transparency

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

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

U.S. concerns

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

China concerns

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

Trump Administration changes approach

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

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

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

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

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

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

COVID-19 Complicates the Bilateral Relationship

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

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

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

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

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

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

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

Challenges for the WTO

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

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

Conclusion

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

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

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

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

Look for a challenging second half of 2020.

G20 Trade and Investment Ministerial Meeting — Meaningful Help for COVID-19 Response and WTO Reform?

On May 14, 2020, the G20 trade and investment ministers held a virtual meeting to consider proposals for joint action pulled together by the Trade and Investment Working Group (“TIWG”) on the topic of “G20 Actions to Support World Trade and Investment Through the COVID-19 Pandemic”.

The Ministerial statement released on the 14th endorsed the TIWG proposals which were attached to the statement and contain both short-term actions designed to “alleviate the impact of COVID-19” and longer-term actions intended to “support the necessary reform of the WTO and the multilateral trading system, build resilience in global supply chains, and strengthen international investment.” https://g20.org/en/media/Documents/G20SS_Statement_G20%20Second%20Trade%20&%20Investment%20Ministerial%20Meeting_EN.pdf.

The WTO’s Director-General Roberto Azevêdo welcomed the Ministerial statement and provided the following characterization of its content:

“DG Azevêdo hails G20 pledges on trade cooperation in COVID-19 response

“WTO Director-General Roberto Azevêdo welcomed G20 ministers’ endorsement of collective action measures to mitigate the impact of the COVID-19 pandemic on trade and investment and help foster
global economic recovery. The initiatives were endorsed at a virtual meeting of the G20 trade and investment ministers on 14 May.

“The actions include short-term responses designed to prevent trade logjams and facilitate trade in products needed to contain COVID-19, as well as longer-term support to reform the multilateral trading system, build resilience in global supply chains, and strengthen international investment.

“The G20 ministers pledged to promote WTO reform and ‘support the role of the multilateral trading system in promoting stability and predictability of international trade flows’. They agreed to ‘explore COVID-19 related WTO initiatives’ to promote more open and resilient supply chains, and expand production capacity and trade in pharmaceuticals, medical and other health-related products

“’These commitments by G20 ministers represent an important collective response to the trade-related challenges raised by the COVID-19 pandemic,’ said DG Azevêdo. ‘Maintaining stability and predictability in trade relations is critical to ensuring that essential medical supplies are available to save lives, and that global food security and nutrition do not become a casualty of this pandemic.’

“Echoing language from their first crisis meeting in late March, G20 ministers said that any emergency restrictions on trade in vital medical supplies and services should be targeted, proportionate, transparent and temporary, and should not create unnecessary barriers to trade or disrupt global supply chains. They also agreed to strengthen transparency and notify the WTO of any trade-related measures taken. They urged governments to refrain from excessive food stockpiling and export restrictions on agricultural products.

“In addition, the G20 ministers endorsed trade facilitation initiatives, including accelerated implementation of provisions in the WTO’s Trade Facilitation Agreement, such as pre-arrival processing and expedited shipment, which could speed up access to essential goods during the pandemic. They also called for streamlining customs procedures and encouraging greater use of international standards to reduce sanitary and technical barriers to trade.

“Ministers also agreed to work together to identify key areas where investment is needed, in particular for critical medical supplies and sustainable agriculture production, and to encourage
investment in new production capacity for medical supplies.

“The extraordinary meeting of G20 trade and investment ministers was organized by the Kingdom of Saudi Arabia, which currently holds the group’s rotating presidency.”

https://www.wto.org/english/news_e/news20_e/igo_14may20_e.htm.

Because the G20 member countries have differing views on flexibilities needed, already taken, and potential space that may be needed in the future, much of the “actions” agreed to are more aspirational than commitments to avoid trade restrictive actions.

ANNEX to Ministerial Statement of May 14, 2020, G20 Actions to Support World Trade and Investment in Response to COVID-19

The Annex to the Ministerial Statement contains 19 “short-term collective actions” broken into five areas — “trade regulation”; “trade facilitation”; “transparency”; “operation of logistics networks”; and “support for micro, small, and medium-sized enterprises (MSMEs)”.

Trade regulation

On trade regulation, the three specific actions don’t ban export restraints for medical goods or agricultural products but rather provide avenues for such actions to be taken.

On medical goods, the action taken merely repeats the prior statement from the trade and investment ministers that any such actions are “targeted, proportionate, transparent, temporary” and “do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules”. Para. 1.1.1.

Similarly, on agricultural restrictions, G20 countries agree to “refrain from introducing export restrictions” “avoid unnecessary food-stockpiling” but “without prejudice to domestic food security, consistent with national requirements.” Para. 1.1.2.

Finally, there is an aspirational action to “Consider exempting humanitarian aid related to COVID-19 from any export restrictions on exports of essential medical supples, medical equipment and personal protective equipment, consistent with national requirements.” Para. 1.1.3.

Considering the number of G20 countries who have had in place or continue to have in place export restraints on medical goods and the history of export restraints on agricultural goods and/or buildup of food stockpiling by some G20 countries, it is not surprising that more ambitious objectives have not been possible. For example, information compiled by the WTO Secretariat shows that nearly all G20 countries have had or continue to have export restraints on medical goods flowing from the COVID-19 pandemic. Indeed, the US, EU, Argentina, Australia, Brazil, India, Indonesia, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey and the United Kingdom are in the WTO data. While China is not included, their export restrictions on medical goods likely predated the data collection done by the WTO Secretariat. See https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. Similarly, Russia has agricultural export restraints in place and China, India and Indonesia have used them in the 2007-2008 food shortage challenge.

Trade facilitation

The Annex includes eight agreed “actions” under the heading of trade facilitation. Most of these actions are similarly not binding but are aspirational or encouraged. In fact five of the eight include the word “encourage”. Others include language like “to the extent possible” or “as appropriate and according with applicable national legislation”.

That said, many of the G20 countries and others have been taking actions to streamline the release of imported medical goods and other actions that are consistent with the objectives of the Trade Facilitation Agreement.

Two of the provisions under trade facilitation really go to the issue medical goods capacity, product availability and capacity expansions and are noteworthy as encouraging sharing of information on producers of product and also encouraging expansion of medical goods capacity. Paras. 1.2.4 and 1.2.5. As I have noted in prior posts, there has been and continues to be an imbalance between global capacity to produce the medical goods needed to fight COVID-19 and the demand for countries experiencing outbreaks. See, e.g., Shifting Trade Needs During the COVID-19 Pandemic, https://currentthoughtsontrade.com/2020/04/28/shifting-trade-needs-during-the-covid-19-pandemic/. If the world doesn’t address the supply/demand imbalance, it is highly improbable that most countries won’t enact export restraints to prevent the loss of needed goods that are in country during surging demand. While neither G20 agreed action is binding, both are helpful to improve knowledge of available supplies and hopefully to expand that supply.

