United States

Less than five weeks to the WTO’s 12th Ministerial Conference — what are likely deliverables?

On May 9-10, the WTO held a General Council meeting which followed an informal Trade Negotiations Committee (TNC) and Heads of Delegation meeting from May 4. The meetings resulted in a series of news releases from the WTO focusing on the Director-General’s views on areas for focus for the upcoming Ministerial as well as initial reactions from Members to the paper put forward following negotiations between the European Union, United States, India and South Africa on what, if any, modifications to TRIPS obligations were needed to help WTO Members address the COVID-19 pandemic. See WTO News Release, General Council, Members welcome Quad document as basis for text-based negotiations on pandemic IP response, 10 May, 2022, https://www.wto.org/english/news_e/news22_e/gc_10may22_e.htm; WTO News Release, General Council, DG Okonjo-Iweala urges WTO members to “meet the many challenges of our time”, 9 May 2022, https://www.wto.org/english/news_e/news22_e/gc_09may22_e.htm; WTO News Release, Trade Negotiations Committee, DG Okonjo-Iweala: Members can deliver results at MC12 despite challenging circumstances, 4 May 2022, https://www.wto.org/english/news_e/news22_e/tnc_04may22_e.htm.

The Director-General highlighted at the May 4 informal TNC and Heads of Delegation meeting a possible list of achievables by the 12th Ministerial Conference in the difficult political and economic environment that Members find themselves in.

“One potential MC12 deliverable is a WTO response to the current and future pandemics, including intellectual property issues, where members will discuss possible elements of a compromise at a time to be determined by the Chair of the TRIPS Council, the DG said. Other potential deliverables include concluding an agreement on fisheries subsidies, achieving outcomes on agriculture and making progress on reforming the WTO in addition to various initiatives members are taking forward, she added.

“The Director-General pointed to the threat of a global crisis in food security, with prices for food, fertilizer and energy rising sharply from already high levels.  She suggested members could use MC12 as a platform to take actions on these issues separately from the ongoing agriculture negotiations.”

A WTO Response to the COVID-19 Pandemic

The WTO achieving a response to the COVID-19 pandemic became more likely with the release of the draft text from the EU, US, India and China. I reviewed the main changes from the earlier draft in a recent post. May 4, 2022:  Access to vaccines – the public release of the text from the U.S., EU, India and South Africa to the full WTO Membership for consideration by the Council for Trade Related Aspects of Intellectual Property Rights, https://currentthoughtsontrade.com/2022/05/04/access-to-vaccines-the-public-release-of-the-text-from-the-u-s-eu-india-and-south-africa-to-the-full-wto-membership-for-consideration-by-the-council-for-trade-related-aspects-of-intellectual-prop/. While Members were not ready to sign off on the draft language and were awaiting instructions from capitals on positions to take, it is clear that the text will be the basis for negotiations. Moreover, as reflected in the WTO press release on the May 10 General Council session, China indicated it would not avail itself of the flexibilities on vaccines in the proposal. As reviewed in my May 4th post, China’s action will facilitate agreement on the text as it will permit adoption of language that makes the provisions available to all developing countries but encourages countries with strong export capabilities to not avail themselves of the provisions. China has self-identified itself as a developing country, but has been the largest manufacturer and exporter of COVID-19 vaccines, The U.S. and EU had drafted language that would have excluded China’s eligibility (as the only developing countries with exports of more than 10% of global totals in 2021). China’s position permits broader eligibility, hence avoiding what China would view as discriminatory language aimed at it. The implicit quid pro quo for using the broader language was China indicating it would not utilize the provisions.

However, there are remaining issues needing resolution in the draft text including whether diagnostics and therapeutics will be included in the provisions immediately versus subject to a separate determination to include within six months. And there is the broader set of issues including transparency, export restrictions, trade facilitation important to many countries as part of any WTO response to the pandemic. The European Union reviewed its views on the broader issues during the General Council meeting. See European Union interventions at the General Council, 09-10 May 2022, https://www.eeas.europa.eu/delegations/world-trade-organization-wto/european-union-interventions-general-council-09-10-may_en?s=69,

Item 4. A. WTO RESPONSE TO THE PANDEMIC – REPORT BY THE CHAIR

“The European Union thanks the Facilitator for his report.

“The European Union has been a strong proponent of the WTO response to the pandemic from the onset of discussions that members had in this forum. We argued for a holistic approach, which would encompass all the necessary elements of the response, including intellectual property.

Now that we have made a substantial step forward in the TRIPS Council, it is high time we had a fresh look at other elements of the pandemic, such as transparency, export restrictions, or trade facilitation. The “strategic pause” allowed us to reflect deeper on how to move the process forward and arrive at a multilateral outcome demonstrating that the WTO can meaningfully contribute to a response to the crisis and learn from it. In that regard, we also note the statement of Brazil in document WT/GC/W/845 on various aspects of the response to the pandemic.

“The European Union and the United States have invested great efforts into allowing progress towards a credible outcome. We have reached a common understanding on the minimum or the landing zone that could be the final outcome in a number of areas, acknowledging that other Members have additional issues of interest that they would like to see reflected in the text. Our new compromise paper presents the essentials of the Walker text, which we value the most, in a condensed format. We are encouraged by the positive feedback we have received so far and we will take account of the comments received.

The new paper attempts to propose a balance that would be acceptable to all members. Even if slightly shorter on ambition than the Walker text, we believe that it still maintains the credibility of the WTO.

“As MC12 will start in a month time, we do not have the luxury of time. Our collective interest is to engage in a spirit of self-restraint and in a consensus-oriented mode.

We are hopeful that all members will be able to engage constructively so that we could all resume and promptly finalize the negotiating process before Ministers arrive in Geneva.

To get to a final agreement on a WTO response to the pandemic will require significant effort, but is looking hopeful at the moment.

Agriculture negotiations

While there has been a large agenda of items being discussed in agriculture, there are several possible deliverables besides a work program going forward. First, there has been agreement on tariff rate quota administration. See WTO News Release, General Council, General Council endorses final decision on Bali tariff rate quota underfill mechanism, 31 March 2022, https://www.wto.org/english/news_e/news22_e/gc_31mar22_e.htm; WTO Committee on Agriculture, REVIEW OF THE OPERATION OF THE BALI DECISION ON TRQ ADMINISTRATION REPORT BY THE CHAIRPERSON TO THE GENERAL COUNCIL, Addendum, G/AG/32/Add.1 (29 March 2022). G/AG/32/Add.1 is enclosed below.

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It is unlikely that other aspects of the agriculture reform program will have concrete results by the 12th Ministerial with the possible exception of not blocking exports of agricultural goods to the UN World Food Programme. See WTO News Release, Agriculture Committee, MC12 outcome must help end hunger, improve food security, says chair, 27 April 2022, https://www.wto.org/english/news_e/news22_e/agng_02may22_e.htm; WTO, State of Play 13 December 2021, Agriculture negotiations, https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bfagric_e.htm (topics include Public stockholding for food security purposes, Domestic support, Cotton, Market access, Special safeguard mechanism, Export prohibitions or restrictions, Export competition, Transparency).

Specifically, it is not clear that much progress has been made in 2022 on any of the topics being pursued. The last draft text from the Chair that has been released publicly dates from November 2021. COMMITTEE ON AGRICULTURE IN SPECIAL SESSION, REPORT BY THE CHAIRPERSON, H.E. MS GLORIA ABRAHAM PERALTA, TO THE TRADE NEGOTIATIONS COMMITTEE, TN/AG/50 (23 November 2021). The document is embedded below and basically lays out a work program on each topic going forward with an annex exempting food purchases by the UN World Food Programme from any export restrictions. Presumably some modified version of the November 2021 draft text will be presented to Ministers at the `2th Ministerial Conference.

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Food security flowing from Russian invasion of Ukraine

As reviewed in prior posts and reflected in the various WTO news releases, there is a current food security crisis flowing from the Russian invasion of Ukraine. See, e.g., April 19, 2022:  Recent estimates of global effects from Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/04/19/recent-estimates-of-global-effects-from-russian-invasion-of-ukraine/; March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/; WTO News Release, Agriculture Committee, MC12 outcome must help end hunger, improve food security, says chair, 27 April 2022, https://www.wto.org/english/news_e/news22_e/agng_02may22_e.htm. Multilateral organizations have been calling for swift action to address the food security concerns. WTO News Release, WTO and other organizations, World Bank, IMF, WFP and WTO call for urgent coordinated action on food security, 13 April 2022, https://www.wto.org/english/news_e/news22_e/igo_13apr22_e.htm.

At this week’s General Council meeting there were two agenda items that addressed the food security issue. Item 8 and item 12. See WTO General Council, Proposed Agenda, WT/GC/W/846, 6 May 2022. Item 8 dealt with a document entitled “Joint Statement on Open and Predictable Trade in Agricultural and Food Products” and was presented by the United Kingdom. Signatories to the document included Albania; Australia; Canada; Chile; Costa Rica; European Union; Georgia; Iceland; Israel; Japan; Republic of Korea; Liechtenstein; Mexico; Republic of Moldova; Montenegro; New Zealand; North Macedonia; Norway; Paraguay; Singapore; Switzerland; The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Ukraine; United Kingdom and United States (51 WTO Members). The document is embedded below.

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A number of countries have imposed export restrictions which worsen the pricing spikes being experienced on key agricultural commodities where Ukraine is a major exporter. The action by the 51 WTO Members is an important step whether or not it will generate a consensus document by the 12th Ministerial Conference meeting or not.

The EU’s comments on item 8 are likely representative of those supporting maintaining open markets for agricultural products at the present time.

“Item 8 – JOINT STATEMENT ON OPEN AND PREDICTABLE TRADE IN AGRICULTURAL AND FOOD PRODUCTS – REQUEST FROM THE UNITED KINGDOM

The European Union would like to thank the United Kingdom and other co-sponsors for their support in raising attention in the WTO to the global food security crisis that we see emerging.

The crisis triggered by Russia’s unprovoked, illegal and unjustified aggression against Ukraine, is not only a dramatic humanitarian crisis for Ukraine. It has increased food insecurity in many developing countries around the world.

We are witnessing a dramatic surge in food, fertilizer and energy prices, which exceed the levels reached during the last major food crisis in 2011, as well as risks to supply of staple commodities with immediate impacts on world food security and nutrition.

Let me be clear that any negative impact on agricultural production in Ukraine, and therefore on global food security, prices or availability of commodities on the world market is a result of the destabilising effects of the Russian aggression and military activities on Ukrainian soil.

The EU considers that the emerging food security challenges should be addressed as a priority at the 12th WTO Ministerial Conference.

We hope this plurilateral statement may help in focussing attention on the crucial importance of responding to these challenges.

The discussions in the recent food security seminar, including contributions from FAO, WFP and other organisations, were also useful.   

The plurilateral statement is also a  response to the call of  Director-General Okonjo-Iweala for coordinated actions in areas like export restrictions on food, and transparency, including transparency of stocks.

We call for unanimous support for a decision exempting World Food Programme humanitarian purchases from export restrictions. This would facilitate sourcing supplies by the WFP in these critical times. The EU expects the WTO and its members to act at this critical moment in order to help ensure open trade, strong rules, resilient markets, and less trade distortions.

The EU will remain engaged in negotiations towards MC12 for outcomes, which will provide a tangible response to the food security challenges.

European Union interventions at the General Council, 09-10 May 2022, https://www.eeas.europa.eu/delegations/world-trade-organization-wto/european-union-interventions-general-council-09-10-may_en?s=69

Item 12 was a topic raised by the Russian Federation in its submission of 16 March 2022 (WT/GC/245) in which it alleges that the food security and other supply chain problems flow from sanctions imposed on Russia by various WTO members. See COMMUNICATION FROM THE RUSSIAN FEDERATION, WT/GC/245 (16 March 2022). The document is embedded below.

WTGC245

The countries imposing sanctions on Russia strongly disagree with Russia’s characterization of the causes for the food security challenge as the EU’s intervention at the General Council meeting makes clear.

Item 12 – TRADE-DISRUPTIVE PRACTICES OF CERTAIN MEMBERS AND THEIR IMPLICATIONS FOR THE WTO – COMMUNICATION FROM THE RUSSIAN FEDERATION (WT/GC/245)

Let us be clear from the outset: it is the Russian army that has invaded the Ukrainian territory. We strongly condemn the illegal, unprovoked, unjustifiable aggression of Ukraine by the Russian Federation, which has brought catastrophic loss of life and human suffering in Ukraine and poses a direct threat to the European and international security order.

The Russian Federation’s hostile act is a blatant violation of international law and the rules-based international order, the consequences of which have already extended well beyond Ukraine’s borders.

We are greatly concerned about the global trade consequences of the aggression; in particular as regards the supply of a number of commodities, including oil and gas, staple foods, and critical minerals.

The European Union also strongly specifically condemns Russia’s actions targeting Ukraine’s food supply and production. Credible reports highlighted that Russian forces are attacking and plundering grain silos in Ukraine as well as damaging and removing Ukrainian farm equipment. Furthermore, the closure of the Black Sea by Russian armed forces effectively blocks the exports of grains via Ukrainian seaports.

The food security situation is already dramatic for those directly involved in Ukraine. The impact of the Russian aggression is however not just restricted to Ukraine and its citizens but is seriously challenging food availability in some vulnerable net food-importing countries in particular. Russia’s war of aggression in Ukraine is thus jeopardizing the food supply to some of the most vulnerable parts of the world, particularly in developing countries, and pushing millions of people into food insecurity.

The Russian Federation has now embarked on a further campaign of disinformation in the context of the WTO. In the face of this, the European Union, alongside our partners, deems it important to set the record straight for the benefit of the membership.

In a transparent manner, the European Union have issued a Joint Statement together with partners in relation to the trade measures that the European Union and other members are adopting towards Russia, including measures that deny the Russian Federation the benefits which the WTO Agreement provides, such as the benefit of the most-favoured nation treatment. The measures include export restrictions and import restrictions targeting the Russian Federation.

The European Union considers these actions necessary to protect its essential security interests within the meaning of the applicable security exceptions of the WTO Agreement. The purpose of these measures is to restore peace and security, in full respect of Ukraine’s territorial integrity, sovereignty and independence within its internationally recognised borders. Therefore, these measures are fully consistent with WTO rules.

The European Union would like to underline that the EU’s sanctions do not target the agricultural sector of the Russian Federation. The sanctions are primarily directed at the Russian Government, the financial sector and the economic elites. They target the ability to finance the Russian aggression against Ukraine and its people.

Therefore, the European Union, alongside our partners, strongly condemns Russia’s attempts at putting the blame on international sanctions for the global food security crisis that is directly caused by Russia’s aggression against Ukraine and its people.

“In this context, we are committed to helping Ukraine cope with the trade consequences of the aggression. We will seek to facilitate access and transit for imports from Ukraine to our markets and encourage Members to do likewise – including by eliminating tariffs and other restrictions to imports, facilitating the use of infrastructure and facilitating customs procedures in a manner commensurate with their capacity and consistently with WTO rules.

The European Union will continue to provide humanitarian aid to alleviate the suffering of Ukrainian civilians by securing their access to basic goods and services, notably food. The European Union will also help Ukrainian farmers to continue planting and growing cereals and oilseeds, much needed for themselves and for the world, and to facilitate their exports.

We call on the Russian Federation to immediately stop its military aggression in Ukraine, which is also the only way to stop the humanitarian and food security crisis.

European Union interventions at the General Council, 09-10 May 2022, https://www.eeas.europa.eu/delegations/world-trade-organization-wto/european-union-interventions-general-council-09-10-may_en?s=69.

A number of WTO Members are providing temporary duty free treatment to goods from Ukraine besides the EU — Canada and U.K.. The U.S. has removed Section 232 tariffs on steel from Ukraine for the next year as well.

The EU is working to facilitate movement of Ukrainian agricultural products by land through EU member states. But the main challenges are the blockage of Black Sea ports by Russia and the reported theft of agricultural products and equipment from Ukrainian farms and depots. See, e.g., CNN, Russians steal vast amounts of Ukrainian grain and equipment, threatening this year’s harvest, May 5, 2022, https://www.cnn.com/2022/05/05/europe/russia-ukraine-grain-theft-cmd-intl/index.html; Voice of America, Russian Blockade of Ukrainian Sea Ports Sends Food Prices Soaring, May 7, 2022, https://www.voanews.com/a/russian-blockade-of-ukrainian-sea-ports-sends-food-prices-soaring/6561914.html; Politico, EU plans to help Ukraine’s food exports dodge Black Sea blockade, EU farm chief warns Russia wants to portray itself as feeding the poor, while it destroys Ukraine’s farmland. May 10, 2022, https://www.politico.eu/article/eu-plans-to-boost-ukraines-food-exports-black-sea-blockade/.

While many WTO Members will push for a WTO decision to bolster food security, it is unlikely that Russia and those engaging in export restraints will permit a consensus decision.

Fisheries Subsidies

While many Members and the WTO Director-General talk about delivering an agreement on fisheries subsidies, there has not been a lot of progress in recent months according to WTO news releases on meetings to review the issues. See, e.g., WTO News Release, Negotiations on Fisheries Subsidies, Chair of fisheries subsidies negotiations reports on consultations with members, 15 February 2022, https://www.wto.org/english/news_e/news22_e/fish_15feb22_e.htm.

After more than 21 years of negotiations, there is obviously a feeling that Members need to reach agreement. However, considering the entrenched positions of some and the current geopolitical situation, any agreement is likely to be modest in actual effect. I have reviewed developments in the negotiations in prior posts. See, e.g., https://www.wto.org/english/news_e/news22_e/fish_15feb22_e.htm.

WTO Reform

Much has been written on WTO reform in recent years. What is important to WTO Members varies although most support the need for reform. Changes to reinvigorate the negotiating function, improving transparency, agricultural reform, addressing dispute settlement concerns of the U.S. and others, addressing industrial subsidies (and subsidies more broadly), state-owned and state-invested enterprises, problems of global excess capacity in various industries, special and differential treatment, compatability of state-directed economies with WTO rules are just a handful of issues important to some Members. I have addressed some of these topics in prior posts. See, e.g., April 28, 2022:  WTO Reform and the 12th Ministerial Conference — What Is likely on Dispute Settlement?, https://currentthoughtsontrade.com/2022/04/28/wto-reform-and-the-12th-ministerial-conference-what-is-likely-on-dispute-settlement/; April 23, 2022:  The WTO’s upcoming 12th Ministerial Conference to be held in Geneva the week of June 13, 2022 — What can be expected in the current geopolitical environment?, https://currentthoughtsontrade.com/2022/04/23/the-wtos-upcoming-12th-ministerial-conference-to-be-held-in-geneva-the-week-of-june-13-2022-what-can-be-expected-in-the-current-geopolitical-environment/; February 14, 2022:  Dispute Settlement Reform at the WTO — What Needs to Precede Negotiations?, https://currentthoughtsontrade.com/2022/02/14/dispute-settlement-reform-at-the-wto-what-needs-to-precede-negotiations/.

There will likely be a document identifying some areas for future negotiations with a timeline of the 13th Ministerial as the target date for completion of the analysis. The level of ambition agreed up is not likely to be high in the current environment. Certainly, there won’t be agreement on tackling core issues such as the need for convergence of economic systems. While I would expect dispute settlement to be included, there has been no real movement by Members to come to grips with underlying U.S. concerns. Without that happening, there will likely be little chance of an agreed reform package by the 13th Ministerial.

There could also be a decision on transparency at the 12th Ministerial. See, e.g., General Council agenda item 9 and JOB/GC/204/Rev.9 (document from 50 Members). The latest version of the proposed decision is embedded below. The key to movement is eliminating any “penalties” for noncompliance and addressing concerns of some developing countries and LDCs on the challenges they face (capacity building, assistance, etc.). Those seem to be addressed in the latest draft, so hopefully agreement can be reached in the coming weeks.

JobsGC204R9

Joint Statement Initiatives (JSIs)

As reviewed in prior posts, there has been good progress in a number of the JSIs which are essentially open plurilaterals. A few have results which will be presented at the 12th Ministerial. Others have ambitions to be concluded in the next year or so. See, e.g., April 23, 2022:  The WTO’s upcoming 12th Ministerial Conference to be held in Geneva the week of June 13, 2022 — What can be expected in the current geopolitical environment?, https://currentthoughtsontrade.com/2022/04/23/the-wtos-upcoming-12th-ministerial-conference-to-be-held-in-geneva-the-week-of-june-13-2022-what-can-be-expected-in-the-current-geopolitical-environment/ (“There are a host of Joint Statement Initiatives that are at various stages of progress on a plurilateral basis, with India and South Africa raising objections to plurilateral agreements being part of the WTO without consensus agreement. See, e.g., April 14, 2022:  Challenging China’s Trade Practices — What Role for the WTO?,  https://currentthoughtsontrade.com/2022/04/14/challenging-chinas-trade-practices-what-role-for-the-wto/ (“Ongoing JSI include those on electronic commerce, investment facilitation for development, plastics pollution and environmentally sustainable plastics trade, services domestic regulation, informal working group on MSMEs, and trade and environmental sustainability.  The WTO issues periodic press releases on developments in the talks.  See, e.g., JOINT INITIATIVE ON E-COMMERCE, E-commerce negotiators seek to find common ground, revisit text proposals, 21 February 2022,  https://www.wto.org/english/news_e/news22_e/jsec_23feb22_e.htm (hoping to have convergence on majority of issues by end of 2022)(86 WTO Members participating accounting for 90% of e-commerce trade including China, U.S. and most other major countries);  INVESTMENT FACILITATION FOR DEVELOPMENT, Investment facilitation negotiators take steps to assess needs of developing countries, 15 February 2022, https://www.wto.org/english/news_e/news22_e/infac_23feb22_e.htm (looking to complete by end of 2022)(over 100 WTO Members participate including China and most developed countries, but not the U.S.); INFORMAL DIALOGUE ON PLASTICS POLLUTION AND ENVIRONMENTALLY SUSTAINABLE PLASTICS TRADE, Plastics dialogue emphasizes need for international collaboration, cooperation, 30 March 2022, https://www.wto.org/english/news_e/news22_e/ppesp_31mar22_e.htm  (70 Members participate including China and most major developed countries but not the U.S.); Joint Initiative on Services Domestic Regulation, Negotiations on services domestic regulation conclude successfully in Geneva, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm (67 Members participated including China, the U.S. and other major developed countries); . MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMES), Working group on small business welcomes three more members, 8 February 2022, https://www.wto.org/english/news_e/news22_e/msmes_08feb22_e.htm (94 participants including China and most major developed countries but not the U.S.).”).

India, Namibia and South Africa have raised issues with whether such plurilateral agreements can be made part of the WTO body of agreements without consensus. See THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, Revision, WT/GC/W/819/Rev.1 (30 April 2021). While that question will not likely be resolved at the 12th Ministerial Conference, important progress is being made on the JSIs.

Moratorium on Imposing Customs Duties on Electronic Transmissions

During prior Ministerial Conferences there was agreement both on Members holding off on non-violation nullification and impairment cases under the TRIPS Agreement and also agreement to extend the moratorium on imposing customs duties on electronic transmissions. WTO Members have already agreed to extend til the 13th Ministerial the ban on non-violation TRIPS cases. But a number of developing countries are seeking to end the moratorium on customs duties citing studies on loss of government revenue from the moratorium and the increased importance of electronic commerce.

Some Members have also expressed concern about the JSI on e-commerce in light of the ongoing work program on e-commerce within the WTO.

In the briefing note on e-commerce on the WTO webpage from January 11, 2022, the following is a discussion of activities in 2020 and 2021 on the topics.

“In summer 2020, WTO members put forward proposals on the implications of the moratorium, its scope, the definition of electronic transmissions and the implication of the moratorium on revenue loss for developing countries. This discussion is part of the broader developmental aspect of e-commerce: developing and least-developed countries face various challenges related to e-commerce, such as connectivity, infrastructure and capacity to implement policies related to e-commerce.

“The General Council continued to review progress in the Work Programme based on reports submitted by the chairs of the relevant WTO bodies. The General Council Chair convened a Structured Discussion under the Work Programme in July 2021. The discussion focused on three themes: electronic transmissions, imposition of internal non-discriminatory taxes on electronic transmissions, and e-commerce challenges and opportunities particularly in light of the COVID-19 pandemic.

“In a subsequent submission in November 2021, some members outlined that it is necessary to have more clarity on the definition of electronic transmissions, consensus on the scope of the moratorium and an understanding of the impact of the moratorium in order to enable the WTO members to take an informed decision at MC12 on whether or not to extend the moratorium on customs duties.

“In November 2021, a group of WTO members put forward a proposal that contains draft ministerial text for possible adoption by ministers at MC12 for the extension of the moratorium and continuing the reinvigoration of the work programme. Views of members vary and consultations led by the General Council chair continued ahead of the conference scheduled to start on 30 November.”

It is likely that the moratorium will be extended to the 13th Ministerial but it will likely be a late agreed topic and will be coupled with a “reinvigorated” WTO work program on e-commerce and a likely lack of agreement on the role of plurilaterals moving forward.

Conclusion

At a time of tremendous trade challenges globally, the WTO continues to struggle to demonstrate its relevance to addressing current issues. The large number of Members, the very different perspectives on what they look to the WTO to provide, the emergence of economically important Members with economic systems not really compatible with existing WTO rules, the consensus based system and many other factors make restoring relevance for many of the current challenges a daunting task. The geopolitical crisis flowing from Russia’s invasion of Ukraine has both expanded the challenges and made resolution through the WTO more difficult.

The WTO Director-General is urging Members to achieve results at the 12th Ministerial even if less ambitious than might have been possible in a different environment. As the above review suggests, a modest package is possible but not at all certain. There is very little time to close the gaps and get a meaningful package ready. Let’s hope that Members can rise to the occasion.

Latest round of sanctions against Russia and Belarus for unprovoked war against Ukraine

The G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and the European Union) released a joint statement on May 8, 2022 emphasizing their continued solidarity with Ukraine and announcing new sanctions being put in place or finalized by member countries. See White House Briefing Room, G7 Leaders’ Statement, May 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/08/g7-leaders-statement-2/. Paragraph 12 of the statement reviews the new sanctions G-7 members are pursuing.

“12. Our unprecedented package of coordinated sanctions has already significantly hindered Russia’s war of aggression by limiting access to financial channels and ability to pursue their objectives. These restrictive measures are already having a significant impact on all Russian economic sectors – financial, trade, defence, technology, and energy – and will intensify pressure on Russia over time. We will continue to impose severe and immediate economic costs on President Putin’s regime for this unjustifiable war. We collectively commit to taking the following measures, consistent with our respective legal authorities and processes:

“a. First, we commit to phase out our dependency on Russian energy, including by phasing out or banning the import of Russian oil. We will ensure that we do so in a timely and orderly fashion, and in ways that provide time for the world to secure alternative supplies. As we do so, we will work together and with our partners to ensure stable and sustainable global energy supplies and affordable prices for consumers, including by accelerating reduction of our overall reliance on fossil fuels and our transition to clean energy in accordance with our climate objectives.

“b. Second, we will take measures to prohibit or otherwise prevent the provision of key services on which Russia depends. This will reinforce Russia’s isolation across all sectors of its economy.

“c. Third, we will continue to take action against Russian banks connected to the global economy and systemically critical to the Russian financial system. We have already severely impaired Russia’s ability to finance its war of aggression by targeting its Central Bank and its largest financial institutions.

“d. Fourth, we will continue our efforts to fight off the Russian regime’s attempts to spread its propaganda. Respectable private companies should not provide revenue to the Russian regime or to its affiliates feeding the Russian war machine.

“e. Fifth, we will continue and elevate our campaign against the financial elites and family members, who support President Putin in his war effort and squander the resources of the Russian people. Consistent with our national authorities, we will impose sanctions on additional individuals.”

The U.S. released a fact sheet on its new sanctions. See White House Briefing Room, FACT SHEET: United
States and G7 Partners Impose Severe Costs for Putin’s War Against Ukraine, May 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/08/fact-sheet-united-states-and-g7-partners-impose-severe-costs-for-putins-war-against-ukraine/. In the fact sheet, the U.S. outlines the sanctions it is imposing in this latest round.

Targeting State-Controlled Media Within Russia That Bolster Putin’s War. The United States will sanction three of Russia’s most highly-viewed directly or indirectly state-controlled television stations in Russia – Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company. All three stations have been among the largest recipients of foreign revenue, which feeds back to the Russian State’s revenue.

Banning Services that Help Finance Putin’s War and Aid Sanctions Evasion. The United States will prohibit U.S. persons from providing accounting, trust and corporate formation, and management consulting services to any person in the Russian Federation. These services are key to Russian companies and elites building wealth, thereby generating revenue for Putin’s war machine, and to trying to hide that wealth and evade sanctions. This action builds on previous prohibitions to restrict the export of goods related to aerospace, marine, electronics, technology, and defense and related materiel sectors of the Russian economy.

Cutting off Imports of Russian Oil and Reducing Dependence on Russian Energy. The United States has already banned the import of Russian oil, gas, and coal. Today, the entire G7 committed to phasing out or banning the import of Russian oil. This will hit hard at the main artery of Putin’s economy and deny him the revenue he needs to fund his war. The G7 also committed to work together to ensure stable global energy supplies, while accelerating our efforts to reduce dependence on fossil fuels.

Impose further export controls and sanctions to degrade Russia’s war efforts.  The United States will issue a new rule that imposes additional restrictions on Russia’s industrial sector, including a broad range of inputs and products including wood products, industrial engines, boilers, motors, fans, and ventilation equipment, bulldozers, and many other items with industrial and commercial applications. These new controls will further limit Russia’s access to items and revenue that could support its military capabilities. The United States also sanctioned Limited Liability Company Promtekhnologiya, which produces rifles and other weapons that have been used in military operations in Ukraine; seven shipping companies, which own or operate 69 vessels; and one marine towing company. The Nuclear Regulatory Commission will also suspend general licenses for exports of source material, special nuclear material, byproduct material, and deuterium to Russia.

Impose Sanctions on Russian Elites and their Family Members and Visa Restrictions on Russian and Belarusian Officials Undermining the Sovereignty, Territorial Integrity, or Political Independence of Ukraine. The United States imposed approximately 2,600 visa restrictions on Russian and Belarusian officials in response to their ongoing efforts to undermine the sovereignty, territorial integrity, or political independence of Ukraine. Additionally, the United States issued a new visa restriction policy that applies to Russian Federation military officials and Russia-backed or Russia-installed purported authorities who are believed to have been involved in human rights abuses, violations of international humanitarian law, or public corruption in Ukraine. The United States also sanctioned eight executives from Sberbank– the largest financial institution in Russia and uniquely important to the Russian economy, holding about a third of all bank assets in Russia; twenty-seven executives from Gazprombank – a prominent Russian bank facilitating business by Russia’s Gazprom, one of the largest natural gas exporters in the world; and Moscow Industrial Bank and its ten subsidiaries.”

Canada’s Prime Minister was in Kyiv on May 8th and met with the Ukrainian President. Canada also announced new sanctions. See Canada Prime Minister Justin Trudeau, Prime Minister visits Kyiv, Ukraine, May 8, 2022, https://pm.gc.ca/en/news/news-releases/2022/05/08/prime-minister-visits-kyiv-ukraine; Radio Free Europe/Radio Liberty’s Ukrainian Service, Canadian Prime Minister Announces New Military Aid, Sanctions After Meeting In Kyiv With Zelenskiy, May 8, 2022, https://www.rferl.org/a/ukraine-zelenskiy-trudeau-weapons-equipment-canada/31840100.html (“‘Today, I’m announcing more military assistance, drone cameras, satellite imagery, small arms, ammunition, and other support, including funding for demining operations,’ Trudeau said. ‘And we’re bringing forward new sanctions on 40 Russian individuals and five entities, oligarchs, and close associates of the regime in the defense sector, all of them complicit in Putin’s war,’ in a reference to Russian President Vladimir Putin.”). Canada is also granting duty free treatment to Ukrainian goods for the next year. Canada was the first G-7 country to announce a ban on energy imports from Russia.

