United Kingdom

Selecting the next WTO Director-General — process for phase three and selection of acting Director-General may be decided on July 31

On Tuesday, July 28, the WTO held an informal meeting of the Heads of Delegation. Reportedly, the meeting was spent discussing the process for the third phase of the selection process for a new Director-General for the WTO.

The current Director-General of the World Trade Organization is stepping down one year early on August 31st. The first phase of the selection process for a replacement ended on July 8 (nominations by Members of candidates). The second phase, which is to permit candidates to become known to Members ends on September 7 and has already had each of the eight candidates meet with the Members in a General Council meeting (July 15-17). The third phase involves the Chair of the General Council supported by the Chairs of the Dispute Settlement Body and the Trade Policy Review Body consulting with Members, typically in a process referred to as “confessionals” in which each Member is asked to identify either the candidates the Member believes is most likely to achieve consensus or the candidates least likely to achieve consensus. Those candidates who are not viewed as being in the top number of candidates likely to receive consensus (or most likely not to achieve consensus if questions are styled that way) are expected to withdraw.

In 2013, there were three rounds of consultations to go from nine candidates to five candidates to two candidates with one candidate then put forward by the Chair of the General Council to the membership for a consensus decision. By procedures adopted at the end of 2002, this third phase is intended to be completed in two months, with provisions for possible voting if a consensus is not possible.

On the WTO webpage this morning, an additional informal meeting of the Heads of Delegation has been added and is scheduled for this Friday at 10 a.m. July 31st is the last day before the WTO’s August recess. A press article yesterday indicated that the informal meeting on Friday would take back up the issue of process for the third phase of the selection process, that discussions had been about having three rounds of consultations to take the candidates from eight to five to two to one. It was also reported that the informal meeting of Heads of Delegation on Friday would take up the question of who would serve as the acting Director-General between September 1 and whenever the selection process for a new Director-General concludes (likely around November 7). See Inside U.S. Trade’s World Trade Online, WTO members to meet again this week on selection process, acting DG, July 28, 2020, https://insidetrade.com/trade/wto-members-meet-again-week-selection-process-acting-dg.

Should the informal meeting of Heads of Delegation reach agreement on an acting Director-General, a special General Council meeting would be called so the decision could formally be taken by consensus. By procedures adopted at the end of 2002, the acting Director-General is to be selected from the four Deputy Directors-General. All four of the Deputy Directors-General (DDGs) have indicated their willingness to serve as acting DG if selected. Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wm. Wolff (United States) and Yi Xiazhum (China) are the four DDGs.

Possible scenario for the phase 3 selection process

In a prior post, I provided a summary of statements made by each candidate to the General Council and a summary of press conference questions and answers. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/. As reviewed therein each candidate has his or her own story for why he/she would be the right person to become the next Director-General. There are also issues of whether the candidate (1) is from a geographical area not previously having a Director-General of the WTO, (2) has WTO/Geneva experience, (3) has served as a Trade Minister, (4) has served in other high-level government positions, (5) has been an official of a multilateral organization, (6) is from a developed or developing country. There are also potential political issues reflecting any ongoing conflicts the candidate’s country has with other WTO Members. Depending on how WTO Members actually weigh the candidates’ credentials and the other issues will resolve which candidates are viewed as most likely or least likely to receive consensus from the WTO membership.

WTO Members obviously have much greater information on each candidate and will have the opportunity to talk privately with each candidate if so inclined. What follows is simply an outside observer’s thoughts on how the consultations could proceed. I provide my assumptions as I proceed. As any of the eight could be the candidate selected as the next Director-General, my views on who may drop out in each of the rounds should not be taken as any comment on the capabilities of the individual candidates but simply an assessment from the private sector of how factors could combine to narrow the field.

Round 1 of consultations, going from eight to five candidates

While some former U.S. Trade Representatives have stated that technical expertise is not needed to be an effective Director-General (and indeed there have been both WTO Directors-General and USTRs who came to the position without extensive trade backgrounds), considering the challenges facing the WTO at the present time, I believe many Members will view having a trade background and a good familiarity with current WTO issues as a plus for any candidate.

As Director-General Azevedo demonstrated, a candidate doesn’t need to have a prior high political office (e.g., Minister of Trade or head of other ministry) to be able to effectively work with and communicate with senior government officials of Members in capitals. That view is supported by comments by former U.S. Trade Representatives as well. See WITA’s July 16, 2020 webinar, Three former USTRs on the WTO in a time of change, https://www.wita.org/event-videos/wita-webinar-three-former-ustrs-on-the-wto-in-a-time-of-change/ (former USTRs Froman, Schwab, and Hills). Even though that is true, I believe many Members will view prior senior government experience as important in any candidate.

While serving in other multilateral organizations will likely be viewed as a plus for any candidate, it is not likely in my view by itself to override the other elements.

Geographical diversity will be a plus for the three African candidates. Depending on whether Mexico is viewed as North American or Latin, Dr. Seade may be helped (if viewed as North American) or hurt (if viewed as Latin since the current DG is from Brazil). The Saudi Arabian candidate similarly would be helped if viewed as a Middle East candidate or possibly hurt if viewed as an Asian candidate (since Thailand’s candidate in the past was selected as Director-General). The other three candidates come from regions that have had prior DGs. While all candidates have stated that the best candidate should be selected and not be a candidate from a particular geographical area, the factor of geographical diversity will likely be significant in weeding out at least some of the candidates.

If being from a developed country is helpful (since the current DG is from a developing country), then the Moldovan and UK candidates would be viewed as helped as they are the only developed country candidates. While the EC Trade Commissioner had early on indicated he thought the next DG should be from a developed country, the U.S. did not support that position. I assume it will not be a relevant factor for most Members.

The WTO, and the GATT before it, have never had a female Director-General. Considering UN Sustainable Development Goals, for many Members whether the candidate is female may be an important factor.

While the selection process in phase three is set up to try to prevent Members from preventing a consensus from forming, it is unclear how the process will work if one or more major players will not accept a candidate for political or other reasons. During the press conferences, questions were raised about (1) ongoing political tensions between Korea and Japan and between Saudi Arabia and Qatar, (2) tensions between the United Kingdom and the European Union from Brexit, and (3) concerns China might have if an Asian candidate were selected in terms of its ability to maintain a Deputy Director-General position. It would seem likely that if the EU chose to defeat the U.K. candidate, between their member states and friends in the WTO, they would be able to block Dr. Fox. It is unclear if the same is true for the Korean candidate should Japan alone oppose, but it is more likely that the Korean candidate would be blocked if China also worked to defeat the candidate. I don’t believe that sufficient Members would oppose Saudi Arabia’s candidate on the basis of Saudi Arabia’s conflict with Qatar.

Based on the above assumptions, I believe that the first round of consultations will likely result in the following three candidates being viewed as least likely to obtain a consensus and hence withdrawing:

Tudor Ulianovschi (Moldova) – I believe many Members will view other candidates as having similar or greater strengths; he is from Europe which has dominated past DG selections.

H.E. Mohammad MazaidAl-Tuwaijiri (Saudi Arabia) – I believe his message of bringing strong business management skills to the job will not attract a large part of the WTO Members.

Dr. Liam Fox (United Kingdom) — while having strong free trade credentials, he has limited WTO experience; being from Europe will be a negative if Members get past credentials.

Round 2 of consultations, going from five candidates to two candidates

It is not surprising that even in the first round, it is possible that other candidates could be the ones who withdraw versus the three listed. That caveat is even stronger in round two. That said, here are two of the three whom I believe will drop out after Round 2:

Abdel-Hamid Mamdouh (Egypt) — while Mr. Mamdouh has a wealth of WTO experience and is well known to many if not all of the WTO Members, I believe he will not make it to the final round based on what many Members may view as lack of political experience not having served as a Minister or other high level government position.

H.E. Yoo Myung-hee (Korea) — Minister Yoo has an impressive resume and her arguments for why she would be a good Director-General resonated with me. Because other candidates have similar or more extensive backgrounds in trade, I believe Minister Yoo will drop out after the second round.

I consider the other three candidates to be the most likely to achieve consensus. Which of the three drops out after Round 2 will, in my view, depend on the weight members give to Dr. Seade being from a Latin American Member vs. the weight given to a strong reputation for reform and political capabilities vs. trade background and track record of accomplishments within the WTO.

If the Latin American label (versus Mexico being part of North America which has never had a Director-General) generates significant negatives, then I believe Dr. Jesus Seade (Mexico) will drop out at the end of round two. This would be unfortunate in my view because his understanding of pending challenges at the WTO and suggested approaches to addressing them sounded the most developed and most likely to achieve results of any of the candidates.

If Dr. Seade is not eliminated at the end of the second round of consultations, the choice for the third candidate eliminated comes down to H.E. Amina C. Mohamed (Kenya) or Dr. Ngozi Okonjo-Iweala (Nigeria). Minister Mohamed has a strong record of accomplishments at the WTO including at the 2015 WTO Ministerial Conference in Nairobi. She checks all of the boxes of factors listed and hence is likely to be one of the last candidates standing. Dr. Ngozi Okonjo-Iweala has a large reform reputation with a strong record at both the World Bank and as Finance Minister in Nigeria but has no WTO experience, and the trade experience that flows from her finance role or her role as a development economist.

Round 3 of consultations, from two candidates to the one candidate viewed as most likely to achieve consensus from the WTO Members

While any of the three reviewed above could be the one standing at the end of the process and all are obviously qualified to lead, I believe that Minister Mohamed of Kenya will be selected as the next Director-General.

Dr. Ngozi Okonjo-Iweala would be my guess at who emerges as DG if Members don’t select Minister Mohamed.

While I believe that Dr. Jesus Seade may be the best candidate in fact, the current Director-General being from Brazil will likely move enough Members to vote for one of the two women candidates from African countries so that Dr. Seade will not make the final cut (if he gets to round 3).

Conclusion

With the hour glass running, the eight candidates for the WTO Director-General post are fully engaged in reaching out to WTO Members to get themselves known. From social media to webinars to press interviews to virtual and actual meetings with individual Members and groups of Members, each candidate and his/her host government are pulling out all the stops to help Members understand why the particular candidate is the right person to lead the WTO at the end of 2020.

Who Members decide is the best person to achieve consensus and become the next Director-General will unfold over the period September 8-November 7. The WTO is fortunate to have so many candidates come forward. There are lots of factors that can be considered by Members. Time will tell who emerges.

The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences

On Friday, July 17th, the General Council of the World Trade Organization concluded three days of meetings with the eight candidates for the post of Director-General. With the current Director-General, Roberto Azevedo, stepping down on August 31st, the WTO is engaged in a somewhat truncated process for selecting a new Director-General, though it is likely that the selection will not conclude until early November of this year.

Each candidate had ninety minutes with the General Council and then were given a press conference for thirty minutes. At the press conference, the candidate would provide a short opening statement and then answer questions from journalists. The order of candidates meeting with the General Council followed the order of receipt of the candidate’s nomination from their government. Thus, Dr. Jesus Seade Kuri (Mexico), Dr. Ngozi Okonjo-Iweala (Nigeria) and Mr. Abdel-Hamid Mamdouh (Egypt), the first three nominations received by the WTO, met with the General Council on July 15. On July 16, the General Council met with Mr. Tudor Ulianovschi (Rep. of Moldova), H.E. Yoo Myung-hee (Rep. of Korea) and Amb. Amina C. Mohamed (Rep. of Kenya). On July 17, the General Council held meetings with H.E. Mohammad Al-Tuwaijri (Saudi Arabia) and Dr. Liam Fox (United Kingdom). The week also provided candidates with the opportunity to meet with individual WTO Members or groups of WTO Members based on availability, etc.

While the meetings with the General Council are simply an early part of the two month outreach by candidates to Members to become better known, the meetings are nonetheless important as they provide WTO Members the opportunity to hear from and to ask questions of each candidate under comparable circumstances. While the minutes of the General Council meetings will be generated by the WTO Secretariat in the coming months and made public some time after that, the General Council meetings are not open to the public. Hence the material available to evaluate the three days of meetings is limited to prepared statements made to the General Council and the press conferences for each candidate held after the candidate had met with the General Council. Those materials can be accessed from the WTO website. See Candidates for DG selection process 2020, https://www.wto.org/english/thewto_e/dg_e/dgsel20_e/dgsel20_e.htm (shows biography, statement to General Council, photo gallery and video press conference for each candidate); WTO members meet the candidates for Director-General, https://www.wto.org/english/news_e/news20_e/dgsel_17jul20_e.htm.

What follows are first my summary impressions from the public information of the candidates. Those are followed by my summaries of each candidate’s presentation and answers to questions.

Summary Impressions of the Candidates

In the challenging environment that confronts the world at the present time, one has to marvel that eight individuals were willing to be put forward by their governments to pursue heading the World Trade Organization. Despite some successes in its first twenty-five years, the WTO is viewed as being severely challenged. Its negotiating function, historically the most important function of the GATT and presumed to be critical in the WTO, has been at least seriously challenged, unable to deliver on many of the subjects that have been considered. This has led the WTO rules to be both outdated and not dealing with current issues of great importance. The dispute settlement system has seen the shutdown of the second-tier review (the Appellate Body) as a variety of longstanding concerns of the United States have not been addressed leading the U.S. to block appointing new members of the Appellate Body. Standing Committees that monitor notifications and discuss topics within the Committee’s jurisdiction have been less robust than historically was the case. Notifications are problematic for many Members in terms of completeness and timeliness of notifications. The lack of successful negotiations has raised concerns on obligations of members as economic development changes the relative ability of Members to contribute. Also the growth of Members operating on economic systems different than market economy models has created challenges as to practices that may not be addressed by WTO rules. And the COVID-19 pandemic has resulted in many export restraints to address concerns about adequacy of medical supplies or agricultural goods.

So it is encouraging that there are eight individuals willing to be considered to head the WTO going forward in such circumstances.

Each candidate has different backgrounds and experiences which may appeal to some WTO Members but not others. For example, Minister Mohammmad Al-Tuwaijri has an extensive business background as well as four years in a Minister position for Saudi Arabia and has focused on his management experience and his desire to develop goals and performance metrics to measure progress if selected the next Director-General.

That is a very different profile than that of Dr. Ngozi Okonjo-Iweala of Nigeria. While Dr. Okonjo-Iweala has some private sector experience, she is a development economist with deep experience at the World Bank and as Finance Minister for Nigeria who focuses on her political experience, ability to work with various multilateral and UN organizations to achieve coordinated actions for developing and least-developed countries and being able to bring “fresh eyes” to the problems of the WTO. She has a reputation as a reformer.

A number of the candidates have depth of GATT/WTO experience and/or trade ministry work. Dr. Jesus Seade Kuri was Mexico’s Ambassador to the GATT, went inside the GATT Secretariat to help conclude the Uruguay Round and was one of the first Deputy Directors-General of the WTO and has recent experiences with the Mexican government concluding the USMCA talks with the United States and Canada. His presentation had a very aggressive and active agenda presented with approaches on the Appellate Body and other issues that indicate he would be active as a Director-General in helping Members find solutions through his understanding of the Agreements, their history, and an ability to devise possible alternative approaches to resolve impasses. He is obviously fluent in all three official languages which is an aid in dealing with senior Mission officials and officials in capitals for many countries.

Mr. Abdel-Hamid Mamdouh similarly has very long experience at the GATT and WTO, first as a negotiator for Egypt and then as part of the WTO Secretariat where he served as Director of Services and Investment. He has significant technical expertise and views himself as having a history of being a trusted advisor to all WTO Members which is different from others who have more government specific experience. While he hasn’t filled senior political positions in the Egyptian government, he notes that political leadership, which is important for the Director-General position, is not the same as ministerial leadership experience.

