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USTR 2021 National Trade Estimate Report on Foreign Trade Barriers — areas of concern with a focus on China

Every year for the last 36 years, USTR releases a National Trade Estimate Report on Foreign Trade Barriers. This year’s forward provides a little background on the report. See USTR, 2021 National Trade Estimate Report on Foreign Trade Barriers, page 1, https://ustr.gov/sites/default/files/files/reports/2021/2021NTE.pdf.

“The 2021 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 36th in an annual series that highlights significant foreign barriers to U.S. exports, U.S. foreign direct investment, and U.S. electronic commerce. This document is a companion piece to the President’s 2021 Trade Policy Agenda and 2020 Annual Report, published by the Office of the United States Trade Representative (USTR) in March.

“In accordance with section 181 of the Trade Act of 1974, as amended by section 303 of the Trade and Tariff Act of 1984 and amended by section 1304 of the Omnibus Trade and Competitiveness Act of 1988, section 311 of the Uruguay Round Trade Agreements Act, and section 1202 of the Internet Tax Freedom Act, USTR is required to submit to the President, the Senate Finance Committee, and appropriate committees in the House of Representatives, an annual report on significant foreign trade barriers. The statute requires an inventory of the most important foreign barriers affecting U.S. exports of goods and services, including agricultural commodities and U.S. intellectual property; foreign direct investment by U.S. persons, especially if such investment has implications for trade in goods or services; and U.S. electronic commerce. Such an inventory enhances awareness of these trade restrictions, facilitates U.S. negotiations aimed at reducing or eliminating these barriers, and is a valuable tool in enforcing U.S. trade laws and strengthening the rules-based system.”

This year’s report covers 65 countries or country groups, so not all trading partners are covered by the annual report. China has the largest section of the report for an individual country (36 pages) while the European Union (covering 27 countries) has the largest section overall (52 pages). Other important trading partners with significant sections in the report include India (24 pages), Russian Federation (20 pages), Japan (18 pages), Indonesia (16 pages), Republic of Korea (14 pages), Brazil (14 pages), Vietnam (14 pages). the USMCA partners had smaller sections — Canada (8 pages) and Mexico (12 pages). the countries covered account for nearly 100 percent of U.S. trade in goods and nearly 90% of U.S. services trade.

The USTR press release from March 31, 2021 (majority of release copied below) provides an outline of some of the major areas of concern. See USTR, Ambassador Tai releases 2021 National Trade Estimate Report, March 31, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/ambassador-tai-releases-2021-national-trade-estimate-report.

Significant Barriers to U.S. Exports in 65 Trading Partners Detailed

“WASHINGTON – United States Trade Representative Katherine Tai today released the 2021 National Trade Estimate (NTE) Report, providing a detailed inventory of significant foreign barriers to U.S. exports of goods and services, investment, and electronic commerce.

“’The President’s Trade Agenda released earlier this month outlined a clear vision for supporting America’s working families by promoting a fair international trading system that boosts inclusive economic growth,’” said Ambassador Tai. ‘The 2021 NTE Report identifies a range of important challenges and priorities to guide the Biden Administration’s effort to craft trade policy that reflects America’s values and builds back better.’

“Published annually since 1985, the NTE Report is a comprehensive review of significant foreign trade barriers affecting U.S. exports of goods and services. The 570-page report examines 65 trading partners and country groups, including the U.S.’ largest trading partners, all 20 U.S. FTA partners, and other economies and country groupings of interest such as the Arab League, the United Kingdom (included as a separate entity for the first time in this report), and the European Union. Together, these economies account for 99 percent of U.S. goods trade and 87 percent of U.S. services trade. 

“The NTE Report covers significant trade barriers in 11 areas, including (1) import policies such as tariffs, import licensing and customs barriers; (2) technical barriers to trade; (3) sanitary and phytosanitary measures; (4) subsidies; (5) government procurement; (6) intellectual property protection; (7) services barriers; (8) barriers to digital trade and electronic commerce; (9) investment barriers; (10) competition; and (11) other barriers. 

“Taken as a whole, the NTE Report highlights significant barriers that present major policy challenges with implications for future U.S. growth opportunities, and the fairness of the global economy. Examples of these significant obstacles include: 

Agricultural Trade Barriers:  The NTE Report details an array of tariff and nontariff barriers to U.S. agricultural exports across trading partners and regions, ranging from non-science-based regulatory measures, opaque approval processes for products of agricultural biotechnology, burdensome import licensing and certification requirements, and restrictions on the ability of U.S. producers to use the common names of the products that they produce and export. USTR will continue to engage foreign governments on barriers that hamper the ability of U.S. farmers, ranchers and food processors to access markets worldwide. 

Digital Trade:  The 2021 NTE Report details restrictive data policies in India, China, Korea, Vietnam, and Turkey, among other countries; local software pre-installation requirements in Russia, Indonesian tariffs on digital products, and existing or proposed local content requirements for online streaming services in Australia, Brazil, Canada, China, EU, Mexico, Ukraine, and Vietnam; and discriminatory tax measures in Austria, India, Italy, Spain, Turkey, and the UK. USTR will continue to engage foreign governments on digital policies that threaten the regulatory landscape for U.S. exporters of digital products and services and undermine U.S. manufacturers’ and service suppliers’ ability to move data across borders. 

Excess Capacity:  China’s state-led approach to the economy and trade makes it the world’s leading offender in creating non-economic capacity, as evidenced by the severe and persistent excess capacity situations in several industries, including steel, aluminum, and solar, among others. China also is well on its way to creating severe excess capacity in other industries through its pursuit of industrial plans such as Made in China 2025, pursuant to which the Chinese government is doling out hundreds of billions of dollars to support Chinese companies and requiring them to achieve preset targets for domestic market share–at the expense of imports–and global market share in several advanced manufacturing industries. USTR will continue its bilateral and multilateral efforts to address these harmful trade practices.

Technical Barriers to Trade:   Technical regulations or conformity assessment procedures that unnecessarily restrict trade or curb the movement of innovative products risk lost opportunities to capitalize on America’s leadership in science and high-tech manufacturing, services, and agriculture. The NTE Report’s many examples of this challenge range from non-transparent European Union chemical regulations to Chinese Information Technology cybersecurity and encryption standards, to Indian and Brazilian testing and certification rules for telecommunications equipment, to technology. 

“The United States is taking steps to address these issues, and encourage flexible regulatory approaches and transparent, open processes, with these and many other partners. Within APEC, for example, the United States is engaged in projects on cybersecurity and blockchain to identify key public policy issues, and has projects in development on aerial drones and 3D printing. Another key example is USTR’s bilateral and multilateral work on standards and regulations related to electric cars, to ensure that vehicles from different manufacturers can all be charged reliably.

“The NTE Report details thousands of individual barriers to specific manufactured goods, farm products, and services. Each can reduce U.S. opportunities to export, invent, support jobs, and raise wages and incomes. These range from Argentina’s imposition of quota limits on imported books in September 2020 to India’s 38.8 percent average tariff on agricultural goods; the anomalous technical standards Saudi Arabia applies to shoes and electronic equipment; Ecuador’s mandatory and cumbersome process for allocating import licenses for agriculture products such as meats and dairy products; Indonesian local content requirements across a broad range of sectors; and Russian bans on imported food.”

What the NTE has to say about China 

The United States has for many years raised multiple concerns with China’s practices which the U.S. views as distorting trade flows and impeding market access to China. While the U.S. and China have engaged bilaterally extensively since China’s WTO accession and the U.S. has pursued several dozen disputes against Chinese practices that were clearly contrary to WTO obligations of China, little overall progress has been made in resolving the wide array of Chinese government distortions created and maintained over the years. These distortions contribute to the extraordinary trade deficit the United States has with China. See, e.g., U.S. Department of Commerce, Bureau of Economic Analysis, MONTHLY U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES, FEBRUARY 2021, April 7, 2021, https://www.bea.gov/news/2021/us-international-trade-goods-and-services-february-2021 (U.S. trade deficit in 2020 in goods with China was $310.2 billion; U.S. trade surplus in services was $22.1 billion; U.S. deficit in goods with China increased to $50.9 billion in the January – February 2021 period versus $42.1 billion in the first two months of 2020).

The Trump Administration pursued a 301 investigation on a number of intellectual property concerns with China, conducted Section 232 national security investigations on steel and aluminum — two sectors where Chinese actions have created massive global excess capacity — and negotiated with China the U.S.-China Phase I Agreement which took effect in mid-February 2020. The Agreement both addressed a number of problems in agriculture, intellectual property and services and committed China to expanded purchases of goods and services from the United States in 2021-2022 (and going forward). The NTE reviews where Chinese commitments under the Phase I Agreement apply and what progress is being seen. On the purchase commitments, China has not come close to meeting the commitments in 2021 though there were increased imports from the U.S. of agricultural products and energy products. See, e.g., March 20, 2021, The U.S.-China Phase 1 Trade Agreement under the Biden Administration, https://currentthoughtsontrade.com/2021/03/20/the-u-s-china-phase-1-trade-agreement-under-the-biden-administration/. The U.S. has a long history of China promising reforms that are either not carried out or are undermined by additional restrictions. The list of areas of concern making it into the annual NTE is not exhaustive but illustrative of the challenges to obtaining conditions of fair trade with the world’s most populous nation and second largest economy.

Areas of concern for the United States with China shown in the 2021 NTE include:

Tariffs (there are some high agricultural tariffs, and the large tariffs imposed in retaliation to U.S. Section 232 actions on steel and aluminum and U.S. Section 301 actions for Chinese practices reviewed in the investigation).

Non-tariff barriers include

  • Industrial Policies (such as “Made in China 2025” and described generally as follows, “China continues to pursue a wide array of industrial policies that seek to limit market access for imported goods, foreign manufacturers, and foreign services suppliers, while offering substantial government guidance, resources, and regulatory support to Chinese industries. The beneficiaries of these constantly evolving policies are not only state-owned enterprises (SOEs) but also other domestic companies attempting to move up the economic value chain.),
  • State-Owned Enterprises (a number of concerns are raised including “China has also previously indicated that it would consider adopting the principle of ‘competitive neutrality’ for SOEs. However, China has continued to pursue policies that further enshrine the dominant role of the state and its industrial plans when it comes to the operation of state-owned and state-invested enterprises.”),
  • Industrial Subsidies (massive subsidies to industries creating excess capacity and causing harm to U.S. producers globally; U.S. is working with the EU and Japan on possible amendments to Subsidies Agreement to address certain aspects not effectively handled under existing rules)
  • Fisheries Subsidies (size of subsidies by China to its industry),
  • Excess Capacity (problem created in many sectors including steel, aluminum, solar panels and others through state programs, subsidies, etc.),
  • Indigenous Innovation (including preferences for IP developed in China),
  • Technology Transfer (301 investigation looked at “(1) the use of a variety of tools to require or pressure the transfer of technologies and IP to Chinese companies; (2) depriving U.S. companies of the ability to set market based terms in technology licensing negotiations with Chinese companies; (3) intervention in markets by directing or unfairly facilitating the acquisition of U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and IP; and, (4) conducting or supporting cyber-enabled theft and unauthorized intrusions into U.S. commercial computer networks for commercial gains.”)
  • Investment Restrictions (different systems for domestic and foreign investment; discriminatory treatment),
  • Administrative Licensing (problems continue to be experienced in a wide array of licensing situations)
  • Standards (ability of foreign companies to participate in establishing; development of Chinese standards regardless of international standards),
  • Secure and Controllable ICT Policies (cybersecurity law used to discriminate against foreign ICT prducts),
  • Encryption (“Onerous requirements on the use of encryption, including intrusive approval processes and, in many cases, mandatory use of indigenous encryption algorithms (e.g., for WiFi and 4G cellular products), continue to be cited by stakeholders as a significant trade barrier.”),
  • Competition Policy (“Many U.S. companies have cited selective enforcement of the Anti-monopoly Law against foreign companies seeking to do business in China as a major concern, and they have highlighted the limited enforcement of this law against SOEs.” “Instead, these remedies seem to be designed to further industrial policy goals. Another concern relates to the procedural fairness of Anti-monopoly Law investigations of foreign companies. U.S. industry has expressed concern about insufficient predictability, fairness, and transparency in Antimonopoly Law investigative processes.”),
  • Pharmaceuticals (some long standing issues addressed in U.S.-China Phase I Agreement; others to be addressed in the future),
  • Medical devices (China’s “pricing and tendering procedures for medical devices and its discriminatory treatment of imported medical devices”),
  • Cosmetics (“concerns with China’s regulation of cosmetics.” “Despite years of United States engagement with China via the JCCT, the International Cooperation on Cosmetics Regulation, and other fora to share views and expertise regarding the regulation of cosmetics, as of March 2021 China has not yet addressed key U.S. trade concerns, including basic concerns such as the need to use international standards to facilitate cosmetics conformity assessment, nor has it provided assurances that U.S. intellectual property will be protected.”),
  • Export restraints (need to bring multiple cases at WTO on inputs where violate Protocol of Accession),
  • Value-added Tax Rebates and Related Policies (modifications of rates to change trade flows),
  • Import Ban on Remanufactured Products
  • Import Ban on Recyclable Materials
  • Trade Remedies (problems in transparency and procedural fairness; problems also in apparent use of trade remedies to go after trading partners who use WTO rights against Chinese products),
  • Government Procurement (failure to join the WTO GPA yet),
  • Corporate Social Credit System (“Foreign companies are concerned that the corporate social credit system will also be used by the Chinese Government to pressure them to act in accordance with relevant Chinese industrial policies or otherwise to make investments or conduct their business operations in ways that run counter to market principles or their own business strategies. Foreign companies are also concerned about the opaque nature of the corporate social credit system.”),
  • Other Non-Tariff Measures (“Key areas include China’s labor laws, laws governing land use in China, commercial dispute resolution and the treatment of non-governmental organizations. Corruption among Chinese Government officials, enabled in part by China’s incomplete adoption of the rule of law, is also a key concern.”).

Intellectual Property Protection (many issues were included in the U.S.-China Phase I Agreement, some progress on issues raised).

  • Trade Secrets (major area of concern and theft, some believed from government-supported entities; some improvements from U.S.-China Phase I Agreement),
  • Bad Faith Trademark Registration (a continuing major concern; some progress in U.S.-China Phase I Agreement),
  • Online Infringement (“Online piracy continues on a large scale in China, affecting a wide range of industries, including those involved in distributing legitimate music, motion pictures, books and journals, software, and video games.” Some progress made in the U.S.-China Phase I Agreement),
  • Counterfeit Goods (a major problem. “The Phase One Agreement requires China to take effective enforcement action against counterfeit pharmaceuticals and related products, including active pharmaceutical ingredients, and to significantly increase actions to stop the manufacture and distribution of counterfeits with significant health or safety risks. The Phase One Agreement also requires China to provide that its judicial authorities shall order the forfeiture and destruction of pirated and counterfeit goods, along with the materials and implements predominantly used in their manufacture. In addition, the Agreement requires China to significantly increase the number of enforcement actions at physical markets in China and against goods that are exported or in transit. It further requires China to ensure, through third party audits, that government agencies and SOEs only use licensed software.”).

Agriculture (“China remains a difficult and unpredictable market for U.S. agricultural exporters, largely because of
inconsistent enforcement of regulations and selective intervention in the market by China’s regulatory authorities. The failure of China’s regulators to routinely follow science-based, international standards, and guidelines further complicates and impedes agricultural trade. The Phase One Agreement addresses structural barriers to trade and aims to support a dramatic expansion of U.S. food, agriculture, and seafood product exports, which will increase U.S. farm and fishery income, generate more rural economic activity, and promote job growth. The Phase One Agreement addresses a multitude of non-tariff barriers to U.S. agriculture and seafood products, including for meat and meat
products, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agricultural biotechnology. The Agreement also includes enforceable commitments requiring China to purchase and import on average at least $40 billion of U.S. agricultural and seafood products per year in 2021 and 2022, representing an average annual increase of at least $16 billion over 2017 levels. China also agreed that it will strive to purchase and import an additional $5 billion of U.S. agricultural and seafood products each year.”).

  • Agricultural Domestic Support (China exceeds the limits allowed it; WTO dispute confirms China in violation of WTO obligations; U.S. seeking authorization to retaliate),
  • Tariff-rate Quota Administration (U.S. challenged China’s administration of TRQs on various products and won WTO dispute; U.S.-China Phase I Agreement requires China to comply on the products of concern),
  • Agricultural Biotechnology Approvals (China’s system has been a major problem for U.S. producers. U.S>-China Phase I Agreement includes commitments by China to address the major concerns of the U.S. in this area),
  • Food Safety Law (China’s actions have been quite burdensome and have failed to provide notices to the WTO in many cases. U.S>-China Phase I Agreement addresses the main concerns),
  • Poultry (China restricted U.S. exports after avian influenza in the U.S. and maintained restrictions despite actions by the U.S. that complied with World Organization for Animal Health (OIE) guidelines. U.S.-China Phase I Agreement has China committing to follow OIE guidelines and limiting restrictions to the region where there is a problem in future outbreaks),
  • Beef (“In the Phase One Agreement, China agreed to expand the scope of U.S. beef products allowed to be imported, to eliminate age restrictions on cattle slaughtered for export to China, and to recognize the U.S. beef and beef products’ traceability system. China also agreed to establish MRLs for three synthetic hormones legally used for decades in the United States consistent with Codex standards and guidelines. Where Codex standards and guidelines do not yet exist, China agreed to use MRLs established by other countries that have performed science-based risk assessments.”),
  • Pork (“China bans the use of certain veterinary drugs and growth promotants instead of accepting the MRLs set by Codex.” Some progress on opening the China market to U.S. pork products was made in the U.S.-China Phase I Agreement),
  • Horticultural Products (market access barriers for many U.S. products. U.S.-China Phase I Agreement obtains access for a number of products — fresh potatoes for processing, blueberries, nectarines and avocados from California, and barley, timothy hay and some other products.),
  • Value-added Tax Rebates and Related Policies (practice of varying rates on agricultural commodities).

Services (“In 2020, numerous challenges persisted in a number of services sectors. As in past years, Chinese regulators
continued to use discriminatory regulatory processes, informal bans on entry and expansion, case-by-case approvals in some services sectors, overly burdensome licensing and operating requirements, and other means to frustrate the efforts of U.S. suppliers of services to achieve their full market potential in China. These policies and practices affect U.S. service suppliers across a wide range of sectors, including express delivery, cloud computing, telecommunications, film production and distribution, online video and entertainment software, and legal services. In addition, China’s Cybersecurity Law and related draft and final implementing measures include mandates to purchase domestic ICT products and services, restrictions on cross-border data flows, and requirements to store and process data locally. China’s draft Personal Information Protection Law also includes restrictions on cross-border data flows and requirements to store and process data locally. These types of data restrictions undermine U.S. services suppliers’ ability to take advantage of market access opportunities in China. China also had failed to fully address U.S. concerns in
areas that have been the subject of WTO dispute settlement, including electronic payment services and theatrical film importation and distribution. The Phase One Agreement addresses a number of longstanding trade and investment barriers to U.S. providers of a wide range of financial services, including banking, insurance, securities, asset management, credit rating, and electronic payment services, among others. The barriers addressed in that Agreement
include joint venture requirements, foreign equity limitations, and various discriminatory regulatory requirements. Removal of these barriers should allow U.S. financial service providers to compete on a more level playing field and expand their services export offerings in the China market.”)

  • Banking Services (U.S.-China Phase I Agreement addresses some concerns re access including bank branches and supplying securities investment fund custody services),
  • Securities, Asset Management, and Futures Services (U.S.-China Phase I Agreement resulted in China eliminating limits on equity ownership and commits to nondiscrimination for U.S. suppliers of these services),
  • Insurance Services (despite commitments by China as part of the U.S.-China Phase I Agreement, U.S. participation in China’s insurance market remains very limited),
  • Electronic Payment Services (China has restricted access to foreign electronic payment services providers. U.S. won a WTO dispute and included provisions in U.S.-China Phase I Agreement. So far just one foreign electronic payment services provider has been licensed in China),
  • Internet-enabled Payment Services (major problems for foreign companies to obtain license to provide such services),
  • Telecommunications Services (range of barriers have limited foreign suppliers access to both basic telecom services and to value added services),
  • Internet Regulatory Regime (“China’s Internet regulatory regime is restrictive and non-transparent, affecting a broad range of commercial services activities conducted via the Internet, and is overseen by multiple agencies without clear lines of jurisdiction. China’s Internet economy had boomed over the past decade and is second in size only to that of the United States. Growth in China has been marked in service sectors similar to those found in the United States, including retail websites, search engines, online education, travel, advertising, audio-visual and computer gaming services, electronic mail and text, online job searches, Internet consulting, mapping services, applications, web domain registration, and electronic trading. However, in the Chinese market, Chinese companies dominate due in large part to restrictions imposed on foreign companies by the Chinese Government. At the same time, foreign companies continue to encounter major difficulties in attempting to offer these and other Internet-based services on a cross-border basis. China continues to engage in extensive blocking of legitimate websites and apps, imposing significant costs on both suppliers and users of web-based services and products. According to the latest data, China currently blocks a significant portion of the largest global sites. U.S. industry research has calculated that more than 10,000 foreign sites are blocked, affecting billions of dollars in business, including communications, networking, app stores, news, and other sites. Even when sites are not permanently blocked, the often arbitrary implementation of blocking, and the performance-degrading effect of filtering all traffic into and outside of China, significantly impair the supply of many cross-border services, often to the point of making them unviable.”),
  • Voice-over-Internet Protocol Services (“China’s regulatory authorities have restricted the ability to offer VOIP services interconnected to the public switched telecommunications network (i.e., to call a traditional phone number) to basic telecommunications service licensees.”),
  • Cloud Computing Services (foreign service providers can only operate in China by using a Chinese company and turning over brand, IP and other aspects; serious concern for U.S.),
  • Audio-visual and Related Services (“China prohibits retransmission of foreign TV channels, prohibits foreign investment in TV production, prohibits foreign investment in TV stations and channels in China, and imposes quotas on the amount of foreign programming that can be shown on a Chinese TV channel each day.”),
  • Theatrical Films (despite a WTO dispute and a resulting MOU where China agreed to expand number of U.S. films, China has not fulfilled its commitments)
  • Online Video and Entertainment Software Services (foreign suppliers are severely restricted),
  • Legal Services (very limited ability for foreign firms or foreign lawyers to practice in China)
  • Express Delivery Services (foreign service providers are banned from document delivery and face discriminatory and burdensome actions on package participation),
  • Data Restrictions (activities in China are likely to result in local storage requirements and limits on cross-border transfer; major concern to U.S. and many other countries).