The United Kingdom similarly announced additional sanctions and duty free treatment for Ukrainian imports under the U.K.-Ukraine FTA. See Government of the United Kingdom, Press release
UK punishes Putin with new round ofsanctions on £1.7 billion of goods, May 8, 2022, https://www.gov.uk/government/news/uk-punishes-putin-with-new-round-of-sanctions-on-17-billion-of-goods. A section of the press release is copied below.

“The UK is today announcing a new package of sanctions on Russia and Belarus targeting £1.7 billion worth of trade in a move designed to further weaken Putin’s war machine.

“It will bring the total value of products subjected to full or partial import and export sanctions since Russia’s illegal invasion of Ukraine began to more than £4 billion.

“The sanctions announced today by the International Trade Secretary and the Chancellor of the Exchequer include import tariffs and export bans.

“The new import tariffs will cover £1.4 billion worth of goods – including platinum and palladium – hampering Putin’s ability to fund his war effort.

“Russia is one of the leading platinum and palladium producing countries and is highly dependent on the UK for exports of platinum and palladium products.

“Meanwhile, the planned export bans intend to hit more than £250 million worth of goods in sectors of the Russian economy most dependent on UK goods, targeting key materials such as chemicals, plastics, rubber, and machinery.”

The European Commission has proposed phasing out imports of Russian crude oil within six months and all refined oil products by the end of 2022 with some possible exceptions. The European Parliament and European Council still have the proposal under consideration. See EC Press Release, Speech by President von der Leyen at the EP Plenary on the social and economic consequences for the EU of the Russian war in Ukraine – reinforcing the EU’s capacity to act, Strasbourg, 4 May 2022, file:///C:/Users/tps/Downloads/Speech_by_President_von_der_Leyen_at_the_EP_Plenary_on_the_social_and_economic_consequences_for_the_EU_of_the_Russian_war_in_Ukraine___reinforcing_the_EU_s_capacity_to_act%20(1).pdf. EC President von der Leyen’s proposal on sanctions is copied below.

“Today, we are presenting the sixth package of sanctions. First, we are listing high-ranking military officers
and other individuals who committed war crimes in Bucha and who are responsible for the inhuman siege of the city of Mariupol. This sends another important signal to all perpetrators of the Kremlin’s war: We know who you are, and you will be held accountable. Second, we de-SWIFT Sberbank – by far Russia’s largest bank, and two other major banks. By that, we hit banks that are systemically critical to the Russian financial system and Putin’s ability to wage destruction. This will solidify the complete isolation of the Russian financial sector from the global system. Third, we are banning three big Russian state-owned broadcasters from our airwaves. They will not be allowed to distribute their content anymore in the EU, in whatever shape or form, be it on cable, via satellite, on the internet or via smartphone apps. We have identified these TV channels as mouthpieces that amplify Putin’s lies and propaganda aggressively. We should not give them a stage anymore to spread these lies. Moreover, the Kremlin relies on accountants, consultants and spin doctors from Europe. And this will now stop. We are banning those services from being provided to Russian companies.

“My final point on sanction: When the Leaders met in Versailles, they agreed to phase out our dependency on Russian energy. In the last sanction package, we started with coal. Now we are addressing our dependency on Russian oil. Let us be clear: it will not be easy. Some Member States are strongly dependent on Russian oil. But we simply have to work on it. We now propose a ban on Russian oil. This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined. We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimises the impact on global markets. This is why we will phase out Russian supply of crude oil within six months and refined products by the end of the year. Thus, we maximise pressure on Russia, while at the same time minimising collateral damage to us and our partners around the globe. Because to help Ukraine, our own economy has to remain strong.”

The unprovoked war has created major challenges for the global trading system as reviewed in earlier posts particularly in food security for many countries, and in energy and fertilizers. The countries imposing sanctions and providing security and economic assistance to Ukraine are attempting to secure the multinational order that has preserved peace in Europe and many other parts of the world for the last 70+ years. Imposing costs on the Russian Federation and Belarus for their conduct and the unmentionable atrocities will continue and will likely increase as the brutal war started by Russia likely will last for some time yet.

World Trade Organization 12th Ministerial Conference — the possible response to the COVID-19 pandemic amid the declining demand for vaccines

One of the hoped for outcomes from the upcoming 12th Ministerial Conference in Geneva June 12-15, 2022 is a possible agreed outcome on the WTO’s response to the COVID-19 pandemic including some action on intellectual property issues. See, e.g., WTO News Release, DG Okonjo-Iweala concludes US mission, 28 April 2022, https://www.wto.org/english/news_e/news22_e/dgno_28apr22b_e.htm (“Director-General Ngozi Okonjo-Iweala met on 28 April with US Trade Representative Katherine Tai to discuss prospects for the upcoming 12th Ministerial Conference, the WTO’s response to the pandemic including intellectual property, reform of the organization, the looming food shortage crisis and disruptions to global supply chains.”).

I have previously reviewed the possible elements of the response to the pandemic and a not finalized draft intellectual property document among the European Union, United States, India and South Africa. See, e.g., March 17, 2022:  Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India, https://currentthoughtsontrade.com/2022/03/17/possible-compromise-on-access-to-vaccines-draft-understanding-between-eu-us-south-africa-and-india/; November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/.

Equitable access to vaccines has been a matter of concern to many countries and the focus of the effort by India and South Africa to obtain a waiver from TRIPS obligations for vaccines, therapeutics and more for a period of years to address the pandemic.

There has been dramatic increases in production capacity for existing vaccines with significant efforts to expand production in developing countries including low income countries. See, e.g., February 21, 2022:  The EU – AU Summit and the promise of a resolution to the WTO pandemic response package, https://currentthoughtsontrade.com/2022/02/21/the-eu-au-summit-and-the-promise-of-a-resolution-to-the-wto-pandemic-response-package/; February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

The WHO has set the objective of getting 70% of the world’s population vaccinated by this summer, a goal that should be achievable based on production capacity. Unfortunately, it is clear that for low income countries generally and for Africa as a continent, the 70% target will not be met. It is also not likely that lower middle income countries will reach the target either. The WTO-IMF vaccine information available from the WTO webpage is currently updated through the end of March 2022. See WTO-IMF COVID-19 Vaccine Trade Tracker, Last updated: 28 April 2022, Table 6, https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm. Specifically when examined on an income level basis (World Bank definition), low income countries have only 12.0% of their population fully vaccinated (15.2% with at least one dose); lower middle income countries have 48.4% of their population fully vaccinated (57.3% with at least one dose). These rates compare to 72.6% of Upper middle income countries’ populations being fully vaccinated and 73.2% of high income countries’ populations. On a continent-wide basis, Africa has only 15.3% of its population fully vaccinated; Oceania is at 62.3%; North America is at 62.7%; Europe is 65.1%;, Asia is 67.8%; and South America is 73.0%.

Shockingly, data on a monthly basis show total supply declining in each of the first three months of 2022 compared to December 2021 and, in fact, below every month since June 2021. March 2022 appears to be roughly 1/3 of supply from December 2021. WTO-IMF COVID-19 Vaccine Trade Tracker, at Table 4. This decline in volume is despite new vaccine producers of vaccines being approved and UNICEF’s tracking of capacity showing 2022 ranging from 16.8-20.9 billion doses versus the 2021 rate of 11.5 billion. UNICEF, COVID-19 Vaccine Market Dashboard, accessed 4-30-2022, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard.

Since last fall, there have been news stories about countries with low vaccination rates not being able to accept all deliveries scheduled. See, e.g., Reuters exclusively reports South Africa delays COVID vaccine deliveries as inoculations slow, November 24, 2021, ttps://www.reutersagency.com/en/reutersbest/article/reuters-exclusively-reports-south-africa-delays-covid-vaccine-deliveries-as-inoculations-slow/ (“Reuters exclusively reported that South Africa has asked Johnson & Johnson and Pfizer to delay delivery of COVID-19 vaccines because it now has too much stock, as vaccine hesitancy slows an inoculation campaign. About 35% of South Africans are fully vaccinated, higher than in most other African nations, but half the government’s year-end target. It has averaged 106,000 doses a day in the past 15 days in a nation of 60 million people.”).

The causes can vary from vaccine hesitancy (which can be higher in countries with low death rates such as much of Africa), to challenges with distribution (particularly to rural parts of countries), to weak health care infrastructure and more.

Moderna, one of the major mRNA vaccine producers, had its annual shareholders meeting on April 28, 2022. One of the shareholder initiatives voted on was whether the company should generate a Report on Feasibility of Transferring Intellectual Property. The proposal was rejected by over 3/4th of the votes. But in a document released by the company, there is a description of the large volume of production that has not been accepted or delayed and the resulting reduction of production that Moderna is going through because of a lack of demand. See Moderna, Global Access to COVID-19 Vaccines, April 28, 2022, https://s29.q4cdn.com/435878511/files/doc_news/2022/04/Access-Statement_4.28_817am.pdf. A section of the document pertaining to COVAX and the Africa Union is copied below.

Committing Vaccines to COVAX and the African Union

“Beginning in the summer of 2020, the Moderna team was engaged with Gavi, the Vaccine Alliance, on behalf of the COVAX Facility, hoping to secure a commitment from them to procure a significant number of Moderna COVID-19 vaccines. An agreement was not reached until April 2021, though we were pleased to commit up to 500 million doses to COVAX – a number that was subsequently increased to 650 million doses. Similarly, we were proud to reach an agreement with the African Union to supply 110 million doses, which we were prepared to start delivering as early as the fourth quarter of 2021. In each case, we offered these vaccines at our lowest price, and in the latest agreements the price for each of these organizations was $7 per 100 μg dose.

“Despite our efforts, ultimately COVAX and the African Union deferred or declined hundreds of millions of doses of Moderna’s vaccine. While we were prepared to deliver tens of millions of doses to the African Union in December 2021, they asked us to delay delivery, noting that they did not have the means of distributing them. They also declined to exercise an option for 60 million doses that were available to them in the second quarter of this year.

“Similarly, COVAX has declined options for over 320 million doses that Moderna was prepared to deliver in 2022, noting that they have ample access to vaccines. And even for those doses where COVAX submitted a firm order covering the first and second quarters, they have asked to defer delivery. As a result, Moderna is incurring significant costs as it winds down relationships with outside manufacturers who were engaged to produce these declined doses.

“Asking Moderna to transfer intellectual property to local manufacturers—as the Oxfam America proposal suggested—when hundreds of millions of doses are being declined and already operating manufacturing plants are being idled will do nothing to accelerate the end of the pandemic. It would also require diverting Moderna personnel already engaged in manufacturing with other partners, or who are working on other initiatives, including the company’s Global Health strategy as described below.

The document in its entirety is embedded below.

Access-Statement_4.28_817am-1

The WTO-IMF COVID-19 Vaccine Trade Tracker in its table 4 on total supply shows that supply by all or nearly all major COVID vaccine producers has declined on a monthly basis since December 2022 including for Sinovac, AstraZeneca, Pfizer, Sinopharm, Moderna, J&J, Sputnik and other. Thus, the reduction in production is not limited to mRNA products or to just Moderna. The table from the current WTO-IMF Vaccine Trade Tracker is copied below.

So the challenges of vaccinating the world against the COVID-19 pandemic continue but are not driven in 2022 by availability of the vaccine or even access to the vaccine. Neither waiver of TRIPS obligations nor easier compulsory licensing of the COVID-19 vaccines will solve the underlying ongoing issue of vaccinations.

The draft intellectual property document being worked on by the EU, U.S., India and South Africa that when signed off on by those four will need to be considered by the WTO Membership as a whole, is limited to vaccines, with therapeutics and other elements of goods needed to address the pandemic potentially addressable in six months after an agreement. If the draft agreement among the four (actual language has not been finalized and reportedly has not been signed off on by the U.S., India and South Africa) is the intellectual property part of the WTO’s response to the pandemic, its relevance, if any, will be how Members might look at future pandemics and actions by WTO Members. Its utility for the COVID-19 pandemic is at the most very limited with more capacity than demand in 2022 and with the major drivers of nonvaccination this year not being availability of vaccines. This means that while there will be potentially symbolic relevance to the IP portion of the package, the meat of the response will be in the areas of keeping markets open, limiting export restraints, improved transparency, etc.

WTO Reform and the 12th Ministerial Conference — What Is likely on Dispute Settlement?

With the 12th WTO Ministerial Conference now set for June 12-15, 2022 in Geneva, the WTO Members have a limited amount of remaining time to achieve progress on pending matters and to decide how to move forward with WTO reform (and what such reform might cover). For many Members, the issue of dispute settlement — whether restoration of the Appellate Body through starting selecting new AB members or reform of the system — is an important component of any WTO reform agenda.

Earlier this week on April 27, the Dispute Settlement Body held its monthly meeting. As has been true for several years, the agenda included the question of Appellate Body vacancies/appointments. WTO, Dispute Settlement Body, 27 April 2022, Proposed Agenda, WT/DSB/W/697 (Agenda item 3). While the WTO’s news release on the meeting is titled “Members commit to engagement on dispute settlement reform”, the summary of the discussion that followed sounds virtually identical to the summaries of dozens of prior Dispute Settlement Body meetings on the same topic. Compare WTO News Release, Members commit to engagement on dispute settlement reform, 27 April 2022, https://www.wto.org/english/news_e/news22_e/dsb_27apr22_e.htm (Appellate Body appointments section) with WTO News Release, WTO panels to review Russian procurement measures, Dominican duties, 20 December 2021, https://www.wto.org/english/news_e/news21_e/dsb_20dec21_e.htm (Appellate Body appointments section) and WTO News Release, Members pledge flexible arrangements in WTO dispute proceedings during COVID pandemic, 18 December 2020, https://www.wto.org/english/news_e/news20_e/dsb_18dec20_e.htm (Appellate Body appointments). Moreover the full statement of the U.S. on the topic is quite similar to earlier statements. See USTR, Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, April 27, 2022, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2022/04/Apr27.DSB_.Stmt_.as_.deliv_.fin_.pdf (agenda item 3, Statement by Ambassador Maria Pagán.

While Members will likely agree to include dispute settlement reform in any WTO reform agenda agreed to at the 12th Ministerial, the difference in positions reflected in the WTO news release among Members suggest a continued yawning gap between the needs of the United States and the positions of many other WTO Members.

Below is the summary of the discussion contained in the April 27, 2022 WTO News Release.

“Appellate Body appointments

“Mexico, speaking on behalf of 123 members, introduced for the 53rd time the group’s proposal to start the selection processes for filling vacancies on the Appellate Body. The extensive number of members submitting the proposal reflects a common concern over the current situation in the Appellate Body which is seriously affecting the overall WTO dispute settlement system against the best interest of members, Mexico said for the group.

“The United States said that its longstanding concerns with WTO dispute settlement remain unaddressed, and that it does not support the proposed decision to commence the appointment of Appellate Body members.  Many members share US concerns with the functioning of the system and its negative impact on the WTO’s negotiating and monitoring functions, it said.

“The US added that it wants to be clear it supports WTO dispute settlement reform and that it is prepared for continued and deepened engagement with members on the basis that such discussions should aim to ensure that WTO dispute settlement reflects the real interests of members and not prejudge what a reformed system would look like.

“More than 20 delegations (including the European Union for its 27 members, Nigeria for the African Group and St Vincent and the Grenadines for the Organization of Eastern Caribbean States) took the floor to reiterate the importance of the WTO’s two-tiered dispute settlement system to the stability and predictability of the multilateral trading system.  They called on all members to engage in constructive discussions in order to restore a fully functioning dispute settlement system, which some cited as a top priority for reform of the organization.

“For the 123 members, Mexico again came back to say the fact a member may have concerns about certain aspects of the functioning of the Appellate Body cannot serve as pretext to impair and disrupt the work of the Dispute Settlement Body (DSB) and dispute settlement in general, and that there was no legal justification for the current blocking of the selection processes, which is causing concrete nullification and impairment of rights for many members.

“The DSB chair, Ambassador Athaliah Lesiba Molokomme of Botswana, said she hoped members would be able to find a solution to this matter.”

The statement of the new Deputy U.S. Trade Representative in Geneva, Amb. Maria Pagán, is copied below.

“Statement by Ambassador Maria Pagán

“• Thank you, Chair. This is my first DSB meeting since arriving in Geneva, and I am pleased to be here. The United States values the work of Members in the DSB, and I look forward to supporting you as Chair in this important body.

“• Members are aware of the longstanding U.S. concerns with WTO dispute settlement. Those concerns remain unaddressed, and the United States does not support the proposed decision.

“• But let me be clear: The United States supports WTO dispute settlement reform. Like Ambassador Tai, I have personally participated in various dispute settlement proceedings, and I can appreciate the benefits of a system that effectively meets the needs of Members.

“• WTO dispute settlement currently fails in this regard – for many years it has not met the needs of Members, including the United States, for example, due to its complexity, delays, lack of transparency, and interpretive overreach. We know well that many Members share U.S. concerns with the functioning of the system and its negative impact on the WTO’s negotiating and monitoring functions.

“• This fact underscores the importance of understanding better the interests of all Members, and not just ‘what does the United States want’. A true reform discussion should aim to ensure that WTO dispute settlement reflects the real interests of Members, and not prejudge what a reformed system would look like.

“• My delegation has been, and will continue to be, hard at work meeting with Members to better understand the interests of all Members. This important first step provides us with the greatest chance of achieving durable, lasting reform. That is the goal of the United States and we are prepared for continued and deepened engagement with Members on that basis.”

The Biden Administration, like the Trump Administration, believes that the operation of the dispute settlement system is in need of significant reform. The Trump Administration characterized the challenge as getting Members to explore why the Appellate Body felt at liberty to disregard the clear limitations on its authority in the Dispute Settlement Understanding and why Members had not moved earlier to ensure the limited role for the Appellate Body was respected. The Trump Administration also expressed concern that the dispute settlement system was not permitting Members to address the massive distortions caused to the global trading system from state-directed economies such as China. The Trump Administration was also not committed to a two-tier review system in light of the problems with the Appellate Body.

The Biden Administration has expressed similar concerns although Amb. Pagán’s comments appear to change the focus from why did the Appellate Body view itself as permitted to deviate from its limited role to a review of what Members “real interests” are. It is unclear if the different language reflects a change in focus or just a rearticulation of the need to find reforms that will deliver a dispute settlement system that is limited to and achieves the objectives Members have articulated.

With the major efforts of the U.S. and EU to work together on a host of trade and non-trade issues under the Biden Administration’s time and knowing the importance the EU has always placed on reobtaining binding dispute settlement, it is clear that the U.S. will agree to have dispute settlement reform as part of the WTO reform agenda as in indicated by Amb. Pagán’s statement. That doesn’t mean there is an obvious path to reform or that a two year time period (to the 13th Ministerial Conference) in the current circumstances will permit reform in all areas needing to be addressed. Nor is there any indication that Members are willing to consider corrections to the errant Appellate Body decisions to restore rights Members had when the WTO was launched.

But at a time where the ability of the WTO Members to deliver meaningful outcomes is even more limited than usual because of the Russian war in Ukraine, agreeing on an agenda for WTO reform topics may hold out the best hope for achieving a promise of a better future for Members at the upcoming 12th Ministerial.

The WTO’s upcoming 12th Ministerial Conference to be held in Geneva the week of June 13, 2022 — What can be expected in the current geopolitical environment?

The COVID-19 pandemic has twice delayed the 12th Ministerial Conference from its original date in June 2020. Assuming the Ministerial Conference in fact takes place the week of June 13, 2022 (and isn’t delayed by a new surge in COVID-19 infrections or by other complications), there will have been a four and a half year delay from the 11th Ministerial Conference held in Buenos Aires in late 2017. Ministerial conferences are intended to be held every two years. Considering the challenges facing the World Trade Organization, many will be looking to see if this year’s Ministerial can help restore the WTO’s relevancy. The effort to get positive results at the 12th Ministerial Conference has been complicated by Russia’s invasion of Ukraine.

The list of challenging issues is long. Fisheries Subsidies is the only new multilateral agreement under discussion. While it is nearing the finish line, negotiations have been ongoing for more than twenty years, and it is unclear the level of ambition that will be agreed to if negotiations are concluded.

There are a range of agriculture issues that have been under discussion for years. The topics under discussion include public stockholding for food security purposes, domestic support (subsidies other than export subsidies), cotton, market access, special safeguard mechanism, export prohibitions or restrictions, export competition and transparency, See WTO Briefing Note, Agriculture Negotiations, State of Play 13 December 2021, https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bfagric_e.htm. In the most recent WTO press notice on the agriculture negotiations is from March 23, 2022 and notes the challenges from the Russian invasion. See WTO, Agriculture negotiators chart path towards MC12, 23 March 2022, https://www.wto.org/english/news_e/news22_e/agng_21mar22_e.htm (“WTO agriculture negotiators met on 21 March to discuss the way forward ahead of the 12th Ministerial Conference (MC12), which is now scheduled to take place the week of 13 June. The chair of the agriculture negotiating group, Ambassador Gloria Abraham Peralta (Costa Rica), noted the impact of the conflict in Ukraine on global food markets and the agriculture negotiation environment. She asked members to prepare for intensive negotiations and use the remaining time wisely so as to achieve pragmatic, meaningful outcomes at MC12.”).

The WTO Members have also been seeking to reach agreement on a response package to the COVID-19 pandemic, including on whether some form of waiver or other action is needed on intellectual property rights during the COVID-19 pandemic. See, e.g., March 17, 2022:  Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India, https://currentthoughtsontrade.com/2022/03/17/possible-compromise-on-access-to-vaccines-draft-understanding-between-eu-us-south-africa-and-india/; February 21, 2022:  The EU – AU Summit and the promise of a resolution to the WTO pandemic response package, https://currentthoughtsontrade.com/2022/02/21/the-eu-au-summit-and-the-promise-of-a-resolution-to-the-wto-pandemic-response-package/; February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

There are a host of Joint Statement Initiatives that are at various stages of progress on a plurilateral basis, with India and South Africa raising objections to plurilateral agreements being part of the WTO without consensus agreement. See, e.g., April 14, 2022:  Challenging China’s Trade Practices — What Role for the WTO?, https://currentthoughtsontrade.com/2022/04/14/challenging-chinas-trade-practices-what-role-for-the-wto/ (“Ongoing JSI include those on electronic commerce, investment facilitation for development, plastics pollution and environmentally sustainable plastics trade, services domestic regulation, informal working group on MSMEs, and trade and environmental sustainability.  The WTO issues periodic press releases on developments in the talks.  See, e.g., JOINT INITIATIVE ON E-COMMERCE, E-commerce negotiators seek to find common ground, revisit text proposals, 21 February 2022, https://www.wto.org/english/news_e/news22_e/jsec_23feb22_e.htm (hoping to have convergence on majority of issues by end of 2022)(86 WTO Members participating accounting for 90% of e-commerce trade including China, U.S. and most other major countries);  INVESTMENT FACILITATION FOR DEVELOPMENT, Investment facilitation negotiators take steps to assess needs of developing countries, 15 February 2022, https://www.wto.org/english/news_e/news22_e/infac_23feb22_e.htm (looking to complete by end of 2022)(over 100 WTO Members participate including China and most developed countries, but not the U.S.); INFORMAL DIALOGUE ON PLASTICS POLLUTION AND ENVIRONMENTALLY SUSTAINABLE PLASTICS TRADE, Plastics dialogue emphasizes need for international collaboration, cooperation, 30 March 2022, https://www.wto.org/english/news_e/news22_e/ppesp_31mar22_e.htm  (70 Members participate including China and most major developed countries but not the U.S.); Joint Initiative on Services Domestic Regulation, Negotiations on services domestic regulation conclude successfully in Geneva, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm (67 Members participated including China, the U.S. and other major developed countries); . MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMES), Working group on small business welcomes three more members, 8 February 2022, https://www.wto.org/english/news_e/news22_e/msmes_08feb22_e.htm (94 participants including China and most major developed countries but not the U.S.).”).

There are many issues that have been raised as potential subjects for WTO reform including dispute settlement, industrial subsidies, state-owned and state-invested enterprises, excess capacity, transparency and many others.

With the U.S., EU, U.K., Japan, Canada and others seeking to reduce the role the Russian Federation can play in multilateral and plurilateral organizations while its war against Ukraine continues, it is unclear what progress will be made on the trade agenda at the WTO ahead of the 12th Ministerial. For example, G7 countries, the EU and others have suspended most favored nation status on goods and services from the Russian Federation. March 20, 2022:  Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine, https://currentthoughtsontrade.com/2022/03/20/banned-imports-higher-tariffs-other-actions-by-trading-partners-as-russia-and-belarus-lose-most-faovered-nation-treatment-by-g-7-countries-and-eu-during-the-conflict-in-ukraine/.

They have also announced that they are removing the Russian Federation from the WTO Developed Countries Coordinating Group. See March 5, 2022:  Joint letter from European Union and United States on removing the Russian Federation from the WTO Developed Countries Coordinating Group, https://currentthoughtsontrade.com/2022/03/05/joint-letter-from-european-union-and-united-states-on-removing-the-russian-federation-from-the-wto-developed-countries-coordinating-group/.

Russia’s President Putin has indicated that he wants a revised WTO strategy by June 1 to deal with sanctions imposed by western countries. See Reuters, Russia to update its strategy in World Trade Organization amid sanctions, says Putin, April 20, 2022, https://www.reuters.com/world/russia-update-its-strategy-world-trade-organization-amid-sanctions-says-putin-2022-04-20/ (“Russian President Vladimir Putin said on Wednesday that ‘illegal’ restrictions on Russian companies by Western states ran counter to World Trade Organization rules and told his government to update Russia’s strategy in the WTO by June 1. Speaking at a government meeting on the country’s metals industry, Putin said that Western countries had banned Russia from buying components needed to produce rolled metal, steel sheets and other products.”). It is unclear if that “revised strategy” will include blocking consensus in the WTO on topics being negotiated/discussed for the 12th Ministerial Meeting. Western countries have also opted to walk out of meetings when Russian delegates are participating/speaking. See, e.g., NPR, Janet Yellen and other finance ministers walk out of G20 meeting as Russia speaks, April 20, 2022, https://www.npr.org/2022/04/20/1093841174/janet-yellen-crystia-freeland-canada-rishi-sunak-uk-g20-walk-out-russia (“Treasury Secretary Janet Yellen and other global financial leaders walked out of a G20 session as Russian officials were speaking on Wednesday in an effort to underscore Moscow’s isolation following the invasion of Ukraine.”).

Thus, the atmosphere for moving trade talks forward is clouded at best at the present time.

As prior Director-Generals have done for prior Ministerial Confernces, WTO Director-General Ngozi Okonjo-Iweala has been traveling the world seeking support from major countries to a successful Ministerial Conference. See, e.g., WTO news release, DG calls on Brazil’s support in preventing food crisis, seeks leadership towards MC12, 19 April 2022, https://www.wto.org/english/news_e/news22_e/dgno_19apr22_e.htm (” Director-General Ngozi Okonjo-Iweala concluded a two-day trip to Brazil on 18-19 April, her first to Latin America as head of the WTO, meeting government officials, parliamentarians and businesspeople. She thanked Brazil for its constructive role in the WTO, highlighted the country’s potential role in alleviating risks of a food security crisis linked to the conflict in Ukraine and acknowledged the government’s concerns about the difficulties in securing fertilizers. She also sought Brazil’s continued and strong support for multilateralism and a fruitful 12th Ministerial Conference (MC12).”). The Director-General will be in Washington the week of April 25, 2022. See, e.g., Inside U.S. Trade’s World Trade Online, WTO director-general to visit Washington next week in lead-up to MC12, April 20, 2022, https://insidetrade.com/daily-news/wto-director-general-visit-washington-next-week-lead-mc12. The Inside U.S. Trade article reviews the tensions caused by the Russian invasion and the resulting uncertainty about what, if any, outcomes are possible for the 12th Ministerial Conference.

“Her conversations in Washington are likely to focus significantly on the waiver and on the upcoming 12th ministerial conference, set for the week of June 13 in Geneva. If all went according to plan, the ministerial gathering was to be the venue for delivering a long-awaited agreement on fisheries subsidies, a step forward on agriculture and a pandemic response package, including a compromise IP waiver.

“But the twice-postponed gathering is poised to be derailed once again – if not actually rescheduled – by political and diplomatic tensions arising from Russia’s invasion of Ukraine. Whether WTO members will be able to produce deals at MC12 is in doubt as the WTO has had to adapt to conducting its negotiations around the tensions. Okonjo-Iweala said last week that plenary meetings of the full membership have become more difficult to hold, with members opting instead for small-group or bilateral meetings.”

There have also been efforts to develop a factual background to support some elements of a possible WTO reform agenda. The U.S., EU and Japan have been working over the last few years on potential modifications to the current Subsidies and Countervailing Measures Agreement to address some of the major distortions in industrial goods trade caused by China’s state-directed economy — industrial subsidies, state-owned and state-invested enterprises, global excess capacity. China has indicated a willingness to discuss subsidies if all subsidies (including agricultural subsidies) are included. On April 22, 2022, a report prepared by the staff of the IMF, OECD, World Bank and WTO was released. See IMF, OECD, World Bank and WTO, Subsidies, Trade, and International Cooperation, April 22, 2022, https://www.wto.org/english/news_e/news22_e/igo_22apr22_e.pdf; WTO news release, Greater international cooperation needed on subsidies data, analysis and reform — report, 22 April 2022, https://www.wto.org/english/news_e/news22_e/igo_22apr22_e.htm. The Executive Summary of the report (pages 3-4) is copied below.

“Dealing constructively with subsidies in global commerce is central to G20 leaders’ goal of reforming and
strengthening the multilateral trading system. The growing use of distortive subsidies alters trade and
investment flows, detracts from the value of tariff bindings and other market access commitments, and
undercuts public support for open trade. Sharp differences over subsidies are contributing to global trade
tensions that are harming growth and living standards.

“There are good reasons why this issue, which has challenged policymakers for decades, should be addressed now. Among them: distinguishing ‘good’ and ‘bad’ subsidies is analytically and politically fraught, while the unilateral responses available to trading partners (such as ‘trade defense’ measures) are a limited deterrent. The renewed drive toward industrial policies to promote ‘strategic’ sectors may distort international competition, especially against smaller, fiscally constrained developing countries. With the frequency and complexity of distortive subsidies increasing, even as the need grows for active policies to address climate, health, food, and other emergencies, subsidies and the subsidies debate have brought significant discord to the trading system. The issue demands global attention and cooperation.

“Subsidies are common in all sectors, used by countries at all stages of development, take many forms, and affect all countries. Despite important gaps in our information about subsidies, the broad landscape is clear. Most merchandise trade occurs in products and markets in which at least one subsidized firm operates. National and sub-national entities provide subsidies through—to name a few forms—direct grants, tax incentives, and favorable terms for financing, energy, land, or other inputs. Many subsidies are explicitly aimed at the important task of correcting market failures and may do this well. Many others, however, are designed in ways that do little to advance their stated objective, or do so at high domestic cost or with harmful effects on the global commons and on other countries, notably the poorest and most vulnerable countries. International cooperation can reduce the overall use of subsidies and improve their design.

“Existing international rules provide a strong basis for regulating subsidies. International subsidy disciplines were progressively strengthened, notably in 1995 with the WTO Agreement on Subsidies and
Countervailing Measures and the WTO Agreement on Agriculture, although the agenda to negotiate
detailed subsidy rules for services has been largely set aside. Many major countries also adhere to the
disciplines of the OECD Export Credit Arrangement. Some recent free trade agreements have also gone
beyond WTO rules, containing, for instance, provisions disciplining the behavior of state-owned enterprises and more extensive lists of prohibited subsidies.