The last trade facilitation action merely calls for G20 countries to “Support the efforts of international organizations (WTO, FAO, WFP, etc.) to analyze the impacts of COVID-19 on global agricultural supplies, distribution chains and agri-food production and trade.” Para. 1.2.8. Many of the G20 are signatories to statements indicating they will not impose export restraints on agricultural goods or urge restraint on the use of such restraints. There has not been a food shortage in 2020, and mechanisms put in place after the 2007-2008 food shortages to monitor food supplies have helped to provide governments with better information on likely problems. At the same time, the COVID-19 pandemic has created challenges in getting agricultural products harvested, processed and distributed. If these challenges are not properly handled, the world could find local or regional food shortages not because of lack of product but from an inability to get the product harvested, processed and distributed. With COVID-19 outbreaks in meat processing plants in various countries (United States, Canada, Germany to name just three) and with travel restrictions limiting movement of temporary farm workers, the challenges are real. Work of the international organizations is important for information gathering and dissemination.

Transparency

There are two action items under transparency — to share experiences and best practices; to notify trade-related measures to the WTO as required by obligations to the WTO.

The first should be helpful depending on openness of governments and willingness of governments to share experiences in fact. The latter action reflects the fact that countries (whether G20 or otherwise) have in some cases been slow to provide notifications or have taken limited views of their obligations to report certain trade related activities.

Operation of logistics networks

The four agreed actions under this title all involve trade ministers encouraging G20 Transport Ministers to take actions that will speed the movement of medical goods, increasing air cargo capacity, improve transparency on enforcement measures and “to abide by international practices and guidelines to ensure the movement of goods through maritime channels.” Paras. 1.4.1 – 1.4.4.

Support for micro, small, and medium-sized enterprises (MSMEs)

There are two action items for this topic — calling for reports from international organizations that would look at the “disruption of global value chains caused by the pandemic on MSMEs”; and encouraging enhancement of communication channels and networks for MSMEs, including through deepened collaboration with the private sector.” Paras. 1.5.1 and 1.5.2.

MSMEs are important engines of economic growth for all countries and are significantly adversely affected by the governmental actions needed to address the COVID-19 pandemic. For many countries, the bulk of the response for MSMEs will be through financial support legislation as can be seen by summaries of actions taken compiled by one or more of the international organizations. See, e.g., IMF, Policy Responses to COVID-19, https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19 Thus, the two actions contained in the G20 trade and investment ministers statement are helpful for considering future actions but don’t address the core immediate needs which are handled by other ministers.

Longer-term collective actions

The Annex also contains nineteen specific agreed actions for the longer term. The actions are broken into three topics — supporting the mutilateral trading system; building resilience in global supply chains; and strengthening international investment.

Like the short-term actions, the agreed list reflects the limitations on achieving G20 consensus because of different perspectives of G20 members. Some members like the EU have an interest in pursuing tariff eliminations on medical goods, an issue that the U.S. is not willing to explore until the pandemic has passed. Thus, there is no action item to achieve tariff elimination on such products in the longer-term actions.

Supporting the multilateral trading system

There are seven action items which include WTO reform (para 2.1.1), how the G20 can support work at the WTO (para 2.1.2), strengthening transparency and WTO notifications (para. 2.1.3), working “together to deliver a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and to keep our markets open” (para. 2.1.4), “work to ensure a level playing field” (para. 2.1.5), importance of interface between trade and digital economy and need for e-commerce agreement (para. 2.1.6), and exploring “COVID-19 related WTO initiative to promote open and more resilient supply chains, and expand production capacity and trade” in medical goods (para. 2.1.7).

These action items will have very different meanings depending on the G20 member who is interpreting them. Thus, the EU, Japan and the U.S. would have very different interpretations of ensuring a level playing field than would China and possibly others. India and South Africa have different views on e-commerce and making permanent no tariffs on digital trade than would the U.S., Japan and others

Still support for WTO reform, global rules on e-commerce, increased transparency and the other issues should help provide some focus in the ongoing efforts at the WTO for a future agenda and reform.

As noted in the short-term actions, greater focus by G20 countries on the supply/demand imbalance in medical goods is critical to avoid many of the same shortage issues in future pandemics or future waves of the COVID-19 pandemic. Thus, the support for para. 2.1.7 is potentially important.

Building resilience in global supply chains

There are five action items included under this topic which are positive. These include sharing best practices, strengthening cooperation on regulation of trade (including customs and electronic document management), ensuring transparency of trade-related information useful to MSMEs, encouraging cooperation between multinationals and MSMEs, and establishing voluntary guidelines that would permit essential cross-border travel during a health crisis. Paras. 2.2.1 – 2.2.5.

While these action items could be useful going forward, there is a major omission in this important category. Does building resilience in global supply chains necessitate building in increased redundancy or for onshoring some products or inputs? This is an important issue that has raised concerns among some G20 members that there is too great dependence on certain countries for input materials and that supply chains don’t have sufficient redundancy or are too “global” and not sufficiently regional or national. The United States, for example, has expressed concerns about over dependence on other countries and has been looking at encouraging domestic production of some key products/inputs. Such an approach is not supported by the EU or China. See statement of Ambassador Lighthizer at the virtual G20 Trade and Investment Ministers meeting of May 14 and the statements of the U.S., EU and Chinese Ambassadors to the WTO’s virtual General Council meeting on COVID-19 responses lays out the different perspective on this and some other issues. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/second-g20-extraordinary-trade-and-investment-ministers-meeting-remarks-ambassador-robert-e; https://geneva.usmission.gov/2020/05/15/statement-by-ambassador-dennis-shea-at-the-may-15-2020-general-council-meeting/; https://eeas.europa.eu/delegations/world-trade-organization-wto/79401/eu-statement-informal-general-council-meeting-15-may-2020_en; http://wto2.mofcom.gov.cn/article/chinaviewpoins/202005/20200502965217.shtml. While G20 countries generally all agree that it is not possible to be self-sufficient in the medical goods area, that view doesn’t answer the question of whether supply chains should be changed or whether there are certain products where a country or countries could decide self-sufficiency is sufficiently important to take different actions. From the very different views on this topic, it is not surprising that the G20 collective long-term actions were limited in the building resilience group of actions, and such differences also likely influenced the language used in the third section on strengthening international investment.

