructure one of the hardest-to-solve development challenges in the post-pandemic recovery.

“The transparency of all government financial commitments, debt-like instruments and investments is a key step in creating an attractive investment climate and could make substantial progress this year. Faster advances in digital connectivity are also necessary and should get a vital boost from the pandemic, which heightened the value of teleworking capabilities, digital information, and broad connectivity. Digital financial services are playing a transformative role in allowing new entrants into the economy and making it easier for governments to provide rapidly expandable, needs-based cash transfers.

“This edition of the Global Economic Prospects describes a grave near-term outlook. The speed and strength of the recovery will depend on the effectiveness of the support programs governments and the international community put in place now; and, critically, on what policymakers do to respond to the new environment. The World Bank Group is committed to seeking much better outcomes for people in emerging market and developing countries, especially the poor. During the crisis, we call on policymakers to act fast and forcefully: our interventions should be no less powerful than the crisis itself.”

Editorial by Chief Economist to OECD June Economic Outlook

Echoing the challenging times ahead in 2020, the OECD’s Chief Economist Laurence Boon reviews the tightrope that OECD countries face before a vaccine is available. The editorial is reprinted below (pages 7-9)

“Editorial

“After the lockdown, a tightrope walk toward recovery

“The spread of Covid-19 has shaken people’s lives around the globe in an extraordinary way, threatening health, disrupting economic activity, and hurting wellbeing and jobs. Since our last Economic Outlook update, in early March, multiple virus outbreaks evolved into a global pandemic, moving too fast across the globe for most healthcare systems to cope with effectively. To reduce the spread of the virus and buy time to strengthen healthcare systems, governments had to shut down large segments of economic activity. At the time of writing, the pandemic has started to recede in many countries, and activity has begun to pick up. The health, social and economic impact of the outbreak could have been considerably worse without the dedication of healthcare and other essential workers who continued to serve the public, putting their own health at risk in doing so.

“Governments and central banks have put in place wide-ranging policies to protect people and businesses from the consequences of the sudden stop in activity. Economic activity has collapsed across the OECD during shutdowns, by as much as 20 to 30% in some countries, an extraordinary shock. Borders have been closed and trade has plummeted. Simultaneously, governments implemented quick, large and innovative support measures to cushion the blow, subsidising workers and firms. Social and financial safety nets were strengthened at record speed. As financial stress surged, central banks took forceful and timely action, deploying an array of conventional and unconventional policies above and beyond those used in the Global Financial Crisis, preventing the health and economic crisis from spilling over into a financial one.

“As long as no vaccine or treatment is widely available, policymakers around the world will continue to walk on a tightrope. Physical distancing and testing, tracking, tracing and isolating (TTTI) will be the main instruments to fight the spread of the virus. TTTI is indispensable for economic and social activities to resume. But those sectors affected by border closures and those requiring close personal contact, such as tourism, travel, entertainment, restaurants and accommodation will not resume as before. TTTI may not even be enough to prevent a second outbreak of the virus.

“Faced with this extraordinary uncertainty, this Economic Outlook presents two possible scenarios: one where the virus continues to recede and remains under control, and one where a second wave of rapid contagion erupts later in 2020. These scenarios are by no means exhaustive, but they help frame the field of possibilities and sharpen policies to walk such uncharted grounds. Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances. By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.

“The pandemic has accelerated the shift from ‘great integration’ to ‘great fragmentation’. Additional trade and investment restrictions have sprung up. Many borders are closed across large regions and will likely remain so, at least in part, as long as sizeable virus outbreaks continue. Economies are diverging, depending on when and to what extent they were hit by the virus, the preparedness of their healthcare system, their sectoral specialisation and their fiscal capacity to address the shock. Emerging-market economies have also been shaken by the crisis. Commodity prices have plummeted. Large capital outflows, plummeting remittances, weaker healthcare systems and a large share of informal workers have threatened their health, economic and social resilience. Everywhere, the lockdown has also exacerbated inequality across workers, with those able to telework generally highly qualified, while the least qualified and youth are often on the front line, unable to work or laid off, with the effects further compounded by unequal access to social protection. Private debt levels are uncomfortably high in some countries, and business failure and bankruptcy risks loom large.

“Extraordinary policies will be required to walk the tightrope towards recovery. Even if growth does surge in some sectors, overall activity will remain muted for a while. Governments can provide the safety nets that allow people and firms to adjust, but cannot uphold private sector activity, employment and wages for a prolonged period. Capital and workers from impaired sectors and businesses will have to move towards expanding ones. Such transitions are difficult, and rarely happen fast enough to prevent the number of failing firms from rising and a sustained period of unemployment. Governments will need to adapt support and accompany the transition, allowing fast restructuring processes for firms, with no stigma for entrepreneurs, providing income for workers in between jobs, training for those laid off and transitioning to new jobs, and social protection for the most vulnerable. We have previously called for a rise in public investment in digital and green technologies to promote long-term sustainable growth and lift demand in the short term. This is even more urgent today with economies having been hit so hard.