“Still, both longstanding and recently-exposed gaps remain in these international rules. Extensive trade distorting domestic farm subsidies are still allowed in many cases, and WTO members have yet to agree
special disciplines for harmful fisheries subsidies that contribute to overfishing. The recognition of gaps is
shaped by such developments as the emergence of global value chains; digital markets and related network concentration effects; the global importance of economies in which the state plays a central role,
and of international SOEs; the urgent challenge of climate change; and the recognition that well-crafted
subsidies can be an important part of the public response to economic and health emergencies. These
developments make the issue of subsidies in the trading system both more complex and more urgent.
Investment incentives are widespread, often at sub-national levels where they can be hard to monitor.
Much of this debate occurs in the context of the industrial sector. This paper does not advocate particular
outcomes. However, international cooperation that delivers improved subsidy disciplines, improves
business certainty, and reduces trade frictions would be superior to unilateral actions and should be
expected to reduce their use.

“In many of these areas, better information, more extensive objective analysis, and regular dialogue can
help governments accelerate reform of their own subsidies and expedite negotiations toward improved
international disciplines. Careful, high-quality economic analysis is needed to understand not only how well current subsidy programs meet domestic policy objectives, and at what cost, but also how they spill over onto international markets and how they interact with international policy goals, like climate mitigation. That effort must improve the information available on existing subsidy programs and their effects, especially on trading partners. It should feed into a structured inter-governmental dialogue, informed by analysis, and lead to a more common perspective on the appropriate roles of subsidies that, in turn, facilitates the development of updated norms and standards. Improved transparency and analysis, more robust intergovernmental consultation, and strengthened international rules can be expected to reduce the use of harmful subsidies and to improve their design—leading to better outcomes with fewer negative effects at home or abroad.

“The international organizations (IOs) authoring this report can strengthen their individual and joint work to support governments in this endeavor. While the brunt of this work lies with finance ministries, trade
ministries, and sectoral and specialized agencies of national governments, international organizations have key roles to play. The four authoring institutions are examining ways to help, individually and jointly, such as by collecting, organizing, and sharing data, coordinating analytical work agendas to develop methodologies to assess the cross-border effects of different forms of subsidies, and supporting inter-governmental dialogues. This will involve reaching out to and working with other international institutions as well.”

The report also contains a list of some recent international reports relating to subsidies (Box 1 on page 6, copied below).

Box 1. Selected Recent International Reports Relating to Subsidies

“Noting that COVID-19 caused severe stress for tourism industries in the region and around the world, the Asian Development Bank’s Asian Economic Integration Report (ADB, 2021) examined measures to support tourism in selected ADB developing members. It draws positive lessons to help governments maintain critical levels of tourism infrastructure and to facilitate a rapid rebound in a sector that is key to many economies.

“Global Trade Alert set out to inventory subsidies of the “major players”—China, the EU, and the United States (Evenett and Fritz, 2021). It finds that in 2019, more than three-fifths of global goods trade was in products and on trade routes in which one or more subsidized Chinese, EU, or U.S. firms compete. When a major player introduces a new subsidy, the others usually respond within six months with their own subsidy.

“The 2021 FAO, UNDP, and UNEP report, A Multi-Billion-Dollar Opportunity: Repurposing Agricultural Support to Transform Food Systems, finds that some forms of support to agricultural producers are distortive and socially and environmentally harmful. It sets out a six-step guide for repurposing the provision of public goods and services for agriculture.

“The World Resources Institute 2021 report, Repurposing Agriculture Subsidies to Restore Farmland and Grow Rural Prosperity, likewise argues that public agricultural subsidies failed to achieve their stated objectives but that smart agricultural subsidies can restore degraded land and rural economies.\

“IMF (2020) advises governments on raising efficiency and managing other challenges related to SOEs—frequent recipients or providers of subsidies. It calls for global principles for multinational SOEs, noting that SOEs account for 20 percent of assets of the world’s largest 2,000 firms. Some IMF Article IV country reports have called for specific reforms of farm subsidies or industrial subsidies.

“As part of its ongoing work on agricultural support, OECD (2021a) provides country-comparable data and information and analyzes whether current support is helping to meet the triple challenge facing food systems (food security and nutrition, environmental sustainability, and livelihoods). OECD (2019a) and OECD (2019b) examine support received by the largest firms in the aluminum and semiconductor value chains; these reports shed light in particular on support provided through the financial system; current work also explores the environmental harm that can arise from subsidies.

“The case for international cooperation on subsidy disciplines was previously reviewed in WTO (2006), which also examined existing WTO subsidy disciplines. A recent World Trade Report (WTO, 2020) showed that international cooperation can shape the pursuit of digital development more effectively, while minimizing cross-border spillovers from national policies. WTO Trade Policy Reviews have triggered extensive discussions of subsidy policies in individual WTO members.

“Noting the growing role of the state in the context of COVID-19 and climate change, WEF (2021) calls for
international cooperation to tackle these global challenges and to address cross-border spillovers from state intervention. It outlines the current state of play and proposes ways forward across subsidies, state ownership and control, government procurement, investment screening, and trade remedies.”

The report from the four organizations was supported by a paper published from former WTO Deputy Director-General Alan Wm. Wolff last week, part of a forthcoming book World Trade Governance: The Future of the Multilateral Trading System. See Peterson Institute for International Economics, Working Paper 22-6 WTO 2025, Alan Wm. Wolff, Enhancing Global Trade Intelligence, April 2022, https://www.piie.com/sites/default/files/documents/wp22-6.pdf.

At most the staff report and the paper from former DDG Wolff support the need for reexamining subsidy disciplines. Any such reexamination will take years to complete but could be part of an announced package of WTO reform topics to be addressed going forward if there is agreement on such a list. See also November 24, 2020:  Responding to a comment received on yesterday’s post, WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/24/responding-to-a-comment-received-on-yesterdays-post-wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/; November 23, 2020:  WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/23/wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/.

The week of June 13, 2022 and the 12th Ministerial Conference is just eight weeks away. It is unclear what, if any, package of documents will be ready for adoption/release during the 12th Ministerial Conference in Geneva. In a member driven organization with a consensus system being the norm outcomes among 164 Members with dramatically different interests are hard to achieve. Thus, there has been limited progress in the past Ministerials. The Russian war in Ukraine adds a layer of uncertainty to what can be achieved at the Ministerial Conference in June this year.

Challenging China’s Trade Practices — What Role for the WTO?

The U.S.-China Economic and Security Review Commission (USCC) is holding a hearing on April 14, 2022 looking at the following topic — Challenging China’s Trade Practices:  Promoting Interests of U.S. Workers, Farmers, Producers and Innovators. See U.S.-China Economic and Security Review Commission, Notice of Public Hearing, 87 Fed. Reg. 18,075 (March 29, 2022. I am participating on the fourth panel which looks at China and the WTO. I copy below my written testimony. Before that I provide a summary of my thoughts and some recommendations for U.S. action.

As is broadly recognized, the WTO is struggling to maintain relevance and develop updated rules for international trade that reflect the changing landscape on critical issues. The growth of the WTO in terms of membership and accession applications is notable but has resulted in an organization where progress on multilateral issues is nearly impossible and in any event too slow. China and other Members emulating China’s state-directed economic model have pushed the organization into a nonsustainable position as the current rules are premised on major Members having market economies. The clash between the economic systems has resulted in increasing tensions as market economies struggle to deal with distortions created by China and others, many of which distortions are not addressable by existing WTO rules. With a consensus based system for modifications to existing rules or for the creation of new rules, there are questions about the ability to move forward to address China’s massive distortions. Similarly, while there are important activities that the WTO can and sometimes does do in the Committee structure, the Committees are not generally effective and a lack of transparency in practices, particularly in areas such as subsidies by China and others, reduces the effectiveness of the Committee function. Dispute settlement, while important, has developed a range of problems that both harm Members’ maintenance of existing rights and which complicate the ability of Members to address state-directed economies distortions. This is not to say that there aren’t important efforts underway within the WTO, often on a plurilateral vs. multilateral basis, that can be useful in the U.S.-China relationship. Moreover, frequently the ability of the WTO to collect and disseminate of information on important issues such as import and export restrictions introduced during the pandemic and the recent work looking at the trade effects of the Russian invasion of Ukraine is important in helping Members understand current challenges and identify activities that may be useful in improving the global economy.

The Biden Administration has made it clear that it wants to work within multilateral organizations as possible while pursuing domestic tools where needed and making the investments in the country to improve U.S. competitiveness.

So within the WTO, the U.S. should continue to pursue reforms that would make the WTO better able to address the distortions that flow from state-directed economies like China. The work that has been underway with the EU and Japan on industrial subsidies, global excess capacity and state-owned/invested companies is an excellent example, although what can be achieved in the WTO is likely to be far less than what is needed.

Similarly, working to complete the fisheries subsidies negotiations (including the ban on forced labor) is an important multilateral undertaking.

There are a number of plurilateral negotiations that are ongoing (so-called Joint Initiative Statements) that deal with important issues like e-commerce and domestic regulation of services and a number of environmental and other issues. The U.S. is active in some but not all. It should be active in all of the JSIs.

On dispute settlement, there are fundamental reforms needed that I have outlined in earlier posts as well as changes to the trade defense agreements to restore rights. See, e.g., July 12, 2020:  WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/. But the U.S., EU, Japan and others could bring a broad based case against China focusing on the many ways in which China has not fulfilled its commitments under the protocol of accession. Such a case would permit an identification of the many failures of China to in fact implement the obligations it undertook in 2001 in joining the WTO. A panel report would help focus the WTO membership on the changes that need to be made by China to have an economic system that is compatible with the WTO or that will address Chinese distortions and can lead to more flexibilities in terms of WTO reform. Depending on the outcome of the challenges to U.S. Section 232 actions on steel and aluminum (national security claims), the U.S. may also need/want to obtain reforms in whether national security claims are reviewable and whether the standards contained within GATT 1994 Art. XXI need updating/revision.

Much of what needs to be done to address China’s trade practices will be handled through domestic legislation and regulation or through bilateral negotiations with China or through unilateral actions that may not be consistent with WTO requirements.

Getting better enforcement of the Phase I Agreement and pursuing a Phase II Agreement presumably are elements of bilateral talks. Making U.S. trade remedies more effective and less costly can be done through domestic legislation and agency regulations.

Beefing up transparency requirements for foreign owned companies listing on U.S. stock exchanges is important and needs to be fully implemented and enforced.

The U.S.-U.K. agreement on steel and aluminum contains an important requirement that Chinese owned companies in the U.K. in these sectors be audited to determine if there are subsidies provided from China.

Resources to permit aggressive implementation of the ban on forced labor imports from Xinjiang is also within the Congress’ purview.

Tighter oversight of Chinese investment (direct and indirect) in strategic sectors, as well as addressing investment needs in critical sectors domestically, improving the resiliency of supply chains and getting infrastructure modernized are all important actions – a number of which are already approved by the Congress or being pursued by the Administration.

Written Testimony Submitted to the U.S.-China Economic and Security Commission for April 14 Hearing

Since joining the WTO at the end of 2001, China has risen to become the world’s largest exporter and has generally outperformed the world economy becoming the world’s second largest economy.  China will likely overtake the United States in terms of national GDP in the coming years.  So WTO membership has been of enormous benefit to China including through encouraging foreign investment, transfer of technology, improved productivity and quality and higher living standards.  Indeed, hundreds of millions of Chinese have been lifted out of poverty over the last decades.

When China was admitted to the WTO, the Chinese economy was not yet market oriented nor consistent with a wide range of WTO obligations.  The result was a Protocol of Accession and Working Party Report that were the most complicated in terms of additional efforts needed by China and a timeframe for making additional wide ranging modifications to its economic system.

While China adopted many of its obligations at the beginning of WTO membership in 2002 and worked for a number of years to implement further important structural changes, China has moved away from its efforts to reform its economy to be more market driven and has reembraced its state-directed economic model over the last decade or so. 

Because of the size of the Chinese economy and the enormity of the government’s involvement and distortions imposed on the functioning of the economy, the distortions caused to trading partners operating on market principles have been massive.  These have included massive excess capacity in many industries flowing from state plans and subsidies, restricted market access to foreign products, theft of intellectual property and forced technology transfer, and the creation of false market signals in terms of costs of production.  There have been many critiques of China’s WTO membership.  My reflections are contained in a recent post.  See December 11, 2021:  20 Years of China’s Membership in the WTO — a brief critique, https://currentthoughtsontrade.com/2021/12/11/20-years-of-chinas-membership-in-the-wto-a-brief-critique/.

Even without China, the WTO has struggled since its creation to update global trade rules.  The inability to have successful negotiations on a range of topics flows from a variety of reasons including the consensus based decision making, large differences in views of purpose of and direction for the WTO among Members, and a dispute settlement system that has often deviated from its limited role encouraging members to file disputes instead of negotiating.  The organization has struggled to maintain its relevance in a rapidly changing world.  For many market economies, the WTO is not viewed as able to adequately address the distortions created by a state-directed economy the size of China’s.  

From the beginning of China’s WTO membership, other Members have worked to help China conform its system to the WTO requirements.  For example, major trading partners of China, including the U.S., European Union, Japan, Canada, Australia and others spent years working with Chinese agencies to help them bring laws into compliance with WTO obligations and worked bilaterally to resolve problems as they arose.  Such activity has not been unusual for WTO Members in the early years of membership to help new Members understand what additional changes are appropriate or to resolve practices of concern bilaterally.  

Where China was unable or unwilling to bring practices or laws/regulations into conformity, the U.S., EU and others have brought disputes at the WTO.  As of April 8, 2022, China is or has been a respondent in 49 WTO disputes.  It has also brought 22 cases against the U.S., EU and others and participated as a third party in 192 disputes.  Most of the cases that have brought against China consisted of situations where China’s actions were facially inconsistent with WTO obligations. Where cases weren’t resolved through consultations and China lost the dispute, China has typically implemented the loss although in a narrow fashion.  China has brought cases to address what it considered to be “discriminatory” provisions of its Protocol of Accession (country specific safeguard; continuation of treatment as a non-market economy after 15 years) or to attempt to weaken trade remedies of major trading parties like the United States and the EU.  Some of these efforts were unsuccessful.  However, China has been able to obtain weakening of trade remedy practices with reports by WTO panels and the Appellate Body viewed by the U.S. and others as changing the rights they had under the trade remedy agreements.

As the 2020 USTR report on the WTO Appellate Body made clear, dispute settlement at the WTO has had the unintended consequence of changing the bargain reached in the Uruguay Round for the United States.  See February 14, 2020: USTR’s Report on the WTO Appellate Body – An Impressive Critique of the Appellate Body’s Deviation from Its Proper Role, https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/.

Moreover, as articulated by the prior Administration and the present Administration, the current WTO agreements and dispute settlement don’t adequately address the global distortions caused by the state-directed economy of China and those copying its practices.  See, e.g., December 14, 2020:  WTO December 14th Heads of Delegation meeting – parting comments of U.S. Ambassador Dennis Shea, https://currentthoughtsontrade.com/2020/12/14/wto-december-14th-heads-of-delegation-meeting-parting-comments-of-u-s-ambassador-dennis-shea/

There have been efforts by the U.S., EU and Japan to start an evaluation of possible modifications to the Subsidies and Countervailing Measures Agreement to address the massive industrial subsidies, global excess capacity and state-owned, state-invested enterprises that characterize some of the important ongoing distortions created by the Chinese state-directed economy.  While China has indicated it would be open to a reexamination of all subsidy practices, it is unclear what agreement could be reached within the WTO.  In any event, agreement on any changes will take years to accomplish and will almost certainly be less than what is needed because of the consensus approach to decision making at the WTO.  Presumably the first panel today reviewed the eforts at WTO reform on industrial subsidies, excess capacity and state-owned enterprises.  Several posts of mine have addressed some aspects of the issue. See, e.g., January 14, 2020: WTO Reform – Joint Statement of January 14, 2020 of Japan, the U.S. and the EU, https://currentthoughtsontrade.com/2020/01/14/wto-reform-joint-statement-of-january-14-2020-of-japan-the-u-s-and-the-eu/.

China has been viewed by many WTO Members as retaliating against WTO Members who bring disputes or who use trade remedies by bringing disputes themselves or bringing trade remedy cases.   They also resort to intimidation through wide ranging and often non-transparent actions to punish trading partners who take positions China strongly disagrees with.  China’s actions against Australia and more recently Lithuania are just two examples.   I have looked at both cases in posts in the last several years.  See January 27, 2022:  The European Union requests consultations with China at the WTO for restrictions on Lithuanian goods imposed by China,

https://currentthoughtsontrade.com/2022/01/27/the-european-union-requests-consultations-with-china-at-the-wto-for-restrictions-on-lithuania-goods-imposed-by-china/; January 7, 2022:  China’s “bullying” of Lithuania — a repeating story inconsistent with WTO rules, https://currentthoughtsontrade.com/2022/01/07/chinas-bullying-of-lithuania-a-repeating-story-inconsistent-with-wto-rules/; December 22, 2020:  China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/.

The lack of transparency in the Chinese system permits a wide range of trade distortions to arise (e.g., when state, provincial or local governments ban imports without formal notice or explanation, when technology transfer is required to operate but not included in documents, etc.).  China’s submissions to the WTO in areas such as subsidies have been viewed by the U.S., EU and others as woefully incomplete and have led to counternotifications being made by the U.S.  See, e.g., USTR Press Release, United States Details China and India Subsidy Programs in Submission to WTO, October 6, 2011, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-prog; SUBSIDIES, Request from the UNITED STATES to CHINA, Pursuant to Article 25.10 of the Agreement,  G/SCM/Q2/CHN/42 (11 October 2011).

While China has long been cited as having major human rights problems, in recent years, the trade implications of forced labor and other human rights issues have led to increased activity in an effort to cut off imports into the U.S. of products made from forced labor (in part or total).  See, e.g., February 13, 2022:  February 10, 2022 release of ILO report and subsequent U.S. State Department press release on forced labor and other human rights issues in Xinjiang Autonomous Region of China, https://currentthoughtsontrade.com/2022/02/13/february-10-2022-release-of-ilo-report-and-subsequent-u-s-state-department-press-release-on-forced-labor-and-other-human-rights-issues-in-xinjiang-autonomous-region-of-china/; February 11, 2022:  Stopping imports made in whole or in part from forced labor — U.S. law and the looming challenge on goods made from cotton and polysilicon, https://currentthoughtsontrade.com/2022/02/11/stopping-imports-made-in-whole-or-in-part-from-forced-labor-u-s-law-and-the-looming-challenge-on-goods-made-from-cotton-and-polysilicon/; December 19, 2021:  Forced labor and trade — U.S. Congress passes legislation to address China’s treatment of Uyghurs, https://currentthoughtsontrade.com/2021/12/19/forced-labor-and-trade-u-s-congress-passes-legislation-to-address-chinas-treatment-of-uyghurs/; 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/.

The array of inconsistencies with WTO norms are reviewed annually in the USTR Report to Congress on China’s Compliance with the WTO.  See, e.g., February 16, 2022:  USTR’s 2021 Report to Congress on China’s WTO Compliance — a recognition that all of China’s distortions to competition cannot be dealt with within the WTO, https://currentthoughtsontrade.com/2022/02/16/ustrs-2021-report-to-congress-on-chinas-wto-compliance-a-recognition-that-all-of-chinas-distortions-to-competition-cannot-be-dealt-with-within-the-wto/.

Prior Administrations have engaged both bilaterally with China and through disputes to get China to live up to its commitments under the WTO.  The Trump Administration sought to address global excess capacity in steel and aluminum through use of Section 232 of the Trade Expansion Act  of 1962, as amended on national security concerns and conducted a section 301 investigation on a range of Chinese practices in, inter alia, the intellectual property area which resulted in additional tariffs being imposed on most goods coming from China.  WTO challenges and court challenges in the U.S. have been testing the breadth of the U.S. national security law and the WTO consistency of such actions.

While some observers have called for excluding China from the WTO or forming a separate grouping that excludes China, the WTO has no identified process for removing countries from membership, although the current crisis caused by the Russian Federation’s invasion of Ukraine has shown the willingness of a number of major economies to remove most favored nation status on a Member for national security reasons.  See, e.g.,  January 16, 2022:  Is it time for a new approach to bilateral trade with China?, https://currentthoughtsontrade.com/2022/01/16/is-it-time-for-a-new-approach-to-bilateral-trade-with-china/; March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; March 20, 2022:  Banned imports, higher tariffs, other actions by trading partners as Russia and Belarus lose most favored nation treatment by G-7 countries and EU during the conflict in Ukraine, https://currentthoughtsontrade.com/2022/03/20/banned-imports-higher-tariffs-other-actions-by-trading-partners-as-russia-and-belarus-lose-most-faovered-nation-treatment-by-g-7-countries-and-eu-during-the-conflict-in-ukraine/.

The Biden Administration has expressed the intention of working with allies to improve the WTO while looking at additional tools to address the distortions caused by the Chinese system.  See, e.g,. Testimony of Ambassador Katherine Tai Before the Senate Finance Committee Hearing on the President’s 2022 Trade Policy Agenda, https://ustr.gov/about-us/policy-offices/press-office/speeches-and-remarks/2022/march/testimony-ambassador-katherine-tai-senate-finance-committee-hearing-presidents-2022-trade-policy (March 31, 2022).  Thus, the Biden Administration will engage bilaterally with China, will focus on strengthening the U.S. economy (e.g., improved infrastructure, more resilient supply chains, more domestic production of key products, improved Buy America), explore new tools to address distortions (e.g., the U.S.-EU efforts on steel and aluminum to address excess capacity), and will work regionally and through the WTO to address issues of importance where possible.  

Questions of interest to the USCC for this panel

  1.  China has repeatedly refused to abide by the spirit of the World Trade Organization.  Is the WTO still relevant to addressing the challenges posed by China’s policies?

The fundamental problem posed by China in the WTO is its state-directed economic system which is fundamentally at odds with market economies.  Former Deputy Director-General of the WTO Alan Wolff has opined on a number of occasions that a core principle of the WTO is the need for convergence of economic systems of WTO Members.  Coexistence of different economic systems is not dealt with by the WTO Agreements and is not compatible with WTO rules.  See, e.g., November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/  August 19, 2020 [updated August 27]; August 19, 2020 [updated August 27]:   The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates, https://currentthoughtsontrade.com/2020/08/19/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-addre/; August 17, 2020:  The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/.

While the U.S., EU and others have raised the need to address the myriad distortions caused by non-market economies (or state directed economies) as part of WTO reform, it is highly unlikely that WTO Members will agree to broad based changes, although some changes to the Subsidies Agreement may be accomplished over the medium term (5 years or more). 

  • Can the WTO meaningfully address the repeated problem of Chinese subsidies?  In particular, with subsidies emanating from state-owned companies, is it feasible to overcome the WTO’s definition of what constitutes a “public body”?  Was the WTO’s decision correctly decided based on negotiated commitments?

While the U.S. lost the dispute on “public bodies,” the U.S. has continued to pursue countervailing duty cases against imports from China, typically with large countervailable subsidies found.  Thus, U.S. countervailing duty law can likely still be effective in many cases despite the adverse public body decision.  That does not protect U.S. export interests both in China and in third countries.

The WTO adverse decision will almost certainly be part of the package of proposals for reform coming from the U.S., EU and Japan.  Because of China’s interest in maintaining the Appellate Body’s  reading of “public body”, it is unclear if revision at the WTO will be possible.

The United States identified the public body decision as one of the most egregious Appellate Body overreach decisions in its 2020 report on the Appellate Body.  See USTR,  REPORT ON THE APPELLATE BODY OF THE WORLD TRADE ORGANIZATION, February 2020, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf, pages 82-88 (“The Appellate Body’s Erroneous Interpretation of ‘Public Body’ Threatens the Ability of WTO Members to Counteract Trade-Distorting Subsidies Provided through SOEs, Undermining the Interests of All Market-Oriented Actors”).  I concur that the decision is inconsistent with the underlying WTO Subsidies and Countervailing Measures Agreement.

The decision has been widely criticized, including by people who were actively involved in the negotiations (Jan Woznowski, Director of the Rules Division; Michael Cartland, Permanent Representative of Hong Kong who served as the Chair of the Subsidies and Countervailing Measures negotiations, and Gerard DePayre, negotiator for the European Union on Subsidies and Countervailing Measures).  See Cartland, Michael, Depayre, Gérard &Woznowski, Jan. “Is Something Going Wrong in the WTO Dispute Settlement?” Journal of World Trade 46, no. 5 (2012): 979–1016, at 996.  USTR characterized the paper as follows in its 2020 Report (pages 86-87):

“Commentators have also criticized the Appellate Body’s interpretation. For example, in an article in the Journal of World Trade, Michael Cartland, Gérard Depayre, and Jan Woznowski – each of whom participated in the Negotiating Group on subsidies and countervailing measures in the Uruguay Round – present a detailed discussion of the Appellate Body report in US – Anti-Dumping and Countervailing Duties (China) and raise a host of concerns with the Appellate Body’s interpretation of the term ‘public body,’ calling the analysis ‘internally contradictory’ and ‘disingenuous.’”

  • As national security becomes a higher priority for both the United States and China, how can the WTO remain relevant or useful in breaking down barriers to trade?

Since the GATT started in the late 1940s there has always been a national security exception to obligations assumed under the GATT and now under the WTO. GATT 1994 Article XXI reads:

Article XXI

Security Exceptions

Nothing in this Agreement shall be construed

  • to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
  • to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests
  • relating to fissionable materials or the materials from which they are derived;
  • relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods ad materials as is carried on directly or indirectly for the purpose of supplying a military establishment;
  • taken in time of war or other emergency in international relations; or
  • to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. 

Similar provisions are in the Services and TRIPS Agreements.

The bulk of the actions taken by the United States against China have not been premised on national security.  Trade remedies (antidumping, countervailing duty, safeguard), Section 301 actions have not been premised on national security but other statutory bases. Section 232 actions, such as on steel and aluminum, have been based on national security concerns.

Similarly, U.S., EU, UK, Canada, Japan and others who have removed most favored nation treatment from the Russian Federation after its invasion of Ukraine have justified such action on national security (presumably GATT 1994 Art. XXI (b)(iii) for goods).

Many WTO Members, including China, the EU, Canada, Mexico and others, took unilateral action without WTO authorization when the U.S. imposed duties under Section 232, some claiming that such action was supported by the Safeguard Agreement where imports had not increased. Such actions by U.S. trading partners were not justified on national security grounds.

U.S. 232 action is currently subject to panel review at the WTO with panel reports currently due by the end of the first half of 2022. See, e.g., UNITED STATES – CERTAIN MEASURES ON STEEL AND ALUMINIUM PRODUCTS COMMUNICATION FROM THE PANEL, WT/DS544/12 (China as complainant)(10 December 2021).

The U.S. has long contended that when a Member claims national security as the basis for action, there is no role for the WTO dispute settlement system.  National security actions by other countries whether involving goods or TRIPS have been found by WTO panels and the Appellate Body as subject to review and permissible if in accordance with the provisions of GATT 1994 Article XXI (or comparable provisions in the TRIPS Agreement).  See, e.g.,  World Trade Institute Working Paper No. 03/2020,  Peter Van den Bossche and Sarah Akpofure, The Use and Abuse of the National Security Exception under Article XXI(b)(iii) of the GATT 1994, https://www.wti.org/media/filer_public/50/57/5057fb22-f949-4920-8bd1-e8ad352d22b2/wti_working_paper_03_2020.pdf.

If the panel report finds the U.S. not having complied with WTO obligations, the U.S. will have the option of seeking a resolution with the complainants or filing an appeal.

To the extent that the U.S. views an increased need to invoke national security justification for action contrary to other WTO obligations and such actions would not fall under the exceptions as construed by panels, the U.S. will be left with seeking modification of GATT Art. XXI (and the comparable GATS and TRIPS provisions) as part of WTO reform or can hold up reacceptance of binding dispute settlement, or can simply accept the retaliation likely to follow.

It is not my view that national security will be the major tool used going forward to address distortions from China.  

  • Katherine Tai recently posed the question of whether U.S. policy is aiming for a greater quantity of liberalized trade or “for smarter and more resilient trade.”  Is the WTO compatible with a latter vision?

The GATT and now WTO have always had provisions permitting members to deviate from obligations in certain circumstances and to adopt laws and regulations to address health, quality and other national concerns.  Thus, there is nothing in the WTO that prevents countries from engaging in smarter or more resilient trade.

The U.S. during the Trump Administration, had raised a series of issues concerning whether the existing system was sustainable as being tilted against the United States.  The issues included self-selection as a developing country (with entitlement to special and differential treatment), lack of transparency by some Members, the need to rebalance tariff commitments in light of current level of economic development, revised agreements to address distortions created by state-directed economies like China.  See, e.g., August 24, 2020:  USTR Lighthizer’s Op Ed in the Wall Street Journal – How to Set World Trade Straight, https://currentthoughtsontrade.com/2020/08/24/ustr-lighthizers-op-ed-in-the-wall-street-journal-how-to-set-world-trade-straight/.  These types of changes, if made to the WTO, would make the international trading system smarter and more resilient.  Most observers believe such changes are unlikely to be achievable.

The Biden Administration has been putting a push on trading partners to take action against forced labor within the ongoing negotiations on fisheries subsidies.  While it is unlikely that such provisions will be accepted by all WTO Members (particularly China) as part of the fisheries subsidies negotiations, such action is being pursued within USMCA countries and some others.  Eliminating trade based on forced labor would be smarter and more resilient trade.

The WTO and GATT before it have historically been reluctant to embrace labor and environmental issues, though there has been a trade and environment committee for many years and there are now a range of environmental plurilateral negotiations taking place.  Dealing with environmental issues and to the extent possible labor issues would make for smarter and more resilient trade.  The environmental negotiations are likely to be plurilateral but open to all to join.

In short, it should be possible for WTO Members to adopt at least many aspects of “smarter and more resilient trade” without running afoul of WTO obligations. 

  • What is the promise of other initiatives taking place in the WTO related to digital trade and what is the likelihood that they can change Chinese practices?

WTO Members launched a series of Joint Statement Initiatives (JSIs) among the willing at the 11th Ministerial Conference held in Buenos Aires in 2017.  While countries like India and South Africa have not joined any of the JSIs and have raised questions about the propriety of the WTO incorporating plurilateral agreements without consensus of all Members, there has been a lot of effort over the last four years on moving the negotiations forward, seeking some completions by the 12th Ministerial Conference this June. 

Ongoing JSI include those on electronic commerce, investment facilitation for development, plastics pollution and environmentally sustainable plastics trade, services domestic regulation, informal working group on MSMEs, and trade and environmental sustainability.  The WTO issues periodic press releases on developments in the talks.  See, e.g., JOINT INITIATIVE ON E-COMMERCE, E-commerce negotiators seek to find common ground, revisit text proposals, 21 February 2022, https://www.wto.org/english/news_e/news22_e/jsec_23feb22_e.htm (hoping to have convergence on majority of issues by end of 2022)(86 WTO Members participating accounting for 90% of e-commerce trade including China, U.S. and most other major countries);  INVESTMENT FACILITATION FOR DEVELOPMENT, Investment facilitation negotiators take steps to assess needs of developing countries, 15 February 2022, https://www.wto.org/english/news_e/news22_e/infac_23feb22_e.htm (looking to complete by end of 2022)(over 100 WTO Members participate including China and most developed countries, but not the U.S.); INFORMAL DIALOGUE ON PLASTICS POLLUTION AND ENVIRONMENTALLY SUSTAINABLE PLASTICS TRADE, Plastics dialogue emphasizes need for international collaboration, cooperation, 30 March 2022, https://www.wto.org/english/news_e/news22_e/ppesp_31mar22_e.htm  (70 Members participate including China and most major developed countries but not the U.S.); Joint Initiative on Services Domestic Regulation, Negotiations on services domestic regulation conclude successfully in Geneva, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm (67 Members participated including China, the U.S. and other major developed countries); . MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMES), Working group on small business welcomes three more members, 8 February 2022, https://www.wto.org/english/news_e/news22_e/msmes_08feb22_e.htm (94 participants including China and most major developed countries but not the U.S.).