Minister Amina C. Mohamed of Kenya touted her extensive experience both at the WTO where she was Ambassador for Kenya to the WTO including chairing the three major bodies (General Council, Dispute Settlement Body and Trade Policy Review Body) and her role as Foreign Affairs and International Trade Minister which included her chairing the 10th WTO Ministerial in Nairobi and achieving a series of breakthroughs on negotiations including an amendment to the TRIPS Agreement, expansion of the Information Technology Agreement and delivering an agreement on agriculture export subsidies to highlight her ability to build consensus should she be selected as the next Director-General.

Mr. Tudor Ulianovschi from Moldova similarly had served both as his country’s Ambassador to the WTO and Minister of Foreign Affairs. He presented himself as having political leadership experience and an understanding of current WTO challenges and having interfaced with governments around the world. As Moldova is neutral on many issues before major trading partners, Mr. Ulianovschi views he can be the honest broker and viewed as such by Members. He can handle the political and technical elements of the job and references his sixteen years of experience with Moldova’s government.

H.E. Yoo Myung-hee of Korea has spent twenty-five years in international trade for her government and is the first female Minister for Trade. While she has not served in Geneva in her country’s mission, she has engaged extensively in trade negotiations with countries at all levels of economic development and knows what is needed to conclude negotiations. The fact that she has experienced Korea’s change in economic status over the years helps her understand issues and needs of WTO Members at different economic levels of development.

Finally, Dr. Liam Fox of the United Kingdom believes the next Director-General needs to have political skills, not be a technocrat. He has been in the UK Parliament for several decades and has served in two different administrations (Secretary of State for Defence; Secretary of State for Trade). While he hasn’t served at the WTO, he is a strong supporter of free trade. He believes the WTO needs to recommit to the fundamental principles of most favoured nation, national treatment and transparency of commitment as part of the next Ministerial Conference in 2021. He also cautions that now is not the time for an incoming Director-General to overcommit on anticipated results.

There are factors that may influence some Members — geographical diversity, gender of candidate, whether the candidate is from a developed or developing country. In my last post, I provided a chart that graphed these and some other factors. See WTO Director-General selection process – this week candidates meet WTO Members in a General Council Meeting, https://currentthoughtsontrade.com/2020/07/14/wto-director-general-selection-process-the-week-candidates-meet-wto-members-in-a-general-council-meeting/.

On geographical diversity, there has never been a Director-General from an African country (three candidates – Nigeria, Egypt and Kenya), from an Arab country (Saudi Arabia, Egypt), from North America (Mexico).

On gender, there has never been a Director-General who was female. There are three candidates who are female in this selection process (Nigeria, Korea, Kenya).

On developed vs. developing country, there are two countries that are “developed” at the WTO (United Kingdom, Moldova). In my prior chart, Moldova had been listed as developing, flowing from the fact that in their trade policy review, it was indicated that Moldova is eligible for generalized system of preference benefits from a number of countries (GSP is intended to benefit developing countries). See Trade Policy Review, Report by the Secretariat, Republic of Moldova, WT/TPR/S/323 (14 September 2015) at 31, para. 3.24, https://www.wto.org/english/tratop_e/tpr_e/s323_e.pdf. Saudi Arabia was included in the chart as a developing country, despite being a high income country in the World Bank’s terminology, because the Saudi Arabia trade policy review indicates Saudi Arabia is a member of the Informal Group of Developing Countries. See Trade Policy Review, Report by the Secretariat, The Kingdom of Saudi Arabia, WT/TPR/S/333 (29 Feb. 2016) at 22, para. 2.20, https://www.wto.org/english/tratop_e/tpr_e/s333_e.pdf.

If WTO Members are looking for positions of candidates on particular issues, candidates were typically careful not to go in one direction or another where there are known differences in the position of Members. For example, on the question of the Appellate Body reform, candidates recognized the need to address both the concerns of the United States and the concerns of other Members to have the WTO Appellate Body reinstated in their prepared statements and were certainly asked questions both by the General Council and during the press conferences. Some, like Dr. Jesus Seade, had some broader ideas on how to resolve the Appellate Body issue without indicating what the resolution would look like. Others like Mr. Abdel-Hamid Mamdouh believed it would be possible to move forward from the work already done. Some like Dr. Liam Fox suggested that without resolution there was no dispute settlement, which is a sentiment that at least the United States would disagree with. Several were asked about the interim arrangement entered into by the EU, China, Canada and some 19 others. All who addressed the issue accepted the arrangement as interim only and not intended to replace the Appellate Body and focused on obtaining a solution to the impasse on the Appellate Body.

Similarly, many candidates were asked about the question of classification of countries as developing for special and differential treatment. Minister Yoo of Korea noted that Korea had decided that its economic development permitted it to accept higher levels of commitments and thought that was useful for countries who felt they could do so. But she recognized that it was a sensitive issue on which there was no consensus. Dr. Seade felt a more productive approach to the issue would be to look at whether any given country needed special and differential treatment on a product or sector basis in new agreements versus tackling what he viewed was a theological issue – country classification. Others deferred to what Members thought or wanted to pursue.

While all candidates talked extensively about reform, none can fairly be said to have embraced the U.S. call for broad-ranging reform of the existing organization and agreements. Nor did any candidate publicly indicate that the WTO did not address many of the practices of China which operates under a different economic system than most of WTO members, another issue viewed as important by USTR Lighthizer for candidates to recognize.

To sum up, the candidates are in the early days of their outreach to get better known by Members. The appearances before the General Council and the press conferences afterward provide a better understanding of their visions for the WTO and what the candidates believe they bring to the table. The next 51 days til September 8 will undoubtedly be an exhausting time for each candidate as outreach continues around the world. We wish all of the candidates success in their outreach efforts these next fifty-one days.

The immediate task for the General Council will be selecting an acting Director-General from the four existing Deputy Directors-General. It is not clear if this will be accomplished at this week’s General Council meeting on July 22 and 23, or if this week’s meeting will simply represent the start of the process.

What follows are summaries of prepared statements and of the press conferences held July 15-17, 2020

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade was the first candidate nominated and so was the first before the General Council and the first to have a press conference after the meeting with the General Council. His statement to the General Council was the only one presented in all three of the official languages of the WTO with the first part in Spanish, the middle section in French and the last part in English.

Dr. Seade reviews his unique history with the GATT and WTO, having been Mexico’s Ambassador to the GATT during the Uruguay Round, part of the GATT Secretariat during the period that Peter Sutherland was Director-General working to conclude the Uruguay Round, and his role as one of the first Deputy Directors-General of the WTO when the WTO launched in 1995. The GATT and WTO have accomplished a lot in terms of expanding global trade and economic development over roughly three quarters of a century. The WTO provided needed stability during the 2008 financial crisis and is continuing to do so now during the COVID-19 pandemic. And the WTO has had some recent successes in terms of completing the trade facilitation agreement and agreeing to the elimination of agricultural export subsidies by some countries. Nonetheless, the WTO’s performance has not lived up to the initial high expectations of Members.

The WTO has the twin problems of limited results from negotiations and the paralysis of the Appellate Body. These problems are being exacerbated by the enormous negative effects of COVID-19 on trade. Key to restoring the role of the organization is to restore the negotiating function, restore a two stage dispute settlement system and start discussions to make the WTO more efficient, transparent and inclusive. On negotiations, the WTO needs to address issues currently being addressed, issues relevant to 21st century trade, and traditional issues where progress has not been made.

Dr. Seade presented a three-stage program for action:

  1. In the first 100 days, work with Members to (a) complete a fisheries subsidies agreement, (b) restore the Appellate Body, (c) work to reverse negative views of WTO and its ability to fulfill its mandate and (d) work with Members on the COVID-19 crisis both to increase transparency and address trade restrictions introduced.
  2. By the Ministerial Conference to be held in 2021, help Members achieve results (a) in joint initiatives and (b) on issues that will make WTO more transparent and effective, and establish a work program on issues where negotiations have been suspended.
  3. In the medium and longer term, work with Members to identify weaknesses in the organization and pursue modifications to strengthen the organization, take up traditional priority issues on the sustainable development agenda. Also ensure a high quality and effective Secretariat. Finally, address issues important to society, including those related to the environment, gender, MSMEs, etc.

Dr. Seade indicated that he possesses not only vision, leadership and political capacity but also an understanding of the trade agreements and the sensitivities behind the agreements. These are qualities he believes the next Director-General will need.

During the press conference, Dr. Seade provided a short opening statement which basically reviewed his special role in the creation of the WTO and his other positions. He noted that trade is very transformative for countries to help development and lift people out of poverty. He then reviewed the serious crisis at the WTO and why he has been put forward as a candidate.

Dr. Seade was asked many questions some of which sought information that is reflected in his prepared statement. Dr. Seade was asked why Members should choose him, how he would help Members address the Appellate Body impasse, what did he think of the interim arbitration arrangement entered into by a number of Members while the Appellate Body is not functioning, what is the most pressing challenge at the WTO, which Members were supporting his candidacy, what will the effect of the U.S. election be on the Director-General selection process and what Dr. Seade thinks of the issue of classification of Members as developed or developing. He was also asked questions about regional diversity and gender for the next Director-General noting Mexico is part of Latin America, the area where the current Director-General is also from, versus candidates from Africa or the Middle East which have never had a Director-General. Similarly, the GATT and WTO have had Directors-General all of whom have been male. The current field of eight candidates includes three women; isn’t it time for a woman to be Director-General?

Dr. Seade reviewed the capabilities he believes the next Director-General needs. While he wouldn’t make a comparison to other candidates, he felt that he had the capabilities in fact needed. His job as Director-General would be to come up with alternative ideas to help Members find solutions. He has that ability.

On the question of the Appellate Body impasse, Dr. Seade noted that none of the Members were denouncing any provision within the Dispute Settlement Understanding. Rather concerns had been voiced on how DSU provisions had been applied. Dr. Seade believes that what is missing is the way to operationalize the role of the Dispute Settlement Body (all WTO Members sitting as the DSB) which is organizationally above the Appellate Body but for which there are currently no procedures for communications from the DSB to the Appellate Body to address issues generally (vs. in specific disputes). Such procedures were needed. He also had other ideas for how to resolve the impasse that he was interested in reviewing with Members to see if there could be movement. On the question of the interim arbitration arrangement, Dr. Seade thought a temporary arrangement made sense as it provided Members a second stage to dispute settlement as provided in the DSU. Key is finding a solution to the impasse so the two-tier dispute settlement system is restored for all.

On the question of the major problem with the WTO, Dr. Seade identified two problems — the inability to negotiate and dispute settlement, although dispute settlement largely flows from the inability to negotiate. Because the nature of the world has changed so profoundly over the years, there are new issues and new actors. Where Members can’t negotiate new issues, there is enormous pressure put on the dispute settlement system to find solutions. The inability to negotiate is spurred on by an enormous lack of trust between Members. The issue of lack of trust needs to be addressed.

On the issue of support, he noted that obviously many Members want to meet all candidates as they consider who they will support. He has done extensive outreach already to many Members and believes those outreach efforts have generally been well received. While he has some Members who have indicated they will support his candidacy (about a half dozen), only two are public — Argentina and Bolivia. He did not view it as appropriate to mention other Members where support was not public. He was hopeful of obtaining support from all parts of the world including in North America.

On the question of the effect of the U.S. Presidential election in November on the Director-General selection process, Dr. Seade said that both parties in the United States have been critical of the WTO in various respects. So regardless of the election outcome, the WTO will need to address U.S. concerns. The key is to make the Director-General selection as soon as possible. This is because of the need to get working ahead of the Ministerial Conference which will be next year, but there is pent-up demand on issues since the last Ministerial was four years ago. While the schedule for the selection of the next Director-General could run to early November, he hopes it will be handled more quickly by Members.

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

On the questions of geographical diversity and gender, Dr. Seade reviewed that Members will be making the selection. He believes the correct course is for Members to pick the individual best qualified for this particular time. He believes that he is that person.

Dr. Ngozi Okonjo Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala in her prepared statement includes sincere condolences for all who have lost a family member from COVID-19 in French. Later in her statement, Dr. Okonjo-Iweala includes a phrase from her native igbo language, and she gives thank yous in six languages. The main part of her statement is in English. Her statement reviews her record at the World Bank, her time as Finance Minister in Nigeria and her role as Chair of Gavi to stress her ability to achieve reform and to work with other multilateral organizations and her focus on the needs of development and the role trade plays in development.

Looking at the challenges confronting the WTO, Dr. Okonjo-Iweala flags a negotiating function that is underperforming “at a time when its rule book would greatly benefit from an update to 21st century issues such as e-commerce and the digital economy, the green and circular economies. Issues of women and trade and Micro Small and Medium Enterprises (MSMEs) are import to ensure greater inclusion.” (pages 2-3). Other challenges include improving transparency and notifications, improving the functioning of the regular WTO bodies and strengthening the Secretariat. There are important differences on issues such as SOEs and agricultural subsidies amongst Members and increased trade tensions.

These problems are exacerbated by the COVID-19 crisis which have resulted in export restraints by some and stimulus packages which may “undermine WTO commitments by distorting production and trade.” (page 4).

Dr. Okonjo-Iweala reviewed why she believes she is the person to be the next Director-General:

  1. She is a strong believer in the role of trade and of the multilateral trading system to bring shared prosperity. She brings a “fresh pair of eyes to the WTO’s challenges.”
  2. Need to build trust. Not a question of technical expertise but rather political will/solutions.
  3. She has a proven track record in carrying out successful reforms which is what will be needed at the WTO going forward.

After reviewing the range of pending issues before the WTO that need to be completed or addressed, Dr. Okonjo-Iweala reviews the need to work closely with other multilateral organizations and the UN and her ability to improve cooperation with these other entities.

“The rules-based MTS is a public good that underpins peace, security, stability and a chance for prosperity in the world. Every effort should therefore be made to safeguard, improve and renew it to enable it effectively address the challenges of the 21st century.” (Page 11)

During the press conference, Dr. Okonjo-Iweala provided her short statement and then received a large number of questions. Her short statement was that trade is important for the 21st century, for prosperity, resilience and growth. The WTO is at the center of global trade.

She was asked about whether three candidates from Africa hurt her chances to be selected, what she views as the role of the Director-General, how she views the question of fair trade particularly between north and south, what she believes is achievable in terms of deliverables by the next WTO Ministerial Conference in 2021, what she would say to the U.S. President on why the U.S. should stay in the WTO, what the WTO can do to ensure that small and micro-businesses survive the economic fallout from the COVID-19 pandemic, what her selection as the next Director-General would mean for women in Nigeria, if selected the next Director-General what would she do to ensure availability of medical supplies to all countries, and whether her perceived lack of a trade background was a handicap in the competition to become the next Director-General.

Her response on the question about multiple candidates from Africa was that Dr. Okonjo-Iweala viewed that it was a positive that there were three qualified candidates from Africa and not a problem. It is up to the Members to select from all of the candidates, a process which should focus on who is the best candidate. If from Africa, great.

On the question of the role of the Director-General, Dr. Okonjo-Iweala views the role to be working with Members to help them reach consensus. It is important that starting with the next Ministerial, the WTO show movement to achieve results.

On the question of fair trade, particularly between north and south, Dr. Okonjo-Iweala noted that the WTO’s role is to support all members to take advantage of fair and open trade. Where the South is getting fewer benefits from global trade, Dr. Okonjo-Iweala would use the instruments available to the WTO Director-General (e.g., Aid for Trade, working with other multilateral organizations) to get resources to South Members to improve their position in international trade.