Transparency (much work needed by China to meet obligations)

  • Publication of Trade-related Measures (WTO obligation to publish in one journal; spotty performance and many types of measures not published in the journal),
  • Notice-and-comment Procedures (little progress at sub-central government level; some progress at central government; U.S.-China Phase I Agreement commits China to provide 45 days notice and comment period for matters relating to the Agreement),
  • Translations (WTO commitment to provide translations in one of the three official WTO languages. “China does not publish translations of trade-related laws and administrative regulations in a timely manner (i.e., before implementation), nor does it publish any translations of trade-related measures issued by sub-central governments at all.”).

Conclusion

While the U.S. was the first country to produce a national trade estimate, a number of countries do so today. All trading partners have some practices which concern other trading partners, including the United States.

The length of the entry in the NTE for a give country is a reasonable indication both of the importance of the trade relationship and of the breadth of issues of concern. For the United States, the National Trade Estimate is a useful compilation of many of the major concerns raised by industries about problems in access to markets abroad or distortions created by practices of trading partners. Typically items found in the NTE will be part of USTR’s focus during the year in interactions with particular trading partners.

China is the country with the longest entry in the NTE and has been for many years. Considering the array of distortions and other problems identified in this year’s NTE, the focus on China is not surprising.

Some of the problems identified in this year’s NTE with China could be addressed through WTO reform, though China has indicated opposition to such an approach. On some of the issues, the U.S. has received repeated promises from China to address but without meaningful results to date.

What is clear is that U.S. trade relations with China are not balanced and haven’t been for the entire time of WTO membership for China. The challenge for the U.S. and the world is how to restore balance and save the global trading system. There are no obvious answers.

Recent G7 Trade Ministers Meeting — WTO issues of interest

The United Kingdom has the presidency of the G7 (Canada, France, Germany, Italy, Japan, United States and United Kingdom, with European Union as a guest) in 2021. On March 31, trade ministers had a virtual meeting which included WTO Director-General Ngozi Okonjo-Iweala. On the U.K. G7 web page, the objectives of the Trade Track of the G7 during the UK Presidency is reviewed. See G7 Trade Ministers, https://www.g7uk.org/trade-ministers/

“The UK’s 2021 G7 Presidency will feature a dedicated Trade Track at the G7 for the first time, led by the Department for International Trade. The Trade Track will be an opportunity for the UK to work with our G7 partners to shape a bold global vision for economic recovery that sees us build back better together – greener, more prosperous, resilient, and fair. 

“To do so, the Trade Track will focus on four priority areas:

“- WTO reform

“- trade and health

“- digital trade

“- trade and climate policy”

The Chair of the G7 Trade Track released a statement on March 31. The Chair in 2021 is the U.K. Secretary of State for International Trade and President of the Board of Trade and Minister for Women and Equalities, the Rt Hon Elizabeth Truss MP. See G7 Trade Ministers’ Meeting – Chair’s Statement, https://www.g7uk.org/g7-trade-ministers-meeting-chairs-statement/. The statement is copied below.

G7 Trade Ministers’ Meeting – Chair’s Statement – G7 UK Presidency 2021

“Today, the G7 Trade Ministers held their first meeting under the inaugural G7 Trade Track. Trade Ministers underlined the vital role global trade has played in tackling the impacts of the Covid-19 pandemic, welcomed the contribution trade can make to a strong economic recovery, and emphasised the need to build back better. They reaffirmed the importance of the rules-based multilateral trading system and welcomed Dr Ngozi Okonjo-Iweala, the new WTO Director-General, to their meeting.

“The G7 Trade Track has a bold purpose – to make the case globally for free and fair trade. G7 Trade Ministers are convinced that when the world’s leading democratic trading nations unite behind a shared agenda to make the global trading system fairer, more sustainable, and responsive to the needs of our citizens, this is an agenda that partners across the world will be ready to share in and help shape.

“Free and Fair Trade

“G7 Trade Ministers support a global trading system that is free and fair and works for all countries and peoples. This year represents a clear inflection point for the world and the global economic architecture. G7 Trade Ministers recognised the importance of providing the leadership needed to respond to the challenges faced by the multilateral trading system. Trade Ministers expressed their determination to provide the sustained effort and momentum necessary to ensure progress is made in the reform of the WTO to help secure shared prosperity for all. Therefore, G7 Trade Ministers will use this year’s G7 to advance the agenda of the 12th WTO Ministerial Conference and provide vital political momentum to the WTO reform debate. Trade Ministers will explore reforms that can enhance the WTO as a forum for negotiations, recognising the positive role that the plurilateral initiatives have played in engaging a broad spectrum of WTO members. G7 Trade Ministers also acknowledge that important work on transparency, special and differential treatment, and dispute settlement needs to be undertaken in the WTO.

“The multilateral trading system can be a force for good. It has increased competition and economic growth, helped raise living standards, and lifted millions out of poverty. It must serve the needs of all its members and provide the basis for free and fair trade. G7 Trade Ministers recognised that global trade should work for democratic and open-market systems and that these should not be undermined by unfair trade.

“Yet, not all of our citizens have felt the benefits of trade. Moreover, practices that distort markets and competition lead to decreased efficiency and reduced perceptions of fairness and trust in the system. Echoing the G7 Leaders’ Statement at Charlevoix in 2018, G7 Trade Ministers recalled the importance of fostering a truly level playing field. Trade Ministers will discuss the impact market-distorting practices, such as harmful industrial subsidies, including those causing excess capacity in some sectors, are having on our economies and chart a way to address these collectively.

“Modernising Trade

“G7 Trade Ministers believe that the multilateral trading system is in need of reform to reflect changes in the global economy and environment. As the world transitions to net zero, Trade Ministers acknowledged the risk of carbon leakage to the environment and the potential ways of mitigating this. Acknowledging the role of trade in tackling the accelerating climate and biodiversity crisis, Trade Ministers recognised that 2021 will be a crucial year to drive international efforts to address climate change and protect nature, including at the UNFCCC COP26. Trade Ministers will therefore deepen discussions on the nexus between trade and climate and the environment with a focus on identifying opportunities for collaboration and facilitating sustainable supply chains. Additionally, G7 members are committed to reaching a meaningful conclusion in the WTO negotiations of fisheries subsidies – which have a clear impact on sustainability.

“Stressing that trade has to be at the service of citizens, G7 Trade Ministers underlined the importance of advancing women’s economic empowerment through trade, particularly to support the Covid-19 recovery. They shared the view that greater representation of women in trade as leaders, business owners, and fairly compensated workers will ultimately deliver more and better jobs and more growth in our economies. G7 Members will promote deepened studies and more cross-cutting analyses on trade policy and gender equality by international organisations, such as SheTrades Outlook. Recognising the progress that is being made on trade and gender equality at the WTO, Trade Ministers intend to use their next discussions to explore new opportunities to improve the evidence base to support women in trade and discuss their priorities in this area for the next WTO Ministerial Conference.

“G7 Trade Ministers also agreed to further consider the ways in which trade policy can develop to support trade in health products, and increased supply chain resilience, as we work to build back better from Covid-19. The scale and pace of the spread of the virus, and an uneven global recovery, are challenging all our economies. G7 Members also encourage cooperation among governments, manufacturers, and other industry players to identify policies which support ramped-up production and distribution of vaccines.

“Digital Trade

“G7 Trade Ministers recognised the importance of digital trade to growth, innovation, productivity, and prosperity. They recalled the immense opportunities that it offers to our people and our businesses, and they underlined the central role that it can play in the economic recovery from the pandemic. G7 Members are united in their support for open digital markets and their opposition to digital protectionism. As a group of market-based economies governed by the rule of law, they believe that digital markets should be competitive, transparent, and accessible to international trade and investment. They agree on the importance of data free flow with trust, safeguards for consumers and businesses, and digital trading systems that allow goods and services to move seamlessly across borders. G7 Trade Ministers resolve to promote digital trade worldwide and to pursue global governance that is fair and inclusive. They agreed to further develop a set of high-level principles during this Presidency that will guide the G7 approach to digital trade.

“Digital trade remains an important area for the creation of new rules at the WTO. The rules governing digital trade should be responsive to innovation and emerging technologies, so that businesses, consumers, and workers can harness their full potential. G7 Trade Ministers committed to redoubling their efforts to advance the Joint Statement Initiative on E-commerce at the World Trade Organization. They aim to achieve substantial progress by the 12th WTO Ministerial Conference.

“G7 Trade Ministers look forward to strengthening their dialogue and further advancing a shared agenda at their next meeting in May.”

The statement from the Chair was not surprising considering the composition of the G7 and the focus of the members on getting the pandemic under control, reviving economic and trade activities (“building back better), restoring relevance to the WTO by achieving positive developments at the 12th Ministerial Conference and pursuing WTO reform on a host of areas including updating rules to address distortions (e.g., industrial subsidies) not adequately addressed in current agreements, operation of special and differential treatment, transparency, and dispute settlement. Most G7 members also support the Joint Statement Initiatives on a range of topics, including digital trade, domestic services regulation, SMSEs, empowerment of women in trade and gender equality, and trade’s role in addressing the climate crisis.

While some G7 members have different views on specific issues, the opening G7 trade ministers meeting lays out a positive broad-based agenda for having trade help get the world through the pandemic, return to greater prosperity, and address longstanding challenges at the WTO both to relevance in the 21st century and to different economic systems rendering current rules only partially relevant.

Statements by several of the trade ministers who participated add some individual country focus. For example, USTR Amb. Katherine Tai participated in the meeting. A press release from USTR dated March 31 identifies the U.S. views. See USTR, Statement from USTR Spokesman Adam Hodge on Ambassador Katherine Tai’s Participation in the First G7 Trade Ministers Meeting, 03/31/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/statement-ustr-spokesman-adam-hodge-ambassador-katherine-tais-participation-first-g7-trade-ministers

“WASHINGTON – United States Trade Representative Katherine Tai today virtually participated in the G7 Trade
Ministers Meeting hosted by the United Kingdom and chaired by Secretary of State Liz Truss. Ministers were joined in
this meeting by WTO Director General Dr. Ngozi Okonjo-Iweala. This was the first meeting of the G7 Trade Ministers.
Ambassador Tai and other G7 Ministers discussed the challenges facing the global trading system from non-market
forces and the need to work collectively to advance free and fair trade. Dr. Okonjo-Iweala and the Ministers discussed
pathways to achieving meaningful outcomes for the 12th WTO Ministerial Conference scheduled later this year.
Ministers also discussed their plans for future work on digital trade, women’s economic empowerment, and climate
change objectives. Ambassador Tai emphasized the Biden-Harris Administration’s objective to ensure that trade policy
focuses on benefitting workers, in addition to businesses and consumers. The Ministers are united in their desire to
support policies that will facilitate a rapid end to the pandemic and recognize that trade can contribute to a strong and
equitable recovery.”

Similarly, Canadian Minister of Small Business, Export Promotion and International Trade Mary Ng participated in the G7 trade ministers meeting. The following press release was issued on March 31 by the Canadian government. See Government of Canada, Minister Ng participates in first G7 trade and investment ministers’ meeting, March 31, 2021, https://www.canada.ca/en/global-affairs/news/2021/03/minister-ng-participates-in-first-g7-trade-and-investment-ministers-meeting.html

“As the Government of Canada continues to address the COVID-19 pandemic, collaborating with international partners is essential to fighting the virus and ensuring a sustainable and inclusive global economic recovery from the pandemic.

“Today, the Honourable Mary Ng, Minister of Small Business, Export Promotion and International Trade, participated in the first G7 trade and investment ministers’ meeting, which was hosted by the United Kingdom under its G7 presidency for 2021. The ministers agreed to pursue an ambitious G7 trade and investment agenda that responds to the challenges posed by the pandemic and to support an inclusive and sustainable recovery with the WTO at its core.

“Minister Ng welcomed the discussion with Ngozi Okonjo-Iweala, the new WTO director general, on the future of the WTO. The G7 ministers agreed to work together to advance concrete outcomes in advance of the 12th WTO Ministerial Conference in November.

“Pursuing trade and investment policies that support women and Indigenous and racialized communities is key to ensuring Canada’s economic recovery from COVID-19 is inclusive and meaningful. During a session on women’s economic empowerment, Minister Ng highlighted initiatives that Canada has undertaken to support women’s success in international trade. The Minister encouraged G7 members to participate in the implementation of the WTO trade and gender initiative and, as a specific example, encouraged member countries to use the SheTrades Outlook, an interactive policy tool that helps governments put in place policies to improve women’s participation in international trade.

“During the meeting, Minister Ng also emphasized the importance of digital trade and highlighted Canada’s work on a number of initiatives, such as the ongoing WTO negotiations on e-commerce.

“Minister Ng reiterated Canada’s support for the United Kingdom-led G7 work plan to enhance the capacity of the trading system to respond to public health emergencies. Ministers discussed the Ottawa Group’s Trade and Health Initiative, which seeks to strengthen the resilience of global supply chains and facilitate trade in essential medical supplies and vaccines.

“The trade ministers acknowledged the impacts of unfair trade practices on their economies and agreed to work together to address them. Recognizing the important role that trade has in tackling climate change and ensuring a sustainable environment, the ministers agreed to continue their efforts to take action on climate change through initiatives such as the WTO trade and environment sustainability initiative.”

The Canadian press release also provided a quote from Minister Ng:

“’Canada continues to work closely with our international partners to support Canadian businesses, workers and communities as we fight the pandemic and support an inclusive, sustainable economic recovery through rules-based international trade that works for everyone. We will make sure that the interests of Canadians across the country are at the forefront of our discussions as we work toward ensuring a strong, sustainable, and inclusive economic recovery.’

“- Mary Ng, Minister of Small Business, Export Promotion and International Trade”

The press reported reactions within China to the G7 trade ministers meeting with a focus on G7 concerns with addressing reforms to industrial subsidies. See, e.g., South China Morning Post, G7 pressure on China over subsidies ‘doomed to fail’ even as Biden administration gathers coalition, 1 April 2021, https://www.scmp.com/economy/china-economy/article/3128006/g7-pressure-china-over-subsidies-doomed-fail-even-biden (“Trade ministers from the Group of 7 (G7) – the United States, Germany, Britain, France, Canada, Italy and Japan – on Wednesday pledged collective action against ‘harmful industrial subsidies’ without naming China directly. China responded by saying it ‘won’t accept any accusation’ of its trade practice as it ‘has always honoured its commitments since it joined the World Trade Organization (WTO) at the end of 2001.”).

Conclusion

The G7 is a potentially important grouping, particularly to articulate a vision for the future of the multilateral trading system. While the changes in global trade over the last quarter of a century ensure more voices need to be considered than those in the G7 (or those aligned with them), there is no forward movement without them.

The WTO, if a static organization, will continue its slide into irrelevance. The organization suffers a myriad of structural problems which have reduced the effectiveness of all of its core functions. There is a lack of common purpose among the WTO Members. Its rules reflect the world of the 1980s with no significant update in the rules since then.

The pressing global challenges flowing from the pandemic, from climate change and changing technology need a World Trade Organization that is up to date, nimble and driven by an agreed vision to promote sustainable development and greater equitable participation and benefits.

The initial articulation of G7 objectives from trade ministers is a step in the right direction. Time will tell whether the G7 can internally agree on the details of a trade agenda, can translate that into support among a large group of WTO Members and lead to meaningful agreements and reform. The opposition to meaningful reform from China and others within the WTO and the consensus principle of decision making renders it highly unlikely that the WTO will prove up to the needs of the moment. But efforts of the G7 and other groups is critical if a global trading system is to survive. One can only hope for success from the G7 efforts.

“Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system

The Global Business Dialogue (GBD) publishes periodically “THE TTALK QUOTES”. On March 30, 2021, GBD posted a TTALK Quotes on “CHINA, THE TRADING SYSTEM, AND THE ALTERNATIVES” with a quote from Clyde Prestowitz, ‘[There is] only one alternative – “blowing up the system” or, more politely, creating a new or alternative system.”

The quote is from a Washington Monthly article by Mr. Prestowitz from March 24, 2021 entitled, “Blow Up the Global Trading System, Yes, really. U.S. and international efforts to stop Beijing’s economic onslaught haven’t worked. It’s time for President Biden to go big,” https://washingtonmonthly.com/2021/03/24/blow-up-the-global-trading-system/. Mr. Prestowitz has a new book out, The World Turned Upside Down (Yale University Press, 2021) and some of the recommendations in the Washington Monthly article reflect his thinking from his new book.

While the title is provocative, the concerns expressed are similar to the ones reviewed in Amb. Dennis Shea’s remarks to the Coalition for a Prosperous America and those expressed last year by Mogens Peter Carl that China’s economic system isn’t consistent with the WTO rules and China has no intention of modifying its approach to global trade. See March 29, 2021:  China and the WTO – remarks by Dennis C. Shea to the Coalition for a Prosperous America, https://currentthoughtsontrade.com/2021/03/29/china-and-the-wto-remarks-by-dennis-c-shea-to-the-coalition-for-a-prosperous-america/.

Unlike Mr. Carl’s call for market economy countries to withdraw from the WTO and start a new organization, Mr. Prestowitz proposes in the Washington Monthly article “Reinventing the Globalization System” which involves seven action steps.

The first is for the United States “to impose a Market Adjustment Charge (MAC) on all non-direct investment (not in new means of production) into the United States.” The MAC is explained in his new book (pages 276-277) but is a charge that would vary based on the size and trend of the U.S. trade deficit.

The second step “would be for the International Monetary Fund (IMF) to adopt Keynes’ Bretton Woods proposal that all countries should have balanced trade in the medium to long term.” To achieve this result, a duty would be applied on imports from countries that run persistent trade surpluses.

The third step would be for the United States to seek strong enforcement within the IMF and by the U.S. Department of the Treasury.

The fourth step would be forming a supersized FTA including USMCA, CPTPP and the EU, and open to other market economies. Prestowitz calls this grouping the “Free World Free Trade Agreement”.

The firth step addresses the need for market economies to improve their competitiveness against the state directed and massively subsidized world of China. The step calls for the creation of “a free world high technology leadership project”

The sixth step calls on the U.S. to reorganize government and concentrate resources to support the technology leadership initiative.

The final step involves actions the U.S. can take to spur domestic manufacturing (use of Defense Production Act, curbing corporate lobbying, and review corporate overseas investment plans.

In his book, Mr. Prestowitz has a chapter on actions the U.S. should take to regain its leadership position. It starts with a Market Access Charge, calls for the imposition of a value added tax and a host of actions to ensure the U.S. is “the world’s most competitive economy.” Page 278.

U.S. actions are aimed at improving U.S. competitiveness

A number of the actions Mr. Prestowitz calls for on U.S. competitiveness are similar to actions being introduced today in part 1 of President Biden’s American Jobs Plan (est. cost of $2.5 trillion). See White House Briefing Room, FACT SHEET: The American Jobs Plan, March 31, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/. Excerpts are copied below. The full fact sheet is then embedded.

“While the American Rescue Plan is changing the course of the pandemic and delivering relief for working families, this is no time to build back to the way things were. This is the moment to reimagine and rebuild a new economy. The American Jobs Plan is an investment in America that will create millions of good jobs, rebuild our country’s infrastructure, and position the United States to out-compete China. Public domestic investment as a share of the economy has fallen by more than 40 percent since the 1960s. The American Jobs Plan will invest in America in a way we have not invested since we built the interstate highways and won the Space Race.

“The United States of America is the wealthiest country in the world, yet we rank 13th when it comes to the overall quality of our infrastructure. After decades of disinvestment, our roads, bridges, and water systems are crumbling. Our electric grid is vulnerable to catastrophic outages. Too many lack access to affordable, high-speed Internet and to quality housing. The past year has led to job losses and threatened economic security, eroding more than 30 years of progress in women’s labor force participation. It has unmasked the fragility of our caregiving infrastructure. And, our nation is falling behind its biggest competitors on research and development (R&D), manufacturing, and training. It has never been more important for us to invest in strengthening our infrastructure and competitiveness, and in creating the good-paying, union jobs of the future.

“Like great projects of the past, the President’s plan will unify and mobilize the country to meet the great challenges of our time: the climate crisis and the ambitions of an autocratic China. It will invest in Americans and deliver the jobs and opportunities they deserve. But unlike past major investments, the plan prioritizes addressing long-standing and persistent racial injustice. The plan targets 40 percent of the benefits of climate and clean infrastructure investments to disadvantaged communities. And, the plan invests in rural communities and communities impacted by the market-based transition to clean energy.”