“Today’s recovery policies will shape economic and social prospects in the coming decade. Ultra-accommodative monetary policies and higher public debt are necessary and will be accepted as long as economic activity and inflation are depressed, and unemployment is high. However, debt-financed spending should be well targeted to support the most vulnerable and the investment necessary for a transition to a more robust economy. Public support needs to be transparent and fair. Corporate support from governments must come with transparent rules, with private bond and equity holders taking a loss when government steps in, so that their rewards for taking risks are not excessive. Improving employer-employee relationships should accompany ongoing public support for workers and firms, paving the way for stronger social cohesion and ultimately a stronger and more sustainable recovery.

“The recovery will not gain steam without more confidence, which will not fully recover without global cooperation. Confidence needs to be boosted both at the national and international levels. Household saving rates have soared in most OECD countries, with high uncertainty and rising unemployment holding back consumption. Trade disruptions and the associated threats to supply chains also impede the necessary reduction in uncertainty for investment to resume. Global cooperation to tackle the virus with a treatment and vaccine and a broader resumption of multilateral dialogue will be key for reducing doubt and unlock economic momentum. The international community should ensure that when a vaccine or treatment is available it can be distributed rapidly worldwide. Otherwise the threat will stay. Likewise, resuming a constructive dialogue on trade would lift business confidence and the appetite for investment.

“Governments must seize this opportunity to engineer a fairer and more sustainable economy, making competition and regulation smarter, modernising government taxes, spending, and social protection. Prosperity comes from dialogue and cooperation. This holds true at the national and global level.”

With a lack of Global Cooperation, the WTO is limited to a monitoring of actions by Members and providing transparency

Many of the challenges facing countries, their companies, workers and citizens are not trade related as reviewed in the World Bank and OECD excerpts provided above. But trade does play a role and for many countries a central role in terms of access to needed medical goods and other items. The WTO, as the GATT before it, offers significant leeway to Members to impose export restraints during health emergencies and in other situations. Where there has been a lack of global planning and preparedness for a pandemic, as has been the case with COVID-19, the world finds itself in a situation where demand for medical goods far exceeds supply for extended periods of time for different countries. The desired trade approach of keeping markets open sounds good and is critical for countries with import needs but is typically ignored by many countries that have production capacity and/or inventories, at least temporarily, as all governments look to protect their own populations first.

The G20 has announced some trade actions they are pursuing to ensure trade remains open, although important issues like limiting export restraints and promoting import liberalization are hortatory in nature reflecting the fact that many G20 members have taken and some maintain export restraints or are not supportive of other than ad hoc liberalization initiatives that are necessarily other than temporary.

Two recent speeches by Deputy Director-General Alan Wolff review what the WTO has been able to do to date in the pandemic (limited to seeking notifications of actions by Members, publishing information on the same, developing a trade forecast), what WTO Members have proposed as potential WTO initiatives (to date proposals have been from mid-sized economies and are open for signature by other Members) and the opportunities and challenges for reform of the WTO moving forward. See DDG Wolff, “The challenges are not over”, June 5, 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_05jun20_e.htm; DDG Wolff, “There can be no permanent retreat from what has been created”, June 10, 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_11jun20_e.htm.

The information collected by the WTO and posted on its website, the information notes on various trade topics affected by the pandemic, the efforts to interact with other multilateral organizations and with the business community are all helpful for Members and their constituents to understand what is happening in the trade environment and how the pandemic is affecting areas of trade, types of Members and so on.

It is also the case that initiatives proposed and actions taken by individual countries to improve the market environment, ensure greater market openness and speed availability of medical goods are helpful even if not embraced by the entirety of the WTO membership.

But there is little doubt that there is not the level of global cooperation nor the leadership from the major players to minimize the global fallout from the pandemic or to maximize the speed of the global recovery.

There is no obvious road ahead to greater cooperation or to the meaningful emergence of leadership by the majors in the remainder of 2020. Let’s hope that observation proves to be incorrect. The costs of failure to better cooperate and for the majors to lead in fact are likely unprecedented and will affect the lives of billions of people.