On the question of what is achievable by the next Ministerial in 2021 and whether it is best to go after issues one at a time or in a larger grouping, Dr. Okonjo-Iweala indicated that she hoped the WTO Membership would make a decision soon on who should be Director-General so whoever is selected has more time before the next Ministerial. But even if a decision is not made until November 2020, there are some areas that could be ready by the next Ministerial. For example, a fisheries subsidies agreement should be achievable. There was a lot of discussion in the General Council on trust and building trust to move negotiations along. Trust is obviously an important issue. So the WTO may need to sequence issues to build trust by achieving a win or two. Once there are some successes, it should be possible to handle more issues in parallel.

On the question of why the U.S. should stay in the WTO, Dr. Okonjo-Iweala would communicate that the WTO delivers for all Members. The GATT and WTO have provided shared prosperity which has lifted millions out of poverty. Where the trading system is not working, Members need to fix the problems. Peace, security and stability are needed now just as they have been over the last decades. These are what the WTO rules-based system provides. If we didn’t have the WTO, we would need to invent it.

On the question of MSMEs, Dr. Okonjo-Iweala noted that they are very important globally but are being harmed by COVID-19 fallout. How to ensure MSMEs survive and get such entities better included in the global trading system is a matter of great interest to Dr. Okonjo-Iweala. There is a great need to facilitate provision of additional resources to help these entities. Dr. Okonjo-Iweala would work with other multilateral organizations to help facilitate assistance.

On the question of what will her getting selected Director-General of the WTO would mean for women in Nigeria, Dr. Okonjo-Iweala noted that women not just in Nigeria but around the world are ready for greater roles. But Dr. Okonjo-Iweala reiterated that selection of the WTO Director-General should be based on merit–if a woman, great; if from Africa, great.

On the question of what she would do as Director-General to ensure smooth trade of medical goods including therapeutics and vaccines, Dr. Okonjo-Iweala indicated that she would use the knowledge she has from the chair of GAVI and working with other groups and organizations to ensure that the WTO did its part to ensure equitable and afforadable access to any vaccines developed to address COVID-19. There should be no barriers to access to the medicines/vaccines while honoring intellectual property rights. It is critical that everyone have access to lifesaving medicines at the same time and at affordable prices.

On the question of whether the consensus rule at the WTO should be gotten rid of to overcome gridlock, Dr. Okonjo-Iweala responded that part of the strength of WTO is that agreements are reached by consensus. Where all sovereign states agree to a text, they are more likely to implement the provisions. The real question is how to make consensus better. In Dr. Okonjo-Iweala’s view, the underlying problem with the current consensus system is the lack of trust among the Members. Thus, there is an urgent need to rebuild trust. To rebuild trust, the WTO needs confidence building measures, i.e., obtaining wins in achieving new agreements. That will show that consensus can and does work.

The question on what Dr. Okonjo-Iweala would do as Director-General to see that an agreement on e-commerce was pursued was answered by noting that there was extensive work being done plurilaterally by many Members as one of a number of joint statement initiatives. Dr. Okonjo-Iweala agrees that an agreement on e-commerce is very important, but she notes that there is a digital divide where many poorer countries don’t have the infrastructure to take advantage of e-commerce. The WTO, working with other multilateral organizations, needs to see that resources are put together to help countries address the digital divide. Once the digital divide is addressed, all Members should want to and be able to participate in the e-commerce negotiations, so that the agreement becomes a multilateral one.

On the question of whether her career in finance is a handicap for a trade position, Dr. Okonjo-Iweala disagrees with the premise as her career has always involved trade as a development economist and also as finance minister where Customs was part of her responsibilities.

Abdel-Hamid Mamdouh (Egypt)

Mr. Abdel-Hamid Mamdouh is the one candidate with extensive WTO Secretariat experience (27 years), junior negotiating experience for Egypt during the Uruguay Round, but no Minister or Ambassador experience on his biography. His prepared statement concurs that the WTO needs reform, an updated rulebook for the 21st century and a Director-General with political leadership though he indicates political leadership doesn’t require or mean ministerial leadership. That said, Mr. Mamdouh indicates that a core problem is that the consensus or common purpose of the WTO has faded for many and to get that common purpose back, the WTO needs a different type of leadership, one that he is positioned to provide.

“In my view, over the past quarter of a century, the WTO has suffered from a chronic imbalance across all its vital functions. That is, dispute settlement, negotiation, and the transparency/deliberative functions

“In any legal system, there needs to be a balance between the ‘legislative’ and the ‘judicial’ functions. For the WTO, these are the negotiating and the dispute settlement functions. While dispute settlement gained strength due to the inherent automaticity of procedures, the negotiating function has broken down. This created an unsustainable imbalance.” (Page 3)

As international trade has evolved, the rules of trade have not done so which has added to imbalance through use of dispute settlement to address matters where no rules exist. Similarly, where transparency and notifications are not robust, Members don’t have the necessary information to confirm compliance, and that can lead to additional disputes.

“A deeper look into the root causes of this imbalance would reveal that there are three cross-cutting phenomena that hinder the functioning of the WTO: leadership deficit, increasing complexity of trade policy and negotiating issues, and a fading vision of the common purpose behind the system. Over time, these phenomena lead to the unsustainable imbalance across the vital functions.” (Page 4)

Reform of the WTO can only occur through negotiations. For the 12th Ministerial Conference to be held in 2021, the WTO needs to agree on a reform agenda and to “achieve concrete progress on issues currently under negotiation”. (Page 5) Fisheries subsidies, Joint Statement Initiatives on e-commerce, domestic regulation in services, MSMEs and investment facilitation along with backlog issues all need to be considered.

The next DG needs “authoritative knowledge of the system and long experience with its functioning” and “trust of Members in his or her impartiality”. (page 7). Mr. Mamdouh believes he is the best candidate to be the next Director-General.

During the press conference, Mr. Mamdouh responded to a wide range of questions (see below) following his opening statement. In his opening statement, Mr. Mamdouh indicated that he had reviewed with the General Council why he was running as a candidate and what he would do as Director-General. He touted his 35 years of experience and participation in the Uruguay Round. He reviewed why he perceives the organization in crisis, the root cause being the imbalance among the three legs of the system — negotiations, dispute settlement, transparency/notifications. He also talked about how to fix the problems and the differences between other organizations’ reform and that of the WTO where reform involves modifying the agreements.

On the question of whether the General Council had concerns with Mr. Mamdouh’s background (no position as minister or ambassador) and role of the Director-General, Mr. Mamdouh indicated that he hadn’t sensed any concern among the Members. In his view, ministers take national perspective, while the role of the Director-General is to be a facilitator and honest broker which requires independence. His background is exactly that. While Mr. Mamdouh agreed that political leadership is required for the next Director-General, political leadership is not synoamous with ministerial leadership.

On the question of his vision for fixing the WTO and his strategy for doing so, Mr. Mamdouh indicated that he believed the WTO Members needed to develop a sense of common purpose. His strategy would begin with reviving the negotiation function. The Director-General will need fact- based knowledge to help Members find solutions.

On the question of running against two other African candidates and whether it will make it harder to win, Mr. Mamdouh answered that it was the position of the Egyptian government that the Egyptian candidate is the only candidate who has been endorsed by the African Union through its process. Candidates from Nigeria and Kenya have not passed through the process established by the African Union.

Mr. Mamdouh was asked about whether changes were needed in the interaction between the WTO Secretariat and Members. Mr. Mamdouh responded that the WTO has a body of great expertise within the Secretariat that could be better utilized. The expertise needs to be put at the disposal of the membership; information from the Secretariat staff is provided to Members in negotiations, to panels in dispute settlement and in committees. Mr. Mamdouh wants to bring the role of the Secretariat back to where it was in the past.

Mr. Mamdouh was asked if there is an Egyptian vision that makes him unique as a candidate. He was also asked if he didn’t think it was time for a woman to lead the WTO. Mr. Mamdouh stated that his Egyptian perspective is that of a Egyptian negotiator struggling to navigate the challenges within the GATT and then deal with the new issues within the Uruguay Round (services, IP). Thus, he understands what negotiators from developing and LDCs face to effectively participate with new issues. On the question of when it is time for a woman to lead the WTO, Mr. Mamdouh indicated that any time is the right time. He believes in gender equality. But gender shouldn’t be the primary criteria in selecting a Director-General.

Mr. Mamdouh was asked a question based on his role in the GATS negotiations as to what is key to building consensus. Mr. Mamdouh believes that the key to building consensus is to mobilize support for the common purpose. Conversely, while consensus is the golden rule in how the WTO functions, Members shouldn’t impose a requirement of consensus where it is not required. If one follow these two approaches, one facilitates achieving consensus.

A question was asked on what should be the role of the US and China in the new WTO. Mr. Mamdouh responded that the role of these two Members is to engage in the WTO. Start from the point that bilateral disputes should be resolved in the WTO. Since we all believe in the multilateral process, must keep in mind that bilateral disputes and solutions have effects on others. Moreover, bilateral solutions are less likely to be disciplined and are likely to be short lived.

Asked what he would do to revive the Appellate Body, Mr. Mamdouh responded that he would build off of the work already done. Most logical and productive first step is to build on that work and see what else is needed. And there is a need to look deeper into causes which he believes are rooted in differences in legal and regulatory systems. Mr. Mamdouh has not heard any suggestions that rules within the Dispute Settlement Understanding need to be changed. He concluded by saying that the size of the problem needs to be put into perspective and one needs to remember that on this issue, the WTO Members are not starting from zero.

A question was asked on globalization, whether the golden age of globalization had passed, the challenges of new protectionism and what he would do to restore the golden age of globalization. Mr. Mamdouh indicated that he believes globalization has been in transition for a while. The challenges from the COVID-19 pandemic merely highlight some challenges and possible changes. Globalization won’t go away. Problems seen during COVID-19 relate to medical products and agricultural products. Problems with supply chains have to do with disruption. If trying to deal with resilience, solution may lie with diversification of supply vs. onshoring. Globalization is restructuring but not going away (supply closer to demand). Will continue to evolve but won’t disappear.

On the question of what is the top challenge facing the WTO and his priority actions to address, Mr. Mamdouh indicated that the top challenge is the failing sense of purpose within the membership. What he would prioritize would be working to revive the sense of common purpose.

Mr. Mamdouh was asked if there will be enough time to prepare for the next Ministerial to have positive agenda/outcome. He answered that if the selection process concludes before November, there should be sufficient time. In his view, the next Ministerial needs to be a turning point for the WTO. At MC12, the WTO must have a clear agenda for reform. There is not currently a mainstream focus on reform; issues are being raised ad hoc. Second, the WTO needs to score successes – fisheries subsidies and progress on joint statement initiatives.

Tudor Ulianovschi (Republic of Moldova)

Mr. Ulianovschi was the first candidate who met with the General Council on Thursday, July 16. He reviewed his time as the Moldovan Ambassador to the WTO and as Moldova’s Foreign Minister and his overall diplomatic and political career that spanned more than sixteen years.

He articulated his vision for the WTO if selected as the next Director-General as being

“a 3D vision and approach:

First D is Direct Access to Ministers and political decision makers — in my capacity as a recent Minister dealing with Ministers.

Second D is Dialogue and discussions with Geneva based Ambassadors — in my capacity as former Ambassador to the WTO — I was in your shoes and fully understand the process of work, its challenges and the potential efficient and effective solutions.

Third D is Driving the work of the WTO Management and Secretariat, so it can better and more efficiently serve Members’ needs and continue bringing its contribution to a better system for all Members.” (Pages 2-3)

There is a need to strengthen the system by reinvigorating the negotiation function, safeguarding and improving the WTO’s two-tiered dispute settlement system, and improving compliance with notification obligations. (Pages 2-3). Incremental progress on negotiations is what is achievable.

Immediate priorities for the next Director-General include eight items, the first four of which are getting the Appellate Body reactivated, achieving resolution to the fisheries subsidies negotiations, addressing joint initiative issue (e-commerce, investment facilitation for development, domestic services regulations, MSMEs), and facilitating dialogue on other ongoing issues.

Mr.Ulianovschi provided separate discussions on dispute settlement and on COVID-19. On the latter issue, transparency of government action is crucial for traders. Members should limit export restraints and remove as soon as the situation permits. The WTO needs to continue working with other international organizations to analyze the effect of COVID-19 on agricultural supplies, supply chains as well as how to help economic recovery, particularly for developing and least developed countries.

During the press conference, Mr. Ulianovschi provided a short introductory statement and then responded to a variety of questions. His short statement reviewed his presentation to the General Council. He believes that the WTO must show its relevance, and that the WTO needs reform to restore relevance. The WTO’s negotiating function is key to achieving this and helping restore the negotiating function would be his top priority as Director-General. The second priority is to reactive the Appellate Body. Third, is improving transparency and the monitoring function of the WTO. Mr. Ulianovschi brings to the table as a candidate his experience as a former Ambassador to the WTO and as a former Minister.

On the question of how he would use the role of Director-General to ease tensions between U.S. and China, Mr. Ulianovschi responded that this topic had been discussed with Members during his meeting with the General Council. In his view, the role of the Director-General is to be an honest broker between WTO Members. The Director-General must be able to listen to concerns with a view to using his offices to engage Members involved in a dialogue process. At same time, the Director-General is not there to impose solution but to listen and raise awareness of the impact of actions on the larger organization and to mitigate harm to others. The next Director-General needs to engage in talks both in Geneva and in capitals and see that any outreach is transparent and inclusive.

There were several questions on the Appellate Body including how Mr. Ulianovschi would reactivate the Appellate Body and whether reform of the dispute settlement system should be broader than getting the Appellate Body back functioning. Mr. Ulianovschi indicated that on the provisions of the Dispute Settlement Understanding, all Members agree on the provisions as written. With the application of the DSU by the AB, there are concerns raised by the U.S. and others. The Director-General can provide a process to help Member’s discuss. Solutions to the concerns raised need to be found, but the parameters of the solutions need to be found by members themselves. In his view, the Director-General’s role is to help Members identify how to move forward on the Appellate Body impasse with resolution by the next Ministerial Conference. On the question of breadth of action on the dispute settlement system, Mr. Ulianovschi stated that Members are not looking for a complete redrafting of the Dispute Settlement Understanding. What is needed is a targeted approach to address issues raised by certain members on the operation of the Appellate Body.

Mr. Ulianovschi was asked a question of how he, if selected as the next Director-General, would withstand the political pressure being young and from a very small country. Mr. Ulianovschi noted that as a candidate he speaks in his individual capacity not in his country’s capacity. Key criteria should be competence, experience and political profile, not age or size of country the candidate is from. He has the relevant experiences to be the next Director-General. The WTO needs a person who understands the issues but also has the political experience and networking to help members to get things done. As to age, Mr. Ulianovschi has plenty of experience negotiating agreements. He has the right resilience, tenacity, ability to listen and political will to get things done.

A question was asked of what sets Mr. Ulianovschi apart from other candidates. His response was that at the end of the day, it is for Members to decide which candidate best meets their needs. All of the eight candidates have extensive backgrounds. Believes he has a good 3-D approach which will benefit members.

On the COVID-19 crisis, Mr. Ulianovschi was asked how the pandemic will impact the WTO. His response was that COVID-19 is a wakeup call to WTO and its Members. The pandemic is having major negative effects on trade and economic growth around the world. Some WTO Members have imposed export restraints and pursuant to WTO requirements have generally notified such restraints. While all Members are affected by the pandemic, there have been significant effects on those least able to handle the negative effects, particularly LDCs. There is a need to expand capacity to help such Members. As Director-General he would work with other organizations to have a unified approach on how to address COVID-19 challenges through trade to the benefit of all people.