Since the Doha Development Agenda reached an impasse in 2008, U.S. Administrations have participated in WTO activities but have also pursued free trade agreements and other regional and plurilateral activities.  There is good progress being made in Geneva on the various JSIs, although the impact of the Russian Federation’s invasion of Ukraine may create challenges to forward movement in some talks.

The U.S. is obviously pursuing important topics like e-commerce in multiple fora.  While the WTO may result in a plurilateral agreement that is less robust than U.S provisions with Canada and Mexico or that get achieved with other trading partners, the plurilaterals at the WTO are an important effort to maintain relevance for the WTO in a rapidly changing world.

    .

.

Additional trade and financial sanctions imposed on Russian Federation as evidence of atrocities in Ukraine by Russian soldiers mounts

As the Russian troops withdrew from around Kyiv, images of dead civilians in the town of Bucha led to further outrage among many countries resulting in a new round of trade and financial sanctions being imposed by the U.S., EU, U.K., Canada, Japan, Australia and New Zealand. The atrocities also led to a vote at the U.N. to suspend the Russian Federation from the Human Rights Council. See White House, Statement of President Joe Biden on the UN Vote Suspending Russia from the Human Rights Council, April 7, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/07/statement-of-president-joe-biden-on-the-un-vote-suspending-russia-from-the-human-rights-council/.

Keeping up with all sanctions being imposed is challenging in light of the expanding set of actions being taken although different organizations have compiled lists. For example, Reuters posts a time and country based list in Tracking sanctions against Russia, https://graphics.reuters.com/UKRAINE-CRISIS/SANCTIONS/byvrjenzmve/. The version I reviewed was updated on April 8, 2022 and shows actions through April 7. “Reuters is tracking government sanctions and actions against Russia taken by large companies and organisations around the world in the lead up to and following its invasion of Ukraine.” Reuters shows sanctions imposed by 41 governments (viewing the EU as 27) and 99 actions taken by large companies and organizations.

A fact sheet released by the White House on April 6 summarizes actions being taken by the United States in light of the continuing Russian aggression and atrocities. The White House, FACT SHEET: United States, G7 and EU Impose Severe and Immediate Costs on Russia, April 6, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/06/fact-sheet-united-states-g7-and-eu-impose-severe-and-immediate-costs-on-russia/. The fact sheet is copied below.

“Today, the United States, with the G7 and the European Union, will continue to impose severe and immediate economic costs on the Putin regime for its atrocities in Ukraine, including in Bucha. We will document and share information on these atrocities and use all appropriate mechanisms to hold accountable those responsible. As one part of this effort, the United States is announcing devastating economic measures to ban new investment in Russia, and impose the most severe financial sanctions on Russia’s largest bank and several of its most critical state-owned enterprises and on Russian government officials and their family members. These sweeping financial sanctions follow our action earlier this week to cut off Russia’s frozen funds in the United States to make debt payments. Importantly, these measures are designed to reinforce each other to generate intensifying impact over time.

“The United States and more than 30 allies and partners across the world have levied the most impactful, coordinated, and wide-ranging economic restrictions in history. Experts predict Russia’s GDP will contract up to 15 percent this year, wiping out the last fifteen years of economic gains. Inflation is already spiking above 15 percent and forecast to accelerate higher. More than 600 private sector companies have already left the Russian market. Supply chains in Russia have been severely disrupted. Russia will very likely lose its status as a major economy, and it will continue a long descent into economic, financial, and technological isolation. Compared to last year, U.S. exports to Russia of items subject to our new export controls have decreased 99 percent by value – and the power of these restrictions will compound over time as Russia draws down any remaining stockpiles of spare parts for certain planes, tanks, and other resources needed for Putin’s war machine.

“As long as Russia continues its brutal assault on Ukraine, we will stand unified with our allies and partners in imposing additional costs on Russia for its actions. Today, the United States is announcing the following actions:

Full blocking sanctions on Russia’s largest financial institution, Sberbank, and Russia’s largest private bank, Alfa Bank. This action will freeze any of Sberbank’s and Alfa Bank’s assets touching the U.S financial system and prohibit U.S. persons from doing business with them. Sberbank holds nearly one-third of the overall Russian banking sector’s assets and is systemically critical to the Russian economy. Alfa Bank is Russia’s largest privately-owned financial institution and Russia’s fourth largest financial institution overall.

Prohibiting new investment in the Russian Federation. President Biden will sign a new Executive Order (E.O.) that includes a prohibition on new investment in Russia by U.S. persons wherever located, which will further isolate Russia from the global economy. This action builds on the decision made by more than 600 multinational businesses to exit from Russia. The exodus of the private sector includes manufacturers, energy companies, large retailers, financial institutions, as well as other service providers such as law and consulting firms. Today’s E.O. will ensure the enduring weakening of the Russian Federation’s global competitiveness.

Full blocking sanctions on critical major Russian state-owned enterprises. This will prohibit any U.S. person from transacting with these entities and freeze any of their assets subject to U.S. jurisdiction, thereby damaging the Kremlin’s ability to use these entities it depends on to enable and fund its war in Ukraine. The Department of Treasury will announce these entities tomorrow.

Full blocking sanctions on Russian elites and their family members, including sanctions on: President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of Russia’s Security Council including former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin. These individuals have enriched themselves at the expense of the Russian people.  Some of them are responsible for providing the support necessary to underpin Putin’s war on Ukraine. This action cuts them off from the U.S. financial system and freezes any assets they hold in the United States.

The U.S. Treasury prohibited Russia from making debt payments with funds subject to U.S. jurisdiction. Sanctions do not preclude payments on Russian sovereign debt at this time, provided Russia uses funds outside of U.S. jurisdiction. However, Russia is a global financial pariah — and it will now need to choose between draining its available funds to make debt payments or default. 

Commitment to supporting sectors essential to humanitarian activities. As we continue escalating our sanctions and other economic measures against Russia for its brutal war against Ukraine, we reiterate our commitment to exempting essential humanitarian and related activities that benefit the Russian people and people around the world: ensuring the availability of basic foodstuffs and agricultural commodities, safeguarding access to medicine and medical devices, and enabling telecommunications services to support the flow of information and access to the internet which provides outside perspectives to the Russian people. These activities are not the target of our efforts, and U.S. and Western companies can continue to operate in these sectors in Russia. When necessary, relevant departments and agencies will issue appropriate exemptions and carveouts to ensure such activity is not disrupted.”

Similarly, the European Commission announced proposed additional sanctions (fifth round) on April 5 and agreed sanctions were announced by the Council of the European Union on April 8. See Press statement by President von der Leyen on the fifth round of sanctions against Russia, Strasbourg, 5 April 2022, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_2281; Council of the EU Press release, 8 April 2022, EU adopts fifth round of sanctions against Russia over its military aggression against
Ukraine, https://www.consilium.europa.eu/en/press/press-releases/2022/04/08/eu-adopts-fifth-round-of-sanctions-against-russia-over-its-military-aggression-against-ukraine/; Official Journal of the European Union, L111, 8 April 2022. The Council’s statement is copied below.

“In light of Russia’s continuing war of aggression against Ukraine, and the reported atrocities committed by Russian armed forces in Ukraine, the Council decided today to impose a fifth package of economic and individual sanctions against Russia.

“The agreed package includes a series of measures intended to reinforce pressure on the Russian government and economy, and to limit the Kremlin’s resources for the aggression.

“‘These latest sanctions were adopted following the atrocities committed by Russian armed forces in Bucha and other places under Russian occupation. The aim of our sanctions is to stop the reckless, inhuman and aggressive behaviour of the Russian troops and make clear to the decision makers in the Kremlin that their illegal aggression comes at a heavy cost.’ Josep Borrell, High Representative for Foreign Affairs and Security Policy

“The package comprises:

“- a prohibition to purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as from August 2022. Imports of coal into the EU are currently worth EUR 8 billion per year.

“- a prohibition to provide access to EU ports to vessels registered under the flag of Russia. Derogations are granted for agricultural and food products, humanitarian aid, and energy.

“- a ban on any Russian and Belarusian road transport undertaking preventing them from transporting goods by road within the EU, including in transit. Derogations are nonetheless granted for a number of products, such as pharmaceutical, medical, agricultural and food products, including wheat, and for road transport for humanitarian purposes.

“- further export bans, targeting jet fuel and other goods such as quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery and transportation equipment, and new import bans on products such as: wood, cement, fertilisers, seafood and liquor. The agreed export and import bans only account for EUR 10 billion and EUR 5.5 billion respectively.

“- a series of targeted economic measures intended to strengthen existing measures and close loopholes, such as: a general EU ban on participation of Russian companies in public procurement in member states, the exclusion of all financial support to Russian public bodies. an extended prohibition on deposits to crypto-wallets, and on the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural or legal person, entity or body in Russia and Belarus,.

“Furthermore, the Council decided to sanction companies whose products or technology have played a role in the invasion, key oligarchs and businesspeople, high-ranking Kremlin officialsproponents of disinformation and information manipulation, systematically spreading the Kremlin’s narrative on Russia’s war aggression in Ukraine, as well as family members of already sanctioned individuals, in order to make sure that EU sanctions are not circumvented.

“Moreover a full transaction ban is imposed on four key Russian banks representing 23% of market share in the Russian banking sector. After being de-SWIFTed these banks will now be subject to an asset freeze, thereby being completely cut off from EU markets.

“In its conclusions of 24 March 2022, the European Council stated that the Union remains ready to close loopholes and target actual and possible circumvention of the restrictive measures already adopted, as well as to move quickly with further coordinated robust sanctions on Russia and Belarus to effectively thwart Russian abilities to continue the aggression.

“Russia’s war of aggression against Ukraine grossly violates international law and is causing massive loss of life and injury to civilians. Russia is directing attacks against the civilian population and is targeting civilian objects, including hospitals, medical facilities, schools and shelters. These war crimes must stop immediately. Those responsible, and their accomplices, will be held to account in accordance with international law. The siege of Mariupol and other Ukrainian cities, and the denial of humanitarian access by Russian military forces are unacceptable. Russian forces must immediately provide for safe pathways to other parts of Ukraine, as well as humanitarian aid to be delivered to Mariupol and other besieged cities.

“The European Council demands that Russia immediately stop its military aggression in the territory of Ukraine, immediately and unconditionally withdraw all forces and military equipment from the entire territory of Ukraine, and fully respect Ukraine’s territorial integrity, sovereignty and independence within its internationally recognised borders.

“The relevant legal acts will soon be published in the Official Journal.”

As listed above, the Official Journal with the legal actions identified was published on April 8 (OJ L111).

The United Kingdom also took action on April 6 to expand sanctions. Government of the United Kingdom Press Release, UK imposes sweeping new sanctions to starve Putin’s war machine, 6 April 2022, https://www.gov.uk/government/news/uk-imposes-sweeping-new-sanctions-to-starve-putins-war-machine. The sanctions announced in the press release are listed below.

“Key sanctions announced today include:

“asset freezes against Sberbank and Credit Bank of Moscow. Sberbank is Russia’s largest bank and this freeze is being taken in co-ordination with the US

“an outright ban on all new outward investment to Russia. In 2020 UK investment in Russia was worth over £11 billion. This will be another major hit to the Russian economy and further limit their future capabilities

“by the end of 2022, the UK will end all dependency on Russian coal and oil, and end imports of gas as soon as possible thereafter. From next week, the export of key oil refining equipment and catalysts will also be banned, degrading Russia’s ability to produce and export oil – targeting not only the industry’s finances but its capabilities as a whole

“action against key Russian strategic industries and state owned enterprises. This includes a ban on imports of iron and steel products, a key source of revenue. Russia’s military ambitions are also being thwarted by new restrictions on its ability to acquire the UK’s world-renowned quantum and advanced material technologies

“and targeting a further eight oligarchs active in these industries, which Putin uses to prop up his war economy.”

Canada, Japan and Australia also announced additional sanctions. See Government of Canada, Canada announces it will impose additional sanctionson Russian and Belarusian regimes, April 4, 2022, https://www.canada.ca/en/global-affairs/news/2022/04/canada-announces-it-will-impose-additional-sanctions-on-russian-and-belarusian-regimes.html; Reuters, Japan bans Russian coal imports, expels eight diplomats, April 8, 2022, https://www.reuters.com/world/asia-pacific/japan-considers-restrictions-coal-imports-russia-jiji-2022-04-07/; The Japan Times, Japan to expel eight Russians, including diplomats, as Kishida announces new sanctions, 8 April 2022, https://www.japantimes.co.jp/news/2022/04/08/national/japan-russia-expel-diplomats/ (“Kishida, however, announced a sweeping new round of sanctions, declaring that Japan will phase out imports of Russian coal, ban imports of Russian machinery, lumber and vodka, bar new investments in Russia and freeze assets held by major Russian lenders Sberbank and Alfa Bank. Japan will also freeze the assets of an additional 400 or so military personnel and lawmakers and some 20 military-related organizations, including state-run companies, Kishida said.”); Reuters, Australia to impose sanctions on 67 more Russians over Ukraine, April 7, 2022, https://www.reuters.com/world/australia-impose-sanctions-67-russians-over-ukraine-2022-04-07/; New Zealand to apply trade sanctions in response to Russian atrocities, April 6, 2022, https://www.beehive.govt.nz/release/new-zealand-apply-trade-sanctions-response-russian-atrocities (“The Government have announced that they will apply 35% tariffs to all imports from Russia, and extend the existing export prohibitions to industrial products closely connected to strategic Russian industries. This is New Zealand’s most significant economic response to the Russian invasion to date. ‘The images and reports emerging of atrocities committed against civilians in Bucha and other regions of Ukraine is abhorrent and reprehensible, and New Zealand continues to respond to Putin’s mindless acts of aggression,’ Foreign Minister Nanaia Mahuta said. ‘Under the Russia Sanctions Act, New Zealand will apply tariffs across the board to all Russian imports, as well as ban the export of industrial products such as ICT equipment and engines, sending a clear message that New Zealand will not fund or support the Russia war machine,’ Trade and Export Growth Minister Damien O’Connor said.”).

On April 8, President Biden also signed two Congressional bills into law, one suspending normal trade relations with Russia and Belarus and one banning imports of oil, gas and coal from Russia (President Biden had already banned such imports). See White House, Bills Signed: H.R. 6968 and H.R. 7108, APRIL 08, 2022, https://www.whitehouse.gov/briefing-room/legislation/2022/04/08/bills-signed-h-r-6968-and-h-r-7108/ (“On Friday, April 8, 2022, the President signed into law: H.R. 6968, the ‘Ending Importation of Russian Oil Act,’ which statutorily prohibits the importation of energy products from the Russian Federation; and H.R. 7108, the ‘Suspending Normal Trade Relations with Russia and Belarus Act,’ which suspends normal trade relations with the Russian Federation and the Republic of Belarus and seeks to further leverage trade and human rights sanctions.”).

While major importing nations of Russian oil and gas have been unable or unwilling to date to cut off purchases of oil and gas, the level of economic and financial sanctions imposed on the Russian Federation and Belarus coupled with the withdrawal of major businesses (temporarily or permanently) from Russia are having significant negative effects on the Russian economy both short term and longer term. These effects coupled with the damage to the Ukrainian economy inflicted by the Russian war on Ukraine will have global effects. As reviewed in an earlier post, Ukraine and Russia are major exporters of various agricultural products. The war is both creating increased food insecurity and driving inflation on agricultural products which hurts all consumers but the poorest the hardest. See March 30, 2022:  Food security challenges posed by the Russian invasion of Ukraine, https://currentthoughtsontrade.com/2022/03/30/food-security-challenges-posed-by-the-russian-invasion-of-ukraine/. Indeed, global food prices reached an all time high in March. UN News, Ukraine war drives international food prices to ‘new all-time high’, 8 April 2022, https://news.un.org/en/story/2022/04/1115852

The WTO’s Director-General Ngozi Okonjo-Iweala has indicated that global trade growth will be nearly 50% lower than previously projected for 2022 (2.5% vs. 4.7%) flowing from the war in Ukraine and ongoing supply chain issues. Sunday Observer, Ukraine war to halve global trade growth – WTO, 10 April 2022, ww.sundayobserver.lk/2022/04/10/business/ukraine-war-halve-global-trade-growth-wto. The war and individual countries reactions to Russia’s aggression are also likely to have longer term effects on global integration and supply chains. One is already seeing significant reductions in foreign investment flows into China. China’s actions or inactions towards Russia’s aggression may reduce foreign investor confidence in the Chinese economy as a place for investment at least for exports. A return to isolation of some countries from the larger global community is certainly afoot. The only question is whether states besides Russia and Belarus will be in the ostracized group.

With Russia continuing its aggression against Ukraine and with apparent scorched earth tactics being pursued, it is likely that the latest round of sanctions will not be the last. The strains on the global economy are likely to worsen in the coming months.

WTO Dispute Settlement in 2022 — to date (April 5, 2022) European Union is only WTO Member to file new disputes

With 2022 more than one quarter over, the European Union remains the only WTO Member to file a new WTO dispute this year, and it has filed five requests for consultation. The United States has spent the first fifteen months of the Biden Administration seeking resolution to long-standing disputes but to date has filed no new cases (2021-2022). China had filed a number of disputes in 2021 and is the subject of various disputes filed in the 2021-2022 including two of the EU cases this year.

Two of the five cases filed in 2022 by the EU were against China and are reviewed in prior posts. See February 21, 2022:  The European Union’s February 18, 2022 request for consultations with China over China’s “anti-suit injunctions” in intellectual property disputes and its failure to publish decisions and respond to EU inquiries, https://currentthoughtsontrade.com/2022/02/21/the-european-unions-february-18-2022-request-for-consultations-with-china-over-chinas-anti-suit-injunctions-in-intellectual-property-disputes-and-its-failure-to-publish-decisions-and-respond/; January 27, 2022:  The European Union requests consultations with China at the WTO for restrictions on Lithuanian goods imposed by China, https://currentthoughtsontrade.com/2022/01/27/the-european-union-requests-consultations-with-china-at-the-wto-for-restrictions-on-lithuania-goods-imposed-by-china/. On the intellectual property dispute, Japan, United States and Canada have requested to join the consultations. On the EU’s challenge to China’s actions on goods from Lithuania, six other Members have sought to join the consultations — Australia, Taiwan, Japan, United States, United Kingdom, and Canada.

The other three requests for consultations filed by the EU this year include one filed with the Russian Federation (DS608) concerning the exportation of wood products, one with Egypt (D609) concerning registration requirements relating to the importation of certain products and the latest one with the United Kingdom (DS612) concerning measures relating to the allocation of contracts for difference in low carbon energy generation.

The case against the Russian Federation deals with the termination of tariff-rate quotas on exports of wood products, other increases in export duties on wood products, reduction of the number of border crossing points for the exportation of wood products and the introduction of export restrictions or prohibitions on certain wood products by the Eurasian Economic Union. WTO inconsistencies alleged by the EU include Art. I:1, II:1(a), XI:1, XIII:1 of GATT 1994 and Paragraph 2, second sentence, of the Protocol on the Accession of the Russian Federation in conjunction with paragraphs 638, 668, and 1450 of the Report of the Working Party. WT/DS608/1/Rev.1, G/L/1434/Rev.1 (27 February 2022).

The request for consultations with Egypt involves challenges to Egyptian measures that apply to EU companies wishing to export to Egypt where registration requirements exist (29 categories of goods “including agricultural and food products, cosmetics, toys, textiles, garments, household appliances, furniture and ceramic tiles.”). The requirements are alleged to burdensome, non-transparent, costly and time-consuming and some registration applications have not been processed even after years. The Egyptian measures of concern raise questions about consistency with WTO GATT 1994 Articles XI:1, VIII:1(c), VIII:3, X:1, X:3(a); Art. 4.2 of the Agriculture Agreement and Articles 1.2, 1.5 3.3, 3.5(e) and 3.5(f) of the Import Licensing Agreement. WT/DS609/1, G/L/1425 (27 January 2022). The Russian Federation has sought to join consultations. WT/DS609/2.

The most recent request for consultations with the United Kingdom involves local content requirements for incentivised low carbon electricity generation projects (e.g., offshore wind). “The measures at issue described above appear to be inconsistent with the United Kingdom’s obligations under the covered agreements, in particular Article III:4 of the GATT 1994, inasmuch as, by incentivising applicants to commit to and implement an ambitious percentage of Untied Kingdom content of the allocation of CfD, they accord less favourable treatment to imported goods than to like domestic goods.” WT/DS612/1, G/L/1428 (30 March 2022).

Of the five cases, the two against China are probably the most important systemically. The case about retaliation by China against Lithuania addresses a recurring problem with China punishing WTO Members who take positions with which China disagrees, The intellectual property case as described in a prior post is important to prevent China from blocking IP rights holders from obtaining the benefits of IP that the TRIPS Agreement safeguards.

The Russian Federation case may proceed but is overshadowed by Russia’s invasion of Ukraine and sanctions imposed by many countries, including by the EU. That said, the case deals with what appear to be clear violations of WTO obligations by Russia.

The case against Turkey is typical of a range of disputes over the years against countries who adopt a series of barriers to access to the market to protect domestic industries. While there can always be potentially relevant standards issues or health/safety issues, the actions of Egypt sound as though they simply slow down, limit or block import trade.

Finally, the case against the United Kingdom deals with the efforts of many countries to speed up adoption of renewable energy and reflect the important systemic issue of the interface between domestic incentives and WTO obligations on national treatment.

At the last Dispute Settlement Body meeting (March 28, 2022), many WTO Members continued to seek the reestablishment of a two tier dispute settlement process which the United States continues to block. See WTO News Release, Members continue push to commence Appellate Body appointment process, 28 March 2022, https://www.wto.org/english/news_e/news22_e/dsb_28mar22_e.htm. The statements made appear to be identical or similar to those made over the last several years. The WTO news release on the meeting and the issue of the Appellate Body is copied below in relevant part.

“Appellate Body appointments

“Mexico, speaking on behalf of 123 members, introduced for the 52nd time the group’s proposal to start the selection processes for filling vacancies on the Appellate Body. The extensive number of members submitting the proposal reflects a common concern over the current situation in the Appellate Body which is seriously affecting the overall WTO dispute settlement system against the best interest of members, Mexico said for the group.

“The United States reiterated it was not in a position to support the proposed decision.  The US continues to have systemic concerns with the Appellate Body, which it has explained and raised over the past 16 years and across multiple administrations.  The US said it believes that WTO members must undertake fundamental reform if the dispute settlement system is to remain viable and credible.  The dispute settlement system can and should better support the WTO’s negotiating and monitoring functions, the US said, adding that it looked forward to further discussions with members on these important issues.

“Around 20 delegations (including the EU for its 27 members and Nigeria for the African Group) took the floor to reiterate the importance of the WTO’s two-tiered dispute settlement system to the stability and predictability of the multilateral trading system.  Several cited this issue as the top priority for reform of the organization and said the continued impasse was causing both commercial harm to members and systemic harm to multilateral trade.

“For the 123 members, Mexico again came back to say the fact a member may have concerns about certain aspects of the functioning of the Appellate Body cannot serve as pretext to impair and disrupt the work of the DSB and dispute settlement in general, and that there was no legal justification for the current blocking of the selection processes, which is causing concrete nullification and impairment of rights for many members.

“The DSB chair, Ambassador Athaliah Lesiba Molokomme of Botswana, noted the previous General Council chair has been working on the issue of restoring a fully functioning dispute settlement system within the context of preparations for the WTO’s 12th Ministerial Conference. She said she hoped members would be able to find a solution to this matter.”

I have reviewed in many prior posts the longstanding and well articulated concerns of the United States, concerns which have largely not been addressed in the process to date. See, e.g., February 14, 2020: USTR’s Report on the WTO Appellate Body – An Impressive Critique of the Appellate Body’s Deviation from Its Proper Role, https://currentthoughtsontrade.com/2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-critique-of-the-appellate-bodys-deviation-from-its-proper-role/

I have also in recent posts looked at individual disputes where the U.S. was the respondent and reviewed problems with the decisions. See, e.g., February 9, 2022:  The WTO Panel Report, UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS, WT/DS546/R (8 February 2022), https://currentthoughtsontrade.com/2022/02/09/the-wto-panel-report-united-states-safeguard-measure-on-imports-of-large-residential-washers-wt-ds546-r-8-february-2022/; January 27, 2022:  WTO Arbitration Report on China’s challenge to U.S. countervailing duty investigations — while retaliation is much smaller than China sought, core problems with original Appellate Body decision flags challenge to restoring the Dispute Settlement binding process, https://currentthoughtsontrade.com/2022/01/27/wto-arbitration-report-on-chinas-challenge-to-u-s-countervailing-duty-investigations-while-retaliation-is-much-smaller-than-china-sought-core-problems-with-original-appellate-body-decision-flag/; December 29, 2021:  WTO Dispute Settlement — What the Recently Adopted Panel Report on United States – Antidumping and Countervailing Duties on Ripe Olives from Spain says about the existing dispute settlement system and about needed WTO reforms, https://currentthoughtsontrade.com/2021/12/29/wto-dispute-settlement-what-the-recently-adopted-panel-report-on-united-states-antidumping-and-countervailing-duties-on-ripe-olives-from-spain-says-about-the-existing-dispute-settlement-system-an/.

Thus, it is unlikely that the twice delayed 12th Ministerial Conference to be held in Geneva June 13-15 this year will resolve the impasse on the Appellate Body. While it is possible that a process may be agreed to to examine the root problems and formulate possible solutions as part of the WTO reform agenda, even that may be optimistic in the current environment.

Existing disputes continue to proceed, with various resolutions possible in cases even among countries who have not signed up to the Agreement on the Interim Arbitration Process, although two dozen panel reports have been “appealed” but cannot be heard until/unless an Appellate Body is reconsituted. Such appeals have been taken by a number of Members including by Members who are parties to the interim process (e.g., EU on a panel report of a challenge to a trade remedy proceeding against the Russian Federation). See, e.g., WTO Dispute Settlement, Appellate Body, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm (listing 24 cases where appeals are pending).

This Friday (April 8, 2022) , there is a Dispute Settlement Body meeting to consider a joint request by the Republic of Korea and the United States in the dispute involving UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS that would have the DSB adopt a decision that the panel report is adopted unless an appeal is filed by July 7, 2022 (essentially extending the time to appeal the panel report presumably to give the parties more time to consider a mutually acceptable resolution). WT/DS546/8 (29 March 2022).

So whether there is a resolution to the Appellate Body impasse or not, WTO Members have ongoing options to address trade concerns including through Committee work, bilateral interactions and disputes through the WTO or through FTAs.

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Possible Compromise on Access to Vaccines — draft understanding between EU, US, South Africa and India

Press articles and a release from the World Trade Organization indicate that the small group negotiations between the European Union, United States, India and South Africa have reached a compromise on the India-South Africa proposal for a broad waiver of TRIPS requirements during the COVID-19 pandemic and the European Union’s proposal for a different solution that wouldn’t constitute a waiver. See PoliticoPro, SCOOP: There’s a TRIPS waiver compromise. It’s been reached between EU, SA, India & US and currently only covers vaccines, March 15, 2022, https://twitter.com/ashleighfurlong/status/1503799100214583300; Inside U.S. Trade’s World Trade Online, USTR: High-level TRIPS waiver talks yield compromise; text not yet agreed to, March 15, 2022,https://insidetrade.com/daily-news/ustr-high-level-trips-waiver-talks-yield-compromise-text-not-yet-agreed; Inside U.S. Trade’s World Trade Online, Okonjo-Iweala hails TRIPS compromise as industry remains opposed, March 16, 2022, https://insidetrade.com/daily-news/okonjo-iweala-hails-trips-compromise-industry-remains-opposed; Washington Trade Daily, Details of TRIPS Waiver Compromise, March 17, 2022, https://files.constantcontact.com/ef5f8ffe501/abdf1d95-8d5b-4bb6-87e9-9ad73bcae287.pdf.

The agreement, which still requires final agreement on text by the small group and then consideration and acceptance by the full WTO Membership, is a staged one, applying first to vaccines and six months later (if subsequently agreed) to diagnostics and therapeutics. The agreement would apply to developing countries other than those who exported 10% or more of vaccines in 2021. Based on the WTO-IMF COVID-19 Vaccine Trade Tracker, the only developing country with 10% or more of global exports in 2021 was China. https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm.

By picking exports in 2021 as the test for eligibility for developing countries, India remains eligible for the proposed compromise simply because the country, one of the world’s largest vaccine producers and a country that had contracts to export huge quantities to many of the world’s poorest countries in 2021, closed off exports for much of 2021 because of internal needs.

Press reports have indicated that some other countries, like Brazil, are not eligible. If true, this would flow from something other than export volume (e.g., indication that it would not seek special and differential treatment going forward) as Brazil had a negligible share of global exports of COVID vaccines in 2021.

The WTO’s Director-General released a press statement on March 16 which is copied below. See WTO news release, Director-General Okonjo-Iweala hails breakthrough on TRIPS COVID-19 solution, 16 March 2022, https://www.wto.org/english/news_e/news22_e/dgno_16mar22_e.htm

“World Trade Organization Director-General Ngozi Okonjo-Iweala today warmly welcomed the breakthrough among four WTO Members on a waiver of the Trade Related Intellectual Property agreement for the production of vaccines against the COVID-19 pandemic.

“’This is a major step forward and this compromise is the result of many long and difficult hours of negotiations. But we are not there yet. We have more work to do to ensure that we have the support of the entire WTO Membership,’ the Director-General said.

“While the agreement between the European Union, India, South Africa and the United States is an essential element to any final deal, she cautioned that not all the details of the compromise have been ironed out and that internal domestic consultations within the four members are still ongoing. Moreover, she stressed that work must commence immediately to broaden the discussions to include all 164 members of the WTO.

“’In the WTO we decide by consensus, and this has not yet been achieved. My team and I have been working hard for the past three months and we are ready to roll up our sleeves again to work together with the TRIPS Council Chair Ambassador Lansana Gberie (Sierra Leone) to bring about a full agreement as quickly as possible. We are grateful to the four Members for the difficult work they have undertaken so far,’ said Dr. Okonjo-Iweala.”

Neither the EU nor the U.S. have released statements which is consistent with the apparent state of play of the negotiations in the small group. One of the parties or one of those private parties being consulted by WTO Members presumably has leaked the text which is available on Stats News. See Stat News, Ed Silverman, A compromise is reached on an intellectual property waiver for Covid-19 vaccines, but does it go far enough?, March 15, 2022, https://www.statnews.com/pharmalot/2022/03/15/covid19-vaccine-patents-wto/. The two page document is embedded below.