FACT-SHEET_-The-American-Jobs-Plan-_-The-White-House

Reform of the WTO or a different approach?

The U.S. is looking to push WTO reform and work with trading partners to address challenges posed by China’s economic model. The EU and Japan are similarly looking at WTO reform as a way forward. See, e.g., February 18, 2021, The European Commission’s 18 February 2021 Trade Policy Review paper and Annex — WTO reform and much more proposed, https://currentthoughtsontrade.com/2021/02/18/the-european-commissions-18-february-2021-trade-policy-review-paper-wto-reform-and-much-more-proposed/.

The G7 trade ministers are meeting today. See Reuters, UK trade minister tells G7: We must stop fragmentation of global trade, March 31, 2021, https://www.reuters.com/article/britain-trade-truss-idUSS8N2L708T. The seven G7 countries are Canada, France, Germany, Italy, Japan, the UK and the US (EU participates as a guest). WTO reform is one of the topics being discussed today. The U.S., EU and Japan have been working on potential reforms to the Subsidies Agreement to address the massive industrial subsidies provided by China as well as looking at potential disciplines on state-owned/invested enterprises and forced technology transfer. However, in a consensus system like the WTO, it is hard to imagine meaningful reforms that will address Chinese distortions achieving results within the WTO.

The U.S. is not presently considering a “Free World Free Trade Agreement” as proposed by Mr. Prestowitz. The U.S. is also not proposing pulling out of the WTO as suggested last year by Mogens Peter Carl and entering into a new organization that is limited to market economies. Each of the U.S. and the EU have the ability to act unilaterally if necessary but obviously that is a less desirable approach to global governance.

So it is likely that the U.S., EU, Japan and other leading market economies will continue to seek reform within the WTO but with likely limited results putting pressure on free trade agreements or on plurilateral arrangements to achieve a trade regime acceptable to the major market economies.

Mr. Prestowitz’s article and recent book are well done and raise some interesting ideas for addressing U.S. trade concerns with China. Some of his ideas have been advocated for by others before and have significant potential whether they have much political possibility for adoption. But in a changing global trade environment, his writings are a useful contribution and worth reading by those in trade policy positions.

For the Biden Administration, new trade agreements do not appear to be a short-term objective. Getting control of the pandemic through vaccinations and building back better through the jobs bill are the two major priorities. Trade can contribute to both, but a push for Free World Free Trade Agreement is not likely in the Biden years.

Still China’s economic system and incompatibility with the WTO are major concerns for many countries including the United States. Reform of the WTO would obviously be the best outcome for addressing China’s distortions. While hope spring eternal, the Ministerial Conference in late November 2021 in Geneva will give an idea of whether meaningful WTO reform is likely in the cards in the coming years. Such reform is highly unlikely to happen during the 2020s, if ever.

Mr. Carl’s suggestion of mass withdrawal from the WTO and creation of a new entity of market economies is interesting in addressing the blocking capacity of China but seems improbable because of China’s size and importance. With no major economy having suggested any interest in the idea, it seems implausible in the 2020s, if ever.

Mr. Prestowitz’s idea for a super-FTA of market economies is doable within the WTO and simply depends on majors like the U.S., EU, Japan and others being willing to put in the effort. But the U.S. and EU have not been able to make meaningful progress on an FTA or even harmonization of regulations over recent decades. If past is prologue, it is unlikely that such an undertaking will occur in the 2020s either, if ever.

 As British trade minister Liz Truss is reported to have said to her G7 fellow trade ministers, “We need to reverse the fragmentation of global trade and get the global system and WTO working again, otherwise we risk big countries going their own way and operating outside an agreed set of rules, which always spells trouble.” Reuters, UK trade minister tells G7: We must stop fragmentation of global trade, March 31, 2021, https://www.reuters.com/article/britain-trade-truss-idUSS8N2L708T. China has effectively been going its own way even after joining the WTO at the end of 2001. Actions by the U.S., EU and others in recent years have occasionally been outside of the agreed set of rules as well. So a fourth option is that of the collapse of the global trading system (actually or practically) with a law of the jungle reasserting itself.

Time will tell which direction global trade will take.

U.S. Section 301 investigations on digital services taxes by trading partners — USTR seeks public comment on proposed tariffs in six of ten investigations and terminates investigations on Brazil, the Czech Republic, the European Union and Indonesia

While the Biden Administration is looking to develop agreed international taxation rules for digital services through the OECD/G20 Integrated Framework process, on Friday, March 26, 2021, USTR Katherine Tai announced next steps to maintain options while negotiations at the OECD continue. See USTR, USTR Announces Next Steps of Section 301 Digital Services Taxes Investigations, March 26, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/ustr-announces-next-steps-section-301-digital-services-taxes-investigations. Part of the press release is copied below.

Six countries remain subject to potential action while broader international tax negotiations continue

“WASHINGTON – The United States Trade Representative (USTR) today announced the next steps in its Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by ten U.S. trading partners.  In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies.  USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.
  
“’The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,’ said Ambassador Katherine Tai.  ‘The United States remains committed to reaching an international consensus through the OECD process on international tax issues.  However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.’

“The remaining four jurisdictions – Brazil, the Czech Republic, the European Union, and Indonesia – have not adopted or not implemented the DSTs under consideration when the investigations were initiated.  Accordingly, USTR is terminating these four investigations without further proceedings.  If any of these jurisdictions proceeds to adopt or implement a DST, USTR may initiate new investigations.” 

In prior posts, I have reviewed the investigations and reports released on the six investigations and on the French investigation which was completed earlier but where tariffs were postponed in mid-January 2021. See January 15, 2021, U.S. Section 301 investigations on digital services taxes by trading partners – USTR releases additional reports on January 14, 2021, https://currentthoughtsontrade.com/2021/01/15/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-ustr-releases-additional-reports-on-january-14-2021/ (release of reports on Austria, Spain and the United Kingdom); January 8, 2021, U.S. Section 301 investigations on digital service taxes by trading partners – an update, https://currentthoughtsontrade.com/2021/01/08/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-an-update/ (release of reports on India, Italy and Turkey); June 3, 2020, Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union, https://currentthoughtsontrade.com/2020/06/03/digital-services-taxes-new-u-s-section-301-investigations-on-nine-countries-and-the-european-union/

Yesterday’s USTR press release included links to the Federal Register notices that will appear presumably next week. Each notice provides a timeline for written comments and a virtual hearing as well as the proposed list of products that could be imposed.

For example, the Federal Register notice on Austria states that “In particular, USTR proposes to impose additional tariffs of up to 25 percent ad valorem on an aggregate level of trade that would collect duties on goods of Austria in the range of the amount of the DST that Austria is expected to collect from U.S. companies. Initial estimates indicate that the value of the DST payable by U.S.-based company groups to Austria will be up to approximately $45 million per year. USTR further proposes that the goods of Austria subject to additional tariffs would be drawn from the preliminary list of products in the Annex to this notice, as
specified by the listed eight-digit tariff subheadings.” Similar language appears in each of the notices with the estimated taxes on U.S. digital services estimated at $55 million per year for India, $140 million for Italy, $155 million for Spain, $160 million for Turkey, $325 million for the United Kingdom. At an ad valorem additional duty of 25%, this means that if there is not a resolution to the issues at the OECD, duties could be applied by the U.S. on $180 million of goods from Austria, $220 million from India, $560 million from Italy, $620 million from Spain, $640 million from Turkey and $1.3 billion from the United Kingdom. Products listed in the Annex are the products from which USTR is proposing the U.S. would choose for additional duties.

All Federal Register notices seek comments on a range of issues. The language from the Turkey notice is copied below and is similar to that in each of the other five Federal Register notices.

III. Request for Public Comments

“In accordance with section 304(b) of the Trade Act (19 U.S.C. 2414(b)), USTR invites comments from interested persons with respect to whether action is appropriate, and if so, the appropriate action to be taken.

“USTR requests comments with respect to any issue related to the action to be taken in this investigation. With respect to the proposed tariff action outline above, USTR specifically invites comments regarding:

“• The level of the burden or restriction on U.S. commerce resulting from Turkey’s DST, including the amount of DST payments owed by U.S. companies, the annual growth rate of such payments, and other effects, such as compliance costs.

“• The appropriate aggregate level of trade to be covered by additional duties.

“• The level of the increase, if any, in the rate of duty.

“• The specific products to be subject to increased duties, including whether the tariff subheadings listed in the Annex should be retained or removed, or whether tariff subheadings not currently on the list should be added.

“In commenting on the inclusion or removal of particular products on the preliminary list of products subject to the proposed additional duties, USTR requests that commenters address specifically whether imposing increased duties on a particular product would be practicable or effective to obtain the elimination of Turkey’s acts, policies, and practices, and whether imposing additional duties on a particular product would cause disproportionate economic harm to U.S. interests, including small- or medium-size businesses and consumers.

“Simultaneously with this notice, USTR also is requesting public comments on proposed trade actions in five other DST investigations initiated at the same time as the Turkey DST investigation. Certain interested persons may wish to provide written comments or oral testimony on multi-jurisdictional issues common to two or more investigations. To avoid duplication, the USTR portal will have a separate docket for multi-jurisdictional submissions, and USTR will hold a separate multi-jurisdictional hearing.

“To be assured of consideration, you must submit written comments on the proposed action by April 30, 2021, and post-hearing rebuttal comments by May 10, 2021 for the multi-jurisdictional hearing, and by May 14, 2021 for the Turkey DST hearing.”

All six notices provide the dates for requesting to appear, for submitting comments and for the hearing. The dates from the notices are copied below.

Austria notice

DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.

April 30, 2021: To be assured of consideration, submit written comments by this date.

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.

May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.

May 11, 2021 at 9:30 am: Virtual hearing on Austria DST proposed action.

May 18, 2021: To be assured of consideration, submit Austria DST hearing rebuttal comments by this date.

India notice

DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.

April 30, 2021: To be assured of consideration, submit written comments by this date.

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.

May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.

May 10, 2021 at 9:30 am: Virtual hearing on India DST proposed action.

May 17, 2021: To be assured of consideration, submit India DST hearing rebuttal comments by this date.

Italy notice

DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.

April 30, 2021: To be assured of consideration, submit written comments by this date.

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.

May 5, 2021 at 9:30 am: Virtual hearing on Italy DST proposed action.

May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.

May 12, 2021: To be assured of consideration, submit Italy DST hearing rebuttal comments by this date.

Spain notice

DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.

April 30, 2021: To be assured of consideration, submit written comments by this date.

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.

May 6, 2021 at 9:30 a.: Virtual hearing on Spain DST proposed action.

May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.

May 13, 2021: To be assured of consideration, submit Spain DST hearing rebuttal comments by this date.

Turkey notice

DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.

April 30, 2021: To be assured of consideration, submit written comments by this date.

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.

May 7, 2021 at 9:30 am: Virtual hearing on Turkey DST proposed action.

May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.

May 14, 2021: To be assured of consideration, submit Turkey DST hearing rebuttal comments by this date.

United Kingdom notice

DATES:
April 21, 2021: To be assured of consideration, submit requests to appear at a hearing, along with a summary of the testimony, by this date.

April 30, 2021: To be assured of consideration, submit written comments by this date.

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions.

May 4, 2021 at 9:30 a.m.: Virtual hearing on the United Kingdom DST proposed action.

May 10, 2021: To be assured of consideration, submit multi-jurisdictional hearing rebuttal comments by this date.

May 11, 2021: To be assured of consideration, submit the United Kingdom DST hearing rebuttal comments by this date.

The Federal Register notices issued by USTR on the six countries and the notice on terminating 301 investigations on Brazil, Czech Republic, European Union and Indonesia are embedded below and will appear in the Federal Register in the next week or so.

FRNAustria

FRNIndia

FRNItaly

FRNSpain

FRNTurkey

FRNUK

FRNDSTterminations

Conclusion

The Biden Administration has rejoined the effort to find an acceptable solution to the digital services tax issue within the OECD/G20 Integrated Framework and has reportedly made a major concession to facilitate movement in the talks. See Wall Street Journal, Yellen Removes Obstacle to Global Corporate-Tax Deal, February 26, 2021, https://www.wsj.com/articles/yellen-removes-obstacle-to-global-corporate-tax-deal-11614363591 (“Treasury Secretary Janet Yellen said Friday that the U.S. would no longer insist on a “safe harbor” under which some elements of the tax rules would be optional. The idea, proposed in late 2019 by her predecessor, Steven Mnuchin, drew objections from European counterparts, though talks on how it would work never advanced very far.”).

At the same time, the U.S. has been and remains concerned about what it views as efforts by major trading partners to impose discriminatory taxes on major U.S. digital services companies. There were many U.S. Senators who expresssed deep concerns with the practices of trading partners in this area during Ambassador Tai’s confirmation hearing to become USTR. The action taken yesterday by USTR reflects the willingness of the Biden Administration to be prepared to impose tariffs on products from selected countries where investigations have resulted in previously released reports that identified significant problems under U.S. law. At the same time, USTR has made clear that the Administration’s preferred approach is through the OECD/G20 Integrated Framework process. And USTR has terminated the remaining four investigations where reports were not released.

All of the above indicate that the U.S. will put primary focus on the ongoing OECD negotiations while preserving options under U.S. law on investigations that had proceeded to a determination by holding public hearings and considering potential products on which to impose additional tariffs. USTR’s actions should generally be acceptable to the U.S. Congress while also letting the OECD negotiations play out in the coming months while preserving options if a negotiated outcome proves illusive.

Global vaccinations for COVID-19 — continued supply chain and production issues and a new wave of infections in many countries delay greater ramp up for some until late in the second quarter of 2021

The world has witnessed the unprecedented development of a number of vaccines in record time to deal with the COVID-19 pandemic. The development has been the result of widespread cooperation in sharing information and the funding in part by governments and early orders for hundreds of millions of doses if vaccines proved efficacious and safe. In roughly one year since the virus was declared a pandemic by the WHO, individual vaccines have been produced and authorized by one or more governments (some by as many as 70 along with WHO approval).

According to the Financial Times COVID-19 vaccine tracker, as of March 25, nearly 490 million vaccine shots have been administered around the world (based on data from 166 locations). See Financial Times, Covid-19 vaccine tracker: the global race to vaccinate, 25 March 2021, https://ig.ft.com/coronavirus-vaccine-tracker/?areas=gbr&areas=isr&areas=usa&areas=eue&cumulative=1&populationAdjusted=1. The companies with approved vaccines have been ramping up production at their own and at licensed facilities in other countries. Because companies are racing to put in place 3-4 times the global capacity for all vaccines (3.5 billion doses) to produce COVID-19 vaccines (10-14 billion doses by the end of 2021) and because there are complex supply chains and production processes for the new vaccines, there have been various delays which have occurred both at manufacturers and at suppliers. This has been true in the U.S., in the EU, in India and other producing countries. While countries and producers are working on solutions, shortages of certain materials exist and can reduce production of finished vaccines globally.

While the WHO, GAVI, CEPI and UNICEF have set up COVAX to get vaccines to a total of 192 countries, including 92 low- and middle-income countries where materials will be supplied at discounted prices or for free and have a target of two billion doses to participating countries in 2021, there is an early reliance on AstraZeneca’s vaccine whether produced by AstraZeneca or through license by the Serum Institute (SII) in India, the world’s largest vaccine producer.

Unfortunately, many countries are going through a new wave of COVID-19 infections which puts pressure on governments to secure sufficient supplies to address domestic demand. See, e.g., European Centre for Disease Prevention and Control, COVID-19 situation update worldwide, as of week 11, updated 25 March 2021, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases (shows total new reported infections going up globally for the fourth week after a sharp decline after New Year’s). Countries showing large numbers of cases over the last two weeks (whether increases or decreases) include Ethiopia (21,227), Kenya (12,083), Libya (12,852), South Africa (17,646), Argentina (91,023), Brazil (995,861), Canada (48,021), Chile (77,561), Colombia (63,417), Ecuador (18,223), Mexico (66,683), Paraguay (26,252), Peru (98,323), United States (830,346), Uruguay (19,512), Bangladesh (19,938), India (416,683), Indonesia (80,522), Iran (119,383), Iraq (67,344), Jordan (109,594), Lebanon (43,964), Pakistan (38,371), Philippines 969,382), United Arab Emirates (29,506), Austria (39,842), Belgium (50,670), Bulgaria (43,115), Czechia (142,042), Estonia (20211), France (378,370), Germany (162,032), Greece (32,005), Hungary (111,929), Italy (308,890), Moldova (19,82), Netherlands (83,797), Poland (272,046), Romania (70,295), Russian Federation (133,24), Serbia (65,689), Spain (67,833), Sweden (61,666), Turkey (232,705), Ukraine (147,456), United Kingdom (78,063). While many countries do not produce COVID-19 vaccines, the list of countries includes many in the EU as well as Brazil, the United States and India. Brazil’s production of COVID-19 vaccines is not expected to start until May. Below I review developments on vaccination roll-outs in the United States, the European Union and India.

Vaccination roll-out in the U.S., EU and India — three important COVID-19 vaccination production areas

Under the Biden Administration, the United States has drastically improved its performance on COVID-19 vaccinations with 129.3 million vaccinations given by March 24 and with the President announcing his Administration’s revised goal of 200 million shots in arms in his first 100 days in office (April 29). See Financial Times, Biden doubles vaccine goal to 200m in first 100 days, 25 March 2021, https://www.ft.com/content/a1accbdf-0010-426c-9442-feb73b5c8a1d. While the U.S. focus is on getting the U.S. population vaccinated as the first priority, the U.S. has agreed to “loan” 1.5 million doses of AstraZeneca’s vaccine to Canada and 2.5 million doses to Mexico. The U.S., following a leader’s remote meeting of the Quad (U.S., Japan, India, Australia), agreed to work with the other Quad partners to produce one billion doses in India of a vaccine by the end of 2022 from a U.S. company that would be paid for by Japan and the U.S. and would receive distribution support from Australia for countries in the Indo-Pacific region. See March 12, 2021, COVID-19 vaccines – U.S., Japan, India and Australia agree to one billion doses for Indo-Pacific countries, https://currentthoughtsontrade.com/2021/03/12/covid-19-vaccines-u-s-japan-india-and-australia-agree-to-one-billion-doses-for-indo-pacific-countries/.

The European Union, a major producing location for COVID-19 vaccines and various inputs and a major exporter, has had rollout problems flowing from production problems at AstraZeneca’s EU facilities, concerns by many EU members on whether the vaccine from AstraZeneca was safe (small number of blot clot problems in those vaccinated) and other issues. See New York Times, Where Europe Went Wrong in Its Vaccine Rollout, and Why, March 20, 2021, https://www.nytimes.com/2021/03/20/world/europe/europe-vaccine-rollout-astrazeneca.html; Financial Times, Nordic nations hold off on AstraZeneca jab as scientists probe safety, 21 March 2021, https://www.ft.com/content/0ef3a623-f3a2-4e76-afbd-94a915b24ad5. With vaccination rates in the EU far behind the U.K. and the U.S. and a number of other countries, this has led to significant internal pressures to ensure that manufacturers were honoring contracts with the EU and has led to two temporary regulations (and an extension) giving EU members authority to stop exports outside of the EU (and excluding the shipments to COVAX low-and middle-income countries). See March 5, 2021, COVID-19 vaccines — France supports Italy’s blockage of a shipment to Australia; while Australia has asked the EU to permit the shipment, Australia will have its own production of AstraZeneca product by the end of March, https://currentthoughtsontrade.com/2021/03/05/covid-19-vaccines-france-supports-italys-blockage-of-a-shipment-to-australia-while-australia-has-asked-the-eu-to-permit-the-shipment-australia-will-have-its-own-production-of-astrazeneca-produc/; European Commission, Commission strengthens transparency and authorisation mechanism for exports of COVID-19 vaccines, 24 March 2021, https://ec.europa.eu/commission/presscorner/detail/en/ip_21_1352; European Commission, 24.3.2021 C(2021) 2081 final COMMISSION IMPLEMENTING REGULATION (EU) …/… of 24.3.2021, https://ec.europa.eu/commission/presscorner/detail/en/ip_21_1352; European Commission, Commission extends transparency and authorisation mechanism for exports of COVID-19 vaccines, 11 March 2021, https://ec.europa.eu/commission/presscorner/detail/en/IP_21_1121. Australia had a shipment stopped by Italy and the EC has been raising concerns in the United Kingdom.

In recent days, Indian producer Serum Institute has notified a number of customers that their orders would be delayed several months. GAVI COVAX has been notified as well, with 40 million doses in April and 50 million in May apparently unlikely to ship. Press articles attribute the delays to the needs within India, though SII has suggested delays are also due to availability issues on certain inputs. The Indian government claims it is simply adjusting schedules in light of internal needs and is not imposing an export ban per se. See, e.g., BBC News, India coronavirus: Why have vaccine exports been suspended?, 25 March 2021, https://www.bbc.com/news/world-asia-india-55571793; Wall Street Journal, India Suspends Covid-19 Vaccine Exports to Focus on Domestic Immunization, March 25, 2021, https://www.wsj.com/articles/india-suspends-covid-19-vaccine-exports-to-focus-on-domestic-immunization-11616690859#:~:text=An%20Indian%20government%20official%20said,of%20the%20government’s%20vaccine%20program.&text=On%20Tuesday%2C%20the%20government%20said,to%20those%20older%20than%2045; Times of India, India has not banned Covid-19 vaccine exports, 25 March 2021, https://timesofindia.indiatimes.com/india/india-has-not-banned-covid-19-vaccine-exports-sources/articleshow/81693010.cms.