Strengthening international investment

The last seven long-term collective actions focus on the obvious need for improved investment in medical goods to reduce the stress on the global system that has flowed from the imbalance in supply versus demand and the lack of adequate national, regional and global inventories.

Collective actions include sharing best practices on promoting investments in sectors where there have been shortages (para. 2.3.2), working together to identify key areas where additional investment is needed in both medical goods and agriculture (para. 2.3.3), and four paragraphs (2.3.4 – 2.3.7) encouraging investment in new capacity, working with the private sector to identify opportunities, and other items. The last action item calls on G20 governments to “Encourage cooperation on technical assistance and capacity building provided to developing and least developed countries on investment promotion.” Para. 2.3.7.

Because many countries have been encouraging expanded production of medical goods since the outbreak of the pandemic, there is a great deal of investment that has been happening, including converting (at least short term) production lines to medical goods in short supply. Missing from the collective actions is any encouragement to the Finance Ministers to ensure the international organizations work with developing and least developed countries to ensure adequate regional inventories of medical goods to help such countries address outbreaks of COVID-19.

The G20 Trade and Investment Ministers Statement of May 14 is embedded below.

G20SS_Statement_G20-Second-Trade-Investment-Ministerial-Meeting_EN-1

Conclusion

The COVID-19 pandemic continues to infect millions of people around the world and has resulted in massive economic dislocations and the loss of tens of millions of jobs just in the United States. The G20 has been doing a reasonable job of providing leadership in how to address the pandemic and how to help the world recover as the pandemic recedes. The significant differences between G20 members on some issues have resulted in actions being taken that are either aspirational or simply encouraged, as stronger action was not possible absent consensus. But the May 14 Ministerial Statement is another positive step and provides ongoing recognition of needing to address the supply/demand imbalance to permit all countries to be able to obtain medical goods needed when the pandemic creates hot spots in their countries.

Transparency on trade actions surrounding the COVID-19 pandemic

Global confirmed cases of COVID-19 will reach two million today, April 15, with the actual number likely much higher and with deaths over 125,000. Nearly every country on earth has at least some confirmed cases.

Different countries and territories are at different stages in dealing with COVID-19 infections, with China, South Korea and Singapore seemingly well past the worst of the first wave of infections. Countries in Europe and various states within the United States are also seeing the rate of infection flatten or even decline following weeks of stay-at-home orders, social distancing and drastic changes to daily life. Hot spots are shifting both within countries (e.g., the United States) and to different countries.

The economic cost of closing down portions of economies has been unprecedented with the IMF characterizing the hit on global GDP to be the worst since the great depression of the 1930s. https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020. To avoid even worse economic fallout, countries are pouring huge sums into their economies to prevent massive bankruptcies, limit unemployment and provide expanded social safety nets. Press reports suggest at least $8 trillion has been committed with more being considered in various countries.

For countries who are witnessing likely GDP reductions of as much as 35% in one of the first two quarters of 2020, governments are mapping out scenarios for reopening closed portions of their economies if they have been recent epicenters or engaged in phased reopening if apparently largely past the first phase. Such planning is occurring at the subnational, national or trading bloc level (EU) with little apparent effort to coordinate efforts around the world. Where plans are being discussed publicly, common elements appear to be expanded and harmonized testing (both for the infection and for antibodies), ability to do tracing of individuals who have been in contact with individuals found to have the virus to secure quarantining, capacity of the healthcare system to handle cases, and adequacy of supplies. Concerns about privacy interests are also part of the discussion/needs for democracies. See, e.g., European Commission roadmap released April 15, 2020, https://ec.europa.eu/commission/presscorner/detail/en/ip_20_652; https://ec.europa.eu/info/sites/info/files/communication_-_a_european_roadmap_to_lifting_coronavirus_containment_measures_0.pdf

For most of the developing and least developed countries, the pandemic has yet to show its full force. Many of these countries have inadequate healthcare infrastructure and don’t have the internal manufacturing capabilities or financial resources to handle the pandemic without assistance if they become an epicenter.

The world has seen limited actual coordination of efforts by major players despite commitments by G20 countries although funding for multilateral institutions like the IMF have been increased to facilitate expanded efforts for the weakest countries. There also seems to be an exchange of information and some cooperation in the research efforts underway to find a vaccine.

Many countries who have been hard hit by the pandemic were slow to recognize the extent of the challenge and often slow in implementing comprehensive actions which has exacerbated the challenges, the loss of life and the harm to their economies. This has led to some lack of transparency at least in the early days and perhaps a reluctance for greater cooperation.

The pandemic’s spread has led to extraordinary gaps in supply availability versus short term demand requirements. For example, the OECD indicated that China, which manufactures half of the world supply of masks, found demand for masks at the peak of the crisis in China at ten times the beginning manufacturing capability of the country. Even after ramp up of production, demand in China was twice as large as the dramatically expanded manufacturing capabilities until the country’s infection rate declined. With both the EU and the US going through huge expansions of COVID-19 cases in March and into April, the global shortage problem has been continued and magnified despite additional capacity expansions occurring in other countries.

With no current vaccine to deal with the infections, countries faced with expanding case loads have often shifted to imposing export restraints to prevent loss of scarce supplies, encouraging expanded production, and using other tactics to address domestic demand even if reducing supply to other countries or even if local actions are counterproductive because of global supply chains and similar actions by others. Export restraints have been imposed by close to 70 countries or territories and include actions by China, the EU, the United States and many others, though restraints are arguably temporary and may have exceptions depending on the country applying the restraints. And countries who had export restraints at one point, may be significant exporters later (China) or had been exporters to hard hit countries prior to ramp up of internal demand (e.g., U.S. to China).

Importance of transparency in times of crisis

Each government attempts to provide some level of transparency to its citizens and businesses on actions it is taking. Members of the WTO have committed to providing information on trade measures taken to respond to COVID-19 and groups of countries (G20) have supported that effort. As of April 14th, WTO Members had provided 49 notifications of trade actions related to COVID-19 that either restricted goods or liberalized movement of goods https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. While this is a start, there are likely dozens or hundreds of other actions that have not been notified as yet (including actions that may have been withdrawn after a period of time). The lack of full transparency by WTO Members is unfortunate and prevents other Members to understand the reality around the world or to understand potential best practices by other trading partners.