Mr. Ulianovschi was asked whether considering that Moldova was a small country that is not a powerhouse in trade, there were experiences from his country in post-Soviet times that would inform his handling the role of Director-General. Mr. Ulianovschi answered that when Moldova joined the WTO in 2001, it joined as a developed country and made the commitments expected of a developed member. Trade is important for Moldova and is for all WTO Members. Moldova has had a neutral role in many of the issues at the WTO. Thus, coming from Moldova enhances Mr. Ulianovschi’s background for being an honest broker if selected as the next Director-General. On size of country, Members should be evaluating the experience of the candidate versus the size of the country.

A question was asked whether the consensus rule at the WTO should be changed to reduce the paralysis. Mr. Ulianovschi responded that the consensus rule was decided by Members. Consensus decision making is one of the elements of the WTO that helps members remember the greater goods and need to consider partners’ needs. Process doesn’t work well all the time. The Director-General can help facilitate Members moving forward and achieving consensus. While there are different formats at the WTO (multilateral and plurilateral), at the end, it is important that basic principles are respected. Consensus is a cornerstone of the WTO.

The last question asked was about getting the WTO out of crisis; in particular, what is the core factor causing the crisis and how would Mr. Ulianovschi address the factor if he was selected as Director-General. Mr. Ulianovschi answered that this is an existential question for the WTO. First priority, in his view, to get out of the crisis is for there to be trust among Members. The role of the Director-General is to enhance feeling of trust through confidence building steps. Many issues which have been unresolved for a long time have undermined trust. Joint initiative statement issues are advancing and give hope that the organization is relevant and can deliver. This is a good sign that there is a common purpose among the Members.

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

The Korean candidate has spent twenty-five years in international trade and presently serves as Korea’s Minister for Trade.

“My 25 year career in international trade has taught me that solid ground- work is the basis of an agreement, and political will is what closes the deal. I have dealt with both the technical details of agreements, as well as engaged in finalizing major trade agreements as Trade Minister. I believe my extensive experience and expertise will enable me to offer insights and creative solutions to restore and revitalize the WTO.” Page 1

Minister Yoo reviewed the nature of the challenges facing the WTO at the present time:

“We are now witnessing the threat of growing protectionism, and heightened trade tensions. Technological advances are transforming the way we produce, deliver, and consume goods and services in ways never imagined when the WTO was created. The global crisis induced by the pandemic is challenging the WTO’s purpose of ensuring the smooth flow of goods and services.

“The WTO, which was intended to provide predictability and stability in these times of turbulence, is now facing a trust deficit with all three pillars under stress.

“Despite much good will and hard work, the record of negotiations in the WTO leaves much room to be desired. There has been progress, such as the adoption of the Bali and the Nairobi packages including the Trade Facilitation Agreement, but we need to do much more to meet the challenges and realities of the 21st century. The stagnant negotiations have had negative consequences for all of the WTO’s functions, and, to some extent, contributed to the current problems facing the dispute settlement system.” (page 2)

Minister Yoo’s vision for the WTO “is to make the WTO more relevant, resilient and responsive.” (Page 2)

“The WTO needs to keep evolving to become more relevant to changing economic circumstance and realities. The WTO needs to enhance sustainability and inclusiveness to remain resilient as a champion of open trade for the next 25 years and beyond. And the WTO needs to be more responsive to global challenges and contingencies for the benefit of all of its Members.” (Page 2)

In terms of tasks should she become the next Director-General, Minister Yoo lists the first priority as the next Ministerial Conference (MC12). The second priority is WTO reform and the third is inclusive trade and sustainable development.

For the MC12, achieving an agreement on fisheries subsidies by the conference is critical. Significant progress towards a plurilateral electronic commerce agreement is another achievable objective by MC12. Progress on development issues is also critical, particularly on issues important to developing and least developed countries to help survive and come back from the COVID-19 pandemic.

On the issue of WTO reform, Minister Yoo separates the topic into three areas – updating “the rule-books and delivering agreements with real economic impact”; “restoring the dispute settlement system”; and “implementation of agreements and increased transparency.” (Page 3)

The third area, inclusive trade and sustainable development is described as follows by Minister Yoo:

“WTO reform should not be a goal in and of itself, but an instrument to promote economic prosperity and better living standards for all of its Members. To this end, the WTO should pursue inclusive trade initiatives encompassing overall development issues, as well as specific, cross-cutting issues such as MSMEs, women’s economic empowerment, and environment.

“Among others, we should deepen our efforts to help developing countries, especially LDCs, secure a larger share in the growth in international trade. We should fully implement what has been agreed for LDCs and strengthen our technical assistance and capacity building programs. Further, while maintaining a central role for the WTO in seeking these important values, I will support cooperation with other international organizations in a proactive and forthcoming manner. This will help broaden the available resources and multilateral commitment to achieving Members’ goals.” (pages 3-4)

Minister Yoo’s prepared statement to the General Council concludes with a section on how she sees the role of the Director-General — bringing optimism, having a vision based on realism, helping rebuild trust in the Organization. “[T]he Director-General has to be an effective, trusted, and informed facilitator and a person who knows how and when to act to help achieve consensus and agreement.” (Page 4)

At the press conference, Minister Yoo provided a short statement which was followed by a range of questions. In her short statement, Minister Yoo stated that the WTO is at a crossroads. Her vision is to make the WTO more relevant, resilient and responsive (as reviewed in her prepared statement). She brings her 25 years experience to the job.

The first question asked that since Korea was one of the countries who agreed to export limits to avoid steel and aluminum tariffs imposed by the U.S., what thoughts did Minister Yoo have on voluntary export restraints (VERs) under the WTO. Minister Yoo responded that VERs are banned by the WTO. But the current situation is different as US has taken action pursuant to national security provisions, and Korea was addressing intended actions by U.S. under that law. Cases are before panels challenging U.S. national security action as inconsistent with WTO, so Minister Yoo would not comment on the merits of the cases at this time. While aware of different views on whether national security issues can be challenged at the WTO, since the issue is in front of panels, she would not comment further.

On the issue of The Appellate Bidy impasse, Minister Yoo was asked how she would solve the impasse. She indicated that Members have very divergent views on the role of the Appellate Body. All members understand the need for a two-tier dispute settlement system. If selected as the next Director-General, Minister Yoo would accelerate members’ consultations to resolve the issue.

Minister Yoo was asked how hard it would be to move from Korea’s Minister for Trade to the WTO’s Director-General and whether she would have problems living in Geneva or working for an international organization. Minister Yoo indicated that she believes she is in best position to understand all Members views at the WTO. During her lifetime, Korea has gone through many stages of development, and she has seen trade issues through her country’s experience at different levels of economic development. Because of her diverse experiences at Korea’s different stages of developments, she is in a good position to understand concerns of all countries if selected as the next Director-General. As for living abroad, Minister Yoo was stationed Beijing for 3 years and Singapore for 3 1/2 years. She would have no problem living abroad or working for an international organization.

On the interim arbitration mechanism adopted by the EU, China and about 20 other Members, Korea is not a party. Does Minister Yoo have any concerns that the interim arrangement (MPIA) might become permanent? Minister Yoo responded that the MPIA was being used by some Members to overcome the current vacuum with the Appellate Bid shut down. The key for the WTO is to focus on finding a permanent solution, and she would do that if selected as the next Director-General.

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

A question was asked as to how Minister Yoo would restore trust if selected as the next Director-General. Minister Yoo noted her experience in negotiating trade deals with all level of countries around the world. She knows what it takes to negotiate and what it takes to bring negotiations to a close. She is confident that she can earn confidence from Members and achieve tangible outcomes. The key is to obtain even a small success at the MC12 (e.g., fisheries subsidies agreement by then) which would help build trust and convince world that progress can happen at the WTO.

Minister Yoo was asked if in a consensus system, she could gain the support of Japan for her candidacy considering she had led Korea’s dispute with Japan on semiconductor materials. Minister Yoo remarked that she is here as a candidate in her own capacity and not as part of the Korean government. She would not comment on the ongoing dispute between Japan and Korea. She did note that Japan and Korea work closely on many issues at the WTO, and both are strong supporters of the multilateral trading system. Therefore, she is confident that Japan will look at all candidates and decide which has the best qualifications to move the WTO forward.

One questionner indicated he had heard from an analyst that there is some concern that China might block Korea’s candidacy as China might otherwise have to give up its Deputy Director-General slot. Minister Yoo was also asked if it was time for a woman to lead the WTO. Minister Yoo felt it would be inappropriate to comment on the position of other countries, each of whom must make their own decision as to whom to support for the next Director-General. She hadn’t heard about the rumor mentioned. She added that China and Korea have worked closely on many matters. She was in China for three years and has negotiated with China. She would be doing outreach to China and other Members to see how she could work with them if selected as the next Director-General. On gender, for the last 25 years, she has been a pioneer in the Korean government, the first woman to hold her position in trade. Promotion has been based on merit not on gender. The WTO Members should pick the right person to help WTO move forward. All of the women candidates are well qualified. She knows she is well qualified based on her experience.

What does it mean for the WTO to be relevant, and how would you bring on major members who may not agree with the issue being considered? Minister Yoo stated that the WTO needs to revitalize its negotiating function and must be able to enforce its rules (restore AB). Given 21st century realities, WTO needs to update its rule book and to achieve things that can have real global effect such as joint initiative efforts on e-commerce, MSMEs, investments, and other issues. That said, there are open issues from The Doha Development Agenda that are not moving because there are different views on how to move forward. In terms of how you bring members to the negotiating table, part of the answer is to obtain small successes to build trust and momentum.

Amb. Amina C. Mohamed (Republic of Kenya)

Ministrr Mohamed was the last candidate who met with the General Council on Thursday, July 16. She started by outlining what she referred to as “the three main themes of my vision for the WTO: Reform, Recover, Renewal.”

“The WTO needs urgent reforms so it can once again play its full part as an engine of growth, development and stability. Reform is all the more urgent because an effective WTO is needed to help create the conditions for a sustainable recovery from the economic fallout of the COVID-19 pandemic. And looking further ahead, the WTO needs to renew its capacity to negotiate and to develop new trade rules and disciplines for the challenges of the very near future.” (Pages 2-3)

Minister Mohamed reviewed that the WTO was challenged before COVId-19 with few new agreements since its creation, with increased trade tensions, and with a dispute settlement system that has lost at least temporarily its Appellate Body. The COVID-19 adds huge complications being the largest economic contraction since the Great Depression. Recovery will be a challenge, and there is an urgent need to update the trading system to address the issues of today including “climate change, the digital revolution, poverty and sustainable development.” (page 5)

On the topic of renewal, Minister Mohamed noted that

“Renewal has to start with facing up to the defects that have weakened the system in recent years: the inability to update rules to reflect the changing realities of how trade is conducted; the sterility of ideological standoffs; the retreat into defensiveness; and the sense of the benefits of trade not being equitably shared.” (Page 7)

“Renewal should also build upon the WTO’s core values and achievements. Trade has been transformational. It has helped to lift close to 1 billion people out of poverty and facilitated the attainment of higher living standards in countries at all levels of development. These successes were possible because Members did not see trade as a zero-sum game. They understood that trade-offs were needed to produce outcomes. All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.” (Page 7)

While supporting bilateral and regional trade agreements, Minister Mohamed, noted that such agreements are not a substitute for multilateral agreements.

She reviewed the importance of dispute settlement to the system and the need to resolve the existing impasse on the Appellate Body.

“The WTO should give effect to its development objectives in a practical and enabling way, not forgetting its special responsibility towards its most vulnerable Members, particularly least-developed countries. It also needs to play its part in the important task of advancing the economic empower- ment of women through trade.”

Minister Mohamed ended her prepared statement to the General Council by reviewing her qualifications for the job, including her time in Geneva as Ambassador from Kenya, her chairing the top WTO bodies (General Council, Dispute Settlement Body, Trade Policy Review Body), her time as Minister of Foreign Affairs and International Trade and heading the 10th Ministerial Conference and her role as a facilitator in helping Members achieve agreements on “the TRIPS amendment, the Expanded Information Technology Agreement and the Nairobi Decision on Export Competition”. (Page 12)

At the press conference, Minister Mohamed made a brief opening statement and was followed by questions. In her opening statement, Minister Mohamed stated that the WTO is being challenged like never before referring to the changing world trade order, limited negotiating success, and breakdown of the appellate body, and the outbreak of the COVID-19 pandemic. She then reviewed her vision, the three “r’s” — reform, recovery and renewal. She concluded by reviewing her qualifications for the Director-General.

The first questioner asked what lessons Minister Mohamed had learned from her 2013 run and why she thought that countries that hadn’t supported her then would do so now. Minister Mohamed responded that 2020 is a different time with a different group of candidates. Since 2013, she has had many additional experiences that add to her qualifications and hence help her candidacy. She mentioned in particular her role in chairing the 10th Ministerial and the successes that were achieved including the agriculture export subsidy agreement, expansion of the Information Technology Agreement and amending the TRIPS Agreement. So 2020 is the right time for her candidacy.

One questioner asserted that the agreement on export subsidies was negotiated with a small group and given to the full membership on a take it or leave it basis and asked if this was a correct way to conduct inclusive negotiations. Minister Mohamed stated that the questioner was incorrect in the process used. Negotiations were conducted in different configurations but always went back to the full Membership. If anyone felt left out, they had the ability to block the agreement. That didn’t happen. Nairobi worked extremely well, and is an example of how the negotiations should proceed.

One questioner inquired whether the ongoing FTA negotiations between the US and Kenya was an advantage or disadvantage in her candidacy. Minister Mohamed responded that she didn’t consider it relevant. Obviously, the FTA negotiations are just one of many happening around the world. She is hopeful that the negotiations and eventual agreement will be a model for her region and open to other countries. It should be viewed as very positive.

What would you do differently if you become the next DG? Minister Mohamed responded that she would do a lot differently. She indicated that her experiences are different and her skills are different. With the WTO at a crossroads, there is a great need for an experienced negotiator to come in and lead. The agenda would be established through consultations with Members. She would also hope to focus on the gender issue.

if selected as DG, will you be more engaged in resolving trade tensions between major players? If yes, what tactics would you use? Minister Mohamed reviewed the types of powers that a Director-General has to work with Members. For example, the Director-General has engagement powers and can encourage members to consult, use of good offices of the Director-General. So while the Director-General has only limited powers, they can be used effectively to help members to use the system to resolve differences.

The next questioner inquired as to what the Minister’s views were on whether it is time for an African or a woman to lead WTO. The Minister was also asked about the reform proposal from the U.S. to clarify who qualified as a developing country (versus current system where developing country status is a matter of self-selection). On the issue of gender or regional preferences to become the next Director-General, Minister Mohamed believed that the key consideration is whether a particular candidate is best qualified to handle the job. If a female has the qualities, obviously great. Members shouldn’t select a woman just to have a woman; they should pick the best candidate. On the issue of development, this is an issue for the members. Only category of members defined in the WTO is least developed countries where the United Nations listing is used. For all other Members, there are no definitions. It will be up to Members to decide if the issue is ripe for discussion.

One questioner wanted to know if Minister Mohamed has had solutions for the WTO reform needs why she hadn’t pursued them before now. Minister Mohamed indicated that it was up to Members to decide what issues to pursue. WTO is at a crossroads. Membership needs to agree on what to consider in any reform effort, what sequence of issues may make sense and so on. Questions of reform have been floated here in Geneva for many years. When she was Kenyan Ambassador to the WTO, the WTO was beehive of activity. In her prior roles both as Anbassador and as Minister and chair of the 10th Ministerial, she had in fact achieved with the membership significant reforms including managing to amend the TRIPS Agreement, achieving an agreement in agricultural export subsidies and more.

When asked what her approach would be to deal with trade tensions between US and China, Minister Mohamed stated that she would encourage all members to resolve their trade differences within the WTO rules.