Conclusion

Much of the anticipated ramp up of COVID-19 vaccine production will be happening over the coming months, such that there should be dramatically greater vaccine availability in the coming months. That doesn’t help governments or populations waiting for vaccines. or that are going through a significant ramp up in infections. The pharmaceutical industry and major groups got together earlier this month to explore where the bottlenecks are in ramping up production. See March 12, 2021, The 8-9 March  “Global C19 Vaccine Supply Chain and Manufacturing Summit”, https://currentthoughtsontrade.com/2021/03/12/the-8-9-march-global-c19-vaccine-supply-chain-and-manufacturing-summit-efforts-to-ramp-up-production/ It is unclear the extent to which governments and industry are working together to solve bottlenecks in supply, to facilitate production ramp up, share experiences in reusing safely some critical materials that are in short supply, etc. During these critical months, greater cooperation in solving problems and facilitating expansion of production is needed and hopefully is occurring. Export restrictions have and will occur under various guises, reflecting internal political pressures. In the coming months and certainly by the third quarter of 2021, there should be large volumes of vaccine doses above and beyond what has been contracted by COVAX that will be available for use around the world. Time is obviously of the essence. Cooperation to solve supply chain bottlenecks and speed ramp-ups is the best short term option for speeding getting past the pandemic globally.

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When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang

Earlier this week, the EU added a series of individuals and companies to its sanctions list including Chinese officials and entities involved in the alleged extreme human rights abuses of Uyghurs in Xinjiang, as well as others in Russia, Libya and the Democratic People’s Republic of Korea. See European Council, EU imposes further sanctions over serious violations of human rights around the world, 22 March 2021, https://www.consilium.europa.eu/en/press/press-releases/2021/03/22/eu-imposes-further-sanctions-over-serious-violations-of-human-rights-around-the-world/; Official Journal of the European Union, L 99 I, Council Implementing Regulation (EU) 2021/478 of 22 March 2021 implementing Regulation (EU) 2020/1998 concerning restrictive measures against serious human rights violations and abuses, Vol. 64, pages 1-12, 22 March 2021, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2021:099I:FULL&from=EN. The Official Journal regulation has as one of the bases of concern for a number of countries where individuals or entities are included on the sanctions list the following, “The Union remains deeply concerned about serious human rights violations and abuses in different parts of the world, such as torture, extrajudicial killings, enforced disappearances or systematic use of forced labour committed by individuals and entities in China, the Democratic People’s Republic of Korea (DPRK), Libya, Eritrea, South Sudan and Russia.” The regulation includes a page per person/entity being added. Some of the description of why WANG Junzheng has been added to the list is copied below.

“As Party Secretary and Political commissar of the XPCC since 2020, Wang Junzheng is involved in overseeing all policies implemented by the XPCC. In this position, he is responsible for serious human rights violations in China, in particular large-scale arbitrary detentions and degrading treatment inflicted upon Uyghurs and people from other Muslim ethnic minorities, as well as systematic violations of their freedom of religion or belief, linked, inter alia, to the XPCC’s implementation of a large-scale surveillance, detention and indoctrination programme targeting Uyghurs and people from other Muslim ethnic minorities.

“He is also responsible for the XPCC’s systematic use of Uyghurs and people from other Muslim ethnic minorities as a forced workforce, in particular in cotton fields. As Deputy Secretary of the Party Committee of the XUAR since 2020, Wang Junzheng is involved in overseeing all the security policies implemented in Xinjiang, including the aforementioned programme targeting Uyghurs and people from other Muslim ethnic minorities. As Secretary of the Political and Legal Affairs Committee of the XUAR (February 2019 to September 2020), Wang Junzheng was responsible for maintaining internal security and law enforcement in the XUAR. As such, he held a key political position in charge of overseeing and implementing the aforementioned programme.”

On the same day, the United States, United Kingdom and Canada issued a joint statement announcing sanctions on individuals and/or an entity in China involved with the alleged human rights abuses of Uyghurs in Xinjiang. See U.S. Department of State press release, Joint Statement on Xinjiang, March 22, 2021, https://www.state.gov/joint-statement-on-xinjiang/. The body of the joint message is copied below.

“We, the Foreign Ministers of Canada and the United Kingdom, and the United States Secretary of State, are united in our deep and ongoing concern regarding China’s human rights violations and abuses in Xinjiang. The evidence, including from the Chinese Government’s own documents, satellite imagery, and eyewitness testimony is overwhelming. China’s extensive program of repression includes severe restrictions on religious freedoms, the use of forced labour, mass detention in internment camps, forced sterilisations, and the concerted destruction of Uyghur heritage.

“Today, we have taken coordinated action on measures, in parallel to measures by the European Union, that send a clear message about the human rights violations and abuses in Xinjiang. We are united in calling for China to end its repressive practices against Uyghur Muslims and members of other ethnic and religious minority groups in Xinjiang, and to release those arbitrarily detained.

“We underline the importance of transparency and accountability and call on China to grant the international community, including independent investigators from the United Nations, journalists, and foreign diplomats, unhindered access to Xinjiang.

“We will continue to stand together to shine a spotlight on China’s human rights violations. We stand united and call for justice for those suffering in Xinjiang.”

Australia and New Zealand, while not imposing sanctions themselves, added their voices of concern over the alleged human rights abuses in Xinjiang of the Uyghurs. See Minister of Foreign Affairs Australia, Joint statement on Human Rights Abuses in Xinjiang, 23 March 2021, https://www.foreignminister.gov.au/minister/marise-payne/media-release/joint-statement-human-rights-abuses-xinjiang. The Joint Statement is copied below.

“The Australian and New Zealand Governments today reiterate their grave concerns about the growing number of credible reports of severe human rights abuses against ethnic Uighurs and other Muslim minorities in Xinjiang.

“In particular, there is clear evidence of severe human rights abuses that include restrictions on freedom of religion, mass surveillance, large-scale extra-judicial detentions, as well as forced labour and forced birth control, including sterilisation.

“Australia and New Zealand welcome the measures announced overnight by Canada, the European Union, the United Kingdom and the United States. We share these countries’ deep concerns, which are held across the Australian and New Zealand communities.

“Since 2018, when reports began to emerge about the detention camps in Xinjiang, Australia and New Zealand have consistently called on China in the United Nations to respect the human rights of the Uighur people, and other religious and ethnic minorities.

“Today, we underscore the importance of transparency and accountability, and reiterate our call on China to grant meaningful and unfettered access to Xinjiang for United Nations experts, and other independent observers.”

While China argues that their treatment of the Uyghurs is an internal matter, the allegations of serious human rights abuses have raised widespread international condemnation and increasing use of sanctions. The sanctions, however, typically are limited to freezing assets (if any) of individuals or entities in the sanctioning country, banning travel to the country imposing the sanctioning, etc.

Trade Implications

While allegations of human rights violations do not necessarily carry trade distortion implications, the case of the forced labor of Uighurs in Xinjiang clearly does. Xinjiang produces some 80% of the cotton grown in China, much of it produced by forced labor according to reports. As China is a major producer of textile and apparel products and a major exporter of the same, the distortions in trade flows should be obvious. Foreign cotton will have trouble competing in China with cotton produced with forced labor. Garment producers who don’t use the Chinese cotton will face distortions as competing against garments where a significant input has been obtained at artificially low prices. Some countries (e.g., the United States and Canada) have laws which permit them to prevent imports of products made with forced labor, although the breadth of the actions taken to date are typically quite limited.

In prior posts, I looked at the large number of products produced around the world with forced labor or with child labor and also looked specifically at the Chinese treatment of the Uyghurs reviewing a number of publications and reports. See Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, January 25, 2021, ttps://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/ ; Forced labor and child labor — a continued major distortion in international trade for some products, January 24, 2021, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/.

To ramp up pressure on China to reform its treatment of the Uyghurs, the United States, European Union, United Kingdom, Canada, Australia, New Zealand and all other countries concerned about the human rights should coordinate a broad-based denial of imports from China or from other countries where cotton from Xinjiang is part of the product until such time as the treatment of the Uyghurs has been corrected.

WTO reform — trade and environment issues to be examined should include addressing ocean/sea trawling effects on carbon capture/release

While the WTO has had a Trade and Environment Committee since 1995 and interest on the intersection between trade and environment predates the formation of the WTO (i.e., back in the GATT), there has been renewed calls by many Members for increased activity in the WTO on trade and environment issue as part of the future agenda. The WTO provides a short history of WTO involvement in the area. See WTO, Trade and Environment, https://www.wto.org/english/tratop_e/envir_e/envir_e.htm.

Ongoing talks on fisheries subsidies are aimed at helping make fishing sustainable and meeting one of the UN Sustainable Development Goals (SDG 14.6). See, e.g., WTO, Civil society call for fishing subsidies deal welcomed by Dr Ngozi and negotiations chair, 3 March 2021, https://www.wto.org/english/news_e/news21_e/fish_01mar21_e.htm. There is interest in addressing plastics in the oceans (circular economy issues) and for some, an interest in restarting the Environmental Goods Agreement negotiations. See WTO, Role of trade in promoting circular economy highlighted at WTO Environment Week, 27 November 2019, https://www.wto.org/english/news_e/news19_e/envir_03dec19_e.htm; WTO, Plastic waste, ‘blue economy’ among issues taken up at trade and environment committee, 28 November 2018, https://www.wto.org/english/news_e/news18_e/envir_30nov18_e.htm.

In a New York Times article from Wednesday, there is interesting information on the effects of fish trawling on carbon release. See New York Times, Trawling for Fish May Unleash as Much Carbon as Air Travel, Study Says, March 1, 2021, https://www.nytimes.com/2021/03/17/climate/climate-change-oceans.html. The opening sentences of the article reads, “For the first time, scientists have calculated how much planet-warming carbon dioxide is released into the ocean by bottom trawling, the practice of dragging enormous nets along the ocean floor to catch shrimp, whiting, cod and other fish. The answer: As much as global aviation releases into the air.” The study referenced is an article that was published online by Nature on 17 March 2021 by 26 authors entitled “Protecting the global ocean for biodiversity, food and climate.” https://www.nature.com/articles/s41586-021-03371-z. The New York Times article notes that the study estimated that 1.9 million square miles of the sea floor is scraped every year which can release the carbon that is stored in the sea floor and that would remain captured for thousands of years if left undisturbed. The NYT article continues, “The carbon released from the sea floor leads to more acidified water, threatening marine life, and reduces the oceans’ capacity to absorb atmospheric carbon dioxide. China, Russia, Italy, the United Kingdom and Denmark lead the world in such trawling emissions.”

While carbon release from fish trawling is not presently part of the ongoing negotiations on fisheries subsidies nor a topic being discussed within the Committee on Trade and Environment (at least that I have seen), it would seem to be a topic that could meaningfully be examined within the WTO in an effort to have trade be sustainable and contribute to reducing carbon emissions. Some possible approaches within the WTO or by individual WTO Members could include identifying less environmentally damaging approaches (sharing experiences, best practices), potential negotiations to terminate or phase out such practices, review of such practices in trade policy reviews, inclusion within any carbon border adjustment plan adopted by Members.

Addressing the topic would appear to be an important opportunity to promote sustainable development as the world deals with and comes out of the pandemic. Let’s hope Members take an ambitious approach to the role the WTO can play on sustainable development.

First step in resolving the Airbus-Boeing WTO dispute — U.K. and U.S. announce four month suspension of retaliatory tariffs effective March 4, 2021

For the U.S., EU and U.K., finding a path to resolving the long-running dispute on civil aircraft subsidies is a major priority. Both the U.S. and the EU have been authorized to retaliate by the WTO in recent years. Some efforts at finding a resolution were pursued during the Trump Administration. The Biden Administration has made it clear that it wants to find ways to work with our allies and resolving the underlying civil aircraft dispute has been a topic covered by President Biden’s USTR nominee Katherine Tai in her confirmation hearing. See March 2, 2021, Katherine Tai, USTR designate, on addressing WTO reform including dispute settlement if confirmed; the USTR 2021 Trade Policy Agenda, https://currentthoughtsontrade.com/2021/03/02/katherine-tai-ustr-designate-on-addressing-wto-reform-including-dispute-settlement-if-confirmed-the-ustr-2021-trade-policy-agenda/.

Today the U.S. and the United Kingdom released a joint statement following agreement to suspend retaliatory tariffs for four months from March 4, 2021 to provide space for seeking a negotiated solution. The U.K. had suspended retaliatory tariffs since January 1st. See USTR, Joint US-UK Statement on Suspension of Large Civilian Aircraft Tariffs, March 4, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/joint-us-uk-statement-suspension-large-civilian-aircraft-tariffs. The joint statement is embedded below.

US-UK-4-month-tariff-suspension-to-ease-the-burden-on-industry-while-seek-resolution-of-Airbus-Boeing-disputes

The announcement does not include the EU as a party, but it is expected that the EU will join such action since they are the major European party and face the largest amount of retaliation. In early December 2020, during the last months of the Trump Administration, EC Trade Commissioner Valdis Dombrovskis had indicated the EU would suspend retaliatory tariffs if the U.S. did as well. See Bloomberg, EU Says Boeing-Airbus Dispute Can Be Settled Under Trump, December 3, 2020, https://www.bloomberg.com/news/articles/2020-12-03/eu-says-boeing-airbus-dispute-can-be-settled-under-trump (“EU Trade Commissioner Valdis Dombrovskis said ‘it’s possible’ that both sides will reach an agreement by Jan. 20 governing aid to Boeing Co. and Airbus SE. He reiterated an offer to remove EU retaliatory tariffs on $4 billion of American goods if the U.S. does the same for its duties on $7.5 billion of European products. ‘The solution which would be preferred by the EU would be that both sides withdraw or at least suspend their tariffs and we reach agreement on future disciplines in the area of civil aviation,’ Dombrovskis said in an interview with Bloomberg TV on Thursday. ‘We are still intensively engaged with the current U.S. administration.'”).

The U.S. goal is certainly to find a solution that works for the Boeing Company and that permits the U.S., EU and U.K. to turn their attention to the challenges in the civil aircraft industry by major new entrants like China. Today’s action with the U.K. is the first step in the Biden Administration’s efforts to get this dispute resolved.

INTELLECTUAL PROPERTY AND INNOVATION: MAKING MSMES COMPETITIVE IN GREEN TECH

Climate change is a major global concern. Indeed, the UN has indicated there is less than a year for countries to get serious about saving the planet by getting their updated national climate action plans (NDCs) submitted. See Time, ‘If This Task Was Urgent Before, It’s Crucial Now.’ U.N. Says World Has 10 Months to Get Serious on Climate Goals, February 26, 2021,https://time.com/5942546/un-emissions-targets-climate-change/; UN Climate Change, Greater Climate Ambition Urged as Initial NDC Synthesis Report Is Published, 26 February 2021, https://unfccc.int/news/greater-climate-ambition-urged-as-initial-ndc-synthesis-report-is-published (“’2021 is a make or break year to confront the global climate emergency. The science is clear, to limit global temperature rise to 1.5C, we must cut global emissions by 45% by 2030 from 2010 levels.  Today’s interim report from the UNFCCC is a red alert for our planet. It shows governments are nowhere close to the level of ambition needed to limit climate change to 1.5 degrees and meet the goals of the Paris Agreement. The major emitters must step up with much more ambitious emissions reductions targets for 2030 in their Nationally Determined Contributions well before the November UN Climate Conference in Glasgow,’ said UN Secretary-General António Guterres.”).

While the largest polluters — China and the United States — haven’t submitted updated NDCs, the Biden Administration is planning on hosting a climate summit in the summer and plans on having more ambitious plans for the U.S. prepared by that time. See Roadmap for a Renewed U.S.-Canada Partnership, February 23, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/23/roadmap-for-a-renewed-u-s-canada-partnership/ (“The Prime Minister and the President expressed their commitment to have their two countries work together on cooperative action ahead of the US-hosted Leaders’ Climate Summit that will allow both countries to increase their climate ambition. The President, in addition to acknowledging Canada’s new strengthened national climate plan and its globally ambitious price on pollution, reiterated his aim to have ready the US nationally determined contribution (NDC) in advance of the Summit and welcomed the Prime Minister’s aim to announce the enhanced 2030 emissions target for its NDC by the Summit as well.”).

At the World Trade Organization, many countries are anxious to explore ways that trade can facilitate addressing the challenges from climate change. Because of the large share of employment around the world by micro-, small- and medium’sized businesses (MSMEs), such businesses are playing and will have to play a critical role in adopting technologies to permit reduction of pollutions threatening the planet.

On February 25, 2021 a group of WTO Members (largely developed countries) submitted a communication to the WTO membership outlining ways that MSMEs can use intellectual property to green their businesses. See INTELLECTUAL PROPERTY AND INNOVATION: MAKING MSMES COMPETITIVE IN GREEN TECH, COMMUNICATION FROM AUSTRALIA, CANADA, CHILE, THE EUROPEAN UNION, JAPAN, SINGAPORE, SWITZERLAND, THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU, THE UNITED KINGDOM AND THE UNITED STATES, IP/C/W/675 (26 February 2021). The paper lays out the purpose of the communication in its introduction copied below.

“1. Some of today’s critical global challenges include climate change, biodiversity loss, environmental degradation and food security. As an example, climate change matters to our health and increases the risk of infections and pandemics.1

“2. Several international efforts such as the Sustainable Development Goals (SDGs), the Convention on Biological Diversity, the UN Framework Convention on Climate Change and the Paris Agreement are designed to address these challenges. In this context, the role of Green Technology2 is important to provide new alternatives to address these challenges and create opportunities that have economic, social, and environmental benefits, as underscored by the framework of the SDGs. Of these, several underline the importance of Environmentally Sound Technologies (ESTs) for the accomplishment of the above objectives.

“3. Micro-, Small and Medium-sized Enterprises (MSMEs) can play a pivotal role in this change towards more sustainability. As they provide for more than 50 percent of employment (G20/OECD, 2015), they can constitute core engines of innovation and growth. MSMEs working in the green tech sector represent key economic actors in the effort towards finding solutions to address the abovementioned global challenges. The role of intellectual property rights (IPRs) to enhance the competitiveness of MSMEs should be looked at closely. IPRs enhance the dissemination and protection of innovations – which is key for MSMEs, including those in the green tech sector (Friesike, Jamali, Bader et al, 2009). This submission presents IPR approaches for making MSMEs more competitive in green tech.

“1 Harvard T.H Chan School of Public Health: https://www.hsph.harvard.edu/cchange/subtopics/coronavirus-and-climate-change/ (last consulted: 09.01.2021).”

The communication then provides information on international and national approaches to helping SMSEs obtain IP protection and/or obtain through license or otherwise existing IP technologies to address greening their businesses. For example, on international approaches, the communication reviews the role WIPO and WTO play in providing easy access to lots of information on intellectual property systems of many countries. WIPO has set up support through WIPO Green to facilitate collaboration on environmentally sound technologies (ESTs) including what technologies are available for licensing, etc.

“5. One important initiative to accelerate the development and dissemination of ESTs is WIPO GREEN, a marketplace designed to connect providers and seekers of ESTs. All technologies listed in the online database of WIPO GREEN are available for license, collaboration, joint ventures, and sale. In addition to establishing a network of various partners, WIPO GREEN contains a database of IP experts, supports acceleration projects in different countries and produces briefs and seminars for various green tech areas. It is thus particularly valuable for MSMEs, given that it facilitates the diffusion of their technologies and provides information to technology providers and seekers in all countries.”

The communication from the WTO Members also includes information on the Technology Mechanism provided by the United Nations Framework Convention on Climate Change and provides information on classification of green technology patents by WIPO, the European Patent Office (EPO) and US Patent and Trademark Office (USPTO).

On national approaches Members can take, the communication focuses on actions the national patent office can take.

“12. There are several ways for IP offices to assist MSMEs in making the best use of IPRs.

“• IP offices can provide basic guidance and assistance on various IPR aspects. By preparing reader-friendly IP material, including patent and trademark basics, examination overviews, information on patent searching and resources on legal assistance that could be used by inventors and businesses in the green tech sector, individual questions and needs may be met.

“• IP offices may provide support in the form of assisting applicants with patent searches, landscape analyses and also facilitate free legal assistance.

“• Specifically with a view to promoting ESTs, IP offices could consider accelerated patent examination procedures for such green tech patent applications. This process shortens the time between application and grant, enabling MSMEs to attain financial support more quickly.

“• Customized workshops, seminars, or awards for the best green tech inventions may also help to make MSMEs that are involved in the green tech sector more aware of the benefits that the IP system may hold for them.”

The complete communication is embedded below.

W675-1

Conclusion

While there are presently limited environmental negotiations going on at the WTO (fisheries subsidies), the global race to address a warming world requires greater focus by WTO Members on the role trade can play to improve the global response. Restarting the environmental goods negotiations is one obvious area for negotiations. Addressing carbon leakage through national laws and international negotiations is another. Encouraging collaboration to spread green technology requires no negotiations but is a potentially important component in the global response. Hence the February 25 communication is a valuable contribution to increasing the global focus on how to address the challenges of a warming planet.

COVAX’s efforts to distribute COVID-19 vaccines to low- and middle income countries — additional momentum from G-7 virtual meeting

With the COVID-19 pandemic affecting populations around the world with more than 110 million people having been infected and with more than 2.4 million deaths, the world is anxiously awaiting vaccines to permit vaccinations for vulnerable populations. The Coalition for Epidemic Preparedness Innovations (CEPI), Gavi, the Vaccine Alliance (Gavi) and the World Health Organization (WHO) are co-leads of the COVAX initiative which seeks to provide equitable global access to COVID-19 vaccines. More than 2 billion vaccine doses have been or are being contracted to supply to 92 low- and middle-income countries as well as other countries who have agreed to buy vaccines through COVAX.