Some business trade associations have put together data bases of actions addressing particular actions important to their members. For example, the Baltic and International Maritime Council (“BiMCO”) has compiled and updates port restrictions/requirements including ability of crew to depart cargo ships in ports, etc. https://www.bimco.org/ships-ports-and-voyage-planning/crew-support/health-and-medical-support/novel-coronavirus—implementation-measures. Similarly, IATA has collected and updates data on requirements for airlines (passenger and air cargo) by country. https://www.iata.org/en/programs/safety/health/diseases/government-measures-related-to-coronavirus/. The data compiled is obviously important for the ships and planes moving cargo internationally. So transparency exists because of efforts of business associations. Unfortunately, one does not see any effort by governments to harmonize requirements across countries to simplify and reduce the costs of moving essential goods.

It does not appear that there are readily accessible data on all suppliers globally of essential medical goods, capacity expansions, current bottlenecks, product availability, etc. It is not clear if such data could be compiled by industry associations or by governments. Presumably such information would be important for a global effort to maximize availability of products to all countries during the pandemic, identify ongoing shortages, prioritize where additional products are needed and so forth. The lack of such information has to be a major shortfall in the transparency needs to effectively deal with the pandemic.

Individual governments, of course, address internal needs on an ongoing basis through notices, regulations, etc. Many of these actions could be notified to international organizations (e.g., to the WTO) in addition to being available domestically. Expanding notifications would improve transparency and potentially encourage other governments to adopt best practices of other countries.

In the United States, many agencies, as well as the White House, are involved in different aspects of keeping goods moving during the pandemic or in restricting the export of such goods. For example, to look just at a few of the agencies involved in the United States, the State Department has made announcements on ensuring H-2 visas for farm workers. https://travel.state.gov/content/travel/en/News/visas-news/important-announcement-on-h2-visas.html. Homeland Security and Customs and Border Protection have taken various actions to expedite clearance of essential goods or implement Administration restrictions on the export of goods. https://www.fema.gov/news-release/2020/04/08/fema-covid-19-supply-chain-task-force-supply-chain-stabilization; https://www.cbp.gov/newsroom/coronavirus. The Department of Agriculture and the Food and Drug Administration have issued various notices addressing special needs for agricultural goods with the collapse of food service sector which supplies restaurants (e.g., temporary waiver of requirements for country of origin information or certain labeling requirements for goods originally destined for food service that are being sold at retail). https://www.usda.gov/coronavirus; https://www.ams.usda.gov/content/usda-announces-labeling-flexibilities-facilitate-distribution-food-retail-locations; https://www.fda.gov/emergency-preparedness-and-response/counterterrorism-and-emerging-threats/coronavirus-disease-2019-covid-19. FEMA, EXIM and others are all playing roles as well.

Conclusion

The COVID-19 pandemic has created extraordinary challenges for the health of the world’s peoples and has imposed unimaginable costs to the global and national economies. As countries work through their individual challenges, there are a spectrum of options to pursue that will reduce or expand the human and economic costs of the pandemic. International organizations are only as strong as their member governments permit them to be. Many observers have lamented the lack of global leadership. Such lack of leadership handicaps the ability and likelihood of countries to minimize the damage from the pandemic and to prepare better for future challenges. Transparency should be the bare minimum we receive from the world’s governments. While there is certainly some transparency on COVID-19 and trade actions being taken (better in some countries than others), we are not maximizing the benefits that broad-based transparency would make available for countries individually or acting collectively. There is still time for a better effort. There are real costs for failing to do all that can be done on this issue.

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

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, COVID19 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.

China in the WTO – The U.S. View of China’s Compliance With Its Obligations

China became a member of the WTO on December 11, 2001. Because of the enormous differences in economic systems and the distance of needed reforms in China to make it a market economy, the Protocol of Accession and Working Party Report are exceptional in terms of topics covered, areas where China had significant work before being WTO compliant and the inclusion of special provisions to protect the interests of other WTO Members while China continued on its path of reform.

Because of China’s size and importance globally, the U.S. Congress passed legislation which includes a requirement for the U.S. Trade Representative to provide an annual report on the U.S. view of China’s Compliance with its WTO obligations. On March 6, 2020, USTR released its 18th report on China’s WTO compliance, a one hundred and ninety-two page document. The report consists of a executive summary, a section reviewing the U.S. assessment of China’s WTO membership, a section reviewing prior U.S. efforts to address trade distortions caused by China’s policies, a section on the new U.S. strategy to address China’s trade distortions, a section reviewing the mechanisms used to engage China, a section reviewing U.S. ongoing concerns and a lengthy appendix that provides greater detail on many issues. See 2019 Report to Congress on China’s WTO Compliance, https://ustr.gov/sites/default/files/2019_Report_on_China%E2%80%99s_WTO_Compliance.pdf.

The report provides a very good overview of the wide range of issues on which the United States has ongoing concerns about China’s actions and compliance with WTO obligations. While some of the concerns are supposed to be addressed in the Phase 1 Agreement the United States and China have entered into, many of the concerns are not yet addressed by China. Some of these remaining issues will be subject to upcoming negotiations on a Phase 2 Agreement. Others may be addressed through bilateral consultations, through specific dispute settlement cases , or through possible modifications to WTO rules or by other actions by the United States.

Executive Summary

The U.S. Administration views China as having a poor record on compliance with many parts of its WTO obligations. The Administration views such non-compliance and the continued nonmarket economic system in China as posing major distortions for China’s trading partners. The Executive Summary of this year’s report (pages 4-5) provides an overview of the concerns and actions being taken by the United States:

“In our 2017 and 2018 reports, we provided the Administration’s assessment of China’s WTO membership, the unique and very serious challenges that China’s trade policies and practices pose for the multilateral trading system and the effectiveness of the strategies that had been pursued to address the China problem in prior years. We also identified the critical need for new and more effective strategies – including taking actions outside the WTO where necessary – to address the challenges presented by China’s non-market economic system. In this year’s report, we focus on the positive outcomes to date of the Administration’s new and more effective strategy for engaging China, which has led to the signing of an historic trade agreement with China. We also highlight the important issues that remain to be addressed in our trade relationship with China.

“As we previously documented, China’s record of compliance with WTO rules has been poor. China has continued to embrace a state-led, mercantilist approach to the economy and trade, despite WTO members’ expectations – and China’s own representations – that China would transform its economy and pursue the open, market-oriented policies endorsed by the WTO. At the same time, China’s non-market approach has imposed, and continues to impose, substantial costs on WTO members.

“Over the past nearly two decades, a variety of bilateral and multilateral efforts were pursued by the United States and other WTO members to address the unique challenges presented by China’s WTO membership. However, even though these efforts were persistent, they did not result in meaningful changes in China’s approach to the economy and trade.

