Taiwan

WTO initiatives on trade and the environment — likely to receive a warm welcome under a Biden Administration

The challenges facing the world from climate change are staggering and getting worse. While the Trump Administration withdrew the United States from the Paris climate agreement, a Biden Administration will have the U.S. rejoin and work with other nations to find solutions to the pressing problems.

Today in Geneva, two initiatives were announced by groups of WTO Members. One addresses trade and environmental sustainability and was presented in a communication from 49 Members. Communication on Trade and Environmental Sustainability, WT/CTE/W/249 (17 November 2020). Neither the U.S., China, India, Brazil nor South Africa are on the communication though most developed countries and other Members are initial sponsors. The communication is embedded below.

W249

The second initiative was the launch of an informal dialogue on plastics pollution and environmentally sustainable plastics trade. Seven Members are launching the informal dialogue. All Members are welcome to participate. The seven Members involved in the launch are Australia, Barbados, Canada, China, Fiji, Jamaica and Morocco. Only Australia, Canada and Fiji are part of both initiatives. The press release from the Secretariat on today’s initiatives included the following discussion of the plastics initiative.

“The dialogue is borne out of the recognition of the need for coordinated action to address the rising environmental, health and economic cost of plastics pollution and the importance of the trade dimension as a solution.

“Proponents aim to circulate their communication soon. * * *

“Ambassador Xiangchen Zhang of China said at the online event that possible subjects for discussion include improving transparency, monitoring trade trends, promoting best practices, strengthening policy coherence, identifying the scope for collective approaches, assessing capacity and technical assistance needs, and cooperating with other international processes and efforts. Ambassador Nazhat Shameem Khan of Fiji said they hope this informal dialogue will encourage discussion and exploratory work on how the WTO can contribute to efforts to reduce plastics pollution and transition to a circular, more environmentally sustainable plastics trade.”

Deputy Director-General Alan Wm Wolff spoke at today’s event and identified a range of initiatives that have been looked at by the Committee on Trade and Environment, or that could be, that could help move forward both initiatives including resuming talks at eliminating tariffs and non-tariff barriers on environmental goods and services, reforming subsidies on fossil fuels, promoting a global circular economy, addressing the carbon content of traded products and other actions.

The press release and DDG Wolff’s remarks are embedded below.

WTO-_-2020-News-items-New-initiatives-launched-to-intensify-WTO-work-on-trade-and-the-environment

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff-remarks-on-the-Structured-Discussions-on-Trade-and-Environmental-Sustainability

Likely U.S. engagement in a Biden Administration

Because addressing the challenges from climate change are a core priority for the incoming Biden Administration, I would expect that once the new trade team is in place, the U.S. will become involved in both of the initiatives and other activities at the WTO on the importance of finding rules and solutions to pressing trade and environment issues.

The Biden team almost certainly supports most if not all of the items identified in paragraph 1 of the Communication (WT/CTE/W/249), including the importance of multilateral environmental agreements, that there is an urgent need for action on climate change, that trade and environmental objectives and policies should be mutually supportive, that trade and trade policy need to support efforts to reach the Sustainable Development Goals, among others. Similarly, the Biden Administration will presumably strongly support the four areas of activity identified in paragraph 2 of the Communication:

“2. Therefore, express our intention to collaborate, prioritize and advance discussions on trade and environmental sustainability, including by:

“intensifying our work to share experiences and best practices; promote transparency, dialogue and information sharing along the full value chain of products and materials;

“strengthening coherence at the national and international level with a view to identifying areas of common interest and for future work within the WTO, in order for WTO to address more effectively sustainable development issues;

“working in cooperation with relevant international organizations and relevant actors, including the private sector, to identify and support technical assistance and capacity building needs of Members, and in particular least-developed countries (LDCs).

“working on possible actions and deliverables of environmental sustainability in the various areas of the WTO.”

Similarly, I would expect the Biden Administration to have an active interest in working with industry and other governments to address the challenges of plastics pollution, although U.S. interests are likely to be more action oriented than the items teed up by China at today’s announcement.

Conclusion

For years, many Members have fought focusing energies at the WTO on issues involving trade and the environment. With the climate change crisis and consequences being felt around the world, it appears that many or most WTO Members are appreciating the need for the WTO to play its role in addressing sustainable development and the climate change challenge.