On the issue of how to remove the impasse on the Appellate Body, Minister Mohamed indicated that Members need to consult and negotiate. The WTO needs members to find solutions to permit the second-tier of dispute settlement to be restored. A Director-General DG can offer technical assistance and process to help Members find the solutions.

A series of questions on reform were asked by a questioner – what would Minister Mohamed do to move reform forward? Should reform be incremental or broader based? How does MC12 factor into this? Minister Mohamed indicated that she would help members identify what they want and encourage dialogue. By the time of the next ministerial in 2021, she hoped there would be some clarity as to types of reforms needed and supported —restoring the Dispute Settlement system, updating rule book. There are lots of potential issues, but it is up to the Membership on what gets examined.

Is it Africa’s turn to lead? Why couldn’t Africa come together around one candidate? Minister Mohamed responded that Africa takes the WTO very seriously. That’s why there are three candidates. There is no reason to penalize Africa for having three candidates. Each of the three candidates is very accomplished. Africa should be commended for putting them forward.

H.E. Mohammad Mazaid Al-Tuwaijri (Kingdom of Saudi Arabia)

Minister Al-Tuwaijri was the first candidate to meet with the General Council on Friday, July 17. His background is largely in business with the last four years serving Saudi Arabia as the Minister of the Economy and Planing. He started his prepared comments by expressing support all those affected by COVID-19, and noted his involvement for Saudi Arabia in addressing the pandemic in his country and the important role the WTO plays in keeping trade flowing.

Minister Al-Tuwaijri stated that his family had a long history of trading which involved traveling and following the North star. Like his family, the WTO Members must establish goals, set a course (their North star) to follow to accomplish the goals. The role of the Director-General is like a compass to help Members stay on the course towards achieving their goals. The WTO’s “challenging situation has become even more difficult with the pandemic; it will likely get worse; and, we know that trade policy is an essential part of the response to the pandemic itself, and will be key to our collective recovery.” (Pages 1-2)

Minister Al-Tuwaijri identified three questions to consider:

“First, what opportunities and solutions will emerge from current challenges?

“Second, how can Members work together to leverage new ideas, new rules and new technologies to solve the emerging problems that we face today, and the issues that will arise tomorrow?

“And, third, * * *, what kind of leadership is required to ensure that the
multilateral trading system delivers on the vision and objectives set by Members?” (Page 2)

Minister Al-Tuwaijri then indicates that the Membership needs to ensure “steady progress is made on delivering the goals and objectives set by Members.” (Page 2) Because the WTO is not performing, there is a need for a performance assessment to determine why. Based on his business background and government experience, if Minister Al-Tuwaijri is selected as the next Director-General, he would implement critical success factors from the goals and objectives of the Members, establish key performance indicators, and collect evidence and data to determine progress in meeting objectives.

“As part of this effort, feedback loops of constructive suggestions will be encouraged to deliver continuous improvement.

“If we do not respond to shortcomings, the system will not run smoothly,
stakeholders will become dissatisfied, and alternative means will be found outside the WTO to achieve your goals and objectives.” (page 4)

Minister Al-Tuwaijri noted that in its first twenty-five years, the WTO had maintained the status quo, but hadn’t adapted to the changing trade environment.

“Concerning working together through negotiations, I believe that Members will participate in negotiations when they are convinced that the agenda includes an incentive for them to participate. Therefore, in order to have a successful multilateral negotiation, the agenda needs to be balanced – it needs to include something for everyone. I support plurilateral negotiations as long as they are open to all Members, their outcome is applied to all on a most-favored nation basis, and they do not create rules that prejudice the interests of non-participants.” (PAGE 5) Minister Al-Tuwaijri indicated that the work of Members could be bolstered by WTO Secretariat research and interaction with the business communities of Members.

On the issue of opportunities from the current challenges, Minister Al-Tuwaijri expressed that the delay in the next Ministerial Conference (MC12) should permit completing of the fisheries subsidies negotiations and the plurilateral talks on e-commerce both important “issues in the public good”. (Page 6). He also suggested increasing the frequency of Ministerial meetings to annually. On the issue of special and differential treatment, “without negotiations that include incentives for everyone to participate actively, I do not think it will be possible for Members to address the issue of SDT.” (Page 6)

During the press conference, Minister Al-Tuwaijri provided a short opening statement and then answered questions. In his opening statement, Minister Al-Tuwaijri reviewed the current situation facing the WTO and the need for the next Director-General to have a strong reform agenda. COVID-19 will make the global trade situation more uncertain.

The first questioner asked how Minister Al-Tuwaijri could obtain regional support with the current conflict between Saudi Arabia and Qatar. Minister Al-Tuwaijri indicated that he would not comment on the dispute between Members. He noted that Qatar is a member of the WTO and believed the next Director-General should focus on what the goals of members are, how to achieve the goals and address the uncertainty created by the pandemic.

What is the greatest problem facing the WTO, and what is your plan to fix it? Minister Al-Tuwaijri noted that in the first twenty-five years of the WTO history, there have been some successes in terms of new agreements. However, the world has changed significantly in terms of trade. He sees the biggest issue facing the WTO as being the process of negotiations. In Minister Al-Tuwaijri’s view there is no process for negotiations. This results in countries going outside of WTO to find solutions in some circumstances. Thus, in his view, process enhancement is needed. Minister Al-Tuwaijri’s strengths are in management and leadership. These two characteristics are key to leading the WTO forward. The next Director-General should focus on process enhancement, design metrics so members can see progress. Moreover, whenever there is a dispute, the WTO should be looking for the root cause as well as resolving the particular dispute. If don’t get to root causes, disputes will recur. Minister Al-Tuwaijri approaches the challenges facing the WTO from a management perspective.

The next question reviewed interest by some Members in having a Director-General from an African country but noted that there has never been a Diirector-General from an Arab country either and sought the Minister’s comments. Minster Al-Tuwaijri noted that WTO Members need to think about what they need in the next Director-General . If management and leadership are the important characteristics that the next Director-General should have (which is the Minister’s view), he has those characteristics. First, he has twenty-five years management experience in the private sector where trade was important and multifaceted (trade finance, logistics, insurance, manufacturing, energy). He would bring that experience to the WTO Director-General position. Secondly, he has been the Minister of Economy and Planning, involved in major transformation (diversification) for the last four years, including policy making. He developed a delivery unit which measures performance and helps fill gaps. He would bring that experience to the WTO Director-General position as well.

On the issue of WTO reform, Minister AlTuwaijri recognized that the WTO is a member driven organization. Second, the Director-General has a function to facilitate and to assess, but there is also room to improve the Director-General’s role. For example, the next ministerial (MC12) has been delayed til 2021. The delay provides an opportunity to improve the discussion at MC 12 and the outcomes that are possible. Bringing management and leadership skills to the Director-General position will permit setting goals, metrics for measuring progress in achieving those goals and providing a feedback loop on gaps that need to be addressed. Certain current issues should be achievable, such as fisheries subsidies and e-commerce. In the Minister’s view, COVID-19 and postpandemic recovery provide the WTO an opportunity to address core needs of Members by doing a performance assessment. Where are the gaps in performance; why did those gaps develop; how to proceed? From his business and government experience, Minister Al-Tuwaijri knows that this type of transformation for the WTO to a more goal-oriented organization is possible.

Is it time for a woman to lead the WTO and what sets you apart from the other candidates. Minister Al-Tuwaijri stated that on women empowerment, he has a good track record in terms of working on woman empowerment in business and government As to what distinguishes him from other candidate, Minister Al-Tuwaijri reflected on his long business career and the need for specific goals and targets. He also reviewed his experience as a minister involved in the transformation of Saudi Arabia which is getting results. He brings those experiences to the WTO.

Why don’t Arab countries unite around one candidate where there are two candidates and does that hurt your chances? Minister Al-Tuwaijri remarked that the WTO is a member driven organization. Hence all WTO members can nominate candidates. All candidates have different experiences which provides much for Members to consider and choose from. For himself, the Minister noted that Saudi Arabia is presently president of G20 and has initiated its own reform program a few years back. Thus, Saudi Arabia has had the political will for reform. Coming from that culture can be useful to his candidacy.

Longterm observers view issues as revolving around political will versus being caused by a lack of management skills. Minister Al-Tuwaijri stated that while both technical and political elements exist, he believes that management and leadership would permit improvements in the process of negotiations which in turn would permit both the technical and political elements to have a better chance to work. How to improve the negotiation process is a management issue. Of course, there are political elements, and he has political background and strengths as well.

On the question about the future of the WTO, Minister Al-Tuwaijri noted that the future of the WTO is a member choice — the WTO is about their goals, their choices. The Director-General is a facilitator. But the organization is drifting away from its core objectives. Thus, there is a need to review root causes of this drift. He believes the WTO can create key performance indicators to prevent future drift and monitor early warning signs to catch major disputes early. The Minister wants the debate to shift from political will to how the Members can go back to the organization’s original goals and deliver on them.

On the Appellate Body, what is your plan to addressing U.S. concerns and do you plan to get it back functioning? Minister Al-Tuwaijri’s approach is the same as reviewed elsewhere. Determine what is root cause of AB not functioning. He believes it is because negotiations are not functioning well. Therefore, he wants to get the negotiating process to improve and to gain data to improve the system. For example, he believes it is important to be able to quantify the effect of delay of even one month in resolution of disputes.

Dr. Liam Fox (United Kingdom)

Dr. Fox was the last candidate to meet with the General Council. He has served in Parliament for many years and was Secretary of State for Defence and Secretary of State for International Trade under different UK administrations.

Dr. Fox started his prepared statement “by acknowledging the scale of the challenge the world currently faces in the COVID pandemic.” (Page 1). He commented that the WTO was facing problems before the pandemic., meaning to progress, it cannot be business as usual.

“But I know from talking to many of you, including in this last week, that
there is a widespread feeling that things are not as they should be. Yes,
there are technical issues to be overcome but the real problems of the
WTO are not technical. Our problem is the lack of political momentum.
There is too little political will to make the compromises needed for the
multilateral trading system to evolve and too little vision to make those
compromises easier. We must rediscover that political will and find the
right language to express our vision about the opportunities that trade
can bring to a new generation.” (Pages 2-3)

On the question of what qualifications the next Director-General should have, Dr. Fox stated that “it is not where the new DG comes from that matters but the skills and experience, especially the political experience, that they are able to bring to the organisation for the benefit of each and every one of our members. I believe that my 28 years in politics, and my years serving in senior cabinet posts such as trade and representing the UK at the top table on global issues give me the right experience to bring the renewed momentum, commitment and compromise, which will allow us to return this institution to greater global relevance.” (Page 3)

Dr. Fox expressed his strong support for open trade in a rules-based international trade system. He expressed concern for the trading system under current conditions and urged Members to recommit to the core principles of most-favoured nation, national treatment and transparency of commitments.

On the issue of challenges ahead for the new Director-General, Dr. Fox indicated that one of the first tasks would be to help Members achieve a successful Ministerial Conference (MC12 ) in 2021. A fisheries subsidies agreement needs to be completed as quickly as possible. Similarly progress on Joint Initiative issues like “e-commerce, services, MSMEs and investment” would be a priority. (Page 7) Outstanding issues on agriculture (subsidies, public stockholding for food security, cotton, and others) and WTO reform are other important issues to be addressed.

Dr. Fox reviewed concerns about increasing trade restrictive measures in the last decade and flowing from the pandemic and how they undermine other activities such as Aid for Trade.

On the topic of women and trade, Dr. Fox reviewed the importance of the issue and his own history of working to improve business opportunities for women and roles in government including the U.K. trade ministry. Dr. Fox committed that if he was selected as the next Director-General, he would “ensure that at least half of the WTO’s most senior leadership team are women.” (Page 9)

“[T]rade is not an end in itself. It is a means to an end. It is a
means by which we create and share prosperity. That prosperity
underpins social cohesion and that social cohesion in turn underpins
political stability. That political stability is the bedrock of our collective
security.

“And I say this because we must understand protectionism does not
come without a price tag. If we deny people access to prosperity and
opportunity through trade then we should not be surprised if the
outcomes, whether mass migration, political radicalisation or failing
states, come back to bite us.

“As an organisation we all need to recapture that optimism that comes
from committing to shared values. Yes, we’ve taken a billion people out
of extreme poverty but that cannot remotely be the end of our ambitions.

“We need the political momentum to take us forward. It is only with vision,
and shared purpose, that we can find the compromises required to meet
the challenges I’ve set out — reversing the rise in trade restrictive measures, recommitting ourselves to the founding principles to which we have all
agreed, while updating and strengthening this institution so it’s fit to tackle the challenges of the 21st Century.

“I believe I have the skills and experience to deliver that political
momentum.” (pages 10-11)

During the press conference, Dr. Fox provided a short opening statement which was followed by press questions. Dr. Fox’s opening statement reviewed some key points. This is not going to be business as usual. COVID-19 will affect the global economy and world trade. WTO is a great organization that has helped move 1 billion people out of poverty. There is a feeling in Geneva that the WTO has lost some of the political momentum. Negotiators can’t make compromises if don’t have common goals. The WTO can’t just focus on legacy issues (agriculture) but must address changed trading environment and also recommit to the principles of a multilateral trading system. Negative consequences of alternative outcome are too dark.

Why is the multilateral trading system important to the large parties? Dr. Fox indicated that he viewed the Director-General position to not be one of taking sides in bilateral disputes but to maintain the international trading system. If Members don’t enforce of what currently exists, what is the credibility of new rules signed onto later? He stated that all Members have benefitted from the multilateral trading system. The alternative to a rules- based system is not acceptable. That is true for most countries, not just smaller countries. He used the examples of the 4th and 5th largest economies, Germany and UK, for whom global trade is a major component of their economies.

On Brexit, is it an advantage or disadvantage for Dr. Fox’s candidacy with the EU? Dr. Fox stated that it was good that not everyone in the world sees all issues through the Brexit prism. If he becomes the next Director-General, he would be available to all Members on the same basis. While not directly relevant to the Director-General selection process, he hopes the UK and EU will reach a good trade agreement and believes it will be important for COVID recovery. On who the EU chooses, Dr. Fox believes the EU will likely pick a candidate who is most in line with their views on the characteristics and experiences needed for the job.

Is there a British perspective? Dr. Fox noted that he believes so in how he sees the role of the Director-General, which he analogizes to that of the British Prime Minister. In Britain, the Prime Minister is first among equals. Dr. Fox envisions the same concept applying to the WTO’s Director-General. On the question of whether Britain has a strong commitment to free trade, Dr. Fox noted that Britain has a very strong commitment to free trade. He is worried about threats to free trade today. He was surprised that in the General Council meeting he received very few questions about what free trade brings to consumers. Most of the questions were from a producer perspective. Trade liberalization is obviously very important to consumers. He would like to see the WTO unleash consumer interests more.

Dr. Fox received a question on whether it was premature for the U.K. to put forward a candidate since it has only recently obtained trade policy freedom from the EU. Dr. Fox’s answer was it was not too early. He noted the U.K.’s long history of promoting free trade. Currently besides negotiations with the EU, they are engaged in various other FTA negotiations and looking to adopt or further liberalize their participation in various FTAs between the EU and other countries.

There was a question on geographical diversity and his being European when most prior Director-Generals have been European. Dr. Fox stated that he understands the idea of diversity in personnel which he generally supports. What he is hearing from Members is that this organization has great personnel, but the organization is not where it should be. In Dr. Fox’s view, problems at the WTO are not technical but rather political. Whoever is the next Director-General will have to have difficult conversations with major members. He has met those leaders. Key is what the Director-General brings to the organization in skills and experience. Other aspect mentioned by some is gender diversity. Dr. Fox has been committed to gender diversity in his positions in the U.K. He has committed to having at least half of senior WTO officials be women if he is selected as the next Director-General.