“In our past reports, we identified and explained the numerous policies and practices pursued by China that harm and disadvantage U.S. companies and workers, often severely. We also catalogued the United States’ persistent yet unsuccessful efforts to resolve the many concerns that have arisen in our trade relationship with China. We found that a consistent pattern existed where the United States raised a particular concern, China specifically promised to address that concern, and China’s promise was not fulfilled.

“The costs associated with China’s unfair and distortive policies and practices have been substantial. For example, China’s non-market economic system and the industrial policies that flow from it have systematically distorted critical sectors of the global economy such as steel and aluminum, devastating markets in the United States and other industrialized countries. China also continues to block valuable sectors of its economy from foreign competition, particularly services sectors. At the same time, China’s industrial policies are increasingly responsible for displacing companies in new, emerging sectors of the global economy, as the Chinese government and the Chinese Communist Party powerfully intervene on behalf of China’s domestic industries. Companies in economies disciplined by the market cannot effectively compete with both Chinese companies and the Chinese state.

“Faced with these realities, this Administration announced two years ago that it would be pursuing a new, more aggressive approach to the United States’ engagement of China. We explained that the Administration would defend U.S. companies and workers from China’s unfair trading practices and would seek to restore balance to the trade relationship between the United States and China. As part of these efforts, the United States would take all appropriate actions to ensure that the costs of China’s non-market economic system are borne by China, not by the United States. The United States also would continue to encourage China to make fundamental structural changes to its approach to the economy and trade consistent with the open, market-oriented approach pursued by other WTO members, which is rooted in the principles of non-discrimination, market access, reciprocity, fairness, and transparency. As we explained, if undertaken by China, these changes would do more than simply ease the growing trade tensions with its trading partners. These changes would also benefit China, by placing its economy on a more sustainable path, and would contribute to the growth of the U.S. economy and the global economy.

“The Administration based this new approach on the following assessments: (1) WTO membership comes with expectations that an acceding member not only will strictly adhere to WTO rules, but also will support and pursue open, market-oriented policies; (2) China has failed to comply with these expectations; (3) in recent years, China has moved further away from open, market-oriented policies and has more fully embraced a state-led, mercantilist approach to the economy and trade; and (4) China’s market-distorting policies and practices harm and disadvantage its fellow WTO members, even as China reaps enormous benefits from its WTO membership.

“Consistent with this more aggressive approach to China, the Administration is now using all available tools – including domestic trade remedies, bilateral negotiations, WTO litigation, and strategic engagement with like-minded trading partners – to respond to the unique and very serious challenges presented by China. But, the goal for the United States remains the same. The United States seeks a trade relationship with China that is fair, reciprocal, and balanced.

“Over the past year, the United States’ new approach to China began to demonstrate key progress with the signing of a “Phase One” economic and trade agreement in January 2020. This historic agreement requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. The agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years. Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.

“Because the Phase One agreement does not cover all of the United States’ concerns, the United States will turn to Phase Two of its trade negotiations with China in order to secure resolutions to important outstanding issues. These discussions will focus on intellectual property, technology transfer, and services market access issues that were not addressed in the Phase One agreement as well as critical issues in areas such as excess capacity, subsidies, state-owned enterprises, cybersecurity, data localization and cross-border data transfers, pharmaceuticals and medical devices, competition law enforcement, regulatory transparency, and standards.”

Key U.S. Concerns

The bulk of the report lays out key U.S. concerns on a wide range of topics where China’s laws, regulations, policies and actions either deviate from WTO requirements or create significant market distortions. A list of the topics covered follows (pages 30-54 of the report) broken into six main topics and subtopics:

Industrial Policies including (1) Made In China 2025 Industrial Plan; (2) Subsidies; (3) Excess Capaciy; (4) Technology Transfer; (5) Indigenous Innovation; (6) Investment Restrictions; (7) Export Restraints; (8) Value-added Tax Rebates and Related Policies: (9) Import Ban on Remanufactured Products; (10) Import Ban on Recyclable Materials; (11) Standards; (12)
Secure and Controllable Policies; (13) Encryption; (14) Government Procurement; (15) Trade Remedies.

Intellectual Property Rights including (1) Trade Secrets; (2) Bad Faith Trademark Registration; (3) Pharmaceuticals; (4) Online Infringement; (5) Counterfeit Goods.

Agriculture including (1) Agricultural Domestic Support; (2) Tariff-rate Quota Administration; (3) Agricultural Biotechnology Approvals; (4) Food Safety Law; (5) Poultry; (6) Beef; (7) Pork; (8) Horticultural Products; (9)
Value-added Tax Rebates and Related Policies.

Services including (1) Banking Services; (2) Securities, Asset Management, and Future Services; (3) Insurance Services; (4) Electronic Payment Services; (5) Internet-enabled Payment Services; (6) Telecommunications Services; (7) Internet Regulatory Regime; (8) Voice-over-Internet Protocol Services; (9) Cloud Computing Services; (10) Theatrical Films; (11) Audio-visual and Related Services; (12) Online Video and Entertainment Software Services; (13) Express Delivery Services; (14) Legal Services; (15) Cross-border Data Transfers and Data Localization.

Transparency including (1) Publication of Trade-related Measures; (2)
Notice-and-comment Procedures; (3) Translations.

Legal Framework including (1) Administrative Licensing; (2) Competition Policy.

Most of the topics are longstanding areas of concern for U.S. businesses and the current and prior Administrations. Some are being addressed at least in part in the Phase 1 Agreement.

The mere fact that so many issues remain on the U.S. agenda with China despite years of high level meetings, WTO disputes and other engagements is a reflection of the challenges the U.S. and many other WTO Members have had with China honoring commitments it has made as a Member of the WTO.

Consider the electronic payment services topic as just one example of the areas of interest for the U.S. China made commitments to open this sector by 2006. Yet, despite consultations, a dispute at the WTO, a subsequent commitment by China to comply in 2013, the market remains closed to foreign service suppliers to the present time. China has new commitments to open the market as part of Phase 1 Agreement. Below is the USTR write-up in this year’s report (pages 48-49):

“In 2019, China continued to place unwarranted restrictions on foreign companies, including major U.S. credit and debit card processing companies, which have been seeking to supply electronic payment services to banks and other businesses that issue or accept credit and debit cards in China. In a WTO case that it launched in 2010, the United States argued that China had committed in its WTO accession agreement to open up this sector in 2006, and a WTO panel agreed with the United States in a decision issued in 2012. China subsequently agreed to comply with the WTO panel’s rulings in 2013, but China did not take needed steps even to allow foreign suppliers to apply for licenses until June 2017, when China’s regulator – the PBOC – finalized the establishment of a two-step licensing process in which a supplier must first complete one year of preparatory work before even being able to apply for an actual license.