TRIPS-COVID-19-solution-document

Proponents and opponents of a TRIPS waiver responded quickly as reflected in press releases and other articles. See, e.g., KNOWLEDGE ECOLOGY INTERNATIONAL, QUAD’s tentative agreement on TRIPS and COVID 19, March 15, 2022, https://www.keionline.org/37544; In These Times, New “Compromise” on an IP Waiver for Covid Vaccines Is Worse Than No Deal, Activists Say, March 16, 2022, https://inthesetimes.com/article/wto-trips-waiver-intellectual-property-biden-vaccines-diagnostics-treatments; Devex, Devex Check Up: At last, a TRIPS waiver compromise. But who’s happy?, March 17, 2022, https://www.devex.com/news/devex-checkup-at-last-a-trips-waiver-compromise-but-who-s-happy-102844; InfoJustice, STATEMENT ON THE LEAKED COVID-19 TRIPS WAIVERPROPOSAL, Posted by
Sean Flynn, Mar 16, 2022, http://infojustice.org/archives/43947; Relief Web, MSF responds to potential compromise on the ‘TRIPS Waiver’, 16 March 2022, https://reliefweb.int/report/world/msf-responds-potential-compromise-trips-waiver; U.S., Chamber of Commerce, U.S. Chamber of Commerce Opposes Proposal at WTO to Waive Intellectual Property Rights , March 16, 2022, https://www.uschamber.com/intellectual-property/u-s-chamber-of-commerce-opposes-proposal-at-wto-to-waive-intellectual-property-rights; , International Federation of Pharmaceutical Manufacturers & Associations, IFPMA statement on TRIPS discussion document, 16 March 2022, https://www.ifpma.org/resource-centre/statement-ifpma-trips-discussion-document/.

The proponents of a waiver are basically unhappy with the compromise which is not a waiver but rather a modification to requirements under TRIPS Art. 31. They are also unhappy with the fact that only vaccines are covered initially and the fact that the draft agreement deals with patents only versus the broader array of intellectual property rights. The statement from Doctors Without Borders reflects the types of concerns from those wanting a broader agreement and is copied below.

“MSF responds to potential compromise on the ‘TRIPS Waiver’

“Compromise neglects COVID-19 treatments and diagnostics and fails to address intellectual property barriers beyond patents, but there’s still time to get it right

“Geneva, 16 March 2022

“– The European Union, India, South Africa and the United States are working on a possible compromise to address intellectual property (IP)barriers on COVID-19 medical products. Médecins Sans Frontières/Doctors Without Borders (MSF) acknowledges the efforts towards a final resolution, but notes that the text that was leaked today is far from being an IP ‘waiver’ for pandemic medical tools.

“MSF urges all World Trade Organization (WTO) members to be aware of the limitations of the leaked text. WTO members should work together to ensure that any agreement tackles the current barriers to accessing all COVID-19 medical tools, including treatments and diagnostics, and also addresses patents and non-patent barriers in an effective way.

“According to MSF’s initial analysis, key limitations of the leaked text include that it covers only vaccines, is geographically limited, and covers only patents and does not address other intellectual property barriers, such as trade secrets, which may cover critical information needed to facilitate manufacturing. Regarding compulsory licensing for patents on COVID-19 vaccines, the leaked text introduces unnecessary reporting requirements for WTO members that could undermine the effectiveness of the mechanism.

“The leaked text appears to leave the door open for possible inclusion of treatments and diagnostics at a later stage. But delaying the decision on treatments is unacceptable, as many people will have no access to generic antivirals and countries are paying high prices for access to lifesaving treatments like baricitinib due topatent monopolies that block more affordable generic versions.

“The leaked text also fails to cover all countries. It limits ‘eligible members’ to developing countries and only those who exported less than 10 percent of the world’sCOVID-19 vaccine exports in 2021, effectively excluding Brazil and China from being able to use the ‘waiver’.

“The proposed compromise would require authorisation by governments on a product-by-product basis, which was one of the shortcomings of the existing mechanism in a pandemic context and makes its use very cumbersome. There is also a new obligation to identify all patents covered by the authorisation, something not required today under WTO trade rules.

“MSF points again to our position underlining the necessary scope and duration of an effective TRIPS Waiver for COVID-19.

Dimitri Eynikel, EU Policy Advisor for MSF’s Access Campaign:

“‘While it is good to see the groundwork for a potential compromise on addressing COVID-19 intellectual property barriers, all WTO members should remain vigilant to the fact that this leaked text contains considerable limitations, and needs to be urgently improved.

“It is incredibly concerning that the leaked text currently only covers vaccines, but neither treatments nor diagnostics. Excluding treatments and diagnostics is acritical weakness, especially as access to COVID-19 treatments remains a significant problem in many low- and middle-income countries, particularly in Latin America, in part because of patent barriers and restrictive licensing deals controlled by pharmaceutical corporations. Excluding countries with significant manufacturing and supply capacity like Brazil is highly problematic as it arbitrarily blocks potential critical avenues to increase access to COVID-19 medical tools for low- and middle-income countries.

“‘The world needs effective solutions to the inequities in access for all COVID-19 medical tools witnessed in this pandemic. The good news is there is still room for governments to improve and make sure that any final agreement adequately addresses the remaining barriers now missing in the leaked text. We urge all WTO members to do so.’”

The pharmaceutical industry’s concerns basically follow their longstanding position that with the rapid increase in vaccine production in 2021 and ongoing in 2022, there is no need for the agreement and it sends the wrong message to innovators. The statement from the IPFMA is copied below.

Following reports on the status of informal discussions led by the WTO Secretariat with the European Union (EU), India, South Africa, and the USA, on 16 March 2022, biopharmaceutical companies reaffirm their position that weakening patents now when it is widely acknowledged that there are no longer supply constraints of COVID-19 vaccines, sends the wrong signal. 

“2022 kicked off with COVID-19 vaccine production from both developing and developed country manufacturers reaching 12 billion within a year of the first vaccine being authorized. Today industry is able to produce over a billion vaccine each month. COVAX is now fully meeting its commitments. Since the beginning of 2022, there has been broad consensus that the challenge now is how to get the vaccines into the arms of people who need them, rather than vaccine supply. When the IP TRIPS Waiver was first proposed in 2020, it was to the wrong solution to the problem of scaling up manufacturing of potential COVID-19 vaccines which at the time had not yet even been authorized. Now the problem of supply has been addressed thanks to unprecedented collaboration involving companies from industrialized and developing countries, the TRIPS Waiver is not only the wrong solution, it is also an outdated proposal, that has been overtaken by events.

“Weakening intellectual property (IP) will do nothing to help the scaling up of vaccine manufacturing. There is a broad consensus among experts that waiving patents would not add a single additional vaccine dose, because technology transfer goes far beyond the patent, is built on trust, know-how sharing and voluntary licensing. This is exactly what manufacturers have done on an unprecedented scale. As of now, there are 371 collaborations on vaccines manufacturing and 155 for therapeutics and, in addition, the multiple announcements of partnerships to improve geographical diversity of vaccine production, are proof in themselves that the proposed IP TRIPS waiver is unnecessary and irrelevant, at worst sends the wrong signal at the wrong time.

“The IP TRIPS Waiver proposals should be recognized for what they are – political posturing that are at best a distraction, at worse creating uncertainty that can undermine innovation’s ability to respond to the current and future response to pandemics. The current proposals should be shelved; and the focus should be directed, to admittedly more difficult actions that will change lives for the better: supporting country readiness, contributing to equitable distribution, and driving innovation (Ref Three priorities to urgently increase access to COVID-19 vaccines).”

Comments

Over the last eighteen months, I have posted regularly on the COVID-19 pandemic and the Indian and South African proposal for a broad TRIPS waiver. Following the recent European Union – African Union meeting in Brussels, it was clear that the EU was committed to finding a mutually agreeable solution with the countries of Africa in the coming months. Thus, the announcement of a breakthrough in the small group negotiations is not surprising. See February 21, 2022:  The EU – AU Summit and the promise of a resolution to the WTO pandemic response package, https://currentthoughtsontrade.com/2022/02/21/the-eu-au-summit-and-the-promise-of-a-resolution-to-the-wto-pandemic-response-package/.

Data gathered and published by various multilateral organizations confirm the enormous ramp up in both vaccine capacity and production. And there has been significant movement in increasing production of vaccines in more developing countries, including a number in Africa. See, e.g., February 16, 2022:  Building Vaccine Capacity in Africa – Exciting News from BioNTech, https://currentthoughtsontrade.com/2022/02/16/building-vaccine-capacity-in-africa-exciting-news-from-biontech/.

Articles also confirm that the challenge in low-income countries is now not access to vaccines but rather all of the other requirements to achieve much higher vaccination rates (including better access to testing). See, e.g., WHO, WHO Director-General’s remarks atSession 2 – Potential Opportunities for Innovation and Collaboration, 3 March 2022, https://www.who.int/director-general/speeches/detail/who-director-general-s-remarks-at-session-2-potential-opportunities-for-innovation-and-collaboration-covid-19-dialogue-with-ministers-of-health-3-march-2022.

Thus, it is hard for me to find merit in the ongoing claims for a need for a broad TRIPS waiver or even the draft agreement at least as it pertains to the COVID-19 pandemic and equitable access to vaccines. WTO relevance requires addressing either current pressing issues or those that will continue to be present in the future. The draft agreement may meet the need for some compromise between Members like the EU and India, South Africa and other supporters of the waiver. However, the agreement doesn’t appear to serve a useful purpose by addressing current challenges (e.g., testing) or addressing a road forward for future pandemics.


A global trading system without the Russian Federation (and other autocratic states?) – what the fallout from the Russian invasion of Ukraine may mean for global trade

The unprovoked invasion by the Russian Federation into Ukraine has led to the largest group of financial and economic sanctions by a large portion of the global community in modern times. Canada has withdrawn most favored nation treatment from Russia, a move that is being followed by the EU, United States and others. Russia has been excluded from the Developed Countries Coordinating Group within the WTO, and G-7 countries (and the EU) are working to ensure that multilateral organizations like the IMF and World Bank and the European Bank for Reconstruction and Development cannot be used by Russia for loans. There are calls in some countries (e.g., the United States) to work to remove Russia from the WTO.

On March 11, 2022 two staunch supporters of the global trading system penned an article that appeared in The National Interest that raise a number of important questions including the following one —

“As the collective will grows to confront the destabilizing authoritarianism of Russia, as well as one of its strongest backers, China, what should become of the institutions that enabled their rapid integration into the post-Cold War world economy?” Rufus Yerxa and Wendy Cutler, No Longer Business as Usual at the World Trade Organization, March 11, 2022, https://nationalinterest.org/feature/no-longer-business-usual-world-trade-organization-201149. Amb. Yerxa is a former Deputy Director-General of the WTO and former Deputy U.S. Trade Representative and U.S. Ambassador to the GATT. Ms. Cutler is a former Acting Deputy U.S. Trade Representative who was deepely involved in the Trans Pacific Partnership negotiations for the United States and is the Vice President and Managing Director of the Asia Society Policy Institute. Both are lifelong supporters of a global trading system and the rule of law. The answer to the question posed appears in the next to last paragraph of the article.

“Indeed, the current crisis may lead the United States and like-minded members to chart a new trade future outside of the WTO framework, not necessarily abandoning the WTO entirely, but creating a new multilateral structure with deeper commitments among countries dedicated to free-market democracy. This may be the only leverage available to change the status quo.”

The article is surprising considering the authors but reflects the evolving concerns of many former trade negotiators that the global trading system is not functioning well because of the non-market economic system of some (particularly China) and now the unacceptable actions of the autocratic state of the Russian Federation. For example, in 2020 I reviewed an article by a former director general for trade for the European Commission that argued for the need for countries to leave the WTO and set up a separate multilateral trading system to exclude China since China was not moving to a market economy. July 25, 2020:  A new WTO without China?  The July 20, 2020 Les Echos opinion piece by Mogens Peter Carl, a former EC Director General for Trade and then Environment, https://currentthoughtsontrade.com/2020/07/25/a-new-wto-without-china-the-july-20-2020-les-echos-opinion-piece-by-mogens-peter-carl-a-former-ec-director-general-for-trade-and-then-environment/.

Many commentators, including me, have written on the need for a new trading order among countries with similar economic systems. See, e.g., March 31, 2021:  “Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system, https://currentthoughtsontrade.com/2021/03/31/blowing-up-the-trading-system-clyde-prestowitzs-suggested-way-for-the-world-to-move-forward-in-light-of-chinas-economic-system/; January 16, 2022:  Is it time for a new approach to bilateral trade with China?, https://currentthoughtsontrade.com/2022/01/16/is-it-time-for-a-new-approach-to-bilateral-trade-with-china/.

One possible approach to a parallel system with more ambitious and current rules among largely market economies would be an expansion of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) to include the United States and European Union (neither of which has a current application — the U.S. having withdrawn under the Trump Administration) with acceptance of current applicants other than China. A former European Commissioner for Trade advocated the EU and US joining the CPTPP in an article for the Peterson Institute for International Economics in January this year. See Cecilia Malmstrom (PIIE), The EU should use its trade power strategically, January 4, 2022, https://www.piie.com/blogs/realtime-economic-issues-watch/eu-should-use-its-trade-power-strategically (“The European Union should also seek to enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and convince the United States to do the same. The European Union already has agreements with most members of the CPTPP, but an FTA would signal the European Union’s readiness to strengthen global trading rules with its partners.”). Considering China’s record at the WTO and its coercive practices against some of the CPTPP members, it is hard to understand how the CPTPP members can accept China as a member in the coming years.

While neither the United States nor the European Union are looking to abandon the WTO, the Russian invasion of Ukraine is creating enormous tensions for many Members in dealing with the Russian Federation within the WTO, and there have been growing concerns about the inability of the WTO system to address the massive distortions to global trade created by the Chinese economic system. Reform at the WTO is difficult and typically requires consensus of existing Members. This presumably dooms reforms needed to bring China’s system into alignment with WTO principles including market orientation. While Members can decide to suspend most favored nation treatment, there is no obvious path to removing Russia as a member. Thus, continued challenges at the WTO are likely to continue in the months and years ahead.

The article last week from Amb. Yerxa and Ms. Cutler points to the growing concern about the survivability of the current system with rogue states like the Russian Federation and non-market economic actors like China. As the article concludes, “Responsible global leaders now confront a troubling reality: the old notion that countries who trade together are less likely to go to war has been laid to rest on Ukrainian soil. It can no longer be business as usual at the WTO.” What the current war in Ukraine means for the WTO remains unclear. The coming months will likely provide answers to the continued relevance of the WTO and the need for a separate system for democratic, market economies.

U.S. joins Canada in banning imports of Russian oil and gas; EU announces plan to drastically reduce reliance on Russian gas; United Kingdom will phase out imports of oil and gas from Russia by end of 2022; Australian oil companies stop purchasing Russian oil.

March 8, 2022 saw major announcements on new sanctions on the Russian Federation and/or Belarus from the United States, European Union and the United Kingdom and a continued exodus of major oil companies from Russian involvement.

In the United States, President Biden announced new actions in the form of an Executive order which bans –

“The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal.

“* * *

“New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s eff orts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.”

The White House, FACT SHEET: United States Bans Imports of Russian Oil, Liquefied Natural Gas, and Coal, March 8, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/08/fact-sheet-united-states-bans-imports-of-russian-oil-liquefied-natural-gas-and-coal/.

The Executive Order reads in full –

“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,

“I, JOSEPH R. BIDEN JR., President of the United States of America, hereby expand the scope of the national emergency declared in Executive Order 14024 of April 15, 2021, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, finding that the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine, including its recent further invasion in violation of international law, including the United Nations Charter, further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States.  Accordingly, I hereby order:

     “Section 1.  (a)  The following are prohibited:

“(i)    the importation into the United States of the following products of Russian Federation origin:  crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;

“(ii)   new investment in the energy sector in the Russian Federation by a United States person, wherever located; and

“(iii)  any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

     “(b)  The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.

     “Sec. 2.  (a)  Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.

     “(b)  Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

     “Sec. 3.  Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.

     “Sec. 4.  For the purposes of this order:

     “(a)  the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;

     “b)  the term ‘person’ means an individual or entity; and

     “(c)  the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

     “Sec. 5.  The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order.  The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury.  All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.

     “Sec. 6.  (a)  Nothing in this order shall be construed to impair or otherwise affect:

“(i)   the authority granted by law to an executive department or agency, or the head thereof; or

“(ii)  the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

     “(b)  This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

     “(c)  This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

                             “JOSEPH R. BIDEN JR.

“THE WHITE HOUSE,

    “March 8, 2022.”

Executive Order on Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine, March 8, 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/08/executive-order-on-prohibiting-certain-imports-and-new-investments-with-respect-to-continued-russian-federation-efforts-to-undermine-the-sovereignty-and-territorial-integrity-of-ukraine/.

The new prohibitions do not prevent honoring existing contracts in the next 45 days. President Biden reviewed that the steps were taken after consultations with allies realizing that many allies were not in a position to take identical action at the moment reflecting very different situations in terms of domestic production of oil and gas and dependency on imports from Russia. See The White House, Remarks by President Biden Announcing U.S. Ban on Imports of Russian Oil, Liquefied Natural Gas, and Coal, March 8, 2022, https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/03/08/remarks-by-president-biden-announcing-u-s-ban-on-imports-of-russian-oil-liquefied-natural-gas-and-coal/ (“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us.  The United States produces far more oil domestically than all of European — all the European countries combined.  In fact, we’re a net exporter of energy.  So we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”).

The United Kingdom announced that it would phase out imports of oil from Russia during 2022. See Financial Times, US and UK ban Russian oil and gas imports in drive to punish Putin, March 8, 2022, https://www.ft.com/content/2e0b1d84-e595-4c5a-be4e-928417b9c7cc (“UK prime minister Boris Johnson’s government said it would phase out the import of Russian oil by the end of the year. Kwasi Kwarteng, UK business secretary, said the British government would organise an ‘orderly transition’ away from Russian oil imports. But Rishi Sunak, UK chancellor, told a cabinet meeting that consumers would pay a price for the ban, with lower-income households particularly hard hit. The UK is less dependent on Russia than much of mainland Europe, with Russian supplies making up 8 per cent of overall oil imports into the UK. Johnson is expected to make a statement later this week on reducing British imports of Russian gas.”).

The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two-thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents. The opening statement of Executive Vice-President Timmermans is copied below in part.

“Opening remarks by Executive Vice-President Timmermans

“* * *

“It is abundantly clear that we are too dependent on Russia for our energy needs. It is not a free
market if there is a state actor willing to manipulate it.

“The answer to this concern for our security lies in renewable energy and diversification of supply.

“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours.
And, instead of continuing to fund fossil fuel imports and fund Russian oligarchs, renewables create
new jobs here in Europe.

“With the plan we outline today, the EU can end its dependence on Russian gas and repower Europe.
Fit for 55, once implemented, will reduce the EU’s total gas consumption by 30% by 2030. That’s
100 billion cubic meters of gas we will no longer need.

“Now, we will take it to the next level.

“By the end of this year, we can replace 100 bcm of gas imports from Russia. That is two-thirds of
what we import from them. This will end our over-dependency and give us much needed room to
maneuver. Two thirds by the end of this year.

“It is hard, bloody hard. But, it is possible, if we are willing to go further and faster than we have
done before.

“REPowerEU is our plan to make Europe independent from Russian gas.

“It is based on two tracks:

“First: we will diversify supply and bring in more renewable gases.

“With more LNG and pipeline imports, we can replace 60 bcm of Russian gas within the next
12 months.

“By doubling sustainable production of biomethane we can replace another 18 bcm, using
the Common Agricultural Policy to help farmers become energy producers.

“We can also increase the production and import of renewable hydrogen. A Hydrogen
Accelerator will develop integrated infrastructure and offer all Member States access to
affordable renewable hydrogen. 20 million tonnes of hydrogen can replace 50 bcm of Russian
gas.

“We will also start replacing natural gas with renewable gases. This, in sum, is the first pillar of
REPowerEU.

“In parallel, we must accelerate our clean energy transition. Renewables make us more
independent, and they are more affordable and reliable than the volatile gas market.

“So, we need to put millions more photovoltaic panels on the roofs of our homes,
businesses, and farms. We must also double the installation rate of heat pumps over the
next 5 years.

“This is low-hanging fruit. By the end of this year, almost 25% of Europe’s current electricity
production could come from solar energy.

“In addition to this, we need to speed up permitting procedures to grow our on- and offshore wind capacity, and rollout large-scale solar projects. This is a matter of overriding public interest.

“Some of these changes will not happen overnight, and that’s why we also need to prepare for next
winter.

“By October, gas storage facilities in the EU must be filled up to 90% capacity. And the Commission is
ready to support joint procurement of gas.

“Finally, and most importantly, we need to protect those who are struggling to pay their energy bills.

“Our plan today proposes several ways to help the most exposed households and businesses.

“Kadri will go through these in more detail.

“To conclude, RePowerEU is our plan to break our dependency on Russian gas, and to find freedom in
our energy choices.

“We can do it, and we can do it fast.

“All we need is the courage and grit to get us there. If ever there was a time to do it, it is now.

European Commission, Opening remarks by Executive Vice-President Timmermans and Commissioner Simson at the press conference on the REPowerEU Communication, Brussels, 8 March 2022.

See European Commission, COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS, REPowerEU: Joint European Action for more affordable, secure and sustainable energy, Strasbourg, 8.3.2022, COM(2022) 108 final.

While Australia does not appear to have announced a ban on imports of Russian oil into Australia, its two oil companies have announced cessation of procurement or lack of procurement from Russia. See Reuters, Australian refiners cease purchase of Russian crude oil, voice support for Ukraine, March 8, 2022, https://www.reuters.com/business/energy/australias-viva-energy-cease-purchase-russian-crude-oil-2022-03-08/.

Other actions

While the U.S. Congress has bills pending before both the House of Representatives and the Senate that would remove normal trade relations status on Russia (i.e., end most favored nation treatment) and instruct the US Trade Representative to seek suspension or removal of Russia from the WTO, press reports indicate that with President Biden’s action on Russian oil, gas and coal, the Administration has asked for a different piece of legislation from Congress, one that wouldn’t (at least at present) address normal trade relations or Russia in the WTO. See Inside U.S. Trade’s World Trade Online, House drops push to strip Russia of PNTR at administration’s request, March 8, 2022, https://insidetrade.com/daily-news/house-drops-push-strip-russia-pntr-administration%E2%80%99s-request. While Canada has suspended normal trade relations on goods from Russia and Belarus, U.S. inaction presumably reflects the focus of the U.S. and European allies on other sanction issues while seeking internal support for the step of suspending normal trade relations.

On March 9, 2022, the EU announced additional financial sanctions of Belarus and an expansion of individuals being sanctioned in Russia. See European Commission press release, Ukraine: EU agrees to extend the scope ofsanctions on Russia and Belarus, 9 March 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1649. Most of the press release is copied below.

“The European Commission welcomes today’s agreement of Member States to adopt further targeted sanctions in view of the situation in Ukraine and in response to Belarus’s involvement in the aggression. In particular, the new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia’s actions destabilising the situation in Ukraine. These amendments create a closer alignment of EU sanctions regarding Russia and Belarus and will help to ensure even more effectively that Russian sanctions cannot be circumvented, including through Belarus.

“For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russia regime, clarify that crypto assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions.

“In particular, the agreed measures will:

“Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries.

“Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.

“Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.

“Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro-denominated securities to Belarusian clients.

“Prohibit the provision of euro denominated banknotes to Belarus.

“For Russia, the amendment introduces new restrictions on the export of maritime navigation and radio communication technology, adds Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations and introduces a prior information sharing provision for exports of maritime safety equipment.

“In addition, it also extends the exemption relating to the acceptance of deposits exceeding €100.000 in EU banks to Swiss and EEA nationals.

“Finally, the EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.

“Furthermore, the amendment introduces new restrictions.

“Furthermore, an additional 160 individuals have been listed in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

“The listed individuals include:

“- 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation – notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries -, as well as their family members.

“- 146 members of the Russian Federation Council, who ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Donetsk People’s Republic’ and the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Luhansk People’s Republic’.

“Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.”

As Russia continues to escalate its hostilities in Ukraine, the U.S., EU, G7 and other countries continue to make clear that there will be major costs imposed on Russia for the unprovoked war. While many of the sanctions are financial, some are trade focused. The move away from Russian oil and gas and the restrictions on the export to Russia of materials and technology for the sector will significantly reduce Russian gross domestic product over time with so much of the economy currently tied to oil, gas and coal.

The 2022 Trade Policy Agenda of the President of the United States

On Mach 1, 2022, USTR released the 2022 Trade Policy Agenda & 2021 Annual Report of the President of the United States on the Trade Agreements Program. https://ustr.gov/sites/default/files/2022%20Trade%20Policy%20Agenda%20and%202021%20Annual%20Report.pdf. The fact sheet on the new report released on March 1 provides a good summary of the 2022 trade policy agenda. See USTR, Fact Sheet: USTR Releases 2022 Trade Policy Agenda and 2021 Annual Report, March 1, 2022, https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2022/fact-sheet-ustr-releases-2022-trade-policy-agenda-and-2021-annual-report. The fact sheet is copied below.

“WASHINGTON – Ambassador Katherine Tai and the Office of the United States Trade Representative today delivered President Biden’s 2022 Trade Policy Agenda and 2021 Annual Report to Congress. This report details USTR’s work to implement the Biden Administration’s trade priorities and advance a worker-centered trade policy.

“Over the last year, Ambassador Tai and USTR, working with partners across the Biden Administration, have pursued a new approach to trade policy that empowers workers, defends their rights, and stops the global race-to-the-bottom. By reaching new and historic agreements with our allies, Ambassador Tai and USTR have revitalized important global partnerships and built coalitions around shared priorities and values.

“Key elements of the 2022 Trade Policy Agenda and 2021 Annual Report include:

Standing up for Workers’ Rights: The Biden Administration’s worker-centered trade policy reflects our commitment to use our trade agreements, tools, and relationships to empower workers. We are working with our trading partners to support workers’ rights and stop the global race to the bottom. We will seek to establish new, high-standard commitments on labor rights under our current and new frameworks for trade. Strengthening labor rights will benefit American workers, as well as workers all over the world.

Accelerating Decarbonization and Promoting Sustainable Environmental Practices: Combating the climate crisis and promoting sustainable environmental practices are top priorities for the Biden Administration. For many years, trade has been seen as exacerbating these challenges. The same dynamic that has created a race to the bottom with respect to labor rights exists with respect to environmental protection.

Supporting U.S. Agriculture: The Biden Administration understands the importance of trade to U.S. farmers, ranchers, fishers, and food manufacturers. From 2000 to 2020, annual U.S. agricultural exports grew from $58 billion to $155 billion. Through our commitment to creating sustainable economic growth and establishing a level playing field, USTR is preserving and building on those gains. The Biden Administration is also focused on creating new opportunities for American agriculture, including using our existing Free Trade Agreements (FTAs) and Trade and Investment Framework Agreements (TIFAs) to support U.S. agriculture exports.

Bolstering Supply Chain Resiliency: Bolstering supply chain resiliency is a critical component of the Biden Administration’s efforts to advance our worker-centered trade policy and create sustainable economic growth. Supply chains are integral to the global trading system, and the COVID-19 pandemic and the associated disruption to the global economy have highlighted major vulnerabilities in our existing supply chains, as well as underscored the importance of promoting supply chain resiliency.

“To begin addressing these challenges, President Biden signed Executive Order 14017 (America’s Supply Chains) last year, directing a whole-of-government approach to assess vulnerabilities in, and strengthen the resilience of, critical U.S. supply chains. Pursuant to the Executive Order, the Biden Administration conducted a 100-day review for four priority product areas: semiconductors, large capacity batteries, critical minerals and materials, and pharmaceuticals and active pharmaceutical ingredients.

Following the recommendations that emerged from the 100-day reports, the Biden Administration established an interagency Supply Chain Trade Task Force led by USTR. This task force is directed to identify both unfair foreign trade practices that have eroded U.S. critical supply chains and opportunities to use U.S. trade agreements and future trade agreements to strengthen the collective supply chain resilience of the United States and our trade partners.

Combatting the COVID-19 Pandemic: Consistent with our trade policy agenda that recognizes that people are the core of our economy, USTR is working closely with a number of agencies to ensure that trade rules support, and do not impede, the global response to the COVID-19 pandemic. The Biden Administration is taking a whole-of-government approach to address the pandemic, at home and abroad. These efforts include COVID-19 vaccine donations through COVAX and other fora, investment in vaccine production and delivery infrastructure in underserved regions, and working with trading partners to identify obstacles and solutions – including through supporting a waiver of intellectual property protections for COVID-19 vaccines at the World Trade Organization (WTO), as well as measures to facilitate the flow of goods necessary to fight the pandemic.

Re-Aligning the U.S.-China Trade Relationship:The U.S.-China economic and trade relationship is one of profound consequence. As the two largest economies in the world, the bilateral relationship affects not just the two participants, but the entire globe.

“The Biden Administration acknowledges that this relationship is complex and competitive. With respect to trade, we can be both partners and competitors, but any competition must be fair. China’s approach to trade drives frictions in many of China’s trade relationships – not just ours. China, as a large, non-market economy, is uniquely able to engage in unfair, anticompetitive practices, which harm workers and businesses in the United States and in other countries, including some of our closest allies and partners. By unduly concentrating production of certain goods in China, these non-market practices also undermine supply chain resilience and harm consumers that, in the long run, are deprived of the innovation and choice that fair competition would produce.

Engaging with Key Trading Partners and Multilateral Institutions: Growing the middle glass, redressing inequality, and incentivizing climate and environmental action are goals we share with many of our trading partners. Working with others to craft trade policies that promote these goals reflects the American leadership that many of our trading partners are seeking. The Biden Administration is meeting the challenge.

“Using trade policy as a tool to achieve these shared goals, USTR is stepping up its engagement with partners, allies, multilateral institutions and organizations. These actors and institutions play a pivotal role in cultivating any meaningful outcomes to address shared concerns. But to achieve a more resilient and just global economy, reform is necessary. The policies of the past contributed to contemporary challenges; we need different policies to achieve a different outcome.

Promoting Confidence in Trade Policy Through Enforcement: The Biden Administration is committed to vigorously enforcing our trade agreements as a critical element of pushing a global race to the top. Enforcement is a key component of our worker-centered trade policy agenda. We are using all of the tools at our disposal to combat unfair economic practices, defend American jobs, and create broad-based economic prosperity. American workers and businesses can compete with anyone when the playing field is level and competition is fair, and trade policy is an indispensable tool in achieving those goals. We are shaping a global trading system that enforces labor and environmental standards, protects intellectual property rights, and ensures that regulations are science-based and predictable.

Promoting Equitable, Inclusive, and Durable Trade Policy and Expanding Stakeholder Engagement: Trade policy can play a critical role in advancing equitable and resilient economic growth for underserved and marginalized communities, here in the United States and with trading partners who share concerns about rising inequality. The Biden Administration is committed to thorough and thoughtful engagement as we develop and implement the President’s trade policy agenda. Inclusive engagement is a key component to ensuring that our resulting trade policies are durable and equitable, and account for previous common policy shortfalls of failing to engage with communities that will be affected by those decisions. As such, the Biden Administration will continue to give all stakeholders a seat at the table as we evaluate and make these decisions.”

Comments

Consistent with the Biden Administration’s actions in 2021, the 2022 trade policy agenda includes focus on labor rights both in terms of existing agreements (USMCA) and addressing forced labor, tackling climate change, addressing agriculture market access through enforcement and country-specific negotiations, establishing rules for digital trade, making supply chains more resilient, addressing distortions caused by nonmarket economic behavior and combatting the COVID-19 pandemic. As stated in the introduction to the President’s Trade Agenda (pages 1-2 of the report),

“The Biden Administration recognizes that trade can––and should––be a force for good. Done right, and in coordination with other policy disciplines, it can grow the middle class, redress inequality, and level the
playing field by promoting fair competition. We remain committed to upholding a fair and open global
trading system – one that follows through on our trading partners’ longstanding commitment to conduct
economic relations with a view to raising standards of living, ensuring full employment, and promoting
sustainable development.

“To realize these goals, we must take stock of what has worked and what has not. This requires us to identify and rethink aspects of the existing trading system that incentivize or enable unfair competition.