One questioner asked if Dr. Fox had any Member is mind when he raised the need to support a rules-based system. Dr. Fox replied that he did not. He stated that at the end of World War II, nations set out principles in the GATT that have stood the test of time. Problem today is that various members have taken exception to particular rules. While exceptions or waivers are needed for some developing and least developed countries, it was not possible to have Members decide which rules applied to them. If Members don’t comply with existing agreements, what value do future agreements have? Countries at different stages of development access benefits of free trade under the current system by committing to basic principles.

A question was asked about the deficit of trust among Members of the WTO, and why Dr. Fox would be the right person to lead the organization and restore trust. Dr. Fox noted that a similar question had been asked during the General Council meeting. Important to know what is meat by trust. On the issue of how do parties get to trust, it is by the experience of behavior over time. Transparency and the sharing of information are big elements to enabling trust. In the current environment, the next Director-General will need a willingness to have conversations that are uncomfortable but necessary. The role of a Director-General is not to take sides but to understand both sides of a dispute between Members. In Dr. Fox’s view a political figure is better able to bring qualities to the role of the Director-General needed to build confidence. Separately, Dr. Fox stressed the importance in the present circumstances of being optimistic but also realistic. He believes that it would be a mistake for the Director-General to overpromise likely outcomes in the current circumstances.

As the only candidate from a developed country, does this give you an advantage? Dr. Fox noted that each candidate has different background and so could be viewed by some as advantaged or disadvantaged on the basis of geographic origin, gender and other factors. Dr. Fox does believe coming from a G20 country may be an advantage in the current cirumstances because of the substantial contraction in openness amongst G20 countries. He stated that the world is in a more difficult position re trade now than we were during the financial crisis. In 2009 only 0.7% of G20 import trade was covered by restrictive measures. By 2019 fully 10.3% of G20 imports were covered by restrictive measures. To come out of the economic challenges presented by the pandemic, all WTO Members have to abide by WTO commitments. That message may be easier to be delivered by a G20 country Director-General. Dr. Fox indicated he would have no problem delivering the message.

A question was asked of how Dr. Fox would address the broad concerns of U.S. with the WTO. Dr. Fox noted that the U.S. has some very specific concerns with the WTO, particularly with regards to the Appellate Body. Dr. Fox stated that the WTO has the Appellate Body because countries felt panels in GATT disputes went too wide. The Appellate Body was set up with a limited mandate. He is aware that there are different views of the role of Appellate Body and whether it has engaged in mission creep or handled incomplete texts by filling them out. If WTO Members are able to get back to a more narrow definition of the function of the Appellate Body, there may be some concept of precedent being set. Dr. Fox asks the question, does everyone want the AB to be functioning properly or not. If not, the multilateral trading system is under threat as obligations can’t be enforced. Believe there is room for compromise.

The last question inquired into what reform is needed. Dr. Fox articulated that reform should be viewed in three buckets. The first is conceptual reform. By this he means, Members recommitting to the basic principles of the WTO (most favoured nation, national treatment and transparency of commitments). He believes this is what MC 12 needs to focus on. The second is organizational reform. By this Dr. Fox means what does the team look like, the Director-General being first among equals; selecting Secretariat staff that are the most talented and challenging group. The third is policy reform. By that, Dr. Fox means what issues will be addressed — legacy issues and issues to update organization such as fisheries subsidies; resolution of the Appellate Body impasse. Dr. Fox concluded by saying that the Director-General position is a job for a politician not for a technocrat at this time.

WTO Director-General Selection Process — this week candidates meet WTO Members in a General Council meeting

As reviewed in a post last week, this Wednesday-Friday (July 15-17) the eight candidates for the Director-General position have their meetings with WTO Members in a General Council meeting. Each candidate has 90 minutes before the General Council and will meet the press immediately afterwards. See WTO Director-General selection process – next steps, https://currentthoughtsontrade.com/2020/07/11/wto-director-general-selection-process-next-steps/. After the meeting with the General Council this week, candidates and their goverments will have until September 8 to do outreach to WTO members in their efforts to get candidates known and build support for the particular candidate.

Not surprisingly, a lot is being written about the candidates. Candidates who were nominated early have already done press interviews or been interviewed on webinars by different organizations. See, e.g., Nikkei Asian Review, Good listener or strong negotiator? WTO candidates make case for top job, https://asia.nikkei.com/Editor-s-Picks/Interview/Good-listener-or-strong-negotiator-WTO-candidates-make-case-for-top-job; Inside U.S. Trade’s World Trade Online, Egyptian DG candidate: WTO approaching point of no return, June 24, 2020, https://insidetrade.com/trade/egyptian-dg-candidate-wto-approaching-point-no-return; Inside U.S. Trade’s World Trade Online, Seade: WTO needs ‘respectful’ but ‘assertive’ leader, July 7, 2020, https://insidetrade.com/daily-news/seade-wto-needs-%E2%80%98respectful%E2%80%99-%E2%80%98assertive%E2%80%99-leader; Yonhap News Agency, Seoul’s trade minister vows to make WTO more responsive if elected head, July 13, 2020, https://en.yna.co.kr/view/AEN20200713001800320. The interest from the media and various trade groups will only grow over the next two months.

Each candidate and his/her nominating government are already doing outreach to other WTO Members seeking to build a base of support for the candidate. Moreover, in the case of Mexico’s Jesus Seade, Mexico has signaled that it will not seek another term for Angel Gurria heading the OECD to bolster the chances of Jesus Seade to head the WTO. Yahoo News, Mexico gives up OECD in campaign to head World Trade Organization, https://news.yahoo.com/mexico-gives-oecd-campaign-head-184513923.html.

And, of course, WTO Members without candidates of their own will be evaluating all candidates against what they perceive to be the best qualities for the next Director-General. Various articles have both described possible characteristics of importance and challenges for candidates from regional rivalries and possible proxy wars. See, e.g., The Wire, In WTO’s Search for its Next Director-General, a Tale of Proxy Wars and Regional Rivalries, July 11, 2020, https://thewire.in/economy/wto-next-director-general; Washington Post, Who Will Lead the WTO and Help It Avoid Collapse?, July 11, https://www.washingtonpost.com/business/who-will-lead-the-wto-and-help-it-avoid-collapse/2020/07/10/c2676476-c2d3-11ea-8908-68a2b9eae9e0_story.html.

The European University Institute recently released a working paper reviewing Stakeholder Preferences and Priorities for the Next WTO Director-General based on a survey of academics, government officials, private sector (companies and business associations), staff of international organizations and NGOs, labor unions, think tanks. https://cadmus.eui.eu//handle/1814/67635. Those who responded to the survey ranked preferred characteristics of the next Director-General with experience in managing organizations receiving the highest ranking followed by political experience, economic training and Experienced WTO negotiator. Of far less significance were whether the candidate was from a developing or developed country, from a region that had not yet had a Director-General and the gender of the candidate, although some of the latter characteristics were more important to those responding from certain areas (e.g., Africa). Id at 2-4. Of course, it is the characteristics of importance to WTO Members that matters, not what academics or others would find of value. While Geneva Missions obviously have input in the process and will be handling this week’s General Council meetings, for many Members, the decision will come from the capital.

As an aid to those monitoring the selection process, I have put together a chart (see below) which presents a number of characteristics that may be relevant to WTO Members.

Dr. Jesus Seade has deep WTO and trade experience, has worked at high levels in all three Bretton Woods organizations, and has working relationship with both the U.S. and China. He is an economist by education and training. North America has never had a Director-General at the WTO, although Mexico is a Latin American country, a group within which Brazil (current Director-General’s country) is part.

Dr. Ngozi Okonjo-Iweala, while not having a trade background has extensive managerial experience from her time at the World Bank and political experience from her time as Minister of Finance in Nigeria. She has a PhD in Economics. She is one of three candidates from Africa, a continent that has never had a candidate selected as Director-General of the WTO.

Mr. Abdel-Hamid Mamdouh has extensive experience with the WTO based on his time within the Secretariat. Egypt is a country in Africa and also part of the Middle East. There has not been a WTO Director-General from either area.

Mr. Tudor Ulianovschi was Moldova’s Ambassador to Switzerland and Lichtenstein and Permanent Representative to the WTO. He has also served as Moldova’s Minister of Foreign Affairs.

Minister Yoo Myung-hee has been very active in trade and other issues for her government in Korea. Asia has had one Director-General (Thailand), though Korea has not had a candidate serve as the Director-General.

Amb. Amina C. Mohamed has a very extensive trade background for Kenya both in Geneva at Kenya’s Mission to the WTO and back in country as Minister of Foreign Affairs and International Trade and chaired the WTO’s 10 Ministerial Conference in Nairobi. She has had other government posts in Kenya and some experience in one of the UN organizations, UNEP. She is the third candidate from Africa.

Mr. Mohammad Maziad Al-Tuwaijri is a candidate from Saudi Arabia and is its current Minister of Economy and Planning. Saudi Arabia is in western Asia but also part of the Middle East. There has never been a Director-General selected from the Middle East, with just one from Asia.

Dr. Liam Fox from the United Kingdom has a long and distinguished political career and has served in a number of high political offices in different UK Administrations including Secretary of State for Defence and Secretary of State for International Trade.

A very important opportunity for all eight candidates will be their 90 minutes before the General Council as each candidate will not only be able to provide an overview of their vision on leading the WTO but also be able to respond to a broad cross-section of questions from Members. For WTO Members, the General Council meetings provide the Geneva Missions with their only opportunity to evaluate candidates against each other in a common setting, even if the candidates meet individually with some or many of the Geneva Missions before or afterwards.

Conclusion

We are six days into the two-month Phase 2 of the WTO Director-General selection process. The next three days are a very important period for each candidate to articulate his or her vision for the WTO going forward and provide information to WTO Members’ Geneva Missions that will help the Missions understand why the particular candidate is the best fit for the Organization for the next four years.

The eight candidates make for an interesting group with differing experiences and presumably different visions for moving the WTO forward. The road from eight candidates to the new Director-General continues tomorrow as the General Council hears from each candidate.

The WTO is in crisis on various fronts. With the current Director-General stepping down in 48 days, who emerges as the next Director-General may have an important role in whether the WTO can regain its importance for global trade. Good luck to all of the candidates.

WTO Director-General Selection Process — Next Steps

With the current WTO Director-General, Robert Azevedo, stepping down at the end of August, the WTO is a little more than one month into the selection process for a new Director-General. The process is envisioned normally to take nine months of which six months deal with nominations, candidate outreach to WTO Members, and consultations by the WTO’s Chair of the General Council (with the assistance of the Chairs of the Dispute Settlement Body and the Trade Policy Review Body) with WTO Members to find a candidate for whom consensus is possible and a General Council meeting to confirm the selection of a new Director-General. Because of the approaching departure of the current Director-General, the WTO is examining whether the process of selecting a new Director-General (“DG”) can be accelerated. To the extent the process is not concluded before DG Azevedo departs, the WTO will select an acting Director-General from among the four Deputy Directors-General.

Phase 1, Nominations

Phase 1 of the WTO Director-General selection process came to an end on July 8, one month after the process started on June 8 as the window for WTO Members to nominate candidates from their country/territory came to an end at the close of business on July 8th. Eight WTO Members provided nominations to the WTO. The Member and candidate in the order of nomination at the WTO are reviewed below along with the date that the WTO posted a press release on the nomination (with official bio submitted).

The Chair of the General Council released a consolidated list of candidates whose nominations had been received by the WTO on July 9, embedded below. WT/GC/INF/30.

WTGCINF30

Phase 2, Candidates Making Themselves Known to the WTO Members

After the close of the nomination window, normal procedures provide three months for candidates to “make themselves known to Members”. This phase 2 of the selection process starts with a WTO General Council meeting at which each candidate is given time to make an opening statement and for Members to ask questions and receive answers. The General Council meeting is followed and preceded by candidates and their nominating governments doing outreach to WTO Members in Geneva and in capitals around the world.

A. General Council meeting

In the 2012-2013 selection process, the General Council meeting took three days and occurred 29-31 days after the close of the nomination phase. Each candidate had 15 minutes for an opening statement followed by 75 minutes of questions and answers with the last five minutes of the 75 minutes reserved to the candidate to make a summing up if desired. Members wishing to ask a question notified the WTO in advance for each candidate for which they wished to be considered to ask a question and their names were included in a box from which names were drawn. Questions were limited to one minute maximum, with no follow-up questions allowed. Each candidate was offered the opportunity to meet with the media immediately after the meeting with the General Council.

In the current selection process, the WTO is proceeding in the same manner with the same time allocations and same opportunity to meet press, though the timing of the General Council meeting has been moved up as part of a process to expedite the overall selection process. The General Council will meet 7-9 days after the close of the nominating period, the meetings being over three days, July 15-17.

On Friday, the specific schedule was announced. Candidates are heard in the order in which their nominations were received by the WTO. Below is the schedule of meetings for candidates with the General Council (each meeting is 90 minutes) followed by a press conference, assumed to occur within 15 minutes of the close of the meeting with the General Council. The press conferences will be webcast live on the WTO website and will be archieved, as they were in 2013.

CandidateDate at GCTimePress Conference
Dr. Jesus Seade Kuri (Mexico)July 1511:15 13:00 (est.)
Dr. Ngozi Okonjo-Iweala (Nigeria)July 1515:0016.45 (est.)
Mr. Abdel-Hamid Mumdouh (Egypt)July 1516:3018:15 (est.)
Amb. Tudor Ulianovschi (Rep. of Moldova)July 1611:0012:45 (est.)
H.E. Yoo Myung-ee (Rep. of Korea) July 1615:0016:45 (est.)
Amb. Amina C. Mohamed (Rep. of Kenya)July 1616:3018:15 (est.)
Mr. Mohammad Maziad Al-Tuwaijri (Kingdom of Saudi Arabia)July 1710:0011:45 (est.)
Dr. Liam Fox (United Kingdom)July 1711:3013:15 (est.)

B. Length of period of outreach by candidates

The Chair of the WTO’s General Council on the 10th of July announced that Members had agreed to truncate the phase 2 outreach by candidates from three months to two months, ending September 7. See General Council Chair Walker announces timelines for next stages of DG selection process, https://www.wto.org/english/news_e/news20_e/dgsel_10jul20_e.htm.

Phase 3, Consultations with WTO Members on Candidate Best Placed to Attract Consensus

The final phase of the selection process is one in which the WTO’s Chair of the General Council along with the Chairs of the Dispute Settlement Body and the Trade Policy Review Body consult with all WTO Members “to assess preferences and seek to determine which candidate is best placed to attract consensus support.” Id. This phase is to be completed within two months with a General Council meeting to consider and (hopefully) adopt the recommendation of the candidate put forward by the General Council Chair (by November 7 in the current selection process).

In 2013, when there were nine candidates, the consultation process involved three rounds of consultations, with those candidates with the least likelihood of generating consensus being asked to withdraw after each round so a recommendation could be made.

With eight candidates in the current selection process, multiple rounds of consultations will almost certainly be needed. It is unlikely that the process will be completed significantly in advance of the two month deadline.

The procedures adopted in 2002 provide for the option, if needed, to go to voting, though that is a last resort and has not been used to date.

Hopefully, resolution of the selection of the next Director-General will happen by early November. While the procedures for selection envision a three month period after selection before the new Director-General assumes his/her position at the WTO, the three months is premised on there being a Director-General whose term ends in three months. In the current situation where the Director-General departs at the end of August, the new Director-General will presumably take office immediately and General Council adoption of his/her nomination.