“Currently, as of January 2020, over six years after China had promised to comply with the WTO’s rulings, no U.S. supplier of electronic payment services has been able to secure the license needed to operate in China’s market due largely to delays caused by PBOC. Indeed, at times, PBOC refused even to accept applications to begin preparatory work from U.S. suppliers, the first of two required steps in the licensing process.

“Throughout the time that China has actively delayed opening up its market to foreign suppliers, China’s national champion, China Union Pay, has used its exclusive access to domestic currency transactions in the China market, and the revenues that come with it, to support its efforts to build out its electronic payment services network abroad, including in the United States. This history shows how China has been able to maintain market-distorting practices that benefit its own companies, even in the face of adverse rulings at the WTO.

“In the U.S.-China Phase One agreement, China committed to ensure that PBOC operates an improved and timely licensing process for U.S. suppliers of electronic payment services so as to facilitate their access to China’s market. The United States will closely monitor PBOC’s licensing process going forward to ensure China’s compliance with its commitments in the Phase One agreement.”

Conclusion

The largest bilateral trade deficit (goods or goods and services) in the world is the U.S. deficit with China. For many years, the U.S. government has catalogued a large number of areas where the deficit is driven or exacerbated by distortions created by Chinese policies. Eighteen years after China’s becoming a WTO Member, the scope of the problems experienced by U.S. businesses attempting to export to China or participate in the Chinese market remains breathtaking.

China has a long history of promising reform that hasn’t occurred as documented in the 2019 and prior USTR reports to Congress on China’s WTO Compliance.

The current Administration has a lot of hope that the Phase 1 Agreement will address specific distortions in a wide range of areas and expand U.S. exports to China. The Administration believes that the enforcement provisions in the agreement will help avoid the lack of implementation by China that has characterized prior efforts.

A great deal more needs to be pursued to achieve true reciprocity with China. Some of the issues that need to be addressed are teed up for the Phase 2 negotiations but will be challenging to achieve agreement on as was reflected in China’s change of position on those same topics in 2019 which resulted in a partial agreement (Phase 1) being pursued instead of a comprehensive one.

The U.S. is actively pursuing WTO reform, working with other trading partners on certain items or going solo in raising major topics for discussion and reform. Unfortunately, China has shown little or no interest in addressing some of the core issues of concern to the U.S. with China’s economic system and policies at the WTO. For example, the U.S. is concerned about distortions created by non-market economies to the functioning of global trade for market economies. The U.S., EU and Japan are addressing the need for new rules to address distortions created by such economies (massive subsidies, state-owned or state-invested enterprises, creation of excess capacity, etc.). The U.S. has flagged the need to change how special and differential treatment works to reflect the changed market situation for countries like China and many others.

The coronavirus global challenge complicates the ability of the WTO or its major Members to pursue reform of the WTO or to achieve completion of negotiations on pending topics (e.g., fisheries subsidies). Concerns about the spread of the virus has led to the postponement of the 12th WTO Ministerial Conference which had been scheduled for early June in Kazakhstan. Restrictions on meetings in Geneva and travel from capitals will presumably slow down progress at the WTO.

One should expect the United States to continue to push major reforms at the WTO in 2020. Progress is unlikely to be meaningful in 2020 and some have estimated a reform timeline measured in years (e.g., 2025). Where the WTO is unable to address reform expeditiously, the United States, like other Members will pursue other avenues to address trade concerns. The United States will also pursue bilateral negotiations with China aggressively, seek timely enforcement of existing commitments and use U.S. laws to obtain movement where the other approaches are not delivering results.

As stated in the Executive Summary to this year’s report, “The United States seeks a trade relationship with China that is fair, reciprocal, and balanced.” The current relationship with China meets none of those characteristics in the view of the U.S. Administration. If such a relationship cannot be accomplished through the WTO, this Administration will pursue changes bilaterally or unilaterally if needed.

Agriculture Reform and Liberalization — What is Likely for the WTO’s 12th Ministerial this June?

Agriculture is a critical subject for many WTO Members. Liberalization in agriculture at the GATT and now the WTO has lagged far behind that on industrial goods, a fact readily seen when comparing tariff levels on agricultural goods vs. industrial goods, with agricultural tariffs typically twice or more as high as the bound industrial rates with much higher individual tariffs and with products subject to tariff rate quotas. See, e.g., https://www.wto.org/english/tratop_e/tariffs_e/tariff_data_e.htm

The critical importance of agriculture for human survival for many makes agricultural trade different from trade in manufactured goods. The history of starvation flowing from natural and manmade events make nations reluctant to become too dependent on imported agricultural products. Moreover, most of agriculture is subject to significant variability based on weather conditions and changes. While industrial goods production can be subject to natural events, production tends to be far less dependent on the vagaries of nature.

When the Uruguay Round agreements included initial liberalization in agriculture, there was also agreement to restart talks by 2000 on the next round of liberalization. There were many aspects in the agriculture negotiations during the Doha Development Agenda aimed at achieving increased liberalization, and there have been some achievements in improving liberalization in agriculture over the first twenty-five years of the WTO. Agreement by developed countries to eliminate export subsidies is one important example.

However, the very ambitious agenda during the Doha Round on agriculture has largely not been resolved, and so a range of issues continue to be pursued by various Members or groups of Members within the Special Session of the Agriculture Committee. Which of these items will potentially lead to progress at the upcoming 12th Ministerial Conference in Kazakhstan this June is an important part of the ongoing activities in Geneva.

Unfortunately, despite what has been true throughout most of the twenty- five years of the WTO where most documents presented for consideration in negotiations have been made available to the public, the Agriculture Committee Special Session has seen huge numbers of documents, even from the Chair of the Special Session treated as JOB or RD (room) documents with the result that the documents are typically not released to the public. Thus, a document recently released by the Chair entitled “Elements and processes for a possible outcome in agriculture at MC12” (JOB/AG/180) is not public. However, the WTO write-up of the meeting provides an overview of topics explored and identifies topics likely to be manageable by the 12th Ministerial. See “Eyeing MC12 for an outcome, agriculture negotiators focus on doable elements and processes”, WTO news, 24 February 2020, https://www.wto.org/english/news_e/news20_e/agri_24feb20_e.htm.

The topics discussed include most of the topics covered under the Doha Development Agenda including domestic support levels, market access, cotton, export competition, export restrictions, public stockholding and special safeguard mechanism.