The World Health Organization’s Director-General Dr Tedros Adhanom Ghebreyesus has expressed concern about “vaccine nationalism” as large and wealthier countries have contracted for large amounts of vaccines. In a joint statement with the UNICEF Executive Director on February 10, the WHO DG laid out what is needed in 2021 to achieve vaccine equitable distribution. See In the COVID-19 vaccine race, we either win together or lose together, Joint statement by UNICEF Executive Director Henrietta Fore and WHO Director-General Dr. Tedros Adhanom Ghebreyesus, 10 February 2021, https://www.who.int/news/item/10-02-2021-in-the-covid-19-vaccine-race-we-either-win-together-or-lose-together. The joint statement is embedded below.

In-the-COVID-19-vaccine-race-we-either-win-together-or-lose-together

The problem of vaccine availability can be traced to a number of sources including the inability to predict which development efforts would succeed, efforts by governments to support development through funding and advance contracts which do not always support the early vaccine successes, challenges of approval processes in different countries and more. However, it is clear that in the early days of the vaccine rollout, a handful of countries have been able to obtain the largest amount of vaccine doses and to provide vaccinations to citizens. For example, the Financial Times has an update of its “Covid-19 vaccine tracker: the global race to vaccinate” published today (February 19) that looks at data for 99 countries or territories where vaccinations are reported through mid-February. Of a global total of 194.4 million vaccinations, 91.6% are reported by the following 10 countries or groups of countries: United States, 57.2 million; China 40.5 million; European Union, 24.7 million; United Kingdom, 17.0 million; India, 10.2 million; Israel, 7.1 million; Brazil 6.2 million; Turkey, 5.9 million; United Arab Emirates, 5.4 million; Russian Federation, 3.9 million. Of the 99 countries or territories, 24 reported vaccinations of at least 10/100 residents, an additional 30 reported vaccinations of at least 5.0-9.9/100 residents and an additional 10 reported vaccinations of at least 3.0-4.9/100. Gavi views 3% as the percent of population needed to be vaccinated to address health care workers. See Financial Times, Covid-19 vaccine tracker: the global race to vaccinate, February 19, 2021, https://ig.ft.com/coronavirus-vaccine-tracker/?areas=gbr&areas=usa&areas=eue&areas=ind&cumulative=1&populationAdjusted=0

At today’s G-7 virtual meeting, there were new pledges from G-7 countries to contribute to COVAX to permit the purchase of vaccine doses contracted and with some countries agreeing to share surplus vaccine doses with the world’s poorest countries. The Gavi press release of today is embedded below.

G7-backs-Gavis-COVAX-Advance-Market-Commitment-to-boost-COVID-19-vaccines-in-worlds-poorest-countries-_-Gavi-the-Vaccine-Alliance

In the December 2020 stimulus package, Congress authorized some funding for COVAX. President Biden outlined the U.S. contributions in a Fact Sheet posted on the White House webpage yesterday and at the G-7 virtual meeting today. See White House, Fact Sheet: President Biden to Take Action on Global health through Support of COVAX and Calling for Health Security Financing, February 18, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/18/fact-sheet-president-biden-to-take-action-on-global-health-through-support-of-covax-and-calling-for-health-security-financing/; New York Times, Biden Declares ‘America is Back’ on International Stage: Live Updates, February 19, 2021, https://www.nytimes.com/live/2021/02/19/world/g7-meeting-munich-security-conference#global-leaders-chart-a-new-course-in-post-trump-era. The fact sheet is embedded below and reports the U.S. will be contributing $2.0 billion quickly and $2.0 billion more over the remainder of 2021 and 2022.

Fact-Sheet_-President-Biden-to-Take-Action-on-Global-Health-through-Support-of-COVAX-and-Calling-for-Health-Security-Financing-_-The-White-House

Conclusion

Much of the activity at the WTO over the last year has focused on the trade challenges flowing from the COVID-19 pandemic. Trade restrictions on exports of medical goods and agricultural goods have been tracked with various efforts to minimize scope and duration. Efforts at expediting the movement of medical goods and agricultural products have also been pursued, and debates have occurred on whether TRIPS rights should be waived during the pandemic to improve access to medical goods during the pandemic. Most advanced countries with pharmaceutical producers have argued that there are sufficient flexibilities within the WTO TRIPS Agreement to handle the current challenges. At the same time over recent years there have been efforts through the WHO, CEPI and GAVI and with the assistance of UNICEF to provide the infrastructure to permit collective purchasing of vaccines and other medical goods and the collection of funds to permit assisting low- and middle-income countries in terms of vaccine availability. COVID-19 is a truly global pandemic. The pressure on governments to find solutions is obviously enormous. Actions like those by the G-7 today and by other governments, NGOs and others to address the COVID-19 challenge are along the lines of what is needed to have more equitable distribution of vaccines. As the UN and WHO keep saying, no one is safe until all are safe.

The challenges for COVAX are huge and the goal for 2021 is to get 20% of the populations part of the program vaccinated. Developed countries and others able to do so need to continue to cooperate to see that these goals for 2021 are met and that further help is available moving into 2022. A study commissioned by the ICC estimates the global costs of not moving quickly to get all people in the world vaccinated at being more than $8 trillion — a figure that dwarfs the costs to get the vaccines produced, distributed and shots given. Hopefully, the world will cooperate and do what is needed to see that all countries can recover from the current pandemic in a timely manner.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

World Trade Organization involvement in addressing the problem

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

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

agric_report_e

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

208R2-3

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

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

Conclusion

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

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


The EU’s export authorization requirement for COVID-19 vaccines — contrary to their oft repeated position of maintaining open markets during the pandemic

If one ever needed confirmation that WTO Members can easily fall out of supporting open markets and working together during a global crisis, the European Union’s actions over the last week to come up with an implementing regulation “making the exportation of certain products subject to the production of an export authorization” provide a glaring example.

Faced with the receipt of fewer doses of vaccines by the three manufacturers approved (with one only approved last week) for distribution within the EU, the EU faced harsh criticism from member states over the inadequate supplies of vaccines in the December – February period to vaccinate their populations. Harsh criticism was also reflected in press coverage. See, e.g., New York Times, Vaccine Shortages Hit E.U. in a Setback for Its Immunization Race, January 27, 2021, https://www.nytimes.com/2021/01/27/world/europe/europe-covid-vaccinations.html; Der Spiegel, Europe’s Vaccine Disaster, Commission President Ursula von der Leyen Seeking to Duck Responsibility, 29 January 2021, https://www.spiegel.de/international/europe/europe-s-vaccine-disaster-commission-president-ursula-von-der-leyen-seeking-to-duck-responsibility-a-1197547d-6219-4438-9d69-b76e64701802; Financial Times, Shortage of coronavirus shots heaps pressure on European leaders, 29 January 2021, https://www.ft.com/content/fe851440-abcb-43e0-a7c9-a86a05d275db.

The response was to resort to a form of export restraints on vaccines and inputs for vaccines where the European Union and its member states would decide whether shipments to certain third countries (largely wealthier countries around the world) would be allowed. Some statements made by the European Commission and the implementing regulation are embedded below.

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Commission_statement_on_the_vaccine_export_authorisation_scheme

Opening_remarks_by_Executive_Vice-President_Valdis_Dombrovskis_at_the_press_conference_on_the_transparency_and_authorisation_mechanism_for_exports_of_COVID-19_vaccines

Opening_remarks_by_Commissioner_Stella_Kyriakides_at_the_press_conference_on_the_transparency_and_authorisation_mechanism_for_exports_of_COVID-19_vaccines

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The action of the European Union last week is in sharp contrast to the joint initiative from the Ottawa Group, of which the EU is a member. In a post last November, I reviewed a text put forward by the Ottawa Group which called for limiting the use of export restraints during the pandemic. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/. Several excerpts from the earlier post are provided below.

“The Ottawa Group agreed to put forward a communication seeking action by WTO Members. Each of Canada and the EU (and likely other members) put out press releases. See, e.g., Government of Canada, November 23, 2020, Minister Ng hosts successful ministerial meeting of the Ottawa Group on WTO reform, https://www.canada.ca/en/global-affairs/news/2020/11/minister-ng-hosts-successful-ministerial-meeting-of-the-ottawa-group-on-wto-reform.html; European Commission, Directorate-General for Trade, 23 November 2020, Ottawa Group proposes a global Trade and Health Initiative, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2215&title=Ottawa-Group-proposes-a-global-Trade-and-Health-Initiative.

“The Canadian press release states in part, ‘As countries face a rise in COVID-19 cases, it is essential that governments minimize disruptions to trade flows in essential medical supplies. Today, members of the Ottawa Group took important steps toward a proposed WTO Trade and Health Initiative, which identifies short-term actions to strenghten supply chains and ensure the free flow of medicines and medical supplies.’

“Similarly the European Commission press release stated that –

“‘Today the Ottawa Group, a group of 13 like-minded World Trade Organisation (WTO) partners including the EU, agreed today on an initiative, calling on the WTO members to increase their cooperation and work toward enhanced global rules to facilitate trade in essential medical goods. The agreement took place as an outcome of the Ottawa Group Ministerial meeting, hosted virtually by Minister Mary Ng of Canada.

“‘The Ottawa Group members called for immediate actions in response to the coronavirus crisis such as exercising a restraint in using any export restrictions, implementing trade-facilitating measures in the area of customs and services, as well as improving transparency.'”

Needless to say, the reaction from trading partners to the imposition of export controls on vaccines was swift and negative. See, e.g., Financial Times, EU faces global criticism over curbs on vaccine exports, 31 January 2021, https://www.ft.com/content/5c15d7ea-aaf6-46f4-924e-30f168dd14dd (“Brussels faces an international backlash over its new controls on vaccine exports as European Commission president Ursula von der Leyen struggles to quell a firestorm over the EU’s handling of vaccine shortages. Canada and Japan raised concerns over export rules requiring manufacturers to obtain permission before shipping Covid-19 jabs outside the EU. South Korea also warned governments against a grab for more vaccines than they need.”); BBC News, Coronavirus: WHO criticises EU over vaccine export controls, 30 January 2021, https://www.bbc.com/news/world-europe-55860540. Because the EU action seemed largely aimed at discontent with news from the British-Swedish company AstraZeneca’s announcement of a sharp contraction in likely shipments to the EU in the first quarter, the Commission’s initial draft of the implementing regulation had the EU creating problems for the Brexit agreement in terms of inspecting goods flowing from Ireland and Northern Ireland to prevent circumvention of products to the U.K. The EC retreated almost immediately on that front. See, e.g., NPR, EU Reverses Move To Restrict Export Of COVID-19 Vaccines To Northern Ireland, January 30, 2021, https://www.npr.org/sections/coronavirus-live-updates/2021/01/30/962454276/eu-reverses-move-to-restrict-export-of-covid-19-vaccines-to-northern-ireland (“The European Union reversed a brief decision to try to restrict the export of COVID-19 vaccines across the border from Ireland into Northern Ireland. European vaccination campaigns have been struggling as supplies of vaccines on the continent have run low. The decision to invoke an emergency protocol of the Brexit deal was seen as an effort to keep supplies from going from the EU to Britain. But within hours of the decision, which could have put checks on the border between the EU member the Republic of Ireland and British-controlled Northern Ireland, Irish and British officials condemned the move.”).

One concern for the global trading system from the EU action, of course, is retaliatory or mirror actions by trading partners. Such concerns are real. See, e.g., Politico, UK weighs vaccine export restrictions, January 29, 2021, https://www.politico.eu/article/uk-weighs-coronavirus-vaccine-export-restrictions/ (“The U.K. government has sought legal advice on preventing coronavirus vaccines or their ingredients being exported, suggesting that ministers are actively considering countermeasures they could deploy if other countries start restricting cross-border movements of vaccines.”).

The WHO and WTO have been advocating for cooperation among nations and businesses to ensure that all peoples are able to be vaccinated in a timely and cost affordable way. The phrase, “no one is safe until all are safe” typifies the call and is supported by research that indicates global GDP will be seriously restricted if that approach is not followed. See January 27, 2021, Recent WTO report on services trade and January 2021 International Monetary Fund World Economic Outlook Update — the future growth depends on vaccinations of peoples around the world, https://currentthoughtsontrade.com/2021/01/27/recent-wto-report-on-services-trade-and-january-2021-international-monetary-fund-world-economic-outlook-update-the-future-growth-depends-on-vaccinations-of-peoples-around-the-world/ (“The WHO’s Director-General references a report from the International Chamber of Commerce Research Foundation. The report and a press release can be accessed here: ICC, The Economic Case for Global Vaccinations, https://iccwbo.org/publication/the-economic-case-for-global-vaccinations/. The press release from the ICC describes the report as follows. ‘A study commissioned by the International Chamber of Commerce (ICC) Research Foundation has found that the global economy stands to lose as much as US$9.2 trillion if governments fail to ensure developing economy access to COVID-19 vaccines.'”).

The worrying actions by the European Union and the continued struggle to get vaccines to the world’s poorest countries led to a joint statement today by the WTO’s four Deputy Directors-General calling for heightened cooperation to get vaccines to all peoples of the world. WTO press release, WTO DDGs call for heightened cooperation on vaccine availability, 1 February 2021, https://www.wto.org/english/news_e/news21_e/ddgra_01feb21_e.htm. (“‘The pandemic is a global problem. This challenge calls for heightened international cooperation, including ensuring the global availability of vaccines. Recalling the joint statement by the Directors-General of the WHO and WTO on 20 April 2020, we call upon Members to work together towards making vaccines available to all. Moreover, the war against the pandemic can only be won when universal coverage in vaccination is achieved.’”). The press release includes a link to the 20 April 2020 joint statement by the Directors-General of the WHO and WTO (embedded below).

WTO-_-2020-News-items-Heads-of-WTO-WHO-cite-importance-of-open-trade-in-ensuring-flow-of-vital-medical-supplies

As the world enters the month of February, there are 69 countries that report vaccinating at least some people by the end of January. The list, number of vaccinations and number of vaccinations per 100 people are tracked by the Financial Times in its “Covid-19 vaccine tracker: the global race to vaccinate” last updated on February 1, 2021. https://ig.ft.com/coronavirus-vaccine-tracker/. While there are many vaccines in late stage of trials or going through approval processes by the WTO or individual countries, the world is a long way from ensuring equitable access to vaccines at affordable prices at the beginning of February. Hopefully, with production ramp up and more vaccines approved in the coming months, that situation will change by the second quarter of 2021.

Conclusion

While export restraints are not prohibited by the WTO, the world has struggled during the COVID-19 pandemic to keep markets open and ensure availability of medical products to all nations. The EU had early challenges with export restraints that member states were imposing on medical goods including personal protective equipment. However, the EU has attempted to provide leadership in limiting those restraints and supporting the COVAX mechanism for getting vaccines to the poorest countries as well as others participating in the COVAX approach.

The combination of a greater than expected second surge of COVID-19 cases in the fall and the rapid spread of more contagious variants in the last several months has posed significant challenges to many countries but including those within the EU. Some internal challenges and different approaches to vaccine contracting led the EU to sign contracts later and to approve vaccines for use later than some other countries. With manufacturing challenges for a number of suppliers, the EU has found itself in a situation where member states were extremely unhappy with the inability to get more people vaccinated sooner. The European Commission’s efforts to improve its vaccine situation has generated a great deal of negative press, led to the imposition of export restraints that could lead to a significant breakdown in supply chains and potential retaliation by trading partners adversely affected and harms the EU’s efforts to be a leader for global unity in addressing the pandemic.

The WTO Informal Ministerial of January 29, 2021 — hope for progress at the WTO in 2021

Switzerland typically hosts an informal ministerial meeting of WTO trade ministers on the sidelines of the World Economic Forum’s January Davos event. This year both were handled remotely.

The informal ministerial was summarized in ten points by the Swiss Confederation President Guy Parmelin at the end of the event. President Parmelin’s statement is available here, https://www.newsd.admin.ch/newsd/message/attachments/65098.pdf, and is copied below.

Virtual Informal WTO Ministerial Gathering, 29 January 2021

Personal Concluding Remarks by the Chair, President of the Swiss Confederation and Head of the Federal Department for Economic Affairs, Education and Research, Guy Parmelin, Switzerland

“29 Ministers and high officials representing a broad spectrum of the WTO membership attended this year’s Informal World Trade Organization (WTO) Ministerial Gathering in virtual format. In concluding and with warm thanks to all participants for their contributions, I would like to summarise the main points from our discussions as follows:

“• Ministers stressed the urgency of the swift appointment of a new WTO Director-General as well as the confirmation of the date and venue of the 12th Ministerial Conference (MC12).

“• Ministers reiterated their determination to maintain a credible multilateral trading system and to restore a climate of mutual trust.

“• Ministers expressed their concerns about the enormous social and economic impact of the COVID-19 crisis. They highlighted the relevance of trade and the role of the WTO in containing the pandemic and promoting recovery. Many Ministers underlined the importance of ensuring the development of as well as an equitable and affordable access to medical goods, including vaccines. They addressed ways and means to achieve these goals, including the implementation of measures facilitating trade, the role of intellectual property and transparency.

“• Ministers regretted that the negotiations on fisheries subsidies could not be completed in accordance with the end-2020 deadline foreseen in SDG 14.6. In light of the significance of this process for the sustainability of global fisheries, Ministers concurred that a comprehensive and effective agreement on fisheries subsidies should be concluded as soon as possible. Ministers agreed to step up efforts with a view to finding mutually acceptable solutions consistent with all the elements of the negotiating mandate.

“• Ministers highlighted the importance of restoring a fully functional WTO dispute settlement system, which is a key pillar of the rules-based multilateral trading system.

“• Many participants argued for further progress in agricultural trade policy reform at MC12 and asked for an outcome on domestic support and other issues. The issues of public stockholding and the special safeguard mechanism were highlighted by several Ministers.

“• Many Ministers called for tangible outcomes, by MC12, on the Joint Statement Initiatives. Inter alia finalizing the process on Services Domestic Regulation and making substantial progress on E-commerce and Investment Facilitation as well as on Trade and Women’s Economic Empowerment.

“• The need to reform the WTO was widely acknowledged. A number of Ministers insisted on advancing diverse issues related to the special and differential treatment of developing and least developed countries. Some participants proposed to adjust WTO rules to present-day economic and competitive conditions.

“• Several Ministers supported new initiatives launched in response to global challenges such as the structured discussions on Trade and Environmental Sustainability.

“• Ministers reaffirmed their commitment to engage in the preparations for MC12 in order to advance key issues.”


The participants at this year’s informal ministerial included officials from Argentina, Australia, Brazil, Canada, Chad (coordinator for LDC Group), Chile, China, Egypt, European Union, India, Indonesia, Jamaica (Coordinator ACP Group), Japan, Kazakhstan, Kenya, Korea, Mauritius (Coordinator African Group), Mexico, New Zealand, Norway, Russian Federation, Saudi Arabia, Singapore, South Africa, Switzerland (Chair), Thailand, Turkey, United Kingdom, United States and three officials with WTO roles — H.E. Mr. David Walker (New Zealand), WTO General Council Chair; H.E. Mr. Santiago Wills (Colombia), WTO Chair of the Negotiating Group on Rules, H.E. Mr. Alan Wolff, WTO Deputy Director-General. The full list with titles is embedded below.

List-of-participants-at-virtual-informal-ministerial-1-29-2021-65099

The good news for the informal ministerial was the position taken by the United States representative who reportedly indicated that the United States was actively reviewing the issue of the next Director-General and was intent on actively working on WTO reform. See, e.g., Inside U.S. Trade’s World Trade Online, Biden administration strikes ‘constructive’ tone in first word on WTO approach, January 29, 2021, https://insidetrade.com/daily-news/biden-administration-strikes-%E2%80%98constructive%E2%80%99-tone-first-word-wto-approach; Politico, Biden administration joins call for ‘swift appointment’ of new WTO head, January 29, 2021, https://www.politico.com/news/2021/01/29/biden-world-trade-organization-463820. Under the Trump Administration, the United States had blocked the formation of consensus around Dr. Ngozi Okonjo-Iweala based on the U.S. view that Dr. Okonjo-Iweala did not have a sufficient trade background. See, e.g., January 26, 2021, Letter from variety of former U.S. officials to President Biden urges U.S. support for Dr. Ngozi Okonjo-Iweala as next WTO Director General, https://currentthoughtsontrade.com/2021/01/26/letter-from-variety-of-former-u-s-officials-to-president-biden-urges-u-s-support-for-dr-ngozi-okonjo-iweala-as-next-wto-director-general/. Hopefully, the current review of the issue by the Biden Administration, even ahead of President Biden’s trade team being confirmed by the U.S. Senate, will result in the U.S. joining the support for Dr. Okonjo-Iweala, permitting the WTO to approve a next Director-General.

It was also reported that the United States, consistent with the Biden Administration’s focus on the COVID-19 pandemic and climate change, expressed interest in promoting recovery from the COVID-19 pandemic and concluding an ambitious fisheries subsidies agreement. See Inside U.S. Trade’s World Trade Online, Biden administration strikes ‘constructive’ tone in first word on WTO approach, January 29, 2021, https://insidetrade.com/daily-news/biden-administration-strikes-%E2%80%98constructive%E2%80%99-tone-first-word-wto-approach. Fisheries subsidies negotiations have been going on for some twenty years, and many Members have remained more concerned with keeping their subsidies in place than agreeing to disciplines that would create conditions for sustainable fishing going forward. The Interest in the Biden Administration in working within the WTO on joint steps to promote recovery from the pandemic is different from the approach pursued by the Trump Administration which didn’t want to look at actions possible within the WTO (other than limits on export restraints on agricultural goods) while the world was dealing with the pandemic. The U.S. statement should mean more interest in exploring issues like those raised by the Ottawa Group. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/.