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

· June 3, 2020 · Digital services tax, Uncategorized · , , , , , , , , , , , , , · No Comments

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

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

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

USTR FR notice 301 investigation on digital services

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

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

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

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

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

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

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

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

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

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

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

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

Report_On_France’s_Digital_Services_Tax

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

Conclusion

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

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

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

 

 

 

 

 

COVID-19 – OECD first policy brief on trade issues related to the pandemic

· April 13, 2020 · Uncategorized · , , , , , , , , , · No Comments

As the world moves towards two million confirmed COVID-19 cases later this week (week of April 13) and global deaths near 125,000, the EU and the United States continue to hold center stage with the largest number of cases and deaths. As of April 11th, the EU represented 39.29% of confirmed cases and 57.9% of deaths. The UK (now not part of the EU) was 4.25% of confirmed cases and 8.77% of deaths. The United States had 30.34% of confirmed cases and 18.39% of deaths. Collectively, the EU, UK and US have had 73.88% of confirmed cases, 85.07% of deaths despite having just 10.86% of the world’s population. See attached table.

Situation-update-worldwide-as-of-11-April-2020

The rate of infection is picking up in a wide range of countries, including in areas with larger populations and often lower per capita incomes. Prior posts have looked at a range of issues surrounding COVID-19 and trade policy responses, including proposals from business groups, intergovernmental organizations and the actual response of countries and territories attempting to deal with the global health pandemic.

On Friday, April 10, the OECD released the first in a series of policy briefs on trade issues related to COVID-19, The title of the policy brief is simply, COVID–19 and International Trade: Issues and Actions. https://read.oecd-ilibrary.org/view/?ref=128_128542-3ijg8kfswh&title=COVID-19-and-international-trade-issues-and-actions.

The policy brief starts with the statement that “In a challenging and uncertain situation, trade is essential to save lives – and livelihoods”. Going beyond the March 2020 OECD Interim Economic Outlook estimate of the impact of global growth (halved to 1.5%), the policy brief estimates that each month extension of containment measures will further reduce global growth by 2 percentage points. The brief then reviews the wide range of challenges to nations and the world in both coping with the health dimensions of the pandemic and the extraordinary challenges to economies, national and private sector debt, employment and other issues. The estimated “initial impact on activity of partial or complete shutdowns on activity in a range of economies” shows GDP declines of 15-35% (page 2, figure 1).

The policy brief then identifies four actions that can be taken by governments to improve trade flows and reduce the negative effects on economies:

“First boost confidence in trade and global market by improving transparency”

“Second, keep global supply chains going, especially for essentials”

“Third, avoid making things worse”

“Fourth, look beyond the immediate: Policy actions now could have a long life”

Improved transparency

The policy brief supports the need for governments to notify trade-related measures that are taken in response to the pandemic to the WTO. The WTO website contains a page on COVID-19 which lists notices provided to the WTO from governments (both trade restricting and trade liberalizing) in response to COVID-19. As of April 9th, 41 notifications had been received. https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm.

The OECD also shares information it receives with the WTO. In addition, the OECD provides information on agriculture production and trade to the Agricultural Market Information System “to ensure accurate, up-to-date information on market developments and country policies in critical commodities for the global food system.” Page 3.

With more than 60 trade restrictive measures flagged by observers, the efforts at improved transparency are a work in progress obviously dependent upon the actions of WTO Members.

Keeping supply chains going

The OECD policy brief reviews a range of developments since the start of the pandemic which have raised costs and complicated the flow of trade:

  1. Loss of air cargo as part of reduction in passenger flights;

2. Drop in ship traffic and increased procedures and documentation requirements; vs. establishment of some “green lanes” at ports and border crossing points;

3. Location of shipping containers in China at time of pandemic, creating shortages and raising costs;

4. Labor availability at ports reduced in many cases or increased costs from additional protective measures;

5. Limits on mobility of people affecting various trade processes (inspections, etc.);

6. Higher costs throughout supply chains from increased protective measures for workers.

For essential medical supplies, the OECD policy brief calls for removing tariffs, expediting certification procedures and enhancing trade facilitation..

While the policy brief recognizes the need for expanded production in a later section, it doesn’t address the need for increased transparency on or coordination of such efforts to expand production despite the obvious fact that a pandemic which moves around the globe creates temporary acute shortages of medical supplies where trade could minimize harm to populations going through surges in infections.

As reviewed in my post of April 10 on scarcity, a significant part of the health challenge in medical goods in the current COVID-19 pandemic flows from the rapid demand expansion exceeding global supply availability. This contrasts with food security issues in 2020 where there are adequate supplies of key agriculture products but there are concerns because of border closures, mobility issues and the like.

Avoid making things worse

The OECD policy brief has avoiding export restrictions on essential goods as the chief action countries can take to avoid making things worse. The brief reviews the 2007-2008 food price spikes that flowed from large scale export restraints on agriculture products and the harm done to many countries as a result.