Press accounts indicate that, inter alia, transparency improvements have a chance of obtaining agreement by MC 12. In that connection, the United States submitted a paper which was discussed this week that addressed “Notification of Select Domestic Support Variables in the WTO”. The U.S. paper reviewed issues Members had repeatedly raised relevant to the level of domestic support. The U.S. demonstrated that what was supplied in notifications were often viewed as insufficient or were unclear. Thus, the U.S. documented a number of areas where greater transparency would improve the process for all Members being able to understand compliance by trading partners. JOB/AG/181 (19 February 2020)(this job document was released publicly).

Paragraphs 1.3 -1.5 of the U.S. submission provides a summary of where a review of past activities within the Committee on Agriculture (“CoA”) show a need for further transparency and that the U.S. paper is intended to help Members have a technical discussion on transparency in notifications:

“1.3. The United States has identified several areas within the domestic support pillar where CoA discussions are driven by inquiries seeking to gain further transparency in relation to notifications. These areas include: (1) market price support (MPS) (specifically eligible production, adjustments
to the fixed external reference price, and product basis); (2) negative support levels; (3) classification and non-notification; (4) currency and inflation, and (5) value of production (VoP) data. This list is not exhaustive.

“1.4. For each area, this paper attempts to summarize what information has been provided through notifications and what has had to be discerned from questions posed in the CoA. This summary is based primarily on a review of notifications submitted by Members covering the 2005 to 2018 notification years, as well as responses to CoA questions dating back to 1995. Additional Members and years were drawn upon in a limited number of circum- stances to provide a fuller illustrative discussion.

“1.5. This paper is intended to support Members’ ability to engage in a technical discussion regarding transparency in notifications.”

The U.S. paper does an excellent job of laying out important impediments to Members’ understanding core elements of the domestic support information supplied by Members in their notifications. The paper is available below.

JobsAG181

As reviewed in earlier posts, increased transparency is an important part of the WTO reform agenda that the U.S. is seeking more broadly. Within agriculture, the failure to have full and timely transparent notifications (including in some instances by the U.S.) handicaps the ability to make substantive progress in other areas. For example, in cotton, the U.S. has long raised the concern that major cotton subsidizers haven’t reported full information on the size of subsidies provided making resolution of the cotton issues unacceptable where major contributors to the problem are not participating.

Other issues being discussed within the Committee on Agriculture’s Special Session are long standing and arguably can’t be quickly resolved without trade offs in other areas. Public stockholding is one such area, although the peace clause introduced at the 10th Ministerial Conference provides interim protection for countries’ support programs in this area. Transparency, limits on what can be done and where product can be sold are all relevant topics within the area of public stockholding. But for agriculture exporting countries, there has been a strong desire for expanded market access which has not happened since the start of the WTO. Public stockholding issues pose a reduction of market access. While the Chair has teed up a suggested solution on public stockholding, it is hard to see any final resolution without expanded liberalization/market access being addressed as well.

Conclusion

While agriculture is important to nearly all WTO Members, the strong divisions between Members and the long term lack of full transparency of programs, subsidies and other issues makes any significant movement over the next few months unlikely. Hence, agriculture will likely have a minor role in the 12th Ministerial Conference in Kazakhstan in early June.

The Continued Problem of Inconsistent Transparency at the World Trade Organization

The World Trade Organization has attempted over the years to improve its transparency both for the benefit of Members and for the needs of the public in many countries with active interests in the issues being discussed within the WTO. Because the WTO is a member driven organization, there has been a long standing tension between the desire of some for greater transparency and the unwillingness of others to make their submissions available to the public.

Back in 2010, I wrote a trade flow for my law firm which reviewed how the WTO was failing to honor the objectives of greater transparency through the wholesale adoption of a category of documents labeled “JOB” which largely were not made available ever for public review. Nine years later, there has been some improvement and some backsliding in transparency at the WTO.

JOB documents are not the only documents hidden from view in many situations. There is a category of documents called “room documents” (“RD”) that similarly are never released for public review. The classification of documents as JOB documents (or as other unavailable types) is a matter of self-selection by the WTO Member submitting the document and can lead to essentially irrational differences. For example, during the WTO Doha negotiations, the chairs of all negotiating groups except dispute settlement released draft negotiating texts as public documents, and many/most/all of the submissions by members of positions, etc. were also available to the public. For many years, the dispute settlement negotiation group was alone in not releasing the draft text or many of the negotiating proposals.

Similarly, the resort to “informal meetings” means that there are no minutes of the meeting that are kept or released to the public after some period of delay. Looking at the Fishery subsidy negotiations, many documents of submissions by parties are available, but there are no minutes for the many informal meetings, just very abbreviated “summaries” provided.

When there is an inconsistent approach to the treatment of similar documents or when there is movement from formal to informal with a loss of transparency, the public loses and there can be a dimunition in trust of how the WTO is functioning.

Look at the area of agriculture negotiations. There are 202 documents that are shown in the WTO document system with a “JOB/AG” number (these include corrections or revisions) going back to July 1, 2010. Before that time, JOB documents were not broken out by area or typically listed but would occasionally be referenced in statements by the Director General or in Committee reports. Of the 202 JOB/AG documents listed on the WTO document file, 141 are not available to the public. Many of the public documents date from 2017 but there are documents in the last three years that are also not public even if earlier documents of a similar nature were public. For example, JOB/AG/163 is a Report of the Chairman of the Committee on Agriculture in Special Session (31 July 2019) and is not public. Yet another report by the same Chairman from 12 days earlier is public (JOB/AG/162). Moreover, to the extent types of documents are now treated as public, there is no system for going back and correcting classification of earlier submissions. And for categories like room documents there is no system for ever making such documents public.

Despite some progress in the first twenty-five years, the WTO has a lot of room for improvement in ensuring that the public can monitor and understand developments in all areas of its operation. WTO Members need to develop more consistent policies on how they treat their own submissions and work with trading partners to maximize transparency.

Below is a trade flow I posted on my law firm’s website on May 12, 2010:

Opening Up the World Trade Organization: How the Promise of Greater Transparency Has Been Compromised By the Wholesale Use of “JOB” Documents

The World Trade Organization (“WTO”) is an intergovernmental organization that came into existence in 1995.  Its predecessor, the General Agreement on Tariffs and Trade (“GATT”), had received relatively little notice and operated largely out of public view.  However, the growing importance globally of trade, the expansion of rules to areas traditionally viewed as domestic in nature, and a dispute settlement system that was more binding on participants all increased the pressure on the WTO to improve its transparency to the public. 