With a new U.S. Administration, the U.S. should be a very active participant in moving the WTO and its Members forward.

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

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

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

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

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

Some recent developments

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

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

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

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

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

Trade Considerations

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

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

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

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

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

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

Role of WTO during Pandemic

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

Similar language was in the aluminum proclamation.

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

The U.S. Trade Deficit – Data for First Thirty-Three Months of the Trump Administration (2017-Sept. 2019)

The U.S. trade deficit has been at extraordinarily high levels for many years, having ranged from $766.6 to 818.0.billion/year during 2005-2008 (2nd term of President George W. Bush).  After a sharp contraction in trade during the 2009-2010 period as the country dealt with the great recession flowing from the financial crisis that started in 2008 (with resulting significantly lower trade deficits), trade deficits ran from $689.5 to $745.5 billion/year during the 2011-2016 years of President Obama’s tenure (2016 trade deficit was $735.3 billion).

President Trump has had a significant focus on trade issues during his presidency.  His Administration has attempted to address the chronic trade deficit the country has developed over the last fifty years through improved trade deals, aggressive enforcement of various trade laws and some domestic actions (regulations and taxation).  Despite these actions, the first two years and nine months of the Trump Administration saw a significant expansion of the trade deficit in 2017 ($793.4 billion) and 2018 ($874.8 billion) – an increase by 2018 of 18.97% over 2016 levels) – with a stabilization in the first nine months of 2019 (up 1.43% from the first nine months of 2018 at $647.6 billion).

A growth in the trade deficit during 2017-2019 reflects various causes including:  (1) continued economic growth in the U.S. and slower growth rates in much of the rest of the world; (2) a delay in the trade balance effects flowing from the Administration’s trade actions against China under Section 301 of the Trade Act of 1974 and against many countries on steel and aluminum under Section 232 of the Trade Expansion Act of 1962; (3) retaliation by various trading partners for actions taken by the U.S.; and (4) shifts in currency values.

The huge trade deficit with China declined by $38.5 billion or by 12.77% in the first nine months of 2019 reflecting the large tariffs applied by the U.S. on huge parts of Chinese exports to the U.S. which exceeded the contraction in U.S. exports to China flowing from retaliation by the Chinese.  However, there was more than a $47.7 billion increase in the deficit from trade flows with other countries during the first nine months of 2019.  Below are some of the countries with whom the U.S. trade deficit has increased in the first three quarters of 2019 by more than $5.0 billion.  Data reflect the size of the increase in the U.S. trade deficit with the particular country: :

Country or Group of Countries Increase in U.S. Trade Deficit
9 months 2019
Mexico $17.0 billion
European Union (28) $12.0 billion
Vietnam $11.7 billion
Switzerland   $7.3 billion
Taiwan   $6.5 billion
Subtotal $54.5 billion

Vietnam and Taiwan could be in some significant part the result of shifting shipments from China to neighboring countries where Chinese or other producers have investments, where producers have found alternative sourcing or where there has been shipment of products from China which have been mislabeled as to origin.

Similarly, the large increase from Mexico may reflect in part a move back to Mexico or increased sourcing from Mexico for companies previously sourcing from China.    An UNCTAD Research Paper (No. 37) entitled “Trade and trade diversion effects of United States tariffs on China” released recently made similar findings for imports in the first half of 2019.  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2569.  As noted in the Abstract to the paper (page 1):

“This paper finds that United States tariffs against China have resulted in a reduction in imports of the tariffed products by more than 25 percent. The analysis finds that China’s export losses in the United States have resulted in trade diversion effects to the advantage of Taiwan Province of China, Mexico, the European Union and Viet Nam among others. The analysis also finds that those effects have increased over time. The analysis finds some preliminary evidence that Chinese exporters may have started to bear part of the costs of the tariffs in the form of lower export prices. Overall, the results indicate that the United States tariffs on China are economically hurting both countries. United States losses are largely related to the higher prices for consumers, while China’s losses are related to significant export losses.”