In discussing food security, the brief states, “While there is not an immediate threat to global supplies of basic foodstuffs, there is the potential for specific food supply chains to be severely disrupted, including from lack of seasonal workers for planting or harvesting key crops, logistics constraints, and additional SPS and technical measures. Vigilance will be required to ensure that crisis- or policy-induced risk factors do not cause disruptions in supply, in particular if the containment measures related to COVID-19 are long-lived. ” Pages 5-6

For essential medical goods, there is a critical need for expanded production which some governments are pursuing often in connection with their private sectors. Trade challenges on essential medical goods include the use of export restraints, guaranteed purchases and requisitioning of goods. More than 60 countries have imposed export restraints, and, with the US and EU the current centers of COVID-19 infections, many other countries are having great difficulties obtaining adequate or any supplies.

OECD recommendations, such as limiting future export restraints, reducing tariffs and not imposing new tariffs or trade restrictive measures, are similar to those recommended by other groups. However, nothing in the recommendations deals with the very real need for better information on supply availability and expansions vs. current and projected demand, or for the possible role of international organizations or others in coordinating shifting of supplies from countries that have gotten past the worst of the pandemic to others with limited capacities and resources.

Look beyond the immediate: Policy actions now could have a long life

The OECD policy brief examines three sets of issues in terms of future implications — the massive financial assistance being provided, the examination of the shape of global supply chains, and preparing for future pandemics. These are taken up in turn below.

A. Governmental financial assistance

Because of the massive support governments are pumping into their economies to avoid collapse (some $8 trillion based on some recent estimates), there are obvious questions about how such support is structured, how governments will modify their conduct once the pandemic is past or economies have reopened. As the policy brief states,

“The scale of public investments needed during and after the crisis – from health systems and social protection, to access to education and digital networks – underscores the need for support to firms and sectors to be as efficient as possible to maximise available public resources. Well-designed support will also be less market-distorting and give rise to fewer concerns about the impact on international competition. Fairness – in both the national-level distribution of benefits ad in global competition – is essential for maintaining public support for trade and the open markets need to get through and emerge from the crisis.” Page 8.

Key principles for support granted include the following, according to the policy brief:

  1. Support should be transparent (including terms of support);
  2. non-discriminatory and not used to rescue companies that would have failed absent the pandemic;
  3. time limited and reviewed for continued relevance/need;
  4. targeted at consumers vs. tied to consumption of specific goods and services.

B. Global supply chains

An issue important to a number of governments has been the structure of existing supply chains and whether supply chains should be reshored or at least shortened. The OECD policy brief focus on rethinking the “resilience” in global supply chains but cautions against quick answers or simply reshoring.

C. Being ready for the next pandemic

The OECD policy brief also reviews actions the global community should take to be ready for the next pandemic. Five elements of a possible agreement among countries are suggested for consideration:

  1. “Ensuring transparency”;
  2. “Cutting tariffs on essential medical products”;
  3. “Disciplines on export restrictions” (essentially G20 language);
  4. “Upfront investments in co-operative solutions” (including creation of stockpiles at national or regional level);
  5. “addressing the needs of the most vulnerable countries”.

Conclusion

The first OECD policy brief is a useful contribution to the discussion of trade issues that can and should be addressed to reduce the negative effects of the COVID-19 pandemic both in the short-term and in the recovery phase. The proposals are not surprising and reflect underlying views of the member countries. As is true of other papers and proposals for action, collective action depends on leadership and willingness of like-minded countries to act for the common good. With a serious pandemic with dimensions not experienced in 100 years, large and advanced economies have talked the talk of cooperation and keeping markets open but haven’t always walked the walk of greater global cooperation or avoiding trade restrictive measures.

The actions of major governments are not surprising considering the pressing needs for supplies within countries that have been at the epicenter of the pandemic in the early months of its existence or the reaction of others worried about supplies or about food security. Political leaders obviously respond to the needs of their citizens first, particularly where needs are about life and death.

Unfortunately, such local focus doesn’t help smaller and/or economically weaker countries, many of whom may find themselves part of the epicenter of the pandemic in coming months.

Moreover, governments around the world generally have shown a poor ability to spend the money to prepare for future events which are uncertain as to timing or severity. It seems unlikely that the pandemic of 2020 will result in greater collective action and preparation for the future.

Indeed, the extraordinary sums that are being needed to avoid total collapse of economies in 2020 will create additional challenges for the global trading system going forward and will likely limit actual efforts to avoid a repeat in the future.

End note

The OECD has indicated that they have four additional policy briefs in the series under preparation. The future briefs deal with trade facilitation, government support, global value chains for essential goods and services trade (page 11), in addition to a paper looking at COVID-19 and Food and Agriculture: Issues and Actions.