Indeed, when the U.S. Congress was considering implementing the Uruguay Round Agreements that created the WTO into U.S. law, increasing the transparency of the new organization was of great importance.  This is reflected in section 126 of the URAA and the House Report and Statement of Administrative Action on the section:

Sec. 126.  Increased Transparency

The Trade Representative shall seek the adoption by the Ministerial Conference and General Council of procedures that will ensure broader application of the principle of transparency and clarification of the costs and benefits of trade policy actions, through the observance of open and equitable procedures in trade matters by the Ministerial Conference and the General Council, and by the dispute settlement panels and the Appellate Body under the Dispute Settlement Understanding.

19 U.S.C. § 3536.  House Rep. No. 103-826(I) at 35 (1994):

Section 126.  Increased transparency

Present law.

No provision.

Explanation of provision

Section 126 of H.R. 5110 directs the USTR to seek adoption by the functional bodies of the WTO of procedures that will ensure broader application of the principle of transparency.

Reasons for change

Through the adoption of more open and equitable procedures, it is the intention of the United States to improve our ability to assess the costs and benefits of WTO trade policy actions.  Members have been concerned, particularly with respect to dispute settlement panels and the Appellate Body, that closed meetings and the lack of public availability of documents upon which decisions are based serve to undermine confidence in the decisions of these functional bodies.

Although it is more traditional in international bodies to conduct meetings and make decisions behind closed doors, the Committee believes that the WTO will gain more respect and build confidence if they follow the U.S. experience of providing more open access to the public with respect to key policy or dispute-settlement determinations.  It has become a high priority for the U.S. to persuade other member nations of the WTO to work with us to open the process, provide greater access, provide for voices of dissent and differing views to be heard, and in general make the WTO more accountable to those who are affected by international decision-making.

See also Statement of Administrative Action accompanying the Uruguay Round Agreements Act, H.R. Rep. No. 103-316, 103d Cong., 2d Sess., vol. I, 678-679 (1994).

            The United States was not the only country interested in greater transparency, and the WTO early on did adopt a number of steps to improve transparency.  One such step was the creation of a broader system for derestricting documents so there would be greater public awareness of issues.  See, e.g., WT/L/160/Rev.1 (26 July 1996) (procedures for the circulation and derestriction of WTO documents); WT/L/452 (16 May 2002). 

While WTO meetings generally have not been opened to the public, there has been movement, where disputing parties consent, to open at least some dispute settlement meetings and hearings to public viewing.  The WTO has also done some outreach to the public through formal meeting days in Geneva, the opportunity to submit comments on their webpage, improved access to the public portion of ministerial meetings, briefings on ministerials, and other events, and through other means.  So the WTO can fairly be said to be more transparent than its predecessor, the GATT.  Although many countries continue to have concerns about increased transparency, there are various proposals being considered as part of the ongoing Doha Round —  both within the review of the dispute settlement system and in the Rules negotiations — for additional steps to increase transparency.

But there is one growing problem, in particular, within the WTO that undermines at least some of the progress made in increased transparency that is neither necessary nor, in this author’s view, desirable.  It is the growing presence of “JOB” documents within the system.  Under the WTO classification system, documents which are given a “JOB” number do not become part of the “official WTO documents” and hence escape either categorization, listing, or derestriction to the public.  Indeed, members of the public only know such documents exist because they are referenced in official documents that are public.  Whatever the merits of having documents that are never derestricted, the “JOB” classification is a matter of self-selection, resulting in situations impossible for the public to comprehend.  Thus, a chairman’s draft text [JOB(08)/81 of July 2008] in the dispute settlement negotiations is not available to the public (though it is referenced in the Chairman’s report to the Trade Negotiations Committee, TN/DS/24 (22 March 2010)), while chairmen’s draft texts are available publicly in agriculture, non-agricultural market access, Rules and other areas.  What is the logic of this differential treatment of chairmen’s texts?  There is no obvious answer.

Similarly, in an area like “trade and environment,” some proposals from WTO Members are public while others – including from the United States — are “JOB” documents and not publicly available.  See TN/TE/19 note 19 listing JOB(09)/132 (Canada; European Communities; Japan; Korea; New Zealand; Norway; Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Switzerland and United States) (9 Oct. 2009); JOB(09)/169 and Add.1 (Saudi Arabia (6 Nov. 2009 and 15 Dec. 2009); TN/TE/W/75 and Add. 1 (Japan, 27 Nov. 2009 and 16 Feb. 2010) and JOB/TE/2 (Philippines (16 Feb. 2010).  For years, one couldn’t find a public summarization of the competing lists of goods and services that would potentially qualify as environmental for the Doha negotiations, although such summaries are now part of the annual reports.  See TN/TE/19 Annex III.  Why is this permitted?  How can Members square such actions with activity in areas like Rules where all papers have been made public or like agriculture where virtually every country has public submissions?

The problem exists within the Secretariat, which routinely marks summaries as JOB documents.  The problem extends to the Director General, who frequently references in his comments to the General Council or Trade Negotiations Committee one or more JOB documents (e.g., TN/C/M/29 at 2 (referring to JOB(08/132)).  Indeed, the problem exists for all Members, including the strongest advocates of increased transparency like the United States.

The public has no idea how many documents are so marked.  Just from the numbers on some of the JOB documents referenced in other public documents, it appears there may be literally thousands of documents a year that avoid public disclosure or scrutiny.  In addition, the public cannot find a listing of all such documents to be able to at least understand what was submitted even if it is not made public.  Historically in the GATT days, the public could reference an index of documents with full titles even if the document was restricted and not publicly available.  Why should the WTO permit such a retreat from public dissemination of basic information?  Why should the public, increasingly affected by actions of the WTO, accept this state of affairs?  Are there steps that can be taken to drastically reduce if not eliminate this practice?  Why shouldn’t JOB documents that do exist be derestricted just like all “official” documents?

The answers would seem obvious.  For many in the public, there is no justification for the secrecy and “black box” approach to the creation or maintenance of “JOB” documents.  Thus, the best course of action would be to eliminate the use of such categories and require all documents circulated to members to be part of the WTO document collection and subject to derestriction rules.  At a bare minimum, the WTO and its Members should circumscribe which type of documents can legitimately be claimed as such, require prior JOB documents to be reclassified if they don’t meet the criteria, provide a public catalogue of all existing and future “JOB” documents, and determine why a derestriction process should not be applied.

Under the current approach, the WTO and the WTO membership permit entire topics to disappear from public view.  Such an outcome is not acceptable to many Members.  It should be corrected for the good of the system and to honor the public’s right to know what is being discussed by the Members in the WTO.  Correction doesn’t require the completion of a round.  It just requires common sense and the will to keep the promises to make the organization more transparent and more accountable to the people of the world.