“Competition in a global market provides Americans access to a wider variety of goods and services at
competitive prices. But, too often our existing global trade rules have rewarded advantages that are not
based on fair competition – or American values more broadly. Consumers in the global marketplace are
also wage earners and producers, and members of broader communities that feel the effects of our trade
policies. A trade model that promotes exploitation, whether of workers or the environment, is not efficient
– it is a form of unfair competition. And it is not sustainable.

“For these reasons, the Administration continues to advance its worker-centered trade policy. We are
standing up for workers’ rights – but it is more than that. We are promoting a broader agenda of fair
competition to ensure that workers are competing on the basis of skills and creativity, not exploitative cost advantages. We are laser-focused on working with partners and allies to chart new trade rules that do more to advance decarbonization and other critical environmental standards, support U.S. farmers, promote sustainable and resilient supply chains, and combat the COVID-19 pandemic. Through this approach, we can harness fair competition and support the American middle class with increased prosperity while promoting core American values.

“As President Biden has explained, ‘[We] will pursue new rules of global trade and economic growth that
strive to level the playing field so that it’s not artificially tipped in favor of any one country at the expense
of others, and every nation has a right and the opportunity to compete fairly.’

“Exploitation of workers and the environment are not the only forms of unfair practices that distort global
trade at the expense of Americans. We must recognize that China, as a large, non-market economy, has
uniquely distorted global trade through its economic policies and practices, causing harm to U.S.
production, investment, and even consumption. In many ways, China’s integration into the global trading
system has highlighted weaknesses in the current system – and the urgent need for reform. Lack of
protections for workers, a weak environmental regime, and anticompetitive subsidies are the hallmarks of
China’s artificial comparative advantage. It is an advantage that puts others out of business and violates
any notion of fair competition.

“That’s why the Biden Administration is realigning our trade policies towards China to defend the interests of America’s workers and businesses to strengthen our middle-class, create shared sustainable growth, and spur resilient climate action. We are working to counter China’s unfair economic practices, including by raising our concerns directly with China and working with our partners and allies to address shared challenges.

“We know we cannot effectively advance our worker-centered trade policy alone. Many of our partners and allies share our goal of a fairer, more sustainable international economic regime, and we are steadily forging the partnerships necessary to update and enforce the rules governing the global economy and trade. One example is the Administration’s success in rallying the world behind a Global Minimum Tax on
corporations to address yet another race to the bottom that, among other things, has deprived the United States of resources that should rightfully allow for investment in communities here at home. Another is the deal we reached with the European Union (EU) to combat global oversupply in the steel and aluminum industry and negotiate a first-of-its-kind trade arrangement predicating market access on the greenhouse gas emissions of imported steel and aluminum. A third example is the agreements we reached with the EU and the UK to resolve the longstanding aircraft disputes involving Boeing and Airbus, which allowed us to move past a perennial irritant and focus on shared interests, including financing on market terms and the challenges posed by non-market economies. We are building on this momentum to advance broader goals of fair competition through all available avenues, whether bilateral, regional, or multilateral discussions; existing trade agreements and frameworks; or new initiatives. Where the scope of the challenge requires new tools, we will pursue them as well.

“A vital element of our effort to build an inclusive trade policy agenda is understanding the effects of our
policies on underrepresented and underserved workers and communities, and ensuring that they have a say in how our policies are designed going forward. A more inclusive framework will lead to more durable
trade policy. Approaches to trade that rest on a narrow base of support are unsustainable, and could
ultimately undermine U.S. leadership at a critical juncture. While our ambition is high, we are rising to the
challenge.

“Precisely because it is focused on workers as the engine of the global economy, the Biden Administration’s trade policy will be a force for good – and will lead to a more durable, stable, and resilient trading system.”

What the 2022 agenda doesn’t envision is new free trade agreements being negotiated by the United States covering all or nearly all goods and services. Sectoral or limited agreements with trading partners, working through various multilateral or other organizations are the primary objectives of the stated U.S. trade policy along with enforcement of existing agreements. The report lists eight bilateral initiatives and support for one regional free trade agreement (European Union, India, Japan, Kenya, African Continental Free Trade Area, United Kingdom, Korea, Taiwan and Singapore). A major initiative for the U.S. is the so-called Indo-Pacific Economic Framework (IPEF). USTR’s report identifies the areas where negotiations with IPEF countries will focus (pages 10-11 of the report).

“We will use this framework to address a range of important areas of economic cooperation, including: fair and resilient trade (including labor, digital and other elements); supply chain resilience; infrastructure,
decarbonization, and clean energy; and, tax and anti-corruption. USTR will lead efforts to craft a trade
arrangement with parties that includes provisions on: high-standard labor commitments; environmental
sustainability; cooperation in the digital economy; sustainable food systems and science-based agricultural regulation; transparency and good regulatory practices; competition policy; and, trade facilitation. The specific content of the trade arrangement will be developed through extensive consultation with trading partners, a broad base of stakeholders, and Congress.”

While the Biden Administration supports the WTO, the WTO is but one forum for seeking progress on the President’s trade policy agenda. Reform of the WTO is the top U.S. priority at the WTO although dispute settlement reform is not specifically mentioned. The Biden Administration is also interested in conclusion of the fisheries subsidies negotiations and some of the Joint Statement Initiatives (e.g., on digital trade). The discussion of the WTO (page 11 of the report) is copied below.

“The Biden Administration is committed to the WTO. Consistent with our approach to trade policy more
broadly, the Biden Administration believes the WTO can––and should––be a force for good that encourages a race to the top and confronts global challenges as they arise. There is strong precedent for this approach: the Marrakesh Declaration and Agreement, on which the WTO is founded, begins with the recognition that the purpose of trade should be to raise living standards and ensure full employment, bearing in mind the objective of sustainable development, and the need to protect and preserve the environment.

“Unfortunately, the WTO has fallen short with respect to these ambitions, and its relevance and credibility
have accordingly come under fire. In recent years, the WTO’s inadequacy in responding to the needs of
everyday people and the inability of current rules to effectively constrain unfair trade and economic
practices have only become clearer. The pandemic has put a fine point on the WTO’s struggle to adapt as
an organization and to be relevant in responding to pressing global challenges.

“That is why the Biden Administration supports a WTO reform agenda that reflects the priorities of our
worker-centered approach – one that protects our planet, improves labor standards, and contributes to
shared prosperity. Our WTO reform agenda includes restoring efficacy to the negotiating arm and
promoting transparency; improving compliance with and enforcement of Members’ WTO commitments;
and equipping the Organization to effectively address the unfair practices of non-market economies––such as economic coercion––and global market distortions.

“The Biden Administration understands that these reform conversations will take time, and we are working to deliver results on achievable outcomes through the WTO’s existing structure. Throughout 2021, WTO Members undertook work to orient Members’ efforts towards a pandemic response and greater preparedness, and sought to identify priority steps that could be taken including in the area of trade facilitation and intellectual property protections. While some progress has been made, there is still no multilaterally agreed outcome. The Biden Administration supports a waiver of intellectual property
protections for COVID-19 vaccines, but the broader institution has not been able to reach consensus on an agreement to do so. We will continue to press for solutions on this issue in 2022.

“Additionally, the postponement of last year’s 12th Ministerial Conference (MC12) was a disappointment,
but safety and security in the midst of a pandemic appropriately take priority. However, the work can, and
must, continue and MC12 is being rescheduled for late Spring 2022. The Biden Administration worked
diligently throughout 2021 to secure meaningful outcomes for the planned Ministerial across a range of
topics including broad reform of the WTO. We will continue engaging with partners to make progress on
these issues in 2022.”

As described later in the report, the U.S. puts its focus in dispute settlement, whether under the WTO or FTAs, on achieving a mutually agreeable solution where possible. For cases where the U.S. filed a request for consultation, USTR reports that 38 disputes were so resolved by the end of 2021. An additional 46 disputes were resolved by completing the dispute settlement process. Report at 32-33. While many WTO Members are seeking the return to a two-tiered binding dispute settlement system within the WTO, the U.S. concerns with the system remain largely unaddressed, including an understanding of why the system became out of sync with the Dispute Settlement Understanding over time.

In short, look for much of the U.S. trade policy actions in 2022 to be occurring bilaterally or plurilaterally with continued WTO engagement but with more limited expectations for progress within the WTO in 2022.

Removal of MFN benefits for goods from Russia and Belarus — Canada moves first; Ukraine applies economic embargo on Russia; EU and US consider removal of MFN benefits

  1. Canada

Amid the global outcry at the actions of the Russian Federation in waging war on Ukraine, countries are reviewing options to increase the economic pain on Russia and Belarus which has permitted its country to be used for staging and other purposes. Canada acted on March 3, 2022 by removing both the Russian Federation and Belarus from receiving most favored nation treatment on any imports into Canada. See Department of Finance Canada, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2020, https://www.canada.ca/en/department-finance/news/2022/03/canada-cuts-russia-and-belarus-from-most-favoured-nation-tariff-treatment.html; Deputy Prime Minister of Canada Chrystia Freeland, Canada cuts Russia and Belarus from Most-Favoured-Nation Tariff treatment, March 3, 2022, https://deputypm.canada.ca/en/news/news-releases/2022/03/03/canada-cuts-russia-and-belarus-most-favoured-nation-tariff-treatment; Canada Border Services Agency, Order withdrawing the Most-Favoured-Nation status from Russia and Belarus, Customs Notice 22-02, https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn22-02-eng.html. The press releases contain the following explanation of the action being taken.

“Russia’s invasion of Ukraine, supported by Belarus, is a violation of international law and threat to the rules-based international order. Canada is taking further action to ensure those who do not support the rules-based international order cannot benefit from it.

“Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, and The Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, announced that the Government of Canada has issued the Most-Favoured-Nation Tariff Withdrawal Order (2022-1), removing these countries’ entitlement to the Most-Favoured-Nation Tariff (MFN) treatment under the Customs Tariff.

“This Order results in the application of the General Tariff for goods imported into Canada that originate from Russia or Belarus. Under the General Tariff, a tariff rate of 35 per cent will now be applicable on virtually all of these imports. Russia and Belarus will join North Korea as the only countries whose imports are subject to the General Tariff.

“This measure is in addition to the many punitive actions that Canada and its allies have already taken against Russia and Belarus as a result of the illegal and unprovoked invasion of Ukraine, including other trade restrictions under the Special Economic Measures Act.

“Quotes

“‘Today, I am announcing that Canada will be the first country to revoke Russia’s and Belarus’s Most-Favoured-Nation status as a trading partner under Canadian law. We are working closely with our partners and allies to encourage them to take the same step. Simply put, this means that Russia and Belarus will no longer receive the benefits – particularly low tariffs – that Canada offers to other countries that are fellow members of the WTO. The economic costs of the Kremlin’s barbaric war are already high, and they will continue to rise. Canada and our allies are united in our condemnation of President Putin and his war of aggression, and we are united in our support for the remarkable Ukrainians who are so bravely resisting his assault.’

“– The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

“‘It is the direct result of Russia’s unjustified invasion of Ukraine that has triggered our government’s removal of the Most-Favoured-Nation Tariff (MFN) treatment on almost all imports from Russia and Belarus. Canada is stepping up by putting significant economic pressure on Russia, and is providing resources to Ukraine including military equipment and emergency humanitarian support. Canada remains resolute in our solidarity with Ukraine and the Ukrainian people, and we will continue supporting them as they fight to defend their freedom and democracy.’

“– The Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business
and Economic Development”.

Later in the press release there is a list of other actions Canada has taken in response to the Russian war against Ukraine including the following.

“This measure complements other recent measures targeting trade with Russia and Belarus, which will come into force imminently, including the ban on crude oil imports from Russia and Belarus, announced on February 28, 2022, and the ban on Russian owned or registered ships and fishing vessels from Canadian ports and internal waters, announced on March 1, 2022.

2. Ukraine

Ukraine notified the WTO on March 2, 2022 that “Ukraine severed its diplomatic relations with the aggressor state, decided to impose a complete economic embargo and no longer apply the WTO agreements in its relations with the Russian Federation.” The Ukrainian letter to the Chairman of the WTO General Council is included below.

Letter-from-Ukraine-to-WTO-re-not-applying-WTO-obligations-to-Russia

3. United States

In the United States, withdrawal of MFN treatment is being considered by the Congress with bills introduced in both the House and the Senate as well as bills to ban imports of oil and petroleum products from Russia. See February 28, 2022:  Trade sanctions following Russia’s invasion of Ukraine, https://currentthoughtsontrade.com/2022/02/28/trade-sanctions-following-russias-invasion-of-ukraine/ (reviewing H.R. 6835); see also S.3717 introduced by Senators Cassidy and Brown (“A bill to withdraw normal trade relations treatment from, and apply certain provisions of title IV of the Trade Act of 1974 to, products of the Russian Federation, and for other purposes”); S.3722 introduced by Senate Finance Committee Chairman Wyden (“a bill to withdraw normal trade relations treatment from, and apply certain provisions of title IV of the Trade Act of 1974 to products of the Russian Federation, and for other purposes”); S.3718 introduced by Senator Marshall and eight others (a bill to prohibit the importation of petroleum and petroleum products from the Russian Federation”). These bills are in addition to many others looking to impose additional sanctions on the Russian Federation.

While the U.S. has applied some sanctions on Belarus, at present the bills before Congress do not seek removal of MFN treatment from goods from Belarus. As Belarus is not yet a WTO Member (it is going through the accession process), there are not the same WTO considerations in removal of MFN treatment on goods from Belarus.

4. European Union

Press articles indicate that the EU is actively considering whether to remove MFN treatment for Russia. See, e.g., Bloomberg, EU Seeks to End Russia’s Most-Favored Nation Status at WTO, March 3, 2022, https://www.bloomberg.com/news/articles/2022-03-03/eu-seeks-to-suspend-russia-s-most-favored-nation-status-at-wto (“‘In reaction to the Russian aggression against Ukraine, the EU has adopted sweeping sanctions vis-a-vis Russia, which undoubtedly have a major impact on trade,’ European Commission Spokeswoman Miriam Garcia Ferrer said in an emailed reply to Bloomberg. ‘We are discussing options available to us in the WTO context. This includes the possibility of removing MFN treatment to Russia on the basis of the WTO national security exception.’”); Financial Times, Canada imposes tariffs on Russian imports by using WTO exemption, March 4, 2022, https://www.ft.com/content/88b1b680-cc23-4e69-ba2d-69c7d96910b0 (“Bernd lange, chair of the European parliament’s international trade committee, tweeted: ‘We cannot continue with business as usual in WTO when it comes to trade with Russia. One step could be to remove MFN status.'”).

The EU has been Russia’s largest trading partner, importing $188 billion worth of goods in 2021. See https://www.statista.com/statistics/1099626/russia-value-of-trade-in-goods-with-eu/. A large portion of EU imports from the Russian Federation are oil and gas. The Financial Times articles indicates that in 2020 more than two thirds of imports from Russia into the EU were oil and gas.

Comments

One can expect that there will be continuing efforts to increase the sanctions and trade costs on Russia and Belarus for the unprovoked war in Ukraine. Denying both countries MFN treatment can be expected by some countries. Canada’s lead hopefully will be followed by the U.S. and EU and others.

In a number of countries, informal bans on Russian goods, including oil and gas is already occurring. See, e.g., BBC News, Ukraine sanctions: UK dockers refuse tanker of Russian gas, March 4, 2022, https://www.bbc.com/news/uk-england-kent-60619112.

The larger issue of whether WTO Members should exclude Russia from the organization is also attracting at least private sector comments. See, e.g., March 2, 2022:  A former Appellate Body Chair argues WTO Members have the ability to remove the Russian Federation from WTO Membership; other proposals to strip MFN benefits from Russia and services restrictions, https://currentthoughtsontrade.com/2022/03/02/a-former-appellate-body-chair-argues-wto-members-have-the-ability-to-remove-the-russian-federation-from-wto-membership-other-proposals-to-strip-mfn-benefits-from-russia-and-services-restrictions/; Kevin D. Williamson, National Review, Force Russia from WTO?, February 28, 2022, https://www.nationalreview.com/corner/force-russia-from-wto/.

Many countries have raised the conflict at the WTO during the recent February 23-24, 2022 General Council meeting and at the recent February 28, 2022 Dispute Settlement Body meeting. See, e.g., EU Statements at the General Council Meeting, 23 and 24 February 2022, https://eeas.europa.eu/delegations/world-trade-organization-wto/111430/eu-statements-general-council-meeting-23-and-24-february-2022_en (“Thursday 24 February 2022 (morning), STATEMENT ON THE INVASION OF UKRAINE BY THE RUSSIAN FEDERATION, We heard many Delegations talking about the tragedy to human lives brought about by the Covid pandemic. Today the tragedy is people being killed by the use of force following the invasion of Ukraine this morning. This is a sad day for Europe, a sad day for the world. The European Union strongly condemns this unjustified attack on Ukraine, an independent and sovereign State. This constitutes a gross violation of international law. In these dark hours, our thoughts are with the innocent women, men and children as they face this unprovoked attack and fear for their lives.“); Statements by the United States at the Meeting of the WTO Dispute Settlement Body
Geneva, February 28, 2022, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2022/03/Feb28.DSB_.Stmt_.as_.deliv_.fin_.pdf “• Before addressing the present agenda item, the United States will comment on the atrocious situation that we see happening on the ground in Ukraine. • The United States stands with Ukraine. The United States condemns Russia’s further invasion of and continuing military assault against the sovereign nation and people of Ukraine, and condemns this violation of the core principles that uphold global peace and security. The United States will continue to support the Ukrainian people as they defend their country from this unprovoked attack and we commend the true and tremendous courage we are seeing from the Ukrainian people, the armed forces, and Ukrainian leaders. The United States has expressed its views before and after the UN Security Council vote and I refer Members to our previous official statements for more details.”).

While the WTO news releases include a statement from the Director-General on the Ukraine conflict, the press releases reviewing meetings where the Ukraine conflict has been raised by Members is silent on the issue being raised. See, e.g., WTO news release, WTO dispute panel to review Chinese complaint regarding Australian duties, February 28, 2022, https://www.wto.org/english/news_e/news22_e/dsb_28feb22_e.htm; WTO news release, WTO chairpersons for 2022, February 24, 2022, https://www.wto.org/english/news_e/pres22_e/pr898_e.htm; WTO news release, WTO members agree on mid-June dates for reconvening MC12, https://www.wto.org/english/news_e/news22_e/mc12_23feb22_e.htm; WTO news release, WTO members initiate membership talks for Turkmenistan, February 23, 2022, https://www.wto.org/english/news_e/news22_e/acc_23feb22_e.htm.

It is not clear if major Members like the U.S. and EU will seek specific action against Russia within the WTO in the coming weeks or simply pursue any action unilaterally (or in coordination with certain other trading partners). Hopefully, concerned nations will see that Russia is held accountable at all multilateral organizations, including the WTO. One can assume that accession negotiations with Belarus will stop progressing until there is a satisfactory resolution of the conflict from the view of many of the existing WTO Members (other than the Russian Federation).

It is possible that WTO Members at least on a plurilateral basis will look at steps to facilitate medical and food assistance to Ukraine during the crisis. Such action is occurring and will certainly continue to occur by certain WTO Members outside of the context of the WTO, but the WTO has a role it could play. Similarly, the WHO recently took action to get 36 tons of medical supplies to the Polish border with Ukraine as the following tweet reviews. More can and should be done.

WHO-medical-assistance

Just as the COVID-19 pandemic has tested the world and involve trade elements for its resolution, so too the unprovoked war on Ukraine started by Russia and facilitated by Belarus is testing the world and needs a meaningful trade response as part of the effort to achieve a peaceful resolution.

Dispute Settlement Reform at the WTO — What Needs to Precede Negotiations?

Many WTO Members seek a restoration of a two-tier dispute settlement process with binding results. Over the last 20+ years, the United States has raised concerns about the dispute settlement system and whether panels and the Appellate Body were abiding by the limitations contained in the Dispute Settlement Understanding. As has been widely reported and reviewed, this led to the blockage by the United States of new appointments to the Appellate Body which led to the effective shut down of the second tier review in early December 2019.

The U.S., during the Trump Administration, went to great lengths at Dispute Settlement Body meetings to lay out the deep concerns the U.S. had with what had happened to dispute settlement, culminating in February 2020 with the release of a report from the U.S. Trade Representative’s Office entitled Report on the Appellate Body of the World Trade Organization (https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf).

With no functioning Appellate Body, some WTO Members agreed to a temporary arbitration approach that looks similar to the Appellate Body. Called the Multi-party interim appeal arbitration arrangement (MPIA), the MPIA in 2021 covered over 50 WTO Members including the EU and its Member States; Australia; Benin; Brazil; Canada; China; Chile; Colombia; Costa Rica; Ecuador; Guatemala; Hong Kong SAR; Iceland; Macao SAR; Mexico; Montenegro; New Zealand; Nicaragua; Norway; Pakistan; Peru; Singapore; Switzerland; Ukraine; and Uruguay. Most WTO Members, including the U.S., Japan, Korea, India, Indonesia, Malaysia, the Russian Federation and many others are not parties to the MPIA.

This has led to various actions being taken after a panel report is released — adopting panel reports as is; pursuing any agreed arbitration process between the parties to the dispute, using the MPIA (where both parties are parties to the MPIA), appealing panel reports despite the current inability of the matter to heard on appeal (delaying a final resolution). As of February 14, 2022, some 24 panel reports have been appealed with no final resolution possible prior to a solution. Other reports have been adopted without further action, some have led to bilateral solutions, etc.

Prior to the Appellate Body becoming inoperable for lack of Appellate Body members, there was much discussion on a possible solution to the impasse including a process headed by Amb. David Walker. For the United States, the problem with the approach of other Members was a failure to address the underlying causes of the system having gone off the tracks in so many disputes. For the United States, restating existing obligations contained in the DSU was an insufficient solution as the Appellate Body had felt at liberty to deviate from existing obligations despite clear directions.

As noted, the Biden Administration (still without a Deputy USTR in Geneva because of Senate inaction) has continued the blockage of new appointments to the Appellate Body. USTR Katherine Tai has spoken some on dispute settlement. Her words suggest an alignment with prior Administrations that the system is in need of reform. The question for WTO Members is what approach is needed to address underlying U.S. concerns and ensure that the dispute settlement system moving forward is limited to the parameters established by the Members and supports the negotiation function of the WTO instead of supplanting it.

The Trump Administration had argued consistently that WTO Members needed to engage in an examination of why the system had deviated from the DSU as a necessary prelude to any examination of possible solutions. While many Members talk about being willing to address U.S. concerns, there has been little apparent interest among Members in engaging in the type of review of why the AB deviated so significantly from its limited role, why Members accepted this deviation and many other questions that need to be addressed to have Members reach a common understanding on what needs to be done to have a system of dispute settlement that comports to the limits agreed to by Members.

Last week, the Centre for Trade and Investment Law (CTIL), the Indian Institute of Foreign Trade (IIFT), New Delhi, the Centre for Alternative Dispute Resolution (CADR), Rajiv and the Gandhi National University of Law (RGNUL), Punjab organized a conference on February 10 and 11 entitled “Conference on
‘Dispute Settlement in International Trade Agreements: Prospective Pathways”. One of the last speakers on the second day was Ambassador Dennis Shea, the Trump Administration’s Deputy U.S. Trade Representative and Permanent Representative to the WTO. Amb. Shea provided his recap of the problems with the WTO’s dispute settlement system and identified a series of questions WTO Members need to address if there is to be hope of a resolution to the current impasse at the WTO on dispute settlement. His comments can be found on his Linkedin page, https://www.linkedin.com/feed/update/urn:li:activity:6897931614924414976/, and are copied below.

“Good evening, everyone. Let me begin by thanking Professor Nedumpara, the Centre for Trade and
Investment Law, and the Rajiv Gandhi National University of Law for this opportunity to share some
thoughts about the World Trade Organization and WTO dispute settlement.

“When the Professor reached out to see if I would be available to be with you this evening, albeit virtually, I jumped at the opportunity. I suppose you can say I began my WTO journey in India. On one of my earliest days as the newly-minted US Ambassador to the WTO, I found myself in New Delhi, a participant in a WTO mini-Ministerial conference hosted by the Indian government. As you can imagine, there was great interest among the assembled to see and meet the person whom the Trump Administration was sending to Geneva. It was also something of a ‘hot seat’ experience as I was peppered with questions about the U.S. position blocking new appointments to the WTO’s Appellate Body. In retrospect, I suppose it was a good warm-up for my subsequent service in Geneva.

“Before I venture any further, I want to acknowledge the cordial relationship that I enjoyed with my Indian counterparts – most notably Ambassador Deepak and Ambassador Navnit – during my service at the WTO. Although we did not see eye-to-eye on many issues, we always maintained a friendly and open relationship, recognizing the strong bonds between our two countries. I would also like to extend my best wishes to Ambassador Bhatia, whom I understand will be speaking shortly. I suspect he may disagree with some of what I may say.

“I thought I’d spend my time highlighting the key elements of the U.S. critique of the Appellate Body and
offer some thoughts on the way forward. I use the term ‘U.S. critique’ intentionally. While in Geneva, I tried to convey to my colleagues that concerns about Appellate Body overreach were shared broadly
across the political spectrum in the United States and were not just Trump Administration or Republican
Party complaints. In all honesty, I don’t think this point registered fully.

“With the Biden Administration continuing to block Appellate Body appointments for more than a year, it
should now be crystal clear that this U.S. critique is deep-seated, broad-based, and bipartisan. In fact, during my service as WTO Ambassador, I never once received a telephone call, email, text, WhatsApp, or
other communication from anyone in the U.S. Congress, Democrat or Republican, complaining about the
positions I was taking vis-à-vis the Appellate Body on behalf of the United States. On the contrary, I was
often encouraged to keep it up.

“Let me also put all my cards on the table and say that I don’t believe the Appellate Body is ever coming
back, in current or modified form. There is simply no political energy in the United States for doing so, and of course, that matters in a consensus organization like the WTO. As the current U.S. Trade Representative Katherine Tai recently stated: ‘Reforming dispute settlement is not restoring the
Appellate Body for its own sake, or going back to the way it used to be. It is about revitalizing the agency
of Members to secure acceptable resolutions.’

“Of course, the WTO membership could conclude that, going forward, a bifurcated system of appellate
review is acceptable – with some members participating in the recently-created Multi-Party Interim
Appeal Arbitration Arrangement and others, like the United States and India, operating outside of it.
But, if the goal is a reformed dispute settlement system in which all members participate, then
understanding the U.S. critique of the Appellate Body is essential.

“Let me add that, as part of any re-examination of the WTO dispute settlement system, everything
should be on the table – both the appellate stage, if there is to be one, and the panel stage which has
received much less attention but merits scrutiny, particularly in light of the growing length of panel
proceedings. While engaged in this re-examination, there should be no red lines, just open minds. The
first step should be a discussion, not a negotiation.

“Was the Appellate Body designed to be an international court charged with creating a global common
law of trade? This question is at the heart of the U.S. critique and, from the U.S. perspective at least, the
answer is clearly and unambiguously ‘no.’

“The Appellate Body is not called a ‘court’ in the Dispute Settlement Understanding nor are its members
described as ‘judges.’ The DSU envisions Appellate Body members as part-time employees, not
necessarily based in Geneva, who would be reimbursed travel and per diem expenses when called upon
to hear an appeal from a panel report. Their function was straightforward and limited: to correct
egregious errors of law made by dispute settlement panels. The DSU explicitly prohibits the Appellate
Body from engaging in fact-finding – that’s the job of the panels – and from adding to or diminishing the
rights and obligations provided in the WTO agreements. The WTO membership created the dispute
settlement system – of which the Appellate Body was just a part – to help resolve disputes, not to create
a body of jurisprudence or impose new rules. The responsibility for issuing authoritative interpretations
of the WTO Agreement has always belonged to the WTO members themselves, acting through the
General Council or the Ministerial Conference.

“Because of the limited role of the Appellate Body, the DSU requires it to act quickly, completing work
within 60 days as a general rule but never beyond a 90-day deadline.

“Unfortunately, the Appellate Body – with the encouragement of some key WTO members and individual
Appellate Body members – soon morphed into something completely different.

“It began to regularly engage in fact-finding, adding unnecessary complexity and time to its work. It
began to insist that its reports were entitled to be treated as binding precedent and must be followed by
panels, absent ‘cogent reasons,’ a standard that appears in no WTO agreement. It routinely rendered
advisory opinions on issues not necessary to assist the Dispute Settlement Body in resolving a dispute. It
unilaterally declared that it had the authority to allow individuals formerly serving on the Appellate
Body, whose terms had expired, to continue to participate in and decide appeals, a practice that India
first objected to in 1996.

“And beginning in 2011, the Appellate Body routinely violated the 90-day rule for completing its reports,
and in many cases, did so without even consulting the parties to an appeal. In fact, some appeals took
more than one year to complete.

“For more than 20 years, across multiple Administrations, the United States – joined by other similarly concerned WTO members – repeatedly complained about these and other deviations from the clear text
of the DSU. We were obviously unsuccessful in effectuating change. During my tenure in Geneva, when I
asked my colleagues ‘why’ the Appellate Body felt free to break the rules – the famous ‘why’ question
as characterized by the media – I was usually greeted with silence.

“This silence is not surprising. It became clear to me that some WTO members saw the Appellate Body as
an independent international court and its members as judges who inherently have more authority to
make rules and create jurisprudence. The same members envisaged the body as the centerpiece – the
‘crown jewel’ – of the dispute settlement system, not just one component of that system.

“Some Appellate Body members also viewed themselves as ‘appellate judges’ serving on a ‘World Trade
Court’ and commissioned with broad authority to develop ‘a coherent and predictable body of
jurisprudence.’ We know all this because they said so.

“In an important 2020 speech at Washington, DC’s Georgetown University, former Appellate Body
member Tom Graham described the prevailing ethos of the Appellate Body characterized by three
specific attributes:

“First, an orthodoxy of viewpoint, about the role of the Appellate Body as a self-anointed
international court, with much broader authority to over-reach the rules and create judge-made
law than permitted by the WTO agreements, or intended by the negotiators who created them;

“Second, a mindset that declined to re-examine the premises by which the Appellate Body
expanded its role; and

“Third, a group-think that de-legitimized serious systemic criticisms, and those who espoused
them.

“In his Georgetown speech, Mr. Graham also described the high degree of control exercised by Appellate
Body staff leadership; an over-emphasis on ‘collegiality’ that shaded into peer pressure to conform; an
excessive striving for consensus decisions coupled with a discouragement of dissents that led to
excessively long and unclear compromise reports; a sense of infallibility; and an undue adherence to
precedent – not only with respect to outcomes but also to reasoning, definitions, and obiter dicta that
had the effect of ‘baking in mistakes.’

“As far as I know, none of these critical Appellate Body ‘inside-the-tent’ operational issues has ever
seriously been discussed at the WTO’s Dispute Settlement Body, the General Council, or even among
informal groupings of WTO members.

“The effect of Appellate Body overreach and its accretion of power has been the diminution of the WTO’s
negotiating function. Why negotiate when you can achieve a desired outcome through litigation? Not
surprisingly, the last successful multilateral negotiation was the Trade Facilitation Agreement,
completed in 2013, and there have been no successful rounds of tariff negotiations since the WTO’s
creation.

“While in Geneva, I was often asked ‘what does the U.S. want?’ What the U.S. wanted was a deeper
discussion of why the Appellate Body felt free to depart from what WTO Members agreed to and why
the WTO membership allowed it to happen. It seems the current U.S. Administration is seeking the same
kind of deep-dive discussion, recognizing as we did that simply papering over the differences among
WTO members with a few word tweaks to the DSU or with a General Council decision that simply
repeats the words already in the DSU just won’t work as a durable solution.

“Going forward, there must be a shared understanding of the proper structure and role of the WTO
dispute settlement system and what we all want to get out of it.