Other issues flagged in the Swiss President’s concluding remarks are issues of particular interest to some or many countries but not topics of clear agreement. For example, while it is likely that the United States will look for ways to resolve its concerns about longstanding problems in the WTO’s dispute settlement system, particularly around the Appellate Body, it is unlikely that there will be a swift resolution of the U.S. concerns, and hence there will likely be a continued impasse for at least much of 2021 on the return of a functioning two-stage dispute settlement system.

Similarly on domestic support in agriculture and other agriculture issues flagged, certain WTO Members have not supported further liberalization in agriculture while pushing for limits on domestic subsidies and rollback of liberalization commitments undertaken in the Uruguay Round. It is unlikely that there will be forward movement on these issues without greater balance in terms of tariff reductions on major agricultural products. Moreover, as noted in a recent post, other major distortions in agriculture that are not presently identified as domestic subsidies include widespread use of child and forced labor on many agricultural products. See January 25, 2021, Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, https://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/; January 24, 2021, Forced labor and child labor – a continued major distortion in international trade for some products, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/. Such practices should be quantified and the level of potential distortion identified so WTO Members can decide how to address them in ongoing agriculture negotiations.

Progress is being made on Joint Statement Initiatives including e-commerce, services domestic regulation, investment facilitation and women’s empowerment. An open issue for these and topics in the sphere of trade and the environment (e.g., environmental goods agreement) is whether benefits provided by participants will be made available on an MFN basis or limited to participants, with the option of other Members to join in the future. See January 18, 2021, Revisiting the need for MFN treatment for sectoral agreements among the willing, https://currentthoughtsontrade.com/2021/01/18/revisiting-the-need-for-mfn-treatment-for-sectoral-agreements-among-the-willing/. For many Members liberalization could be speeded up if benefits in sectoral agreements go to those participating only while leaving the door open for other Members to join later when they see the value for them.

And on the important topic of WTO reform beyond the items listed above, there is little current agreement on how to deal with industrial subsidies and other practices that lead to massive global excess capacity, or on how to address access to special and differential treatment and many other areas of importance to some or many WTO Members.

Deputy Director-General Alan Wolff provided a statement during the virtual informal ministerial urging WTO Members to make 2021 a year of accomplishments. The WTO press release can be found here. WTO News, DDG Wolff urges WTO ministers to address the pandemic and make 2021 a year of action, 29 January 2021, https://www.wto.org/english/news_e/news21_e/igo_29jan21_e.htm. DDG Wolff’s statement is copied below.

“My thanks to our Swiss hosts and to President Parmelin both for his remarks today and for his very thoughtful address on the occasion of the 25th anniversary celebration of the WTO last November.

“Ministers, you can make 2021 a year of substantial accomplishments at the WTO.

“There has already been a beginning.  In the first action of the year, Members accounting for most of the world’s agricultural exports committed to refrain from imposing export restrictions on purchases made by the World Food Program.

“The anticipated appointment of a new Director-General will bring needed leadership in moving toward concrete results.  But she can succeed only with your active engagement.

“I urge you not to wait for the Twelfth Ministerial Conference, delayed by the pandemic, to move negotiations forward to positive outcomes. 

“There is no reason why the twenty-year negotiation on fisheries subsidies cannot be concluded successfully — without a sacrifice of ambition — in the next few months.  Success hinges on Members’ willingness to accept a significant level of discipline on their own subsidies.  Political decisions and your active engagement will be required to bring about success.

“I urge you to address ‘trade and health’ forcefully and immediately.  Last year, trade made a vitally important contribution in supplying needed medical supplies to deal with COVID-19.  Proposals as to what more can be done must be deliberated now.  Cooperation on trade can accelerate access to vaccines.  There can be no higher priority.

“Consider how the WTO can further contribute to the economic recovery.  Members can take steps to ensure enhanced transparency, work to eliminate unnecessary barriers and agree that new restrictions will not be imposed.  Trade finance must be restored.  The WTO convened the major international financial organizations and banks to address this need in the aftermath of the financial crisis and it can do so now again.

“’Trade and climate’ must be on the WTO agenda.  Carbon border adjustment measures will likely result in conflicts unless Members engage in joint efforts to find mutually beneficial solutions.  The heightened interest of Members in a broad range of other environmental issues such as plastics pollution and the circular economy can be reflected in new agreements.   The WTO can be more visible as a steward of the planet by reviving and concluding the Environmental Goods Agreement

“The Joint Statement Initiatives on e-commerce, investment facilitation, and services domestic regulation can bear fruit this year, building on what was achieved with respect to small businesses last year.  In addition, more progress can be made on the economic empowerment of women through international trade.  

“Concerns over income inequality have been growing.  The WTO’s rules-based system needs to be seen not only among countries but also within countries, as responsive to the needs of workers, farmers and all who wish to engage in international trade.  But international trade rules cannot substitute for domestic policy actions to make growth more inclusive.  When large numbers of people are unhappy with how the economy is working for them, trade will often receive undeserved blame.  The WTO is about fairness.  Its work will never be done in pursuit of that objective, but further progress can be made this year.

“There can be an outcome on agriculture — at least a down-payment and a defined work program going forward.

“During 2021, the WTO can likely welcome new WTO Members, as it continues to move towards universal coverage.  Comoros and Bosnia-Herzegovina may be ready, and over a dozen others are making progress.

“Last but not least, ‘WTO reform’ can become a reality, with actions taken to —

“- facilitate rule-making with wide participation,

“- achieve heightened enforcement through binding dispute settlement in a manner agreed by all, and

“- provide a strong mandate for a Secretariat to deliver all needed support to Members and to achieving the mission of the WTO. 

“We should greet this year with optimism and re-dedication.  With your strong engagement, 2021 can be a year to remember for what is achieved.

“Thank you.”

A presentation from the WTO Secretariat to Ministers needs to be positive, forward looking, aspirational and inspirational. DDG Wolff’s statement yesterday provides all of that. The first item mentioned, the joint pledge from 79 WTO Members not to restrict agricultural exports to the UN World Food Programme for humanitarian purposes is a positive for the world but follows the December failure of the WTO General Council to agree to the same by all WTO Members. See January 23, 2021, WTO and the World Food Programme – action by 79 Members after a failed December effort at the General Council, https://currentthoughtsontrade.com/2021/01/23/wto-and-the-world-food-programme-action-by-79-members-after-a-failed-december-effort-at-the-general-council/.

The challenge for the WTO in 2021 will be whether Members can come together in fact to achieve many of the important opportunities and needs in front of the Membership. While the history of the WTO since 1995 and the major divisions among Members at the present time would strongly suggest that 2021 will not achieve many of the things that are needed and possible, hope springs eternal.

U.S. perspective

The Trump Administration did an excellent job of identifying problems with the operation of the WTO whether from the longstanding failures of the dispute settlement system, to the existential challenges to the viability of the WTO from major Members whose economies have not converged to a full market orientation, to the out-of-date rules around special and differential treatment to all who claim developing country status regardless of economic development of individual members, to the need for greater transparency in many areas, including importantly subsidies, to the failure of the WTO to update rules to address changing technology and trade issues.

The Biden Administration has indicated its intention to work within multilateral institutions, including the WTO. Early action by the United States on the Director-General selection issue could provide positive energy to WTO Members in the coming months. There are topics where success can be made in 2021 either multilaterally or plurilaterally. But a lot of what is needed for meaningful WTO reform will be difficult, if not impossible, to achieve in the short term. Hopefully, the Biden team will stay the course to achieve reform that both returns the WTO playing field to the level agreed at the time of concluding the Uruguay Round, finds ways to deal with the massive distortions not presently covered by WTO rules, works with others to bring the WTO into the 21st century and addresses the critical issues for global prosperity and sustainable development.

U.S. Section 301 investigations on digital services taxes by trading partners — USTR releases additional reports on January 14, 2021

On January 8, 2021, I reviewed in a post the release of the first three of ten reports on investigations under Section 301 of the Trade Act of 1974, as amended, on countries’ digital services taxes (DSTs). See January 8, 2021, U.S. Section 301 investigations on digital service taxes by trading partners – an update, https://currentthoughtsontrade.com/2021/01/08/u-s-section-301-investigations-on-digital-service-taxes-by-trading-partners-an-update/ (release of reports on India, Italy and Turkey). The release of the three reports was accompanied by a decision to postpone indefinitely the imposition of additional duties on France for its DST to permit a coordinated response on all eleven countries following the completion of all investigations. The Federal Register notices on the India, Italy and Turkey investigations and the postponement of imposition of duties on France for its DST were published on January 12. See 86 FR 2477-78 (Italy); 86 FR 2478-79 (India); 86 FR 249-80 (France); 86 FR 2480 (Turkey).

On January 14, USTR released three additional reports on the DSTs of Austria, Spain and the United Kingdom and released a status report on the remaining four investigations on Brazil, the Czech Republic, the European Union, and Indonesia. See USTR press release, USTR Releases Findings and Updates in DST Investigations,
01/14/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-and-updates-dst-investigations. The press release is embedded below but, similar to the earlier reports, found that “each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing
principles of international taxation, and burden or restricts U.S. commerce.”

USTR-Releases-Findings-and-Updates-in-DST-Investigations-_-United-States-Trade-Representative

The press release notes that “’The taxation of companies that engage in international trade in goods and services is an important issue,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘The best outcome would be for countries to come together to find a solution.’” As noted in the January 8 post, there is an ongoing process through the OECD/G20 Integrated Framework to find a solution by mid-2021.

For the four investigations where USTR has not yet published reports, USTR released a status report yesterday, reflecting the reality that the Trump Administration is in its final week and such unfinished investigations and issuance of reports will await the incoming Biden Administration. See Office of the United States Trade Representative, Section 301 Investigations, Status Update on Digital Services Tax Investigations of Brazil, the Czech Republic, the European Union, and Indonesia, https://ustr.gov/sites/default/files/files/Press/Releases/StatusUpdate301InvestigationsBEUIndCR.pdf. The twenty page status report is embedded below.

StatusUpdate301InvestigationsBEUIndCR

The status update is organized as reviewed in the opening paragraph of the update.

“In this Status Update, USTR reports on the progress of the four investigations, offers brief descriptions of the four jurisdictions’ approach to digital services taxes, and describes our preliminary, high-level concerns. In the sections that follow, we address: the procedural developments in the four investigations (Section I); a description and preliminary analysis of Brazil’s DST proposal (Section II); a description and preliminary analysis of the Czech Republic’s DST proposal (Section III); a description and preliminary analysis of the EU’s
approach to digital services taxes (Section IV); and a description and preliminary analysis of Indonesia’s DST proposal (Section V).”

There is little doubt that when the four pending investigations are completed, there will be similar findings to those in the prior seven completed investigations.

As reviewed in the January 8 post, the OECD was to hold a virtual meeting on January 14-15, 2021 in an effort to obtain public input to refine the draft documents released in October and to help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

For the incoming Biden Administration, it will be facing in the early months of the new Administration critically important negotiations on the OECD/G20 proposals as well as the need to complete the investigations on the four unfinished 301 investigations on DSTs. The outcome and interplay of both will have significant implications for global trade and for fairness in international taxation.

Below are the reports on Austria, Spain and the United Kingdom and the notices sent to the Federal Register on each of the three investigations.

AustriaDSTSection301Report

AustriaDSTFRN

SpainDSTSection301Report

SpainDSTFRN

UKDSTSection301Report

UKDSTFRN

U.S. Section 301 investigations on digital service taxes by trading partners — an update

For all countries the question of tax base erosion and profit shifting during a period of tremendous growth in e-commerce has been important as countries struggle to secure funding sources in a rapidly changing global marketplace. Concerns about tax revenue sources has grown during the COVID-19 pandemic as e-commerce has surged and may countries tax revenues have shrunk which stimulus outlays have soured.

For a number of years the OECD and the G20 have been working with many other countries in what is called an integrated framework to examine how international taxation needs to change to reflect the changed economic environment. The U.S. unhappiness with many trading partners on the question of digital service taxes is the early adoption of taxes on digital services before the completion of international negotiations and, in particular, taxes which appear to the U.S. to discriminate against U.S. companies who often are major global players in e-commerce and digital services.

In a post from early June, I reviewed the actions of the United States in response to actions by trading partners to introduce digital services taxes (DST), including a first investigation under section 301 of the Trade Act of 1974, as amended (“section 301”) on France on their DST and the initiation of investigations under section 301 on nine other countries and the European Union. While USTR had identified additional tariffs of 100% on a variety of French products, the imposition of duties was postponed until January 6, 2021 to give negotiators time to reach an agreement within the OECD. See June 3, 2020:  Digital Services Taxes – New U.S. Section 301 Investigations on Nine Countries and the European Union, https://currentthoughtsontrade.com/2020/06/03/digital-services-taxes-new-u-s-section-301-investigations-on-nine-countries-and-the-european-union/.

Earlier this week, USTR issued three reports on three countries from the 2020 investigations — on India, Italy and Turkey. Parts of the USTR press release are copied below and, similar to the report on France, found the DSTs of the three countries were discriminatory to U.S. companies, contrary to international tax principles and burden or restrict U.S. commerce. See USTR press release, USTR Releases Findings in DST Investigations,
01/06/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-dst-investigations.

“Washington, DC – The U.S. Trade Representative has issued findings in Section 301 investigations of Digital Service Taxes (DSTs) adopted by India, Italy, and Turkey, concluding that each of the DSTs discriminates against U.S. companies, is inconsistent with prevailing principles of international taxation, and burden or restricts U.S. commerce.

“The findings on each of the DSTs are supported by comprehensive reports, which are being published today on USTR’s website.

“USTR is not taking any specific actions in connection with the findings at this time but will continue to evaluate all available options.

“The Section 301 investigations of the DSTs adopted by India, Italy, and Turkey were initiated in June 2020, along with investigations of DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom. USTR expects to announce the progress or completion of additional DST investigations in the near future.”

Similarly, on January 7, 2021, USTR announced that it was postponing introduction of tariffs on French products that were due to kick in on January 6 to provide the agency with the ability to coordinate its actions based on the results of the other ongoing investigations. See USTR press release, Suspension of Tariff Action in France Digital Services Tax Investigation, 01/07/2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/suspension-tariff-action-france-digital-services-tax-investigation. The press release is copied below.

“Washington, DC – The U.S. Trade Representative has determined to suspend the tariff action in the Section 301 investigation of France’s Digital Services Tax (DST). The additional tariffs on certain products of France were announced in July 2020, and were scheduled to go into effect on January 6, 2021. The U.S. Trade Representative has decided to suspend the tariffs in light of the ongoing investigation of similar DSTs adopted or under consideration in ten other jurisdictions. Those investigations have significantly progressed, but have not yet reached a determination on possible trade actions. A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations.

“The suspension of the France DST tariffs is set out in a notice sent for publication in the Federal Register.”

The three notices on the India, Italy and Turkey investigations were sent to the Federal Register on January 6 and will appear in the Federal Register next week. The same is true on the postponement of tariffs on France which was forwarded yesterday to the Federal Register and which should appear next week as well.

The three USTR reports released on January 6 and the four notices sent to the Federal Register by USTR on January 6 or 7 are embedded below.

Report-on-Indias-Digital-Services-Tax

Report-on-Italys-Digital-Services-Tax

Report-on-Turkeys-Digital-Services-Tax

IndiaDSTFRNJLB

ItalyDSTFRNJLB

TurkeyDSTFRNJLB

FRN-France-DST-Modification-2021.01.07

The OECD/G20 Integrated Framework talks

The OECD/G20 Integrated Framework negotiations on arriving at tax policies for an increasingly digitalized global economy have been ongoing for a number of years and include 137 countries.

The OECD/G20 Integrated Framework project released a series of reports on policy issues and approaches to address international taxation in the age of digitalisation in early October to address base erosion profit shifting (“BEPS”) and have moved the target date for completion from the end of 2020 to mid-2021. The reports released attempt to address at least some of the U.S. concerns. The OECD has sought public comments, received more than 270 comments and is holding a virtual meeting on January 14-15 in an effort to obtain public input to refine the draft documents and help resolve remaining issues. The 11th plenary meeting of the 137 participating countries of the OECD/G20 Integrated Framework will be held virtually on January 27-29.

A series of documents released in October that permit a better understanding of the complexities involved in seeking a way forward are listed next. For non-tax readers, the “Top 10 Frequently Asked Questions” is a good primer on the issues and challenges. See OECD/G20 Inclusive Framework on BEPS, Addressing the Tax Challenges Arising from the Digitalisation of the Economy, HIGHLIGHTS, October 2020, https://www.oecd.org/tax/beps/brochure-addressing-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising
from Digitalisation – Report on Pillar One Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint-beba0634-en.htm; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Report on Pillar Two Blueprint, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-two-blueprint-abb4c3d1-en.htm; OECD/G20 Inclusive Framework on BEPS, PUBLIC CONSULTATION DOCUMENT, Reports on the Pillar One and Pillar Two Blueprints, 12 October 2020 – 14 December 2020, https://www.oecd.org/tax/beps/public-consultation-document-reports-on-pillar-one-and-pillar-two-blueprints-october-2020.pdf; OECD/G20 Base Erosion and Profit Shifting Project, Tax Challenges Arising from Digitalisation – Economic Impact Assessment, October 2020, https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-economic-impact-assessment-0e3cc2d4-en.htm; OECD, Tax Issues Arising from Digitalisation, Top 10 Frequently Asked Questions, October 2020, https://www.oecd.org/tax/beps/top-10-frequently-asked-questions-tax-challenges-digitalisation.pdf; Public consultation meeting on the Reports on the Pillar One and Pillar Two Blueprints (Date 14-15 January 2021), https://www.oecd.org/tax/beps/public-consultation-meeting-reports-on-the-pillar-one-and-pillar-two-blueprints.htm; 11th meeting of the OECD/G20 Inclusive Framework on BEPS (Date 27-28 January 2021 (Inclusive Framework plenary); 29 January 2021 (Tax and Development briefings)), https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-meeting-january-2021.htm.

To understand some of the concerns of U.S. businesses or business groups with actions of particular trading partners, a review of several comments to the OECD/G20 may be useful. I embed below comments from the American Chamber of Commerce Ireland, Amazon and the Business Roundtable. The Amcham Ireland paper comments on non-discrimination, multilateralism, administrability and certainty, avoiding double taxation, durability, efficiency, scope, safe harbour, segmentation and the interaction with the US’s Global intangible low-taxed income (GILTI). Amazon explores issues in the two pillar blueprints dealing with segmentation, sourcing, user location/IP address, business-to-business sales, reasonable steps/evidence requirements, double tax relief, dispute prevention and resolution, marketing and distribution safe harbour, GILTI Co-existence, framework for implementation, double-tax relief, application of STTR, and additional areas for simplification. The Business Roundtable (BR) has an overview section in which they “affirm certain principles of international income taxation” as being critical to a strong and growing global economy. One of the principles is that taxation should be of net business profits, not gross revenue. BR also provides seven comments on specific aspects of Pillar One and/or Two which are similar to concerns raised by the other U.S. interests. Comment 4 states “An agreement on Pillar One must include repeal of existing unilateral measures and a commitment to refrain from imposing any new unilateral measures aimed at profit reallocation or the digital economy.” It is the unilateral actions of trading partners that are perceived to discriminate against U.S. companies, often base tax on revenue versus profit and deviate from other established international taxation principles that is causing concern in the U.S. business community and resulting in U.S. investigations under Section 301 of the Trade Act of 1974, as amended.

American-Chamber-of-Commerce-Ireland

Amazon

Business-Roundtable-BRT

Conclusion

With the Trump Administration in its last twelve days, it is unknown if USTR will be able to complete the remaining seven 301 investigations on Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom to accompany the three reports released on the 6th of January dealing with India, Italy, and Turkey and the earlier report and proposed action on France. My guess is that this will be a primary focus of USTR in the next week and a half so that a full set of reports is available and possibly a recommendation for action on all eleven reports. Whether the remaining investigations are completed by January 20 or not, the Biden Administration will be confronted with the ongoing OECD/G20 process with a target completion in the front half of 2021 and a host of governments implementing DSTs unilaterally ahead of any agreement among the Integrated Framework members. Action under 301 is an option should trading partners pursue approaches to DSTs that in fact discriminate against U.S. companies or deviate from what the OECD/G20 process is likely to generate as a final package.

Global economic rebound in 2021 will be affected by rate of vaccinations against COVID-19 — World Bank’s January 5, 2021 release of its World Economic Prospects report

The last forecast by the WTO for international merchandise trade for 2020 projected a decline of 9.2% for the world reflecting significant improvements in the 3rd quarter of 2020 after the sharp contraction in the second quarter. Services trade is trailing merchandise trade significantly as is reflected in the WTO ‘s December 4, 2020 press release, Electronics and automotive products lift global merchandise trade in Q3, services lag behind, https://www.wto.org/english/news_e/news20_e/stat_04dec20_e.htm. Two charts from the press release show data through the third quarter of 2020 for goods and services and are copied below.