Need for an Acting Director-General for the Period September 1 – early November

According to the Procedures for the Appointment of Directors-General adopted by the General Council on 10 December 2002 (WT/L/509, para. 23),

“In the event of a vacancy in the post of Director-General, the General Council shall designate one of the existing Deputy Directors-General to serve as Acting Director-General until the appointment of a new Director-General.”

As this post is being written, there are just 51 days until there is a vacancy in the post of Director-General. Since the timing for completion of the selection process will run several months past the departure of Director-General Azevedo, the General Council has in front of it the additional need to designate one of the existing Deputy Directors-General to serve as the Acting Director-General.

The four existing Deputy Directors-General are Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wm. Wolff (United States) and Yi Xiaozhun. Information on the four Deputy Directors-General is contained in various WTO website listings. See The Deputy Directors-General, https://www.wto.org/english/thewto_e/dg_e/ddg_ra_e.htm; Understanding the WTO The Organization, the Secretariat, https://www.wto.org/english/thewto_e/whatis_e/tif_e/org4_e.htm#agah. Embedded below is the page on the Deputy Directors-General.

WTO-_-Deputy-Directors-General

While the 2002 procedures for designating an acting Director-General have not been used before now, it is understood that the Chair of the General Council is consulting with Members now on the issue and will likly include the topic in the agenda for the General Council meeting scheduled for July 22-23. Selection of an acting Director-General is presumably done by consensus as well.

While the role of an acting Director-General is understood to be largely administrative (being available to pay bills, manage Secretariat issues, keep the organization functioning while awaiting the completion of the selection process) and even though Deputy Directors-General act independent of their national origin, it is unclear how political considerations will be at play in the designation of an acting Director-General. For example, with three candidates from African countries for the post of Director-General (including one from Nigeria) would the designation of Yonov Frederic Agah (a Nigerian) as acting Director-General be viewed as harmful or helpful to the chances of the one or more of the African candidates since an African would be serving in the acting position? Similarly, with the differences in views of the WTO’s path forward between the U.S., China and Europe, will one ore more of the three other Deputy Directors-General be viewed as unacceptable to one or more of the majors? If there are political complications affecting the designation of an acting Director-General, what spillover effects will such tensions on the acting designation have in achieving a smooth resolution on the selection process of a new Director-General? We will likely find out whether the designation process is smooth or complicated in the next several weeks.

Conclusion

The selection process for the next WTO Director-General is in a very active stage. The Chair of the General Council has worked with the WTO Members to expedite the process to the extent acceptable to Members. Such expedition will result in at least one month cut off of the six month period from the start of nominations to the selection of a new Director-General, with resolution due by November 7 at the latest.

All of the eight candidates will be in Geneva next week for their meetings with the General Council during July 15-17. There is a shortened period for candidates to do outreach to WTO members so the rest of July, all of August and the first week of September will be hectic for the candidates and their governments with some in person meetings and many virtual meetings during this time.

When Phase 3 kicks in in early September, the General Council’s Chair along with the Chairs of the Dispute Settlement Body and the Trade Policy Review Body will be involved in the time-consuming task of consultations with Members as they work to find a consensus candidate for the Director-General post. In 2013, those efforts took three rounds of consultations to go from nine candidates to one who was recommended to the General Council and accepted by consensus. It is assumed this year, the challenges will be comparable and will likely take three rounds (8 candidates to 4 to 2 to recommendation may be the path consultations take).

Because the current Director-General, Roberto Azevedo, will be stepping down on August 31, the WTO, for the first time since the General Council adopted procedures for selecting new Directors-General at the end of 2002, will need to designate an acting Director-General from the four existing Deputy Directors-General. While the designation process may prove to be uneventful, in a time of significant dysfunction within the WTO because of dramatically different views of the operation of the WTO and reform needs by many Members, there is at least the chance for the designation process to become complicated and to make more difficult the ability to reach consensus on a new Director-General.

Considering the severe challenges facing the WTO and the complications flowing from the COVID-19 pandemic, selecting a strong Director-General in a process that flows without major incident is an important hoped-for outcome in the remainder of 2020.

United Kingdom press release on Liam Fox’s nomination as candidate for WTO Director-General

Below is the text of the United Kingdom press release on the UK’s nomination of Liam Fox, https://www.gov.uk/government/news/uk-nominates-liam-fox-as-next-director-general-of-the-wto:

“UK nominates Liam Fox as next Director General of the WTO

“UK nominates former International Trade Secretary, Dr Liam Fox as next Director-General of the World Trade Organization.

“Published 8 July 2020

“From:

“Department for International Trade (https://www.gov.uk/government/organisations/department-for-international-trade) and The Rt Hon Elizabeth Truss MP (https://www.gov.uk/government/people/elizabeth-truss)

“The UK will today nominate former International Trade Secretary Dr Liam Fox as the next Director-General of the World Trade Organization.

“The Government believes he is the ideal candidate for the following reasons:

“He is a passionate advocate of multilateralism, and fully committed to advancing the WTO and rules-based trading system.

“Dr Fox brings decades of experience in global politics, as well as first-hand experience of running a trade ministry.

“He believes that rules based free trade underpins global prosperity and security and that the benefits must be widely shared for all citizens and countries.

“Writing to the WTO today, the Prime Minister will say:

“As the world seeks to recover from the shared challenge of the COVID-19 pandemic, the role of free and fair trade has never been more crucial.

“Dr Fox is a passionate advocate of multilateralism, who brings detailed knowledge of the global trading system from his years as a UK Cabinet Minister and Secretary of State for International Trade. He has firsthand
experience of the political and technical challenges of negotiating trade agreements, and the reforms that are needed to ensure the global trading system truly delivers for all WTO members.

“Liz Truss, International Trade Secretary, said:

“The new WTO Director General needs to be a fierce champion of free and fair trade, an advocate of multilateralism, and be able to get things done and increase the pace of reform. Dr Liam Fox brings all those
things to the table.

“He has experience making tough political decisions as a former UK Trade Secretary, is committed to the fundamental principle of free and fair trade and has excellent relationships with WTO members around the
world. He is the ideal candidate to lead the WTO into a new era and help push forward much-needed modernisation of the organisation.

“The Rt Hon Dr Liam Fox MP said:

“I am honoured to have been nominated by the Prime Minister to be a candidate to lead the World Trade Organization. I believe that if we want to keep the WTO relevant and vibrant our task is clear: Update.
Strengthen and Reform. We must ensure that global trade works for everyone.

“Trade is a way in which we spread prosperity more widely. That prosperity underpins social cohesion, that social cohesion in turns underpins political stability and that political stability is the building block of our
collective security.

“The WTO announced earlier this year that its current Director-General, Roberto Azevedo would step down from his post in August, following 7 years in charge.

“The formal selection process for the new Director-General is run by the three most senior chairs of the WTO, the General Council, Trade Policy Review and the Dispute Settlement body.

“The successful candidate must attract a consensus from all member states and once appointed will serve a four-year term.

“Published 8 July 2020”

Liam Fox of the United Kingdom to be Nominated by UK for post of WTO Director-General

The Financial Times has reported that Liam Fox, a former UK trade secretary and a former defence secretary, will be put forward yet today by the United Kingdom as a candidate for the Director-General post of the World Trade Organization. See Financial Times, July 8, 2020, UK set to nominate Liam Fox for top WTO job, https://www.ft.com/content/5f5d1d87-afc3-419f-b8fb-7dbd038c3163; see also New York Times, July 8, 2020, UK to Nominate Ex-Minister Liam Fox as WTO Boss: Spectator, https://www.nytimes.com/reuters/2020/07/08/world/europe/08reuters-britain-wto-fox.html.

Mr. Fox will be the seventh candidate when his nomination is received and will be the first nomination from a developed country. He will join Jesus Seade (Mexico), Dr. Ngozi Okonjo-Iweala (Nigeria), Abdel-Hamid Mamdouh (Egypt), Tudor Ulianovschi (Moldova), Yoo Myung-hhe (Republic of Korea), and Amb. Amina C. Mohamed (Kenya). The nominating period at the WTO for the Director-General comes to a close at the end of July 8.

Mr. Fox has spent a lot of time with both the United States and China according to press reports which presumably will be part of his message to WTO Members on why he could be an effective Director-General (in helping bridge differences between the two large WTO Members).

Mr. Fox is a Member of Parliament of the United Kingdom, served as Secretary of State for International Trade from 2016-2019 and Secretary of State for Defence from 2010 to 2011. He is a member of the Conservative Party and voted for Brexit. Mr. Fox’s Wikipedia entry provides a listing of prior positions, his education, etc. https://en.wikipedia.org/wiki/Liam_Fox.

His biography as forwarded to the World Trade Organization was not yet posted as of 2:15 p.m. (Geneva time) on July 8.

U.S. approach to trade – USTR Lighthizer’s Foreign Affairs article and Congressional testimony on June 17

Every year, the U.S. House of Representative’s Committee on Ways and Means and the U.S. Senate Finance Committee hold hearings to understand the Administration’s trade agenda for the year. This year both Committees held hearings on June 17 where the sole Administration witness was U.S. Trade Representative Robert Lighthizer.

Ambassador Lighthizer had separately prepared an article for Foreign Affairs entitled “How to Make Trade Work for Workers, Charting a Path Between Protectionism and Globalism” which had been reviewed by many of the Committee members prior to the hearings. The article is available here and presents the Trump Administration’s approach to trade policy. https://www.foreignaffairs.com/articles/united-states/2020-06-09/how-make-trade-work-workers.

The Foreign Affairs article

Ambassador Lighthizer uses the challenges of the COVID-19 pandemic to state that it is time for discussions to reach a new consensus on “the future of U.S. trade policy.” Amb. Lighthizer’s summary of the approach of the current Administration are repeated below:

“That debate should start with a fundamental question: What should the objective of trade policy be? Some view trade through the lens of foreign policy, arguing that tariffs should be lowered or raised in order to achieve geopolitical goals. Others view trade strictly through the lens of economic efficiency, contending that the sole objective of trade policy should be to maximize overall output. But what most Americans want is something else: a trade policy that supports the kind of society they want to live in. To that end, the right policy is one that makes it possible for most citizens, including those without college educations, to access the middle class through stable, wellpaying jobs.

“That is precisely the approach the Trump administration is taking. It has broken with the orthodoxies of free-trade religion at times, but contrary to what critics have charged, it has not embraced protectionism and autarky. Instead, it has sought to balance the benefits of trade liberalization
with policies that prioritize the dignity of work.”

The paper reviews the history of trade liberalization, what the Administration views as its limits, their perception that many trade advocates have extolled the benefits of liberalization while discounting or ignoring the economic costs of liberalization. Unlike other areas of government policy, trade liberalization was viewed as an absolute good and not weighed against the costs of the policy in fact.

The section of the article entitled “The dark side of free trade” reviews the steep economic and human costs for the United States over the period 2000-2016 noting the loss of manufacturing jobs, stagnation of median household incomes, and the devastation to the populations left behind in manufacturing locations. While outsourcing reduces costs, it increases vulnerabilities and reduces the nation’s ability to respond to certain situations, such as the pandemic.

Amb. Lighthizer opines that “A sensible trade policy strikes a balance among economic security, economic efficiency, and the needs of working people.” He reviews how he believes the United States-Mexico-Canada Agreement (“USMCA”) achieves that balance looking at specific improvements from NAFTA.

The article then goes on to look at “two of the most significant trade challenges [the U.S.] will face in the coming years: market-distorting state capitalism in China and a dysfunctional WTO.”

The Trump Administration changed the approach of trying to deal with China’s trade policy issues pursued by prior Administration (e.g., through bilateral talks and through the WTO dispute settlement system) by going after some of the larger issues through the section 301 investigation with resulting tariffs on imports from China which led to the creation of the Phase 1 Agreement and, depending on success of Phase 1, a potential Phase 2.

On the WTO, the article focuses on the WTO’s Appellate Body and its deviation from its original purpose.

“The challenges in the WTO are also vexing. Like many international organizations, the WTO has strayed from its original mission. Designed as a forum for negotiating trade rules, it has become chiefly a litigation society. Until recently, the organization’s dispute-resolution process was led by its seven-member Appellate Body, which had come to see itself as the promulgator of a new common law of free trade, one that was largely untethered from the actual rules agreed to by the WTO’s members. The Appellate Body routinely issued rulings that made it harder for states to combat unfair trade practices and safeguard jobs. This was one of the reasons why the Trump administration refused to consent to new appointments to it, and on December 11, 2019, the Appellate Body ceased functioning when its membership dipped below the number needed to hear a case.

“The United States should not agree to any mechanism that would revive or replace the Appellate Body until it is clear that the WTO’s dispute-resolution process can ensure members’ flexibility to pursue a balanced, worker-focused trade policy. Until then, the United States is better off resolving disputes with trading partners through negotiations—as it did from 1947, when the General Agreement on Tarifs and Trade was signed, until 1994, when the WTO was created—rather than under a made-up jurisprudence that undermines U.S. sovereignty and threatens American jobs.”

Congressional Hearings

The Congressional hearings provide the opportunity for the Administration to present its record of accomplishments as well as identifying pressing issues being pursued and for members of Congress to inquire about specific issues of importance to their constituents, to challenge the narrative of the Administration (typically by the opposition party), to press for commitments on actions deemed of importance and otherwise to gain clarification of matters of interest to Congressional members.

Yesterday’s hearings had all of the above. Amb. Lighthizer’s opening statement to both Committees stressed what the Administration viewed itself as having achieved and the benefits to working Americans with a focus on China (and the US-China Phase 1 Agreement), USMCA, the US-Japan Phase 1, disputes at the WTO and WTO reform proposals as well as the Administration’s game plan for the WTO, for pending negotiations with the U.K. and Kenya and for WTO reform, and enforcement of existing agreements. His opening statement to the U.S. Senate Finance Committee is embedded below but mirrors his prepared statement to the U.S. House Ways and Means Committee.

17JUN2020LIGHTHIZERSTMNT1

Senate Finance Committee Ranking Member Wyden (D-OR) in his opening statement painted a different picture of the first three years of the Trump Administration’s trade agenda and whether successes had been achieved. His statement is embedded below.

061720-Wyden-Trade-Agenda-Hearing-Opener1

There were many questions in both chambers on the USMCA agreement, with particular focus on enforcement of labor, environment and other issues. With the final revised USMCA receiving strong bipartisan support in both houses of Congress and with the agreement taking effect on July 1st, many of the questions flagged areas where one of the countries was viewed as not in compliance with obligations in the Agreement (e.g., energy practices in Mexico) and commitments by Amb. Lighthizer to pursue matters where compliance wasn’t in place.

On the issue of Section 232 tariffs on steel and aluminum products from Canada and Mexico, some members inquired whether examining imposition of such tariffs would be consistent with U.S. agreement with the two countries which had excluded them from the additional tariffs. Amb. Lighthizer reviewed that the agreement excluded Canada and Mexico where volumes remained at historic levels. If the U.S. found surges and decided to impose the tariffs, any retaliation by Canada or Mexico would be limited to the same sectors (i.e., could not retaliate against agricultural products). Amb. Lighthizer indicated that the U.S. was considering whether tariffs should be imposed in light of surges that had been occurring.

There were also many questions about the U.S.-China Agreement with a focus on whether China was likely to meet its obligations on the purchase of goods (with most questions focused on agricultural purchases). Ranking Member Wyden (D-OR) cited a Peterson Institute paper claiming poor compliance with purchase commitments. See https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods Amb. Lighthizer on a number of occasions reviewed what were described as inadequacies in the Peterson data and reviewed strong growth in orders from China on agricultural goods to the present time (vs. exports through April shown in the Peterson graphs which look at January-April, even though the agreement didn’t take effect until February 14, 2020).