“So how would we start such a discussion? Beyond engaging on the substantial critique that I just
outlined and what it might mean for any future system, let me suggest several questions. Some of these
questions may sound quite basic but are still essential to consider nonetheless:

“What is the purpose of dispute settlement at the WTO? What objectives are we trying to achieve? What
benefits do WTO Members hope to derive?

“Do we agree that dispute settlement should support the WTO’s negotiating and monitoring functions
and not act to undermine them?

“What attributes do we want WTO arbitrators to possess?

“Is the timeliness of decision-making important? If so, how can we expedite decision-making without
compromising fairness and quality?

“Do we even need a second-tier or appellate review at the WTO? If so, why? Has it been the shared
experience of WTO members over the past 25 years that the Appellate Body has demonstrated greater
expertise and competence than panel members?

“If a second tier is considered important, should a losing party at the panel level have an automatic right
to appeal? Or should the lane for these appeals be narrower – perhaps through a mechanism that
allows the WTO membership to set aside erroneous panel opinions in exceptional cases, as suggested by
former U.S. Trade Representative Bob Lighthizer?

“What other alternative appellate review structures are possible? For example, does it make sense to
expand the roster of first-tier panelists and enlist some of them for ‘appellate duty’ when the need
arises? Do we need a permanent and dedicated staff to assist the appellate reviewers or did that type
of structure contribute to the Appellate Body exceeding its intended role?

“And what is the appropriate relationship between the WTO membership, acting through the Dispute
Settlement Body, and the WTO arbitrators?

“Beyond these questions, there must be a shared understanding of the fundamental norms that underpin
the rules-based international trading system. After all, these norms – and the rules they inform and
buttress – are what the dispute settlement system is designed to protect.

“For the U.S., the fundamental norms of the WTO include openness, transparency, non-discrimination,
and market orientation grounded in the rule of law. It’s this last one – market orientation – that seems
to be now in dispute.

“As one of the main architects of the multilateral trading system, the United States has always believed
that adherence to market-based policies among trading parties was essential if the system is to work
effectively and fairly. We certainly held this belief when we joined the GATT and later when we signed
the Marrakesh Declaration with its commitment to ‘open, market-based policies.’ And the U.S. has
insisted in literally dozens of WTO accessions that the acceding party undertake domestic reforms to
reduce the role of the state in the economy and increase market orientation.

“As former WTO Deputy Director General Alan Wolff has explained: ‘The WTO is not simply about
coexistence; differences among members affecting trade which deviate from the principles governing
the WTO, its core values, are to be progressively overcome.’

“Not surprisingly, the People’s Republic of China does not believe that market orientation is a core value
of the WTO, arguing instead that market and non-market economies both belong in the organization on
an equal footing. But in 2001, when China acceded to the WTO, there was an expectation that its economy would further open up, liberalize, and embrace market principles.

“Regrettably, this future has not materialized. In fact, we have witnessed significant retrenchment, a
process that has been ongoing for well over a decade.

“Today, it’s as if one team is playing rugby and the rest of us are playing cricket.

“As I said in my final remarks at the WTO in 2020, China’s ‘state-led, non-market economic system is
incompatible with the WTO and its norms. To believe the WTO can manage this system’s trade disruptive
impact under current rules and through the dispute settlement process is fantasy.’

“In my mind, this is the most pressing issue facing the WTO – how to manage this fundamental
incompatibility. And to be completely candid, I’m not sure the WTO is equipped to do so.

“What I do know is that, at least from a U.S. perspective, reform of the WTO’s dispute settlement system
can only succeed if the market-orientation norm of the WTO is significantly reinforced, not only through
changes to the rules that effectively discipline non-market practices both also through a widespread
recognition throughout the membership that market orientation is a foundational principle or norm of
the international trading system.

“Thank you for listening. It’s been a privilege to have this opportunity to speak with you today.”

Observations

The EU and many other WTO Members are looking for reform efforts to include the restoration of a two-tier dispute settlement system. The objectives these Members have focus on timing and speed of process. One does not see from these Members a focus on the need for Member discussion of the types of questions that Amb. Shea has outlined above. If, as seems likely, the Biden Administration is supportive of reexamining the dispute settlement system to address the types of concerns Administrations of both parties have raised over the last two decades, pursuing negotiations before a full discussion of the core questions listed above will almost certainly lead to failure.

Similarly, resolving the dispute settlement challenge will not occur in isolation. There is the issue of correcting erroneous decisions of the past as well as the critical need to address the incompatibility of the market economy systems that have typified the GATT and now the WTO and the state controlled economic systems typified by China and others. Convergence of Member economic systems must be agreed and enforced. Coexistence plainly is not working. There are too many aspects of state-controlled economies which are not adequately addressed by the existing multilateral rules. It is not likely that mere modification of the rules or adoption of new rules will solve the incompatibility.

The challenge for the WTO is whether its diversity of Members and need for consensus makes any forward movement on these critical issues possible in the coming months and years. Let’s hope that Amb. Shea’s concern that the WTO may not be capable of meeting the challenge is not correct.

The WTO Panel Report, UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS, WT/DS546/R (8 February 2022)

On February 8th, a WTO panel report was released to the public on a U.S. safeguard case on imports of large residential washers. A challenge to the U.S. action was filed at the WTO by Korea on May 18, 2018 after safeguard relief was provided by the U.S. beginning February 7, 2018. The panel process was complicated by COVID restrictions on in person meetings. The challenge was to the U.S. International Trade Commission’s affirmative serious injury determination and remedy recommendation from December 2017 and the President’s issuance of import relief in late January 2018. See USITC, Large Residential Washers, Inv. No. TA 201 076, USITC Pub. 4745 (December 2017); Presidential Documents, Proclamation 9694 of January 23, 2018 – To Facilitate Positive Adjustment to Competition from Imports of Large Residential Washers, 83 FR 3553 (25 January 2018). As noted in footnote 11 to the Panel Report, “We note that in its comments to the Descriptive Part of the Panel Report, Korea noted that the safeguard measure at issue was extended on 14 January 2021 for two additional years, through 7 February 2023. (Korea’s comments to the Descriptive Part of the Panel Report (referring to US notification to the WTO, G/SG/N/10/USA/8/Suppl.7)).” WT/DS546/R at 10 fn. 11.

The panel found a number of aspects of the USITC determination and Presidential action to be contrary to U.S. obligations. The violations by and large raise important questions about needed reforms to GATT 1994 Art. XIX and the Agreement on Safeguards to ensure a functioning safeguard remedy as well as the proper role of dispute settlement in such cases. At the same time, a large number of challenges by Korea were rejected by the panel through the correct application of burden of proof and standard of review of administrative findings. Thus, the U.S. will have to decide if it will appeal the panel report, agree to its adoption or seek some other form of resolution with Korea.

GATT Art. XIX:1(a)

The first “violation” of obligations found by the panel reflects prior Appellate Body findings that provisions of Article XIX permit safeguard actions only where there are unforeseen developments and the problems are from the effects of obligations incurred by Members. The panel, following earlier decisions, found that these factors had to be explained and justified in the USITC determination and not raised after the fact during the dispute. WT/DS546/R at part 7.2, page 13-19. The concluding paragraph states, “7.35. In light of the above, we find that the USITC acted inconsistently with Article XIX:1(a) of the GATT 1994 and Article 3.1 of the Agreement on Safeguards because its report does not contain a reasoned and adequate explanation on ‘unforeseen developments’ and the ‘obligations incurred’ by the United States, within the meaning of Article XIX:1(a) of the GATT 1994.”

In the USTR report on the Appellate Body of the World Trade Organization from February 2020, USTR flagged six particularly eggregious decision areas of the Appellate Body that reflected the range of problems of concern to the United States. The fifth area was “The Appellate Body’s Non-Text-Based Interpretation of Article XIX of the GATT 1994 and the Safeguards Agreement Undermines the Ability of WTO Members to Use Safeguards Measures”. Report at 110-114, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf. The segment from the USTR Report is copied below.

E. The Appellate Body’s Non-Text-Based Interpretation of Article XIX of the GATT 1994 and the Safeguards Agreement Undermines the Ability of WTO Members to Use Safeguards Measures

“• WTO Members specifically reserved for themselves the right to impose safeguard measures to protect their industries from import surges that cause or threaten to cause serious injury.

“• The Appellate Body has diminished this right by inventing additional requirements for the imposition of safeguards that Members never agreed to.

“• For example, the Appellate Body has found that prior to taking a safeguard action, a Member’s competent authority must include in its report a demonstration of the existence of ‘unforeseen developments,’ despite the absence of any such requirement in the GATT 1994 or the Safeguards Agreement.

“• The Appellate Body has also departed from the WTO agreements in creating a high threshold for serious injury determinations under the Safeguards Agreement.

“• Through the imposition of new obligations, the Appellate Body has rendered legitimate
safeguard measures significantly more difficult to defend.

“Safeguard measures provide a crucial means for WTO Members to protect their industries from import surges (including surges that would destroy domestic industry). WTO Members specifically reserved for themselves the right to impose such measures and established rules for the application of such measures in the WTO Agreement on Safeguards (‘Safeguards Agreement’).

1.The GATT and the Safeguards Agreement Reflect the Agreed Rules for Safeguard Measures

“Article XIX:1(a) of the GATT 1947 provides as follows:

“If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

“As with most obligations in GATT 1947, panels evaluated compliance with Article XIX by examining, after the fact, whether the conditions justified a contracting party’s decision to suspend an obligation or withdraw or modify a concession. Parties to the proceeding could rely on information and findings from their domestic proceedings, or introduce new evidence and make new arguments to defend their actions.

“The WTO Agreement incorporated Article XIX of the GATT 1947 substantively unchanged into the GATT 1994, but added the Safeguards Agreement to ‘establish[] rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT 1994.”260 The Safeguards Agreement set out standards for determining when serious injury existed. The Safeguards Agreement also set forth a requirement that a Member apply a safeguard measure only after an investigation by the competent authorities of that Member ‘to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry under terms of the Agreement.’261 Article 3.1 provides that ‘[t]he competent authorities shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.’ The Safeguards Agreement does not mention ‘unforeseen developments’ or require the competent authorities to evaluate whether serious injury is ‘as a result of unforeseen developments’ for purposes of Article XIX of the GATT 1994.

2. The Appellate Body Has Created Additional Obligations for Imposing Safeguard Measures

“In 2001, in US – Lamb Meat, the Appellate Body proclaimed (1) that the WTO Member taking safeguard action must publicly demonstrate unforeseen developments as a matter of fact before applying a safeguard measure and (2) that the demonstration must have appeared in the report of the competent authorities.262 Neither of these determinations is based on the text of Article XIX. Indeed, the Appellate Body admitted that ‘Article XIX provides no express guidance’ on the issue of ‘when, where or how this demonstration should occur.’263 Undaunted, the Appellate Body based its new determination on ‘instructive guidance’ that it drew from its own findings in earlier safeguard disputes. The Appellate Body’s approach was erroneous. The Appellate Body took a statement from one of its earlier reports, that unforeseen developments are circumstances that ‘must be demonstrated as a matter of fact,’ and used this phrase in a different context to create an entirely new and additional obligation that is not in Article XIX or the Safeguards Agreement.

“The lack of ‘guidance’ on this issue in Article XIX and the absence of any reference to “unforeseen developments” in the Safeguards Agreement demonstrates that WTO Members have not consented to be bound by any particular approach. The United States and other Members have given the Appellate Body no authority to to use its own prior reports to create obligations that do not appear in the text that Members agreed to.

“First, Article XIX does not require a ‘demonstration.’ As with other trade remedies covered by the GATT 1994, Article XIX merely specifies the conditions that justify an action. Thus, a need to ‘demonstrate’ that the conditions exist could arise only if and when another WTO Member challenges the action’s consistency with the relevant condition in Article XIX. By requiring a ‘demonstration’ before application of a safeguard measure, the Appellate Body’s approach appears to reverse the normal burden of proof in dispute settlement proceedings – that the complaining WTO Member bears the burden to show that serious injury was not ‘a result of unforeseen developments.’ The Appellate Body ignored this, and instead required that the WTO Member maintaining a safeguard measure bear the burden of demonstrating the existence of unforeseen developments before another WTO Member even challenged the safeguard measure.

“Second, the Appellate Body states that the ‘demonstration’ must be made by a WTO Member’s competent authorities, and in their published report, and not by any other official of the WTO Member or in any other manner. But Article XIX makes reference neither to competent authorities nor to published reports, two concepts that originate in the Safeguards Agreement, not in Article XIX. And, the Safeguards Agreement charges the competent authorities with the investigation of serious injury – not the other elements of Article XIX. For example, in Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, the Appellate Body correctly found that there is no obligation for the competent authorities to make findings justifying the type and extent of a safeguard measure. There is simply no textual basis for the Appellate Body’s conclusion in US – Lamb Meat that Article XIX requires the competent authorities to make any finding on unforeseen developments in their report.

“The Appellate Body supports its interpretation by claiming that any other approach would leave the means for complying with Article XIX ‘vague and uncertain’. This is simply not true. WTO Members take most measures without providing an advance demonstration of consistency with the WTO. A WTO Member challenging a safeguard measure must prove that a measure fails to meet one of the relevant requirements, and the Member applying that measure needs to demonstrate consistency only to the extent that the complaining WTO Member has proven its case. The same approach should apply to those elements of Article XIX, like unforeseen developments, that the Safeguards Agreement requires to be subject to the investigation and determination of the competent authorities. In any event, it is outside the mandate of the Appellate Body to elaborate on the text to satisfy the Appellate Body’s own sense of what is ‘clear’ or ‘certain.’ That is a task that WTO members reserved for themselves. Article 3.2 of the DSU is quite clear on this point.

“Other Members also have criticized the Appellate Body’s reasoning as well. As Korea explained in statements to the General Council, the Appellate Body’s reasoning left Members with ‘an ambiguous requirement to demonstrate the existence of ‘unforeseen developments’ [that was] not in line with the drafters’ intention.’ Korea also noted that the drafting history of the Safeguards Agreement demonstrated that ‘it would be unreasonable to conclude that the negotiators had left an essential requirement in Article XIX of GATT 1994 and had not included it in the new Agreement, which was meant to be the final embodiment of the rules on safeguards.’264

“The Appellate Body also strayed from the text of Article XIX and the Safeguards Agreement in US – Wheat Gluten in 2000, and US – Line Pipe in 2002. In these proceedings, the Appellate Body imposed a heightened threshold on the serious injury determinations by the competent authorities.

“Article 4.2(a) of the Safeguards Agreement provides for the competent authorities to conduct ‘an investigation to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry under the terms of this Agreement.’ It instructs them to ‘evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry,’ and lists several of these. Article 4.2(b) of the Safeguards Agreement then provides:

‘The determination referred to in subparagraph (a) shall not be made unless this investigation demonstrates, on the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to
increased imports.

“Relying on a negative obligation not to attribute injury from other causes to imports, the Appellate Body fashioned an affirmative requirement to analyze not only the nature of other factors, but to identify their ‘extent’ and then ‘separate and distinguish’ the effects of other factors from the effects of increased imports. The Appellate Body could even be understood to have suggested that the extent of injury from other factors should be mathematically ascertained so as to precisely separate and distinguish the injury.265 None of these additional requirements appear in the treaty text. The Appellate Body’s erroneous approach could also be understood to prevent an investigating authority from evaluating the injury caused by other factors and then examining whether that injury attenuates the causal link between the increased imports and serious injury. This would diminish the rights of WTO Members to take safeguard action in the circumstances set out in GATT 1994 Article XIX and the Safeguards Agreement.

3. The Appellate Body Has Made It All But Impossible for WTO Members to Impose Safeguard Measures

“A number of safeguard measures have been challenged at the WTO and, with one exception, all have been found to be WTO-inconsistent. 266 This is not surprising given the Appellate Body’s erroneous interpretations. The additional requirements invented by the Appellate Body raise the threshold for an affirmative finding that increased imports cause serious injury to a height that makes it all but impossible to impose safeguards. Under the Appellate Body’s erroneous approach, even if the imports are the most important cause of serious injury, a WTO Member may not apply a safeguard measure if its authorities did not mathematically determine and isolate the effects of other factors. These invented requirements seriously detract from WTO Members’ ability to protect themselves from unforeseen surges in imports, a right clearly reserved to them in Article XIX and the Safeguards Agreement.

“260 Agreement on Safeguards, Article 1.

“261 Agreement on Safeguards, Articles 3.1 and 4.2(a).

“262 US – Lamb (AB), para. 72 (2001).

“263 Id.

“264 Dispute Settlement Body, Minutes of the Meeting Held on January 12, 2000), WT/DSB/M/73 (4 February 2000); accord T. Raychaudhuri, The Unforeseen Developments Clause in Safeguards under the WTO: Confusions in Compliance, 11 Estey Ctr. J. Int’l Law and Trade Pol’y 302, 314 (‘The addition of such a requirement does not appear to be at all consistent with the intent of the negotiators in the Uruguay Round. In fact, a perusal of the negotiating history reveals that the draft version of the AS did contain the unforeseen developments clause. By mid1990, however, the clause was omitted from the draft, while other conditions of Article XIX were repeated almost verbatim.’).

“265 See US – Lamb (AB) (2001), para. 130 (‘[t]he words ‘factors of an objective and quantifiable nature’ imply, therefore, an evaluation of objective data which enables the measurement and quantification of these factors.’).”

While it is perhaps not surprising that the panel would follow the prior Appellate Body decisions on the issue of GATT 1994 Article XIX:1(as), the problem flagged by the U.S. and others remains present in the current decision. Moreover, the lack of inclusion of the requirement in the Agreement on Safeguards may simply reflect the reality experienced by the United States between 1962 and 1974 that the Art. XIX language was not administrable, and hence represent the desire of Members to have the Agreement on Safeguards be operational in fact.

Look for the U.S. to need a resolution of this issue (among others) before the Dispute Settlement problems are resolved. Resolution could occur through a revision to GATT 1994 Art. XIX or the Safeguard Agreement and/or meaningful reform of the dispute settlement system including panel reports.

Likeness of domestically produced parts and imported parts of LRWs

The domestic industry was defined by the USITC as consisting of washing machines and certain parts. Korea made various challenges to the domestic like product including challenging whether domestic parts were like imported parts since such parts were designed for particular models and hence not interchangeable. The panel viewed the Commission’s determination as violative of U.S. obligations under Art. 4.1(c) of the Safeguards Agreement since the Commission indicated the products didn’t compete and the Commission didn’t provide an adequate explanation for why the products were nonetheless “like”. See Panel Report at 23-27. Paras. 7.66 and 7.67 provided the summary of the panel’s finding.

“7.66. In the underlying investigation, the USITC specifically found that imported and domestically produced parts did not compete. We note that the United States alludes to different ways in which conditions of competition could manifest in the market, including situations where imports of LRW parts that do not directly compete with either domestic parts or finished products may nevertheless have an indirect impact on domestic producers of parts and finished products if they are assembled into finished products in domestic screwdriver operations that do not change the fundamental character of the parts. However, the USITC did not undertake any such analysis alluded by the United States as part of its likeness analysis.112

“7.67. Based on the foregoing, we find that the USITC did not find imported covered parts to be like domestically produced covered parts in a manner consistent with Article 4.1(c) of the Agreement on Safeguards in defining the domestic industry. Having reached this finding, we do not consider it necessary to make additional findings under Article 2.1 of the Agreement on Safeguards.

“112 See e.g. United States’ response to Panel question No. 67(a), paras. 1-2. The United States clarified that the USITC did not undertake an analysis of any indirect competition between domestically produced and imported parts as part of its likeness analysis because LG and Samsung, the two Korean producers, had not yet commenced production of LRWs at their planned US LRW production facilities as of the date of the USITC’s vote on injury. The United States explains that the USITC reasonably considered the likelihood of indirect competition from imports of covered parts in recommending safeguard remedy be imposed on parts. We also note that the United States suggests that the USITC found that domestic and imported covered parts competed as they “offer[ed] alternative ways of satisfying the same consumer demand in the marketplace”. (United States’ comments on Korea’s response to question No. 67, fn 12 (referring to USITC report, (Exhibit KOR-1), p. 17)). However, we recall that the USITC stated that covered parts did not compete. Moreover, at the cited section of the USITC report, the USITC stated that “[d]omestically produced and imported covered parts share the same general functionality when installed in LRWs” (emphasis added). This statement does not imply that covered parts competed in the market. As the USITC noted, covered parts may only be installed in specific LRW models. (USITC report, (Exhibit KOR-1), p. 16).”

While the finding can be viewed as a narrow one and one perhaps readily addressable by the USITC in future investigations, the finding of violation is questionable at best. Imported parts were used for repairs and potentially for downstream assembly. Domestically produced parts were used both in original equipment and for sale as repairs. The fact that the parts weren’t interchangeable for a given model doesn’t mean there wasn’t competition. The panel report mentions elsewhere serious price depression found by the Commission for LRWs. The same was likely the case for parts in the aftermarket. It is not uncommon for merchants to promote the total cost of equipment including costs of repairs if needed. Lower replacement costs for an imported part would likely put pressure on domestic replacement part prices. The USITC questionnaires that went to producers and importers may have captured some information on shipments/sales of parts. In any event, for panelists to construe the ITC description of a lack of competition in terms of use within a given model as undermining the appropriateness of parts being found to be like products ignores commercial reality. See also Panel Report at 26 fn. 110 (“We note that in its third-party statement, the European Union argued that because LRW parts are used to repair the respective LRW units, the market for LRW parts may constitute an ‘aftermarket’, while the market for LRW units would be the ‘primary market’. The European Union considered that it is possible that the interaction between the primary market (LRW units) and the aftermarket (LRW parts) form one ‘system market’, so that competition would take place between LRW systems. In its view, if one single domestic market exists for LRW units and parts, within that market, imported and domestic LRW parts would be ‘directly competitive’ with each other because competition would follow from the competition at the system level. (European Union’s third-party submission, paras. 34-40). We note that the USITC did not take such “system market” approach in the underlying investigation. Therefore, whether such approach would be consistent with Article 4.1(c) is not an issue in the matter before us.”).

As part of its attack on the U.S. like product findings, Korea separately argued that the USITC had included parts pursuant to its product line approach to analysis. The panel agreed with Korea (Panel Report at 27-30), but that issue would be irrelevant if a proper analysis had been performed on the like product issue on parts.

Other issues

The panel faulted the USITC for not explaining why it had excluded one domestic producer from profit and loss data and why the remaining data were sufficient. It also faulted the U.S. for not giving Korea sufficient time to consult on the safeguard remedy once the Administration had decided to include product from Korea in the relief. Regardless of the merits of the panel’s findings on these issues, neither should pose significant challenges to the U.S. in future cases.

Conclusion

Because the panel report contains several significant errors, including at least one of longstanding concern to the United States as reflected in the USTR Report on the Appellate Body of the World Trade Organization, it is possible that the United States will choose to file an appeal at the WTO and hence join the 24 other disputes where appeals have been filed where resolution is helpdup by the lack of a functioning Appellate Body (including a case where Korea has appealed (22 January 2021:  Notification of Appeal by Korea in DS553: Korea — Sunset Review of Anti-Dumping Duties on Stainless Steel Bars (WT/DS553/6)).

However, relief under the U.S. safeguard action is due to expire on February 7, 2023. Moreover, on many issues raised by Korea, the panel found no violation of obligation by the United States. In such circumstances, it is possible that the U.S. will agree to resolve the dispute by terminating the 201 relief sometime in the Spring.

My bet would be on the resolution option.

The WTO’s efforts to address the COVID-19 pandemic — will Members reach agreement by the end of February?

Throughout the current pandemic, the WTO has generated large amounts of information to help Members examine the response to the pandemic that would minimize disruptions and maximize availability of medical goods. See, e.g., WTO webpage and series of reports generated by the Secretariat (WTO, COVID-19 and world trade, https://www.wto.org/index.htm; https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm. The WTO Secretariat provides periodic updates on reports as well as tracking import and export restrictions on medical goods and inputs. See, e.g., WTO news, WTO Secretariat updates members on COVID-19 reports and new tools, 28 January 2022, https://www.wto.org/english/news_e/news22_e/nama_28jan22_e.htm.

With support from WTO Members, the WTO has worked with other multilateral organizations to promote a coordinated response. See, e.g., WTO press release, WHO, WIPO, WTO heads chart future cooperation on pandemic response, 1 February 2022, https://www.wto.org/english/news_e/news22_e/igo_01feb22_e.htm; WTO press release, International organizations discuss how to improve access to COVID vaccines, countermeasures, 22 December 2021, https://www.wto.org/english/news_e/news21_e/covid_22dec21_e.htm (IMF, World Bank, WHO, WTO); WTO-IMF COVID-19 Vaccine Trade Tracker, Last updated: 17 January 2022, https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm.

Most WTO Members view agreeing on a multilateral response to the pandemic as of critical importance. This includes both addressing a host of non intellectual property issues [“These include issues relating to trade facilitation, export restrictions, regulatory coherence, transparency and monitoring, scaling-up of production and distribution on essential goods, services and crisis preparedness and resiliency, and coordination with relevant stakeholders, including international organizations and the private sector.”] and resolving whether there should be a waiver from some TRIPS obligations as requested by India, South Africa and supported by others. The WTO Secretariat put out a briefing note on the issue of trade and health looking at the state of play as of 6 January 2022. See Trade and health: WTO response to the COVID-19 pandemic, 6 January 2022 (above quote is from the briefing note), https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bftrade_and_health_e.htm.

As I have reviewed in prior posts, the waiver of TRIPS obligations proposal from India and South Africa has been challenging for a number of Members to accept. See, e.g., WTO efforts to address the COVID-19 pandemic — the January 10, 2022 General Council meeting and some current developments of interest, https://currentthoughtsontrade.com/2022/01/11/wto-efforts-to-address-the-covid-19-pandemic-the-january-10-2022-general-council-meeting-and-some-current-developments-of-interest/. The briefing note provides a good summary of the TRIPS waiver proposal and is copied below.

“TRIPS Council

“In parallel to the process facilitated by Ambassador Walker, members have been seeking convergence on how best to use the global intellectual property (IP) system to tackle COVID-19 in the context of the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS).

“Waiver request

“Over the past year, members have engaged in discussions based on various texts. On 15-16 October 2020, India and South Africa introduced at the TRIPS Council document IP/C/W/669 requesting a waiver from certain provisions of the TRIPS Agreement for the prevention, containment and treatment of COVID-19. The proposal has since been co-sponsored by the delegations of Kenya, Eswatini, Mozambique, Pakistan, Bolivia, Venezuela, Mongolia, Zimbabwe, Egypt, the African Group, the LDC Group, the Maldives, Fiji, Namibia, Vanuatu, Indonesia and Jordan.

“Since the introduction of the document, discussions have taken place in various formal and informal TRIPS Council meetings. Delegations have exchanged views, asked questions, sought clarifications and provided replies, clarifications, and information on the waiver request. On 21 May 2021, the co-sponsors issued a revised proposal which was circulated in document IP/C/W/669/Rev.1 and on 29 September 2021 they circulated a summary of their interventions in document IP/C/W/684.

“In the course of discussions on the revised waiver proposal, delegations have held focused discussions on the topics of scope, both from the perspective of products and of IP rights, on duration, implementation and the protection of undisclosed information.

“All delegations remain committed to the common goal of providing timely and secure access to high-quality, safe, efficacious and affordable vaccines and medicines for all, but discussions have shown that disagreement persists on the fundamental question of whether a waiver is the appropriate and most effective way to address the shortage and inequitable distribution of and access to vaccines and other COVID-related products.

“EU proposal

“In addition, a proposal (IP/C/W/681) for a draft General Council declaration on the TRIPS Agreement and Public Health in the circumstances of a pandemic, issued by the European Union, has also been discussed in meetings since its circulation on 21 June 2021.

“The European Union proposal, which is backed by other developed country members, calls for limiting export restrictions, supporting the expansion of production, and facilitating the use of current compulsory licensing provisions in the TRIPS Agreement, particularly by clarifying that the requirement to negotiate with the right holder of the vaccine patent does not apply in urgent situations such as a pandemic, among other issues.

“While recognizing that intellectual property rights (IPRs) should not stand in the way of deploying and creating capacity, or of ensuring equitable access to vaccines and therapeutics, several developed and developing members have cautioned that this can be attained while maintaining IP as the basis for incentivizing investment in innovation, and for licensing technology transfer, so that members can effectively fight new strains of COVID-19 and any future diseases and pandemics. Some are particularly concerned that waiving IP rights might undermine the existing efforts and arrangements for large scale production of vaccines that rely, in part, on the IP system.  

“State of play

“Since the General Council held on 7 October 2021,  members have held intense contacts in various configurations. Some members have noted encouraging exchanges at small group discussions and bilateral meetings which have helped to identify points of convergence on how to provide a common IP response to COVID-19. Others have said that further conversations that move the TRIPS Council towards evidence-based and pragmatic solutions should guide their discussions at this critical juncture.

“At a meeting of the TRIPS Council on 18 November, members formally adopted an oral status report for the General Council on 22-23 November indicating that the TRIPS Council has not yet completed its consideration of the revised waiver request. The TRIPS Council will therefore continue its consideration, including through small-group consultations and informal open-ended meetings, and report back to the 12th Ministerial Conference (MC12) as stipulated in Article IX:3 of the Marrakesh Agreement. In addition, the TRIPS Council will also continue in the same manner its consideration of the other related proposals by members.

“This means the TRIPS Council remains in session so that it  can continue to provide a forum for delegations to provide transparency on their ongoing talks, and to adopt any elements or solutions they may have found.”

Despite the postponement of the 12th Ministerial Conference due to the increase in COVID cases from the omicron variant, WTO Members have indicated a desire to push ahead to resolve some matters, including the multilateral response to the pandemic. Last month, Director-General Ngozi Okonjo-Iweala urged WTO Members to push forward and seek a resolution on the WTO’s response to the pandemic by the end of February this year. See WTO press release, Members discuss way forward in dedicated meeting on WTO pandemic response, 27 January 2022,https://www.wto.org/english/news_e/news22_e/gc_27jan22_e.htm (“WTO members met on 27 January to discuss the WTO response to the COVID-19 pandemic. The informal meeting convened by the Chair of the General Council, Ambassador Dacio Castillo of Honduras, looked at issues related to cross-border trade flows and the proposal to waive certain intellectual property protections related to COVID-19 countermeasures. Director-General Ngozi Okonjo-Iweala called on members to move swiftly to try and reach a comprehensive outcome by the end of February.).

One week later according to press reports, Amb. Castillo called for a “strategic pause” in the formal negotiations on a WTO response to permit WTO Members to discuss their differences with each other outside of the full group format. See Inside U.S. Trade’s World Trade Online, General Council chair: WTO pandemic package talks need ‘strategic pause’, February 4, 2022, https://insidetrade.com/daily-news/general-council-chair-wto-pandemic-package-talks-need-%E2%80%98strategic-pause%E2%80%99.

Observations

The chances of a final resolution on a pandemic response package by the end of February seem remote if not nonexistent at the present time. The United States is reportedly not actively engaged and has raised some concerns with the export restraint portion of the package. There seems little likelihood that the EU and others supporting an approach other than TRIPS waiver will agree to a waiver, while those supporting a waiver don’t seem inclined to accept an alternative approach.