The expected continued rebound in the fourth quarter of 2020 has likely been reduced in size by the large increase in COVID-19 cases in many countries, including the European Union, United Kingdom, the United States and some countries in Asia and reintroduction of restrictions on people in those countries, resulting in downward pressure on domestic consumption (and hence trade flows in both goods and services).

There is significant optimism about economic growth in 2021 in light of the progress on approval and production of COVID-19 vaccines. See my post from January 3, 2021, 2021 – how quickly will COVID-19 vaccines bring the pandemic under control?, https://currentthoughtsontrade.com/2021/01/03/2021-how-quickly-will-covid-19-vaccines-bring-the-pandemic-under-control/.

Today, January 5, 2021, the World Bank released its World Economic Prospects report. See World Bank, World Economic Prospects, January 2021, https://www.worldbank.org/en/publication/global-economic-prospects. The press release from the World Bank provides both an estimate for growth in 2021 for the world and for various regions of the world but also cautions that the economic rebound could be reduced significantly if there are problems with vaccinations in the developed world and various advanced developing countries. See World Bank, Global Economy to Expand by 4% in 2021; Vaccine Deployment and Investment Key to Sustaining the Recovery, January 5, 2021, https://www.worldbank.org/en/news/press-release/2021/01/05/global-economy-to-expand-by-4-percent-in-2021-vaccine-deployment-and-investment-key-to-sustaining-the-recovery. A large part of the press release is copied below (emphasis and italics in the original).

Development risks remain as economic activity, incomes likely to stay low for extended period

“WASHINGTON, Jan. 5, 2021 — The global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year. A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects.

“Although the global economy is growing again after a 4.3% contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period. Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment. To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt.

“‘While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges—in public health, debt management, budget policies, central banking and structural reforms—as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth,’ said World Bank Group President David Malpass. ‘To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance.’

“The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China. In contrast, disruptions to activity in the majority of other emerging market and developing economies were more acute than expected.

“’Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed,’ Vice President and World Bank Group Chief Economist Carmen Reinhart said.

“The near-term outlook remains highly uncertain, and different growth outcomes are still possible, as a section of the report details. A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could limit the global expansion to 1.6% in 2021. Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5 percent.

“In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery. U.S. GDP is forecast to expand 3.5% in 2021, after an estimated 3.6% contraction in 2020. In the euro area, output is anticipated to grow 3.6% this year, following a 7.4% decline in 2020. Activity in Japan, which shrank by 5.3% in the year just ended, is forecast to grow by 2.5% in 2021.

“Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5% in 2021, after a contraction of 2.6% in 2020. China’s economy is expected to expand by 7.9% this year following 2% growth last year. Excluding China, emerging market and developing economies are forecast to expand 3.4% in 2021 after a contraction of 5% in 2020. Among low-income economies, activity is projected to increase 3.3% in 2021, after a contraction of 0.9% in 2020.

“Analytical sections of the latest Global Economic Prospects report examine how the pandemic has amplified risks around debt accumulation; how it could hold back growth over the long term absent concerted reform efforts; and what risks are associated with the use of asset purchase programs as a monetary policy tool in emerging market and developing economies.

“’The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will likely further increase debt burdens and erode borrowers’ ability to service debt,’ World Bank Acting Vice President for Equitable Growth and Financial Institutions Ayhan Kose said. ‘The global community needs to act rapidly and forcefully to make sure the recent debt accumulation does not end with a string of debt crises. The developing world cannot afford another lost decade.’

“As severe crises did in the past, the pandemic is expected to leave long lasting adverse effects on global activity. It is likely to worsen the slowdown in global growth projected over the next decade due to underinvestment, underemployment, and labor force declines in many advanced economies. If history is any guide, the global economy is heading for a decade of growth disappointments unless policy makers put in place comprehensive reforms to improve the fundamental drivers of equitable and sustainable economic growth.  

“Policymakers need to continue to sustain the recovery, gradually shifting from income support to growth-enhancing policies. In the longer run, in emerging market and developing economies, policies to improve health and education services, digital infrastructure, climate resilience, and business and governance practices will help mitigate the economic damage caused by the pandemic, reduce poverty and advance shared prosperity. In the context of weak fiscal positions and elevated debt, institutional reforms to spur organic growth are particularly important. In the past, the growth dividends from reform efforts were recognized by investors in upgrades to their long-term growth expectations and increased investment flows.

“Central banks in some emerging market and developing economies have employed asset purchase programs in response to pandemic-induced financial market pressures, in many cases for the first time. When targeted to market failures, these programs appear to have helped stabilize financial markets during the initial stages of the crisis. However, in economies where asset purchases continue to expand and are perceived to finance fiscal deficits, these programs may erode central bank operational independence, risk currency weakness that de-anchors inflation expectations, and increase worries about debt sustainability.”

Whether the economic recovery in 2021 is as robust as projected or is dramatically smaller (worst case scenario) will obviously affect trade flows of both goods and services. As can be seen from the initial roll out of vaccines in the U.S., EU, U.K., Canada and other countries, there are significant goods and services involved with the production, distribution and utilization of vaccines globally and within markets. Thus, if there are problems with vaccinating large parts of populations, that will have a direct effect on both goods shipments and on various services. There are also the indirect effects on goods and services from the likely continued restrictions on travel and tourism if the pandemic is not brought under control, something that widespread vaccinations will assist in achieving. My post yesterday reviewed some of the early challenges with vaccinations occurring in the U.S., EU and India. Additional articles are appearing which suggest a lot of work needs to be done to in fact permit rapid vaccinations of populations. See, e.g., Politico, The EU’s coronavirus vaccine blame game. Why so slow?, January 5, 2021, https://www.politico.eu/article/the-vaccination-blame-game-is-it-all-the-eus-fault/; Politico, Sluggish coronavirus vaccination rollout poses risks for Macron, January 5, 2021, https://www.politico.eu/article/coronavirus-covid19-vaccine-campaign-fail-france-president-emmanuel-macron-election/; Wall Street Journal, Covid-19 Vaccine’s Slow Rollout Could Portend More Problems, January 1, 2021, https://www.wsj.com/articles/covid-19-vaccines-slow-rollout-could-portend-more-problems-11609525711/ And this comes against the backdrop of continued surges of new cases of COVID-19 in the U.S. and many other countries which will extend restrictions into the early months of 2021 at least and hence restrict economic recovery in at least the first quarter of 2021. See, e.g., Financial Times, Covid surges as UK rolls out mass vaccination programme, January 3, 2021, https://www.ft.com/content/71140ee7-8e47-4499-9fcf-2d23d5c7d94f; New York Times, The Lull Before the Surge on Top of the Surge, January 5, 2021, https://www.nytimes.com/2021/01/05/us/california-coronavirus.html

The World Bank report identifies a host of policy issues for governments and challenges flowing from the high level of debt that has been incurred during 2020 and the downward pressures on investment flows in many countries. Many countries will have trouble implementing the appropriate policy options because of existing debt issues (particularly many developing countries) or because of political gridlock, as is apparent in the U.S. even with a new Administration due to be sworn in on January 20. See, e.g., New York Times, $900 Billion Wonʼt Carry Biden Very Far (Despite new pandemic aid, he confronts an economic crisis unlike any since he last entered office in 2009. And political headwinds have only stiffened), January 4, 2021. Indeed, as reviewed in a recent Congressional Research Service updated report on the Global Economic Effects of COVID-19 (updated as of December 23, 2020), the level of debt incurred by developed and developing countries has surged during the pandemic with the level of fiscal deficit relative to GDP reflecting declining government revenues and increased expenditures to reduce the negative effects of the pandemic. See CRS, Global Economic Effects of COVID-19, updated December 23, 2020, page 13, https://fas.org/sgp/crs/row/R46270.pdf. The figure from the report is copied below. Obviously the levels of fiscal deficit incurred in 2020 are not sustainable. They also reduce flexibilities of countries in policy actions that can be taken to speed up the recovery of the national and global economies.

Conclusion

The world needs to return to a period of sustained economic growth that is more inclusive and more equitable. The arrival of vaccines (with more expected in the first quarter of 2021) and the ramp up of production, distribution and utilization of vaccines around the world can expand economic growth both directly through the goods and services involved and indirectly through permitting countries to ease restrictions imposed to try to control the pandemic. The first few weeks of the rollout of vaccines have not been without significant problems. As reviewed in yesterday’s post, production of the vaccines that have been approved by individual nations is running behind what was anticipated, in some cases (e.g., India) significantly. While distribution has been reasonably robust in the U.S. and some other countries, there is a significant lag in getting the vaccines utilized with a wide variety of problems identified in different markets.

As the World Bank’s report today makes clear, if countries are not able to achieve significant vaccinations in 2021 the projected growth of global GDP could be cut by more than half. A global economy that is not expected to return to 2019 levels until 2022 even if 2021 growth rates are achieved will be further retarded if vaccinations lag what is needed. That will reduce trade volumes of goods and services, leave tens of millions of people around the world unemployed or underemployed, and challenge the ability to achieve UN Sustainability Goals on a host of issues including poverty, food security and many more.

President-elect Biden and his team are focused on dramatically ramping up the response in the United States, but the challenges here are significant and complicated by a divided public many of whom still doubt there is a pandemic or that it is problematic or who are opposed to vaccinations. Challenges exist in many other countries as well.

If ever there were a time for people to come together and ensure the timely vaccinations of as many people as possible as quickly as possible, it is obviously now. Whether that can be achieved is the multi-trillion dollar question.

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

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

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

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

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

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

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

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

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

“Geneva/Oslo, 18 December 2020

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

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

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

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

* * *

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

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

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

Early pledges towards 2021 fundraising targets

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“But collaboration and partnership save lives and safeguard societies.

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

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

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

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

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

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

“The choice is easy.

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

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

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

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

Are “level the playing field” provisions of the EU-UK Trade and Cooperation Agreement a harbinger of possible reforms at the WTO?

Title XI of Part Two of the Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, on the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part (“TCA”) is entitled “LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION AND SUSTAINABLE DEVELOPMENT”. The Title occupies 38 pages of the TCA (pages 179-217) and is in addition to the trade defense measures of antidumping, countervailing duty and safeguard investigations which are part of Title I of Part Two (Article GOODS.17, Trade Remedies, page 24). The inclusion of Title XI was very important for the EU if it was going to agree to tariff free/quota free access to the United Kingdom and to agree to U.K. freedom from EU laws and regulations and European Court of Justice review in areas like environment, climate, labor and subsidies. The Title is discussed in an article in today’s Financial Times, Keeping a level head about Brexit’s level playing field, December 29, 2020, https://www.ft.com/content/77bed4ae-0f8c-40bb-9f8f-a355e6f865a1.

In a press release from the European Commission entitled EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual
interest, Brussels, 24 December 2020, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2531, the following was said about the level playing field provisions:

“Both parties have committed to ensuring a robust level playing field by maintaining high levels of protection in areas such as environmental protection, the fight against climate change and carbon pricing, social and labour rights, tax transparency and State aid, with effective, domestic enforcement, a binding dispute settlement mechanism and the possibility for both parties to take remedial measures.”

The U.K.’s summary of the Trade and Cooperation Agreement includes the following lengthy description of Title XI and how the Title meets U.K. negotiating objectives. See UK-EU Trade and Cooperation Agreement, Summary, December 2020, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948093/TCA_SUMMARY_PDF.pdf.

“Title XI: Level playing field for open and fair competition and sustainable development

“81. The Agreement’s provisions in this area, implementing commitments made in the 2019 Political Declaration, were the subject of considerable controversy during the negotiations. The EU was forced to drop its ambitious demands for dynamic alignment and for the UK to be legally required to maintain equivalent legislative systems to the EU’s in some areas. The system that has been agreed upon does not compromise the UK’s sovereignty in any area, does not involve the European Court of Justice in any way, and is reciprocal.
Both sides have the right to set their own laws, subject to the broad constraints of this Agreement in this area as in any other. And both sides have the right, in certain constrained ways, and subject to arbitration, to take
countermeasures if they believe they are being damaged by measures taken by the other Party in subsidy policy, labour and social policy, or climate and environment policy. If such measures are used too frequently either side can trigger a review of these provisions and the trade aspects of the Treaty more broadly, aiming to end with a different balance of rights and obligations.

“Chapter 1: General Provisions

“82. The Chapter sets out some principles and objectives for this title. It recognises the right of each Party to set its own policies and priorities and determine the levels of protection it deems appropriate in its laws.

“Chapter 2: Competition

“83. The Agreement commits both Parties to maintain their high standards of competition law, including enforcing these laws, maintaining their independent competition authorities, and applying competition law on a procedurally fair, transparent and non-discriminatory basis. The Chapter enables further cooperation between the UK and EU competition authorities.

“Chapter 3: Subsidies

“84. The Agreement ensures that each Party will have in place its own independent system of subsidy control and that neither Party is bound to follow the rules of the other. It includes some broad principles which shape
the design of both sides’ systems, aiming to ensure that the granting of subsidy does not have detrimental effects on trade between the Parties. It also includes some specific principles on subsidies that are particularly
distortive, such as those prohibited by the WTO. The Agreement makes clear that it is for each Party to determine how these principles will be implemented in its domestic law. There is a separate joint declaration that provides nonbinding guidance on additional sectors which either side may take into consideration in their respective systems of subsidy control.

“85. he Agreement requires both sides to be transparent about the subsidies they grant and to establish or maintain an independent body with an appropriate role in their respective subsidy systems, while retaining full discretion over any functions that body may have. The Agreement includes provisions on the role of domestic courts in reviewing domestic subsidy decisions. For the UK, this reflects existing practice under the UK’s system of judicial review. The UK and EU have also agreed that, in certain circumstances, domestic courts should have the power to order recovery of subsidies that have been granted illegally under domestic law.

“86. Finally, the UK and the EU have agreed a reciprocal mechanism that allows either side to take rapid action where a subsidy granted by the other Party is causing or is at serious risk of causing significant harm to its industries. These measures can be challenged using an accelerated arbitration procedure and there is the possibility of compensation if a Party has used these measures in an unnecessary or disproportionate manner.

“Chapter 4: State owned enterprises, enterprises granted special rights or privileges and designated monopolies

“87. The Chapter commits both parties to additional disciplines on their State owned enterprises, designated monopolies and enterprises granted special rights or privileges and to make best use of international standards when regulating them, in line with provisions in other FTAs.

“Chapter 5: Taxation

“88. The Agreement commits both Parties to uphold global standards on tax transparency and fighting tax avoidance (which the UK has played a leading role in developing and implementing through the G20 and OECD). It contains commitments to specific tax standards as they stand at the end of the transition period, including the international standards on exchange of information, anti-tax avoidance, as well as relevant standards in legislation on public country by country reporting by credit-institutions and investment firms.

“89. The commitments on tax between the UK and the EU are also captured in a stand-alone Joint Political Declaration on Countering Harmful Tax Regimes. This is a political commitment to the principles of countering harmful tax regimes, and reflects the work done by the OECD in this area.

“90. There are no provisions constraining our domestic tax regime or tax rates.

“Chapter 6: Labour and social standards

“91. The Agreement includes reciprocal commitments not to reduce the level of protection for workers or fail to enforce employment rights in a manner that has an effect on trade. This is very much in line with similar ‘non-regression’ clauses in other FTAs and with international norms. The provisions are clear that both Parties have the freedom and ability to make their own decisions on how they regulate – meaning that retained EU law will not have a special place on the UK’s statute books. This Chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.

“Chapter 7: Environment and climate

“92. In a similar way, the Agreement includes reciprocal commitments not to reduce the level of environmental or climate protection or fail to enforce its laws in a manner that has an effect on trade. This includes reciprocal commitments to cross-economy greenhouse gas emission reduction targets. The Agreement gives both Parties the freedom to set their own climate and environmental policies in the way most appropriate to achieve our world leading domestic aims. The domestic supervisory bodies of the UK and EU will cooperate to ensure effective enforcement of their respective environmental and climate laws. Once again, this chapter is not subject to the Agreement’s main dispute resolution mechanism but will instead be governed by a bespoke Panel of Experts procedure.

“93. The Agreement makes clear both parties will have their own effective systems of carbon pricing in place to help fulfil our respective climate goals. The Parties have agreed to cooperate on carbon pricing in future and consider linking their respective systems, although they are not under any obligation to do so.

“Chapter 8: Other instruments for trade and sustainable development

“94. The Agreement affirms the Parties’ existing commitments to a range of international conventions and other commitments in the area of labour, environment, and climate, in a way that is standard in FTAs. This includes committing the Parties to the effective implementation of the Paris Agreement.

“Chapter 9: Institutional provisions

“95. The Agreement sets out tailored provisions for dispute settlement for Chapters 6-8 involving a Panel of Experts. Any recommendations made by the Panel of Experts are not binding on the Parties.

“96. The Agreement provides for a rebalancing mechanism which allows the Parties to formally review the balance of the Agreement over time and enter into a negotiation on amendments to the economic provisions of the Agreement at the request of one Party. It also provides for Parties to take strictly limited and proportionate rebalancing measures on a more short-term basis, subject to the approval of an independent arbitration panel.”

Will WTO reform efforts see some or many of these areas of interest for “leveling the playing field” become plurilateral or multilateral approaches?

There have been deep concerns among many WTO Members about the lack of disciplines on industrial subsidies for countries like China which have used massive subsidies to state-champions to flood markets and create massive global excess capacity. The EU, Japan and the United States have been working on possible proposals to address some of these issues. See, e.g., European Commission, Directorate-General for Trade, Washington, DC; 14 January 2020, EU, U.S. and Japan agree on new ways to strengthen global rules on industrial subsidies, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2101.

The United States has spent a great deal of time during 2018-2020 identifying areas where it believes the WTO and Member obligations do not address distortions that exist and don’t establish conditions of fair trade. Convergence vs. coexistence of differing economic systems, obsolete provisions permitting self-selection of developing country status regardless of economic development and “entitlement” to permanent special and differential treatment, and others. In a recent post, I reviewed the U.S. draft Ministerial Decision which if adopted would permit Members to treat weak and unenforced environmental laws and regulations as a countervailable subsidy. See December 26, 2020, U.S. proposed draft Ministerial Decision – making weak or unenforced environmental standards potentially countervailable, https://currentthoughtsontrade.com/2020/12/26/u-s-proposed-draft-ministerial-decision-making-weak-or-unenforced-environmental-standards-potentially-countervailable/.

An increasing number of free trade agreements include labor and environment chapters, some with enforcement provisions. See, e.g., Congressional Research Service, updated December 18, 2020, Worker Rights Provisions in Free Trade Agreements (FTAs), https://fas.org/sgp/crs/misc/IF10046.pdf.

A number of WTO Members are pressing for greater focus on sustainable development as part of WTO negotiations, using the UN Sustainable Development Goals as the objectives. And, of course, the WTO has been struggling to complete multilateral negotiations on fisheries subsidies to fulfill UN SDG 14.6.

While the shape, breadth and direction of WTO reform is unknown at the present time, it is clear that at least some major trading nations are pushing ahead with their own plans for promoting sustainable development and addressing the climate crisis. Carbon taxes are one tool being used or developed. Using FTAs to broaden sustainable development objectives and ensure a “level playing field” for producers living with higher environmental, labor and other standards is already happening in some FTAs. And certainly we will see a major effort to have WTO rules better address the distortions to competition from current economic systems and policies.

The EU and U.K. TCA’s Part Two Title XI may go no broader than the unique circumstances of the split of the United Kingdom from the European Union. However, the historic champions of liberalized trade have longstanding and growing interests in ensuring the trading system works on a “level playing field” basis. From my perspective, there is a fair amount of the Title XI concepts that could be expanded in application to other trading nations and that should be of interest in the WTO if, as hoped, the organization is able to regain relevance through greater “like mindedness”. Thus, how Title XI works in practice and what lessons are learned for improving or expanding its application will be of great interest not only to the EU and the U.K. but also to other WTO Members.

.

The December 24, 2020 Trade and Other Agreements Between the European Union and the United Kingdom — The Price and Rewards of Brexit

With the United Kingdom’s interim arrangement with the European Union after the January 2020 departure from the EU coming to an end at the end of December, negotiators for the two sides reached a series of agreements and declarations on December 24th that will take effect provisionally on January 1, 2021 upon actions by the EU and the U.K. and awaiting ratification.

The trade agreement provides, inter alia, for duty free/quota free access for goods for both sides. While each side has declared victory in the negotiations and expressed the view that the agreements are good for both parties, all independent analyses that have appeared to date note that there will be costs for both sides from the unraveling of the U.K.’s membership in the EU — not surprising but the reality of any breakup of a longstanding integrated relationship of members. Stated differently, while the agreements are unusual in the sense that they deal with relations between nations formerly participating in a single market upon separating, inefficiencies are added to the operation of markets in both the U.K. and in the EU as trade in goods will face at least customs clearance, potentially different standards, rules of origin as to what constitutes qualifying product of either the U.K. or the EU, and services will be restricted (e.g., air transport in terms of number of destinations within the trading partner; lorry drivers in the number of permitted stops to unload or load cargo, work permits in the other’s territory, etc.). The likely cost to the U.K. over the next 15 years has been estimated at a reduction of GDP of 4 percentage points by 2035 from levels likely achieved if the U.K. remained part of the EU. There will be costs as well for the EU, though likely smaller as a percent of GDP because of the smaller share of EU trade with the U.K. than vice versa.

For the United Kingdom, Brexit was about regaining control of the laws and regulations under which its businesses and citizens operate and eliminating the role of the European Court of Justice. It was also about regaining control of its waters for fishing.