There were many questions about reshoring manufacturing of medical goods, particularly personal protective equipment (“PPE”), challenges to such reshoring because of the failure of the Administration to enter into long-term contracts to permit manufacturing to start up, whether broader tariff exclusions should be provided to imports of such products while there were inadequate supplies, concerns about existing supplies of PPEs amidst the ongoing pandemic. The issue featured prominently in Senate Finance Committee Chairman Grassley’s (R-IA) opening statement and in the questions of a number of Senators and House Representatives in the two sessions. Amb. Lighthizer discussed use of tariffs as a longer term issue to support reshoring and contested arguments that the Administration had not done enough to secure supplies during the pandemic. Chairman Grassley’s opening statement is embedded below.

Grassley-at-Hearing-on-the-President

There was also interest in both Houses of the ongoing or soon to be initiated FTA negotiations with the United Kingdom (ongoing, two rounds completed) and with Kenya (to start after July 4). There were questions or statements of support for the U.S.-Japan Phase 1 Agreement particularly by members with agricultural export interests to Japan.

On U.S.-EU trade relations, there were a few questions raised dealing either with the perceived abuse of geographical indications on food products by the EU and its push to get other countries to accept EU indications or with changing EU SPS provisions that appear to members of Congress and USTR as not science based. Amb. Lighthizer characterized both as protectionist trends from our friends in the EU. He also indicated that USTR is considering whether the U.S. should initiate a 301 investigation on the non-science based SPS measures.

On digital services taxes, questions arose about yesterday’s announced U.S. withdrawal from the OECD negotiations. Amb. Lighthizer reviewed USTR’s role in conducting 301 investigations first on France and now on a host of other countries where taxes are being imposed or considered on digital services on a discriminatory basis and on companies with no physical presence in countries imposing the taxes. The OECD effort was started to achieve a global agreement that could be accepted by all. The U.S. withdrew from the talks based on its view that the talks were building in discrimination against U.S. companies. If there is not a solution in the OECD, Amb. Lighthizer made it clear that results from the 301 investigations would permit the U.S. to take appropriate action against countries who proceed without a global agreement.

While Amb. Lighthizer’s opening statement had reviewed various WTO issues relevant to reform efforts — addressing Appellate Body; putting teeth into WTO notification requirements; clarifying which Members are eligible for special and differential treatment, and the concern about bound tariffs which have proven not to reflect current economic realities between countries, there were few questions about WTO reform during the two hearings. Amb. Lighthizer did go through the challenge of a WTO system where tariffs are bound, where the U.S. over 70 years has removed the vast majority of its tariffs and many other countries have maintained very high bound and even applied tariffs with little likelihood that those tariffs would be reduced regardless of the economic advances made by countries with high bindings. India and Indonesia were two of the countries used as examples of where bound tariffs today of such countries were not reflective of their economic advances and hence were unfair to the U.S.

There were also questions that arose from press reports about statements President Trump allegedly made to President Xi in Japan seeking China’s help in his reelection effort and to reports about two USTR professional staff members who had set up a webpage and been contacting automotive companies about helping them with USMCA compliance at a time when they were still USTR employees. Amb. Lighthizer was in a meeting with the U.S. and Chinese Presidents in Osaka, Japan in 2019 and denied that any request for assistance was made by President Trump at that meeting. On the latter issue, Amb. Lighthizer indicated that political appointees clearly could not do what was done by professional staff and that the professional staff had reportedly sought and obtained clearance from the USTR ethics office.

Conclusion

It has long been obvious that the Trump Administration was adopting a significantly different approach to trade policy than had been pursued by prior Administrations over recent decades. Ambassador Lighthizer’s Foreign Affairs article provides an articulation of the underlying concerns that have driven the Administration to the current policy approach. While there are many who remain skeptical about the benefits vs. costs flowing from the modified approach being pursued by the Trump Administration, there is little question that the change in approach has gotten attention of trading partners and at least some important modifications in agreements.

The USMCA has many novel elements, many of which are interconnected in terms of achieving stated objectives. Changes in rules of origin coupled with a high level of labor needing to make a minimum level of hourly wages and labor enforcement provisions are intended to address longstanding concerns of labor and is consistent with Amb. Lighthizer’s articulated objective of making trade work for workers. The willingness to work with the Democrats to achieve the labor and environment provisions contained in the revised agreement objectives permitted broad bipartisan support when implementing legislation was considered in the United States. Similarly, the USMCA provision of a sixteen year sunset of the agreement, extendable every six years should permit Canada, Mexico and the United States to update the agreement on a regular basis preventing the loss of relevance or coverage that normal FTAs have experienced with the passage of time.

On the importance of the U.S. relationship with China, the current Administration has come to the conclusion that China is not interested in converting to a market economy in fact. Reciprocity is unlikely under WTO Agreements since the WTO is premised on market economy Members, and the WTO agreements do not address many of the distortions flowing from the Chinese-style economy. Thus, the Administration has pursued a different approach to achieve a different outcome and greater reciprocity. The importance of the U.S.-China Phase 1 is best understood in that context. While the jury is out on how successful the Phase 1 Agreement will be, Amb. Lighthizer’s review of USTR information on growing orders from China in agriculture and China’s implementation of many of the specific commitments in the SPS area and other areas is encouraging.

On the WTO, the U.S. is looking for fundamental reform to achieve an organization that has rules for all and that reflects the changing capabilities of Members. With the differences in views of the purpose of the Appellate Body between the U.S. and the EU (and others), there is no likelihood of rapid restoration of the Appellate Body. With the EU moving towards taking unilateral action against Members who don’t engage in a second stage review of disputes with them, we are likely facing a period of heightened trade tensions between the U.S. and the EU.

Other U.S. proposals that have already been made at the WTO (notification requirements; eligibility for special and differential treatment; WTO being an organization for market economies ) or are working on jointly with others (e.g., EU and Japan on industrial subsidies and state-owned enterprises), have different challenges in terms of reaching consensus to adopt. The issue not yet formally raised on revisiting tariff bindings and/or how the system addresses changes in economic might over time with existing bindings would seem to require a further major shock to the operation of the WTO to have any chance of being considered.

As trading partners struggle to find new sources of revenue, particularly following the economic challenges flowing from the COVID-19 pandemic, many have looked to tax foreign companies in the digital services space. As the U.S. has many of the major players, there are looming major confrontations over EU and other country efforts to impose discriminatory taxes. The U.S. will defend its interests if an OECD agreed approach cannot be found. Based on yesterday’s withdrawal of the U.S. from the OECD process, major disputes are likely by the end of 2020.

The Trump Administration will continue to utilize all legal tools available to it under U.S. law and pursuant to various Agreements to achieve a rebalancing of the U.S. trade relationship with our major trading partners and with all nations. The Foreign Affairs article provides the Administration’s logic for the approach being pursued.

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.

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

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

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

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

USTR FR notice 301 investigation on digital services

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

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

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

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

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

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

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

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

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

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

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

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

Report_On_France’s_Digital_Services_Tax

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

Conclusion

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

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

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

 

 

 

 

 

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

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

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

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

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

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

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

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

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

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

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

Development of U.S. import data

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

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

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

6 cover COVID-19 test kits/testing instruments,

9 cover disinfectants ad sterilization products,

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

20 cover medicines (pharmaceuticals),

19 cover non-PPE medical consumables and hospital supplies,

27 cover personal protective equipment, and

9 covered other products.

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

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

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

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

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

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

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

Ireland $14.173 billion +12.77%

China $12.313 billion -14.13%

Germany $12.228 billion +20.35%

Mexico $ 8.791 billion + 4.44%

Canada $ 6.026 billion +19.57%

Belgium $ 5.952 billion +63.21%

Switzerland $ 5.082 billion +39.80%

Japan $ 4.144 billion +28.38%

United Kingdom $ 3.409 billion +11.42%

India $ 2.816 billion +16.71%

South Korea $ 2.694 billion -30.68%

Netherlands $ 2.545 billion +94.16%

Italy $ 2.177 billion +75.66%

Malaysia $ 2.163 billion + 7.65%

Costa Rica $ 1.693 billion +22.50%

All Other $16.574 billion +15.13%

Total $105.267 billion +16.16%

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

Conclusion

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

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

Shifting Trade Needs During the COVID-19 Pandemic

As of April 28, the number of confirmed COVID-19 cases around the world is over three million. The EU/UK and U.S. have dominated the number of cases and number of deaths to the present time after the start of the pandemic in China. The EU and UK have more than one million cases and more than 120,000 deaths. The United States will likely surpass one million cases by the end of April 28th with deaths above 55,000. . Together they accounted for roughly 70% of cases through April 27 and 84% of deaths.

But the rate of growth is expanding in other parts of the world while number of new cases is shrinking in Europe and flatlining in the United States. The data below look at the number of cases on April 27 and the percent growth of new cases measuring a fourteen day period ending on April 27 compared to a fourteen day period ending on April 11. What the table makes clear is that Europe has been going through a period of declining numbers (percentage less than 100%), North America (based on the US) is close to zero growth (though Mexico’s 14 day numbers more than tripled) , while parts of Africa, Central and South America and some countries in Asia are experiencing rapid growth, albeit generally from low levels. China has largely gotten through the first wave and so numbers for both fourteen day periods are quite low even though the ratio is close to 100%.

Country/Area Number of cases April 27 ratio 14 day cases 4-27/4-11

EU27 908,316 59.65%

UK 152,840 123.03%

4 (Switz., Nrwy, Icel, Lich) 38,358 31.70%

United States 965,910 102.89%

Canada 46,884 128.99%

Mexico 14,677 320.31%

Japan 13,385 159.30%

South Korea 10,738 20.68%

Singapore 13,624 942.40%

China 84,199 93.57%

India 27,892 285.06%

Iran 90,481 52.41%

Turkey 110,130 128.65%

Russia 80,949 599.02%

21 African countries 29,479 185.71%

8 South & Central America 146,515 249.48%

World Total 2,914,507 104.44%

Source; European Centre for Disease Prevention and Control, situation update worldwide, as of 27 April 2020 and 11 April 2020.

As the growth in the number of new cases slows in many developed countries while ramping up in other countries, there will be increasing needs for medical supplies (medicines, equipment, personal protective equipment and other supplies) in countries or territories that heretofore have not had large supply needs.

At the same time, needs for some types of equipment may be reduced in countries that have gotten past the worst of the first wave. Ventilators would be a case in point. In the United States, as hard hit areas like New York see lower hospitalization rates, the state has been able to forward some ventilators to other states with growing case loads. Similarly, the United States has moved from a situation of buying ventilators abroad to being able to send ventilators abroad. That ability is presumably increasing as expanded U.S. production of ventilators kicks into higher gear as we get to the end of April.

Countries like China that have largely gotten through the first wave of COVID-19 have moved from being large importers of medical supplies to being able to export significant quantities of various supplies, including personal protective equipment. They have also ramped up production of some medical supplies and so should be able to both handle any internal needs and continue to expand exports to the world.

However, for countries that have gotten into a period of declining new cases or even flat growth, needs for personal protective equipment, disenfectant, testing equipment and supplies will continue to grow as these countries deal with both ongoing needs for hospital care and the significant increase in testing and tracing needed for a safe reopening of countries and the likely change in protective gear needed for citizens freed from stay at home orders.

Prior posts have reviewed efforts by the multilateral organizations like the WHO, IMF, World Bank, FAO, WCO and WTO to facilitate transparency, financial and other needs of the world during the pandemic as well as efforts at coordinated actions by the G20.

Faced with the worst pandemic in more than a century, the world was generally caught flat footed and without adequate supplies to address the needs of individual countries or the world as a whole.

Transparency and efforts to keep markets open are two of the trade focuses of governments and the WTO. However, a health crisis during a time of grossly inadequate medical supplies has resulted in many countries taking at least temporary actions to secure medical supplies needed for domestic demand. This has occurred through export restraints, commandeering domestic production, using laws aimed for national emergencies and other actions which favor the large and wealthy over other parties.

There appears to be little or no international efforts to coordinate expansion of critical supplies or to monitor demand vs. supply availability to maximize utilization of the scarce supplies that are available in areas hardest hit. If in fact, the pandemic is gaining steam in developing and least developed countries, there is an increasing need for coordinated action in supporting these countries in the weeks and months ahead.

In that regard, Deputy Director-General Alan Wolff provided virtual remarks on April 20th to an event hosted by the Center for China and Globalization in Beijing on the role of the WTO in assisting in the response to the COVID-19 pandemic. The link to the presentation is here and the materials off of the WTO webpage are embedded below. https://www.wto.org/english/news_e/news20_e/ddgaw_20apr20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff_-Policy-coordina

While DDG Wolff recognizes that any action by the WTO is based upon initiatives from Members, he includes a series of “[a]genda items for a WTO COVID 19 Response”. Some of the agenda items have been pursued by individual WTO members as well as being part of an agreement between Singapore and New Zealand. These would include tariff suspensions on relevant medical supplies and enhanced trade facilitation for medical supplies. The WTO membership has already authorized transparency on actions taken, although Members have at best a spotty performance in providing the transparency agreed to.

The proposed agenda includes items that appear to be more aspirational in nature, at least during the current pandemic, including an agreement on codes of conduct on topics such as “guidelines on allocating scarcity”, “an accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form)”. Such issues will likely have greater likelihood of success after the pandemic has passed.

Of great interest to me is the last posting under “Codes of conduct, best practices and international understandings resulting in” which is “Coordinated efforts to enhance manufacturing of medical equipment and supplies”. It is possible that there are efforts within the WTO or the OECD or other groups to gather information on current capacities and planned expansions. Such an effort if not currently occurring should be made a priority during the pandemic and going forward. As China’s experience demonstrated (where demand in China for masks exceeded China production by ten-to-one during the peak increase in cases), supply is unlikely to meet demand in individual countries without better coordination amongst countries and without a greater global inventory buffer to address extraordinary demand surges.

The last agenda item proposed by DDG Wolff is the “Formation of a WTO Member Emergency Covid 19 Response Committee (ERC) or Task Force”. One would hope that an ERC could be quickly created within the WTO although many Members have shown reluctance during the pandemic (at least during the time where in-person meetings are not possible) to agree to any substantive decisions, although being open to collect information. It is also unclear how quickly an ERC, if created, would be able to advance proposals of interest to Members. But it could certainly be a group focused on gathering greater information relevant to supplies and demand as well as restrictions and liberalizations.

Finally, DDG Wolff in looking at planning for the future advances the idea of creating a WTO Committee for Policy Planning. “It is necessary to assure that there is dedicated policy planning capacity within the WTO Secretariat and networked with Members, including experts in capitals who would be able to participate remotely.” Such a Committee could hopefully, inter alia, help WTO Members come up with policies and rules that would better prepare the world for any future pandemics. While much of what is required to minimize the effects of future pandemics is not within the WTO’s jurisdiction, there are certainly areas that are. Many of those include the items DDG Wolff has included in his suggested agenda for the WTO in response to COVID-19. Hopefully, if not doable during the pandemic, such agenda items will be addressed aggressively after the pandemic, perhaps through a Committee for Policy Planning.

Conclusion

The current health pandemic is continuing at a high level but with growing infections starting to shift geographical areas of interest. As developing countries and least developed countries become areas of increased cases, the challenges of ensuring adequate medical supplies to those in need will become greater and be complicated by health infrastructure in many countries, financial resources, and continued supply/demand imbalances. The best hope for positive outcomes is greater coordination of activity and expanded financial resources available to those in need. The seemingly largest gap in coordinated activity is in the area of current supply abilities, growth in capacity and shifting demand needs. Hopefully international organizations like the WTO can help fill the gap.

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.