The shift in trade balance for the mentioned countries and for the U.S. as a whole is explained in the following table which shows the change in U.S. total exports and in U.S. general imports during the first nine months of 2019 vs. the same period of 2018:

Country US Exports US Imports US Trade Balanace
China  -$15.2 BN  -$53.0 BN  +$47.7 BN
Mexico    -$4.3 BN +$12.8 BN   -$17.0 BN
European Union (28) +$14.0 BN +$26.0 BN   -$12.0 BN
Vietnam   +$1.0 BN +$12.7 BN   -$11.7 BN
Switzerland    -$4.5 BN   +$2.8 BN     -$7.3 BN
Taiwan   +$0.5 BN   +$7.0 BN     -$6.5 BN
Subtotal (Mex.-
Taiwan)
  +$6.7 BN +$61.3 BN   -$43.5 BN
From all countries =$15.2 BN    -$6.0 BN     -$9.2 BN

Thus, in the first nine months of 2019, US trade with China fell in both directions, with imports from China declining by $53.0 billion and U.S. total exports to China declining $15.2 billion.  Trade with Mexico and Switzerland saw declines in U.S. total exports to each country (-$4.3 billion and -$4.5 billion respectively) while imports from those countries into the U.S. increased (+$12.8 billion and +$2.8 billion).  For the European Union, Vietnam and Taiwan, the U.S. saw total exports increase, but at much slower amounts than the increase in U.S. imports from those countries.  

When looking at the 2-digit HS categories that saw the largest changes in the U.S. trade balance with China in 2019, the three largest improvements in the U.S. trade balance with China were in HS chapters 84, 85 and 94 dealing with nonelectrical equipment, electrical equipment and furniture respectively. The U.S. trade balance with China improved by $17.0 billion, $18.8 billion and $4.0 billion for these three chapters respectively, largely due to contractions in imports from China on those items.  In a prior post (October 13) on the announced likelihood of a first phase U.S.-China agreement, I reviewed the contraction in U.S. exports of agricultural products, particularly soybeans, that happened in 2018 (down $10.2 billion from 2017).  There has been some limited improvement in U.S. exports of soybeans in the first nine months of 2019 and so no agriculture products saw huge declines in exports in 2019 or large reductions in the US trade surplus with China this year.

 Some of the U.S. trade balance improvement vis-à-vis China on these specific manufactured  goods was offset by increased deficits with Mexico ($1.7 billion for Chapter 84, $1.3 billion for Chapter 85), the EU ($6.9 billion for Chapter 84), Taiwan ($4.3 billion for Chapter 84, $1.7 billion for Chapter 85) and Vietnam ($0.5 billion for Chapter 84, $7.6 billion for Chapter 85, $1.3 billion for Chapter 94).

The challenge for any administration attempting to change trade flows is the time it takes to achieve new agreements, to implement specific actions, and to design and obtain approval for new legislation.  Such challenges reflect the state of play for many of the Trump Administration’s trade efforts to date.  Benefits from the initial agreements with Japan signed on October 7 will likely be seen in 2020 if Japan is able to implement the agreements through legislation this month as is reported as possible in the media.  Changes from the USMCA will depend on whether and when Congress takes up implementing legislation.  The Administration is hoping to conclude and sign a first phase trade agreement with China yet this year.  Such an agreement with China will likely result in at least a standstill on tariffs against China and likely some reductions in tariff levels phased in over time based on results of implementation efforts by both sides.  An agreement with China would also improve market conditions for some U.S. products shipped to China, with reported commitments for increased purchases of various U.S. agricultural products as but one example.  Discussions are ongoing with other countries on specific trade concerns, and so additional improvements in market access may yet occur during the current term of President Trump’s Administration. 

Businesses understandably look for predictability in both the trade environment and the rules of engagement with trading partners.  With the heavy focus on revising domestic trade policy and the aggressive use of legislative tools on the books, the Trump Administration’s efforts to date have created a great deal of uncertainty for businesses.  Some businesses have been harmed at least short term, others have benefited from the actions taken by the Administration.  Whether the changes being pursued by the Administration will achieve the objectives sought is an open question.  A review of the changes in trade flows (U.S. imports and U.S. exports) from the Trump Administration’s first thirty-three months in office show that changes towards greater trade balance will not occur quickly nor without a fair amount of disruption to supply chains, business models and companies and many workers.  A more sustainable trade environment is an important objective.  Not since the early 1970s has an Administration been concerned about large and increasing trade deficits.  The Trump Administration has been concerned and has been attempting to change domestic and international trade policy to restore greater balance.  Whether meaningful change will occur is almost certainly a multiple Administration project.  Whether the project will be pursued will depend in part on what is achieved under the current Administration.

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