For the EU, the objective was to minimize the damage from the U.K.’s departure, maintain unity among EU members and ensure that any agreement with the U.K. did not result in anticompetitive results from changes in environmental, labor or subsidy practices by the U.K. It seems fair to say that each side accomplished most of its core objectives.

Consider the statement of the U.K.’s Prime Minister Boris Johnson on December 24 on the agreement with the EU, https://www.gov.uk/government/speeches/prime-ministers-statement-on-eu-negotiations-24-december-2020:

“It is four and a half years since the British people voted to take back control of their money, their borders, their laws, and their waters and to leave the European Union.

“And earlier this year we fulfilled that promise and we left on Jan 31 with that oven-ready deal.

“Since that time we have been getting on with our agenda.

“Enacting the points based immigration system that you voted for and that will come into force on Jan 1.

“And doing free trade deals with 58 countries around the world.

“And preparing the new relationship with the EU.

“And there have been plenty of people who have told us that the challenges of the Covid pandemic have made this work impossible.

“And that we should extend the transition period.

“And incur yet more delay.

“And I rejected that approach precisely because beating Covid is our number one national priority and I wanted to end any extra uncertainty and to give this country the best possible chance of bouncing back strongly next year.

“And so I am very pleased that this afternoon that we have completed the biggest trade deal yet, worth £660 billion.

“A comprehensive Canada style free trade deal between the UK and the EU, a deal that will protect jobs across this country.

“A deal that will allow UK goods and components to be sold without tariffs and without quotas in the EU market.

“A deal which will if anything should allow our companies and our exporters to do even more business with our European friends.

“And yet which achieves something that the people of this country instinctively knew was doable.

“But which they were told was impossible.

“We have taken back control of laws and our destiny.

“We have taken back control of every jot and tittle of our regulation.

“In a way that is complete and unfettered.

“From Jan 1 we are outside the customs union, and outside the single market.

“British laws will be made solely by the British Parliament.

“Interpreted by UK judges sitting in UK courts.

“And the jurisdiction of the European Court of Justice will come to an end.

“We will be able to set our own standards, to innovate in the way that we want, to originate new frameworks for the sectors in which this country leads the world, from biosciences to financial services, artificial intelligence and beyond.

“We will be able to decide how and where we are going to stimulate new jobs and new hope.

“With freeports and new green industrial zones.

“We will be able to cherish our landscape and our environment in the way we choose.

“Backing our farmers and backing British food and agricultural production.

“And for the first time since 1973 we will be an independent coastal state with full control of our waters with the UK’s share of fish in our waters rising substantially from roughly half today to closer to 2/3 in five and a half years’ time after which there is no theoretical limit beyond those placed by science or conservation on the quantity of our own fish that we can fish in our waters.

“And to get ready for that moment those fishing communities we will be helped with a big £100m programme to modernise their fleets and the fish processing industry.

“And I want to stress that although of course the arguments with our European friends and partners were sometimes fierce this is, I believe a good deal for the whole of Europe and for our friends and partners as well.

“Because it will not be a bad thing for the EU to have a prosperous and dynamic and contented UK on your doorstep.

“And it will be a good thing – it will drive jobs and prosperity across the whole continent.

“And I don’t think it will be a bad thing if we in the UK do things differently, or a take a different approach to legislation.

“Because in so many ways our basic goals are the same.

“And in the context of this giant free trade zone that we’re jointly creating the stimulus of regulatory competition will I think benefit us both.

“And if one side believes it is somehow being unfairly undercut by the other, then subject to independent third party arbitration and provided the measures are proportionate, we can either of us decide – as sovereign equals – to protect our consumers.

“But this treaty explicitly envisages that such action should only happen infrequently and the concepts of uniformity and harmonisation are banished in favour of mutual respect and mutual recognition and free trade.

“And for squaring that circle, for finding the philosopher’s stone that’s enabled us to do this I want to thank President von der Leyen of the European Commission and our brilliant negotiators led by Lord Frost and Michel Barnier, on the EU side Stephanie Rousseau as well as Oliver Lewis, Tim Barrow, Lindsay Appleby and many others.

“Their work will be available for scrutiny, followed by a parliamentary vote I hope on Dec 30.

“This agreement, this deal above all means certainty.

“It means certainty for the aviation industry and the hauliers who have suffered so much in the Covid pandemic.

“It means certainty for the police and the border forces and the security services and all those that we rely on across Europe to keep us safe.

“It means certainty for our scientists who will be able to continue to work together on great collective projects.

“Because although we want the UK to be a science superpower, we also want to be a collaborative science superpower.

“And above all it means certainty for business from financial services to our world-leading manufacturers – our car industry – certainty for those working in high skilled jobs in firms and factories across the whole country.

“Because there will be no palisade of tariffs on Jan 1.

“And there will be no non-tariff barriers to trade.

“And instead there will be a giant free trade zone of which we will at once be a member.

“And at the same time be able to do our own free trade deals as one UK, whole and entire, England, NI, Scotland and Wales together.

“And I should stress this deal was done by a huge negotiating team from every part of the UK, and it will benefit every part of our United Kingdom, helping to unite and level up across the country.

“And so I say again directly to our EU friends and partners, I think this deal means a new stability and a new certainty in what has sometimes been a fractious and difficult relationship.

“We will be your friend, your ally, your supporter and indeed – never let it be forgotten – your number one market.

“Because although we have left the EU this country will remain culturally, emotionally, historically, strategically and geologically attached to Europe, not least through the four million EU nationals who have requested to settle in the UK over the last four years and who make an enormous contribution to our country and to our lives.

“And I say to all of you at home.

“At the end of this toughest of years.

“That our focus in the weeks ahead is of course on defeating the pandemic.

“And on beating coronavirus and rebuilding our economy.

“And delivering jobs across the country.

“And I am utterly confident that we can and will do it.

“By today we have vaccinated almost 800,000 people and we have also today resolved a question that has bedevilled our politics for decades.

“And it is up to us all together.

“As a newly and truly independent nation.

“To realise the immensity of this moment and to make the most of it.

“Happy Christmas to you all.

“That’s the good news from Brussels – now for the sprouts.”

On the same day, December 24, 2020, the European Union President Ursula von der Leyen provided these comments at the press conference in Brussels on the outcome of the EU-UK negotiations, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_2534:

“Good afternoon,

“We have, finally, found an agreement.

“It was a long and winding road. But we have got a good deal to show for it.

“It is fair and balanced. And it is the right and responsible thing to do for both sides

“The negotiations were very tough.

“But with so much at stake, for so many, this was a deal worth fighting for.

“We need to avoid major disruptions for workers, companies and travellers after 1 January 2020.

“It will protect European interests.

“It is also – I believe – in the UK’s interests.

“It will lay a solid foundation for a new beginning with a long-term friend.

“And it means that we can finally put Brexit behind us.

“Europe will be able to move on.

“Throughout this period, the European Union has demonstrated great unity, drawing on the strength
of 450 million people and the largest single market in the world.

“The Agreement we have reached clearly shows how much this matters.

“Chapter by chapter, line by line.

“Let me give you three examples.

“First:

“Competition in our Single Market will be fair and remain so.

“The EU´s rules and standards will be respected.

“We have effective tools to react if fair competition is distorted and impacts our trade.

“Secondly:

“We will continue cooperating with the UK, in all areas of mutual interest.

“For example in the fields of climate change, energy, security and transport.

“Together we still achieve more than we do apart.

“And thirdly:

“We have secured five and a half years of full predictability for our fishing communities and strong
tools to incentivise it to remain so.

“Of course, this whole debate has always been about sovereignty.

“But we should cut through the soundbites and ask ourselves what sovereignty actually means in the
21st century.

“For me, it is about being able to seamlessly do work, travel, study and do business in 27 countries.

“It is about pooling our strength and speaking together in a world full of great powers.

“And in a time of crisis it is about pulling each other up – instead of trying to get back to your feet
alone.

“The European Union shows how this works in practice.

“And no deal in the world can change reality or gravity in today’s economy and today’s world. We are
one of the giants.

“The EU is well prepared for Brexit.

“We know this deal will not stop disruption altogether.

“We have been working closely with authorities and businesses to make sure they are ready.

“We have set aside EUR 5 billion in our new budget to support all of the people, regions and sectors
affected by Brexit.

“So now is the time to turn the page and look to the future.

“The United Kingdom is a third country.

“But it remains a trusted partner.

“We are long standing allies.

“We share the same values and interests.

“Whether it be the COP26 summit in Glasgow or the upcoming UK G7 and Italian G20 presidencies:

“The European Union and the United Kingdom will stand shoulder to shoulder to deliver on our
common global goals.

“This moment marks the end of a long journey.

“I would like to thank our Chief Negotiator, Michel Barnier, and his team, and Stéphanie Riso for their
tireless efforts, their endurance, their professionalism.

“I also want to thank David Frost and Tim Barrow for having been tough but fair negotiating partners.

“And I am grateful to all our Member States and the European Parliament for their trust and their
support. I will now convene the College.

“Ladies and Gentlemen,

“At the end of successful negotiations I normally feel joy.

“But today I only feel quiet satisfaction and, frankly speaking, relief.

“I know this is a difficult day for some.

“And to our friends in the United Kingdom I want to say: parting is such sweet sorrow.

“But to use a line from TS Eliot: What we call the beginning is often the end. And to make an end is
to make a beginning.

“So to all Europeans I say: It is time to leave Brexit behind.

“Our future is made in Europe.

“Thank you so much.”

Because of the shortness of time from the conclusion of the negotiations until the agreements should take effect, the EU is looking at adopting the agreements provisionally until February 28, 2021. As reviewed in a press release on December 24:

“The Commission proposes to apply the Agreement on a provisional basis, for a limited period of time until 28 February 2021.

“The Commission will swiftly propose Council decisions on the signature and provisional application, and on the conclusion of the Agreement.

“The Council, acting by the unanimity of all 27 Member States, will then need to adopt a decision authorising the signature of the Agreement and its provisional application as of 1 January 2021. Once this process is concluded, the Trade and Cooperation Agreement between the EU and the UK can be formally signed.

“The European Parliament will then be asked to give its consent to the Agreement.

“As a last step on the EU side, the Council must adopt the decision on the conclusion of the Agreement.”

Press Release, European Commission, 24 December 2020, EU-UK Trade and Cooperation Agreement: protecting European interests, ensuring fair competition, and continued cooperation in areas of mutual interesthttps://ec.europa.eu/commission/presscorner/detail/en/IP_20_2531.

EU ambassadors gave provisional approval to the agreements on December 28 in Brussels. Financial Times, December 28, 2020, EU ambassadors give green light to Brexit deal,https://www.ft.com/content/8e4d5aa2-5851-4bea-8d4f-b880376f8413 The U.K.’s House of Commons is expected to approve the agreements on December 30, 2020.

The list of agreements and declarations agreed on December 24 is provided below.

Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part, https://ec.europa.eu/info/sites/info/files/draft_eu-uk_trade_and_cooperation_agreement.pdf (1246 pages).

Agreement Between the European Union and the United Kingdom of Great Britain and Northern Ireland Concerning Security Procedures for Exchanging and Protecting Classified Information, https://ec.europa.eu/info/files/eu-uk-security-information-agreement_en (8 pages).

Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the European Atomic Energy Community for Cooperation on the Safe and Peaceful Uses of Nuclear Energy, https://ec.europa.eu/info/files/eu-uk-civil-nuclear-agreement_en (18 pages).

draft EU-U.K. declarations, https://ec.europa.eu/info/sites/info/files/draft_eu-uk_declarations.pdf (embedded below).

draft_eu-uk_declarations

As stated at the beginning, the early analyses of the EU-U.K. agreements have identified many concerns for the increased inefficiencies and uncertainties of trade in goods and services that will face producers and service providers in both the U.K. and in the EU. See, e.g., Wall Street Journal, December 24, 2020, How the Brexit Deal Alters Relations Between the U.K. and European Union, https://www.wsj.com/articles/how-the-brexit-deal-alters-relations-between-the-u-k-and-european-union-11608836744?mod=searchresults_pos9&page=1; Politico, December 27, 2020, 10 key details in the UK-EU trade deal, https://www.politico.eu/article/10-key-details-uk-eu-brexit-trade-deal/. Indeed, there are lots of issues still to be negotiated, or rights and obligations to be tested over time and significant bureaucracies to be added to address commitments made in the agreements.

So unlike other trade agreements entered in 2020 that portend more liberalized trade at least among the signatories, the reality of Brexit was always going to require agreements which reduced market access to some extent. The key is how minimum the disruptions and increased inefficiencies will prove to be versus the greater flexibility that the United Kingdom feels to shape laws, regulations and policies to meet its own needs and preferences (and whether the increased flexibility proves to be more limited by the agreements than perhaps desired) and whether the remaining EU members will feel a greater sense of unity on the forward direction of the EU. Time will tell whether the “success” of Christmas eve proves to be a positive for the EU and the U.K. in fact moving into 2021.

In last two weeks, United States adds more than three million new confirmed COVID-19 cases; world approaches nine million new cases; first vaccines start to ship in United Kingdom, Canada, Bahrain, United States and shortly in the European Union; hope for a better 2021

The European Centre for Disease Prevention and Control (ECDC) shifted from a daily report on global cases to a weekly total last week. In today’s report, the United States becomes the only country to record more than three million new cases in a two week period. ECDC, COVID-19 situation update worldwide, as of week 51 2020. It is also the only country to have recorded 2,000,000 in a two week period. The 3,087,841 new cases in weeks 50 and 51 constitute 34.73% of the global total of 8,888,940 new cases in the last two weeks and was 4.68 times the number reported in Brazil (660,079), 8.16 times the number reported in India — the two countries after the United States with the most cases. For the full 2020, the United States has accounted for 23.47% (17,844,839) of global cases (76,046,387) despite being only 4.3% of the global population.

The weekly total for the United States has been an almost uninterrupted surge in new cases for the last three months or so. Below are the data as compiled by the ECDC for weeks 37-51 for the United States. Deaths have also been climbing rapidly but at a slower rate than new cases. The U.S. accounts for 18.75% (317,670) of global deaths (1,693,858) in 2020 from COVID-19 and a higher percentage in recent weeks. Deaths for the same weeks for the U.S. are shown below. The U.S. is seeing deaths approaching 3,000/day with some days as high as 4,000+. With hospitalizations at all time highs, and surging cases and rising deaths, the U.S. is likely to surpass 400,000 deaths by January 20, 2021 when President-elect Joe Biden will be sworn in.

Number of new COVID-19 cases reported by the U.S.Week in 2020No. of deaths reported in the U.S.
             243,5582020-37  5,138               
             284,8352020-38 5,430
             310,2322020-39 5,247
             302,7992020-40 5,038
             344,6992020-41 4,977
             392,0512020-42 4,903
             481,5702020-43 5,556
             571,1972020-44 5,766
             764,2892020-45 6,576
         1,065,4102020-46 8,642
         1,209,8482020-47 10,568
         1,136,4122020-48 10,091
         1,373,6772020-49 15,437
         1,499,7562020-50 16,867
         1,588,0852020-51 18,493

The good news is the approval of the first vaccines in the U.S., approvals in a number of other countries of at least one vaccine (United Kingdom, Canada, Bahrain, European Union) and more vaccines getting close to completing their trials. See, e.g., New York Times, E.U. Approves Pfizer Vaccine, Setting Stage for High-Stakes Rollout, December 21, 2020, https://www.nytimes.com/2020/12/21/world/europe/eu-coronavirus-vaccine.html. These western vaccines are in addition to the ones produced in China and the Russia Federation that were released before all trials were completed.

However, even for countries who have lined up large volumes of vaccines through up-front contracts for delivery in December or the front half of 2021, countries who have approved one or more of the western company vaccines are still months away from having enough people vaccinated to make a significant dent in the levels of new cases or deaths without strong efforts to maintain social distancing, wear masks, minimize size of gatherings, washing hands, etc.

With mutations of the virus having appeared in the U.K. and elsewhere, it is also unclear how efficacious the early vaccines will be on the mutations. Early information on the news today, suggests at least some reduction in effectiveness is likely, which could have implications for the percentage of the population needed to be vaccinated to achieve herd immunity. Many countries are banning travel from the U.K. in an effort to prevent the spread of the mutant variation of COVID-19 identified in the U.K. which is believed to spread much more easily. See Politico, Mutant coronavirus strain: What we know so far, December 21, 2020, https://www.politico.eu/article/mutant-coronavirus-strain-what-we-know-so-far/.

While the short-term future has many challenges, many are hopeful that 2021 will see the COVID-19 pandemic being handled as vaccines are approved and produced and distributed to all peoples around the world to permit a return to greater normalcy. See Time, What Bill Gates Thinks About the State of the Fight Against COVID-19, December 22, 2020, https://time.com/5923916/bill-gates-covid-19-letter/; Bill Gates, YEAR IN REVIEW, These breakthroughs will make 2021 better than 2020, The latest on the innovations that will let us go back to normal, December 20, 2020, https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2020.

The WTO has both been monitoring trade restrictive and liberalizing actions taken by Members relating to the pandemic and has also recently put out a paper reviewing trade policy issues that can arise as the world shifts to the production and distribution of vaccines around the world. See WTO, TRIPS, WTO paper explores role of trade policy in the rapid roll-out of COVID-19 vaccines, December 22, 2020, https://www.wto.org/english/news_e/news20_e/trip_22dec20_e.htm. The press release describes the content of the new paper as follows:

“The WTO Secretariat has published a new information note on trade-related issues for COVID-19 vaccine production, manufacturing and deployment. The note, entitled ‘Developing and delivering COVID-19
vaccines around the world,’ explores how trade policy can play its part in ensuring the rapid roll-out of vaccines against COVID-19.

“The paper goes into further detail on key topics included in two documents previously published on the WTO website: ‘Infographic: Developing & delivering COVID-19 vaccines around the world’ (https://www.wto.org/english/tratop_e/covid19_e/vaccine_infographic_e.pdf) and ‘Developing & delivering COVID-19 vaccines around the world: A checklist of issues with trade impact’
(https://www.wto.org/english/tratop_e/covid19_e/vaccine_checklist_e.pdf) .

“The new information note comprises three sections. Section A provides background information on immunization and the urgent search for vaccines against COVID-19. This section points to immunization as a key component of primary health care and highlights the ambitious national and global targets that have been set for COVID-19 vaccines. According to the World Health Organization (https://www.who.int/publications/m/item/fair-allocation-mechanism-for-covid-19-vaccines-through-the-covax-facility) and Gavi, the Vaccine Alliance (https://www.gavi.org/vaccineswork/covax-explained), two billion COVID-19 vaccine doses are to be distributed by the end of 2021, with an allocation for every country equal to 20 per cent of the population so as to cover prioritized target groups.

“Section B provides an overview of the development and delivery of vaccines in the form of an infographic listing seven steps in this process: vaccine development, domestic approval (manufacture), vaccine manufacture, domestic approval (importer), international distribution, border clearance, and domestic distribution and surveillance.

“Finally, Section C identifies where key decisions with trade impact may need to be made along the vaccine value chain and provides a non-exhaustive list of useful resources to help inform decision-making. This section includes a checklist of trade issues to consider along with the COVID-19 vaccine value chain, as well as a world map of clinical trials and partnerships on COVID-19 treatments.

“The report can be found here (https://www.wto.org/english/tratop_e/covid19_e/vaccine_report_e.pdf).”

The report is embedded below.

vaccine_report_e

Conclusion

The COVID-19 pandemic has rocked the world in 2020. Some continents have come through with relatively few cases (Africa) or have often been successful in minimizing outbreaks (significant parts of Asia, Oceania). Europe was hit hard early (March-April) and suffered a much bigger second surge in the September -November period though renewed restrictions have brought case numbers down significantly in December. The Americas has had the highest number of cases and deaths of any region. The United States has gone through a number of surges and is currently exceeding or close to exceeding medical facility capabilities in many parts of the country. So 2020 is ending in a spiraling crisis in the United States. The arrival of vaccines is welcome news for all peoples but will take considerable time to be produced and distributed both within countries with high infection rates and to the rest of the world.

The role of trade in a pandemic is largely focused on keeping markets open for the movement of medical goods and food products. While a large number of countries have introduced some export restrictions on medical goods (and some on food products), many countries have also introduced actions to speed movement of medical goods and to lower costs. While there have not been new multilateral agreements to keep markets open or liberalize trade in medical goods, there have been some efforts at cooperation and coordination by at least some countries.

While the actions taken by governments to try to control the virus led to significant contractions in trade in the second quarter of 2020, much of prior trade flows were restored in the third quarter but will likely see some reductions in the fourth with the second wave of restrictions on activities in many countries in the last month or two. Certain service sectors (travel and tourism generally; air transport, restaurants, hotels specifically) have been very hard hit by the restrictions imposed with many businesses closing, more than 100 million people unemployed or underemployed in the sector and a post-pandemic world likely to be much changed particularly in sectors like restaurants that are dominated by small business operators. Most projections don’t see a restoration of global GDP levels to those achieved in 2019 until at least 2022.

Trillions of dollars have been poured into a number of countries as stimulus to prevent the further collapse of the economies involved. Those actions have reduced the size of the downturn which still is the worst since World War II for much of the world. The size of the stimulus infusions have also greatly increased the level of debts for the countries engaged in the stimulus activities. For countries without the ability to borrow huge sums for stimulus, the contraction in GDP has often been severe with gains from the last decade being wiped out in some cases.

So the world needs 2021 to be better than 2020. How the efforts at vaccine development proceed and the level of commitment and funding for production expansion and global distribution will be major factors in whether 2021 fulfills the promise of equitable and affordable access to vaccines and therapeutics needed to get the world back to a more normal place.