There are a number of reasons why a waiver is unlikely to be accepted. First, vaccine equity in 2021 had more to do with India’s failure to export the volumes of vaccines contracted with COVAX than any other single cause although slowness in shifting supplies from countries with surplus product was also an issue. In 2022, there will be sufficient supplies of vaccines for the entire world, and there have been major commitments by major countries to supply large volumes of doses to countries in need. UNICEF tracks capacity to produce COVID vaccines and shipments of vaccines. Around 11 billion doses were shipped globally (including in-country) in 2021 and projections for shipments in 2022 range from 16.8-20.9 billion doses. See COVID-19 Vaccine Market Dashboard, 5 February 2022, doses delivered collectively, 11.771 billion, https://www.unicef.org/supply/covid-19-vaccine-market-dashboard; forecasted COVID-19 vaccine supply availability, 2022 (low estimate 16.8 billion doses; base estimate, 18.7 billion doses; high estimate 20.9 billion doses) (under capacity tab), A waiver of TRIPS obligations would be unlikely to change the quantity of vaccines available for shipment in 2022, so seems unnecessary to address vaccinating the world’s population in 2022.

Second, multilateral efforts and efforts of some pharmaceutical companies has resulted in a rapid expansion of production capacity around the world as the above figures confirm. Even where pharmaceutical companies have not licensed their vaccine technologies, there have been independent breakthroughs including on mRNA vaccines. See, e.g., Reuters, In world first, South Africa’s Afrigen makes mRNA COVID vaccine using Moderna data, February 4, 2022, https://www.reuters.com/world/africa/world-first-safricas-afrigen-makes-mrna-covid-vaccine-using-moderna-data-2022-02-03/ (“CAPE TOWN, Feb 3 (Reuters) – South Africa’s Afrigen Biologics has used the publicly available sequence of Moderna Inc’s (MRNA.O) mRNA COVID-19 vaccine to make its own version of the shot, which could be tested in humans before the end of this year, Afrigen’s top executive said on Thursday. The vaccine candidate would be the first to be made based on a widely used vaccine without the assistance and approval of the developer. It is also the first mRNA vaccine designed, developed and produced at lab scale on the African continent.”).

Third, recent press articles indicate that some countries with very low vaccination rates have nonetheless developed significant antibodies in their populations due to prior waves of infections of COVID-19. With lower average age of populations, COVID-19 has had less severe consequences on their populations, such that there is a belief they are moving to an endemic situation with COVID-19. See my recent post, January 30, 2022:  Recent National Public Radio story, “Africa may have reached the pandemic’s holy grail,” raises interesting questions on a country’s age distribution and ability to get past the pandemic stage with lower vaccination rates, https://currentthoughtsontrade.com/2022/01/30/recent-national-public-radio-story-africa-may-have-reached-the-pandemics-holy-grail-raises-interesting-questions-on-a-countrys-age-distribution-and-ability-to-get-past-the-pandemic-stage-wit/.

All of the above suggests that the case for a waiver, at least at this time, is not strong, which will likely keep opposition of the EU and others strong.

The WTO has served as a depository for information on the types of restrictions and has permitted Members to encourage limiting restrictions on access to critical medicines and inputs. It has also developed reports helpful to Members to understand existing barriers or restrictions as well as to do outreach to the private sector for a better understanding of bottlenecks in production and distribution ramp-ups. The WTO in conjunction with other multilateral organizations has helped generate information to better inform the needs of countries for assistance and develop more coordinated efforts at support.

The WTO Members may yet be able to reach agreement on a response to the pandemic that will not only help with the current pandemic but establish a common frame of reference of dealing with future pandemics in a more effective manner that promotes greater equity. It is just unlikely to happen in the next 23 days.

WTO Arbitration Report on China’s challenge to U.S. countervailing duty investigations — while retaliation is much smaller than China sought, core problems with original Appellate Body decision flags challenge to restoring the Dispute Settlement binding process

On January 26, 2022, an arbitration decision was issued on the level of retaliation China is entitled to take for the findings of the Appellate Body that the United States hadn’t brought its countervailing duty determinations on China into conformity with WTO obligations as construed by the Appellate Body. See UNITED STATES – COUNTERVAILING DUTY MEASURES ON CERTAIN PRODUCTS FROM CHINA, RECOURSE TO ARTICLE 22.6 OF THE DSU BY THE UNITED STATES, DECISION BY THE ARBITRATOR, WT/DS437/ARB,
26 January 2022. China sought retaliation rights of $2.4 billion/year. The U.S. had argued for a cap of $120 million/year. The arbitrator concluded retaliation rights were $645.121 million/year. Id at 12.

The original request for consultations was made on May 25, 2012 with a series of panel and Appellate Body reports issued between 2014 and 2019 (original dispute and Art. 21.5 proceedings). The original findings covered a range of issues including a string of issues relating to whether state-owned enterprises were public bodies. See summary of key findings, DS437, United States – Countervailing Duty Measures on Certain Products from China, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds437_e.htm.

The press releases from China and the United States state their respective positions – with China claiming the U.S. violates its WTO obligations and needs to bring itself into compliance, and with the U.S. noting that the underlying decisions reflect the problems with the Appellate Body that the U.S. has long identified and point to the need for reform of both the rules and dispute settlement. See Ministry of Commerce of the People’s Republic of China, Press Release on the Issuance of the WTO Arbitration Award in the Dispute United States — Countervailing Duty Measures on Certain Products from China (Recourse to Article 22.6 of the DSU by the United States), http://wto.mofcom.gov.cn/article/newsupdates/202201/20220103240040.shtml; Statement from USTR Spokesperson Adam Hodge on the WTO Arbitration Award Announcement in United States – Countervailing Duty Measures on Certain Products from China, January 26, 2022, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/january/statement-ustr-spokesperson-adam-hodge-wto-arbitration-award-announcement-united-states (“The deeply disappointing decision today by the WTO arbitrator reflects erroneous Appellate Body interpretations that damage the ability of WTO Members to defend our workers and businesses from China’s trade-distorting subsidies. Today’s decision reinforces the need to reform WTO rules and dispute settlement, which have been used to shield China’s non-market economic practices and undermine fair, market-oriented competition. The Biden Administration will continue to use all our tools to stand up for the interests of America’s workers,”). businesses, farmers and producers, and strengthen our middle class. 

There have been many who have written about the problems of the Appellate Body in its construction of the Subsidies Agreement. See, e.g., Cartland, Michael, Depayre, Gérard &Woznowski, Jan. “Is Something Going Wrong in the WTO Dispute Settlement?” Journal of World Trade 46, no. 5 (2012): 979–1016; Dukgeun Ahn, Why Reform is Needed: WTO ‘Public Body’ Jurisprudence, 12 Global Policy, Supplement 3 at 61-70 ( April 2021)(and articles referenced therein).

USTR Lighthizer during the Trump Administration released in 2020 USTR’s Report on the Appellate Body of the WTO reviewing in great detail the concerns with the operation of the dispute settlement system. The concern about the Appellate Body interpretations preventing the U.S. and other Members from addressing the distortions including subsidies flowing from the Chinese economic system was a major focus in discussing the problems on “public body”. The Biden Administration and Congress have similar ongoing concerns which requires revisions to both the scope of the subsidies agreement and a revamp of the dispute settlement system.

Because of the extent of analysis presented by USTR, below are copied pages 82 – 89 of the 2020 USTR report.

A. The Appellate Body’s Erroneous Interpretation of ‘Public Body’ Threatens the Ability of WTO Members to Counteract Trade-Distorting Subsidies Provided through SOEs, Undermining the Interests of All Market-Oriented Actors

“• The Appellate Body has adopted an erroneous interpretation of the term ‘public body’ that is not found in the agreed text and is not consistent with the ordinary meaning of that term.

“• The Appellate Body’s narrow interpretation favors non-market economies operating through SOEs over market economies and undermines the ability of WTO Members to counteract subsidies by non-market economies.

“The WTO agreements discipline certain subsidies provided ‘by a government or any public body,’ but the Appellate Body has adopted a narrow interpretation of public body that requires an entity to possess, exercise or be vested with government authority, in order for it to constitute a public body. That requirement is not found in the agreed text, nor is it consistent with the ordinary meaning of the term ‘public body.’ The Appellate Body’s narrow interpretation of public body fails to capture a potentially vast number of government-controlled entities, such as state-owned enterprises (SOEs), that are owned or controlled by foreign governments, and therefore undermines the ability of Members to counteract subsidies that are injuring their workers and businesses. The WTO was created by and for market economies, but the Appellate Body’s public body interpretation favors non-market economies at the expense of market economies and has given rise to confusion among WTO panels and WTO Members.

1. Interpreted Correctly, the Term “Public Body” Means Any Entity Controlled by the Government

“Article 1.1(a)(1) of the SCM Agreement provides, in relevant part, that ‘a subsidy shall be deemed to exist if … there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as ‘government’).’

“The Subsidies Agreement does not define the term ‘public body,’ but definitions of the words ‘public’ and ‘body’ shed light on the ordinary meaning of the term ‘public body’ in Article 1.1(a)(1). By definition, the noun ‘body’ refers to a group of persons or an entity (as opposed to, for example, the ‘material frame’ of persons). This definition in the sense of ‘an aggregate of individuals’ is: ‘an artificial person created by legal authority; a corporation; an officially constituted organization, an assembly, an institution, a society.’196 Turning to the adjective ‘public,’ the relevant definition that pertains to a ‘body’ as a group of individuals is the first: ‘of or pertaining to the people as a whole; belonging to, affecting, or concerning the community or nation.’197

“Thus, the ordinary meaning of the composite term ‘public body’ according to dictionary definitions would be ‘an artificial person created by legal authority; a corporation; an officially constituted organization’ that is ‘of or pertaining to the people as a whole; belonging to, affecting, or concerning the community or nation.’ These definitions point towards ownership by the community as one meaning of the term ‘public body.’ If an entity ‘belongs to’ or is ‘of’ the community, it also follows that the community can make decisions for, or control, that entity.

“Contrary to the Appellate Body’s interpretation, nothing in these dictionary definitions restricts the meaning of the term ‘public body’ to an entity vested with, or exercising, government authority. Had the drafters of the SCM Agreement intended to convey that meaning, they might have chosen any number of other terms. For example, the drafters might have used ‘governmental body,’ ‘public agency,’ ‘governmental agency,’ or ‘governmental authority.’

“These terms would have, through their ordinary meaning, more clearly conveyed the sense of exercising governmental authority. That they were not chosen sheds light on the different concept captured by the term that was chosen, ‘public body.’

“The ordinary meaning of the terms of a treaty must be understood ‘in their context.’198 Reading the term ‘public body’ in context supports the conclusion that a ‘public body’ is an entity controlled by the government such that the government can use that entity’s resources as its own.

“In Article 1.1(a)(1) of the SCM Agreement, the term ‘public body’ is part of the disjunctive phrase ‘by a government or any public body within the territory of a Member.’ The SCM Agreement thus uses two different terms – ‘a government’ on the one hand and ‘any public body’ on the other hand – to identify the two types of entities that can provide a financial contribution. As a contextual matter, the use of the distinct terms ‘a government’ and ‘any public body’ together this way indicates that the terms have distinct and different meanings.

“Treaty interpretation should give meaning and effect to all terms of a treaty. As the Appellate Body has recognized, provisions of the WTO Agreement should not be interpreted in such a manner that whole clauses or paragraphs of a treaty would be reduced to redundancy or inutility.199 Accordingly, the term ‘public body’ should not be interpreted in a manner that would render it redundant with the word ‘government.’

“The term ‘government,’ as the panel in US – Anti-Dumping and Countervailing Duties (China) found, means, among other things: ‘The governing power in a State; the body or successive bodies of people governing a State; the State as an agent; an administration, a ministry.’200 In Canada – Dairy, the Appellate Body explained that ‘[t]he essence of ‘government’ is . . . that it enjoys the effective power to ‘regulate’, ‘control’ or ‘supervise’ individuals, or otherwise ‘restrain’ their conduct, through the exercise of lawful authority.’201 The Appellate Body further explained that a ‘‘government agency’ is, in our view, an entity which exercises powers vested in it by a ‘government’ for the purpose of performing functions of a ‘governmental’ character, that is, to ‘regulate’, ‘restrain’, ‘supervise’ or ‘control’ the conduct of private citizens.’202

“The term ‘public body,’ therefore, should be interpreted as meaning something other than an entity that performs ‘functions of a ‘governmental’ character, that is, to ‘regulate’, ‘restrain’, ‘supervise’ or ‘control’ the conduct of private citizens.’203 Otherwise, a ‘public body’ is ‘a government,’ or a part of ‘a government,’ and there is no reason for the term ‘public body’ to have been included in Article 1.1(a)(1) of the SCM Agreement.

“In seeking to understand the term ‘public body’ in its context, it is also important to recall that the SCM Agreement is identifying those entities that may make ‘financial contributions.’ Those financial contributions are one part of a definition of ‘subsidy,’ and those subsidies are granted or maintained by WTO Members. A WTO Member can make the financial contribution underlying the subsidy directly through its ‘government’ (narrowly understood). However, it also can make that financial contribution through entities that it controls.

“Article 1.1(a)(1) of the SCM Agreement identifies a variety of actions that constitute financial contributions, including ‘a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees),’ foregoing or not collecting ‘government revenue,’ ‘provid[ing] goods or services other than general infrastructure, or purchas[ing] goods,’ and ‘mak[ing] payments to a funding mechanism.’ The ordinary meaning of a ‘financial contribution’ suggested by this list of actions is to convey value. In this ordinary sense, entities controlled by the government can convey value just as the government can, and the value conveyed can be precisely the same as that conveyed by the government.

“Consider, for example, a ‘direct transfer of funds’ by a government to a recipient in the form of a grant. Conveying value in this way is plainly a ‘financial contribution’ within the meaning of the SCM Agreement. If the government formed and controlled a legal entity (for example, a corporation whose shares are all owned by the government), and the entity provided the same grant to a recipient, the same financial contribution has occurred: the government has conveyed value. Whether the funds are provided directly by the government or by an entity controlled by the community through its government, it is a Member’s funds that are being used to make the financial contribution.

“There is no evident reason for the first transaction to fall within the scope of Article 1.1(a)(1) of the SCM Agreement and the second to fall outside the scope. Nor would the term ‘financial contribution’ suggest that a distinction should be drawn between those transactions based on whether the entity or corporation is ‘vested with or exercising governmental authority.’ Rather, the context supplied by ‘financial contribution’ suggests a different common concept between ‘government’ and ‘public body’ than that discerned by the Appellate Body. If a ‘financial contribution’ means to convey something of value, the concept sought to be captured by the SCM Agreement term is the use by a government of its resources, or resources it controls, to convey value to economic actors.

2. The Appellate Body Has Interpreted the Term ‘Public Body’ Incorrectly

“In US – Anti-Dumping and Countervailing Duties (China) in 2011 and US – Carbon Steel (India) in 2014, the Appellate Body interpreted the term ‘public body’ in Article 1.1(a)(1) of the SCM Agreement incorrectly. The key issue before the Appellate Body in these disputes was whether a wholly or majority government-owned SOE is a ‘public body,’ such that WTO Members can take action to counteract any unfair subsidies the SOEs provide. The Appellate Body recognized that, based on its ordinary meaning, the term ‘public body’ encompassed a ‘rather broad range of potential meanings.’ Nonetheless, the Appellate Body set out a very limited interpretation of the term, concluding that a ‘public body’ ‘must be an entity that possesses, exercises or is vested with governmental authority,’ including because the entity has ‘the effective power to regulate, control or supervise individuals, or otherwise restrain their conduct, through the exercise of lawful authority.’204 Under the Appellate Body’s interpretation, even where a government owns or controls an entity, that would not be sufficient to hold the government responsible for any injurious subsidies it provides.

“The Appellate Body’s ‘government authority’ test significantly limits the ability of governments to effectively combat unfairly subsidized imports and is nowhere reflected in the text of the SCM Agreement. If an entity has no regulatory or supervisory authority, but is nonetheless controlled by the government such that the government can use the entity’s resources as its own – making any transfer of economic resources by that entity a conveyance of the government’s own resources – it would be anomalous to conclude that the financial contribution cannot be deemed a subsidy under Article 1.1(a)(1). On the other hand, if an entity has the power to ‘regulate’ individuals or ‘otherwise restrain their conduct,’ but not the power to provide financial contributions of government resources, its regulatory powers are not relevant to the SCM Agreement. The Appellate Body’s interpretation therefore does not reflect the structure of either Article 1.1(a)(1) or of the SCM Agreement, and the failure of this interpretation to capture a
potentially vast number of government-controlled entities undermines the disciplines of the SCM Agreement.

“The Appellate Body’s interpretation stands in contrast to the approach taken by several WTO panels that interpreted the term ‘public body’ to be an entity controlled by the government. In Korea – Commercial Vessels, for example, the panel concluded that ‘an entity will constitute a ‘public body’ if it is controlled by the government (or other public bodies).’205 In reaching this conclusion, that panel rejected some of the very same arguments China advanced before the panel and the Appellate Body in US – Anti-Dumping and Countervailing Duties (China).

“In EC and certain member States – Large Civil Aircraft, the panel, addressing the status of a government-owned financial institution, explained that, ‘at the time of its 1992 investment in Aerospatiale, Credit Lyonnais was controlled by the French government and was a ‘public body’ for purposes of Article 1.1(a)(1) of the SCM Agreement.’206 Accordingly, the capital contribution made by Credit Lyonnais to Aerospatiale constituted a financial contribution by a public body.207

“In US – Anti-Dumping and Countervailing Duties (China), the panel concluded that ‘a ‘public body’, as that term is used in Article 1.1 of the SCM Agreement, is any entity controlled by a government.’ As noted above, however, in reversing the Panel, the Appellate Body adopted a narrow definition of a ‘public body.’

“During the meeting of the WTO Dispute Settlement Body at which the panel and Appellate Body reports in US – Anti-Dumping and Countervailing Duties (China) were adopted, seven WTO Members (Mexico, Turkey, the European Union, Canada, Australia, Japan and Argentina) joined the United States in raising concerns about the Appellate Body’s interpretation.208

“Commentators have also criticized the Appellate Body’s interpretation. For example, in an article in the Journal of World Trade, Michael Cartland, Gérard Depayre, and Jan Woznowski – each of whom participated in the Negotiating Group on subsidies and countervailing measures in the Uruguay Round – present a detailed discussion of the Appellate Body report in US – Anti-Dumping and Countervailing Duties (China) and raise a host of concerns with the Appellate Body’s interpretation of the term ‘public body,’ calling the analysis ‘internally contradictory’ and ‘disingenuous.’209

3. The Appellate Body’s Non-Textual Interpretation Has Created Significant Uncertainty and Led Panels to Reach Absurd Results

“In US – Anti-Dumping and Countervailing Duties (China), the Appellate Body left open the possibility that ‘meaningful control’ over an entity could be sufficient to show that the entity ‘possesses, exercises or is vested with governmental authority,’ and in US – Carbon Steel (India), the Appellate Body appeared to confirm that an SOE’s authority over government resources could support a public body finding.

“However, the Appellate Body’s non-textual interpretation has created significant uncertainty as to the precise scope of Article 1.1(a)(1), and recent attempts by panels to apply the so-called ‘government authority’ test have only exacerbated the problem, confirming the fundamental errors in the Appellate Body’s approach.

“The panel’s findings in US – Pipes & Tubes CVD (Turkey), for example, illustrate the hazard
introduced by the Appellate Body’s approach to public body in US – Carbon Steel (India), and in
particular a suggestion in that report that there must be a demonstration that the government ‘in
fact exercised control over the [entity] and its conduct.’210 Citing to this report, the panel in Pipes & Tubes found that the ability of the government to intervene in an entity’s critical operations and key decisions was not relevant to a public body determination, and required evidence that the government had actually exercised that control with respect to the subsidization in question. Similarly, the panel found that the existence of commercial conduct could preclude a finding that an entity is a ‘public body,’ because it could reflect the absence of a governmental function on the part of the entity and therefore a lack of governmental authority.

“As the United States has explained, properly interpreted, the issue under Article 1.1(a)(1) is not whether the nature of the behavior or the conduct of the entity is governmental. Rather, the question is whether the entity engaging in the conduct is governmental or pertaining or belonging to the people, i.e., whether the entity is ‘a government or any public body.’ If the entity is governmental, or public, all of its activities are attributable to the government in question. Were this not the case, a government could shield its activities from the disciplines of the SCM Agreement simply by setting up an SOE and allowing it to engage in some commercial conduct, even where there is evidence that the government has the ability to intervene and control the entity whenever it chooses. This cannot be the case.

“If a government undertakes the activities described in Article 1.1(a)(1), there is a conveyance of value from a WTO Member to a recipient. There is an equivalent conveyance when there is an entity whose resources the WTO Member can control and use, and the entity engages in the same activities. The interpretation set out by the Appellate Body, however, allows WTO Members to evade their obligations under the SCM Agreement simply by establishing an entity that is private in form, but not in substance.

“The interpretation therefore significantly restricts the ability of WTO Members to counteract trade-distorting subsidies provided through SOEs, posing a significant threat to the interests of all market-oriented actors.

“The interpretation also fails to maintain the textual distinction in Article 1.1(a)(1) between a ‘public body’ and a ‘private body.’ Contrary to the panel’s application of the Appellate Body’s standard in US – Pipes & Tubes CVD (Turkey), focus on the specific conduct of an entity would be relevant when examining whether there was government entrustment or direction of a private body under Article 1.1(a)(1)(iv) of the SCM Agreement. That is, a private body may provide a subsidy if the government entrusts or direct the private body ‘to carry out one or more of the functions illustrated in (i) to (iii).’ The panel’s approach demonstrates the uncertainty introduced by the Appellate Body’s interpretation, which risks conflating the public body analysis with that of government entrustment and direction of a private entity, and renders the term ‘public body’ effectively meaningless.

4. The Appellate Body Has Continued Its Incorrect Approach to ‘Public Body” in a Recent Appellate Report concerning the Imposition by the United States of Countervailing Duties on Subsidized Imports from China

“Although the Appellate Body recently had an opportunity to correct its flawed approach, it did not do so and, instead, stuck with an approach that has no basis in the text of the Subsidies Agreement. In US – Countervailing Measures (China) (21.5), all three members of the Division on appeal rejected China’s extremely narrow definition of ‘public body.’ However, two members of the Division reiterated the Appellate Body’s flawed approach. The third member dissented on this point, stating that ‘the majority has repeated an unclear and inaccurate statement of the criteria for determining whether an entity is a public body, and [the dissenting member] disagree[d] with the majority’s implication that a clearer articulation of the criteria is neither warranted nor necessary.’211

“The dissent continued that ‘the continuing lack of clarity as to what is a ‘public body’ represents an undue emphasis on ‘precedent’, which has locked in a flawed interpretation that has grown more confusing with each iteration, as litigants and Appellate Body Divisions repeated the original flaw while trying to navigate around it.’212

“The ‘original mistake’, as the dissent put it,213 was the Appellate Body’s attempt, in US – Anti-Dumping and Countervailing Duties (China) (DS379), to define the term ‘public body’ as ‘an entity that possesses, exercises or is vested with governmental authority,’ including because the entity has ‘the effective power to regulate, control or supervise individuals, or otherwise restrain their conduct, through the exercise of lawful authority.”214 Under the Appellate Body’s interpretation, even where a government owns or controls an entity, that would not be sufficient to hold the government responsible for any injurious subsidies the entity provides.

5. The Appellate Body’s Interpretation Limits the Ability of Investigating Authorities to Address Unfairly Subsidized Imports

“The Appellate Body’s ‘governmental authority’ test significantly limits the ability of governments to combat unfairly subsidized imports. The Appellate Body’s approach is nowhere reflected in the text of the Subsidies Agreement. If an entity has no regulatory or supervisory authority, but is nonetheless controlled by the government – making any transfer of economic resources by that entity a conveyance of the government’s own resources – it would make no sense to conclude that this transfer of public resources is not a financial contribution under Article 1.1(a)(1).

“On the other hand, if an entity has the power to ‘regulate’ individuals or ‘otherwise restrain their conduct,’ but not the power to provide financial contributions of government resources, its regulatory powers are not relevant to the Subsidies Agreement. The Appellate Body’s interpretation therefore does not reflect the structure of either Article 1.1(a)(1) or of the Subsidies Agreement.

“The failure of the Appellate Body’s interpretation to capture a potentially vast number of SOEs and other entities that are owned or controlled by foreign governments undermines the ability of Members to effectively counteract subsidies that are injuring their workers and businesses. The WTO was created by and for market economies, but the Appellate Body’s public body interpretation favors non-market economies at the expense of market economies.

“195 For example, this Report does not discuss the dispute US – Continued Dumping and Subsidy Offset Act Of 2000, in which the Appellate Body’s interpretation of the Subsidies Agreement in effect created a new category of prohibited subsidies that was neither negotiated nor agreed to by WTO Members; or other examples, such as US – Gambling, US – Cotton, US – FSC.

“196 The New Shorter Oxford English Dictionary at 253 (1993).

“197 Id. at 253.

“198 Vienna Convention on the Law of Treaties, Article 31.

“199 US – Offset Act (Byrd Amendment) (AB), para. 271 (2003). See also US – Gasoline (AB) at p. 23 (1996).

“200 US – Anti-Dumping and Countervailing Duties (China) (Panel), para. 8.57 (citing Shorter Oxford English Dictionary, L. Brown (ed.) (Claredon Press, 1993), Vol. I, p. 1123) (2011).

“201 Canada – Dairy (AB), para. 97 (1999).

“202 Id.

“203 Id.

“204 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 290 (2011) (citing Canada – Dairy (AB), para. 97).

204 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 290 (2011) (citing Canada – Dairy (AB), para. 97).

“205 Korea – Commercial Vessels (Panel), para. 7.50 (2005). See also id., paras. 7.172, 7.353, and 7.356 (2005)(finding that the Korean Development Bank and the Industrial Bank of Korea were public bodies because they were totally, or near totally, owned by the Government of Korea).

“206 EC – Large Civil Aircraft (Panel), para. 7.1359 (2011).

“207 Id.

“208 See Dispute Settlement Body, Minutes of the Meeting Held on March 25 2011, WT/DSB/M/294, paras. 103-127. See also Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States and the European Union, para. 6 (January 14, 2020) (‘The Ministers observed that many subsidies are granted through State Enterprises and discussed the importance of ensuring that these subsidizing entities are captured by the term ‘public body.’ The Ministers agreed that the interpretation of ‘public body’ by the WTO Appellate Body in several reports undermines the effectiveness of WTO subsidy rules. To determine that an entity is a public body, it is not necessary to find that the entity “possesses, exercises or is vested with governmental authority.’).

“209 Cartland, Michael, Depayre, Gérard &Woznowski, Jan. “Is Something Going Wrong in the WTO Dispute Settlement?” Journal of World Trade 46, no. 5 (2012): 979–1016, at 996.

“210 US – Carbon Steel (India) (AB), para. 4.37 (2014) (first emphasis in original, second emphasis added).

“211 US – Countervailing Measures (China) (Article 21.5) (AB), para. 5.243 (2015) (separate opinion of one Division member).

“212 Id. at para. 5.244.

“213 Id. at para. 5.245.

“214 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 2.90 (2015) (citing Canada – Dairy (AB), para. 97).’195 For example, this Report does not discuss the dispute US – Continued Dumping and Subsidy Offset Act Of 2000, in which the Appellate Body’s interpretation of the Subsidies Agreement in effect created a new category of prohibited subsidies that was neither negotiated nor agreed to by WTO Members; or other examples, such as US – Gambling, US – Cotton, US – FSC.”196 The New Shorter Oxford English Dictionary at 253 (1993).’197 Id. at 253.”

Observations

In prior posts I have reviewed the challenges for the relevance of the WTO if Members don’t work on convergence of economic systems versus coexistence. That China’s system is at odds with market economy principles has raised concerns in the U.S., EU, Japan, Canada, Australia and other WTO Members. The Appellate Body has compounded the problems for market economies in dealing with state-driven economies (non-market economies) by permitting a wide array of subsidy practices to be not addressable through the narrow interpretation of public body.

Such erroneous interpretations and the inability to achieve correction through negotiations have led to shutting down of the Appellate Body and have exacerbated the inability of Members to get balanced rules negotiated. A multilateral trading system which doesn’t achieve a level trading environment in fact cannot survive as the basis for global engagement.

While in Geneva there is much talk about reform of both the rules and the dispute settlement system, the path forward to achieving balance in fact is hard to discern.

WTO negotiations on agriculture — slow if any progress to date

When the Uruguay Round was concluded, the Agreement on Agriculture included provision for periodic renewed negotiations to improve market access and address market distortions. See Agreement on Agriculture Art. 20. Negotiations started in 2000 and then were folded into the Doha Development Agenda in 2001. While there have been some important accomplishments — including an agreement for eliminating export subsidies at the Nairobi Ministerial in 2015 (EXPORT COMPETITION, MINISTERIAL DECISION OF 19 DECEMBER 2015, WT/MIN(15)/45, WT/L/980) — the divisions between Members has meant limited progress first during the Doha negotiations and in the years since 2008 in preparation for periodic Ministerial Conferences.

While eight topics are being pursued in ongoing negotiations, the current Chair of the negotiations, Ambassador Gloria ABRAHAM PERALTA (Costa Rica), has put out two texts in 2021, the latest of which from late November essentially calls for most topics to be the subject of ongoing negotiations aiming for resolution by the 13th Ministerial Conference (presumably December 2023 or later). The eight topics are public stockholding for food security purposes, domestic support, cotton, special safeguard mechanism, export prohibitions or restrictions, export competition, cotton and transparency (a cross-cutting issue). See COMMITTEE ON AGRICULTURE IN SPECIAL SESSION, REPORT BY THE CHAIRPERSON, H.E. MS GLORIA ABRAHAM PERALTA, TO THE TRADE NEGOTIATIONS COMMITTEE, 19 November 2021, TN/AG/50 (23 November 2021). Only Annex I presents a hoped for agreement on not blocking exports to the World Food Programme as doable by the now postponed 12th Ministerial Conference.

The latest draft, is much more limited than the July 2021 draft (COMMITTEE ON AGRICULTURE IN SPECIAL SESSION, DRAFT CHAIR TEXT ON AGRICULTURE, 29 July 2021, JOB/AG/215 (29 July 2021) reflecting widely divergent positions by Members on many of the proposed steps put forward by the Chair. The July document is 27 pages in length (20 of proposed text) and compares to a 16 page document in November (7 pages of text). Both pale in comparison to the text being considered during the Doha Development Agenda. See REVISED DRAFT MODALITIES FOR AGRICULTURE, TN/AG/W/4/Rev.4, 6 December 2008 (120 page document). On topic after topic, the Chair indicated that her discussions with delegations indicated an inability to come to closure quickly, hence proposals for work programs to go forward. See, e.g., TN/AG/50 at 4 (domestic support), para. 2.6 (“2.6. Taking into account the limited time left until MC12, and the persistent differences over how to discipline TDDS, it is clear that Members will be unable to achieve a substantive outcome at the Conference involving agreement on concrete modalities for the reduction of TDDS entitlements. I continue to believe, however, that MC12 can benefit all Members by delivering a useful step forward in the domestic support reform process that would set the direction for work after the Conference. I also believe that it is our collective duty to make every effort to find a way forward in this important area where an outcome is long overdue. I therefore suggest Members establish modalities by MC13 to substantially reduce trade-distorting domestic support by the date to be agreed upon by Members, coupled with some guiding principles and improved transparency requirements.”); at 5 (market access), para. 3.4 (“3.4. On the issue of applied tariff transparency, some Members remain concerned about logistical constraints or the implications of the proposed decision for possible legislative changes that it might necessitate. I sensed the reluctance of those Members to consider a definitive agreement at MC12, even on a ‘best endeavour’ or voluntary basis. Accordingly, I have proposed that Members’ work in this area continues in the Committee on Market Access, anchored by their sharing of current national practices when changing applied tariffs, and with a view to developing a non-exhaustive list of good practices for national customs authorities.”); at 5 (export competition), para. 4.2 (“4.2. Most of the discussions addressed the question of transparency, including a post-MC12 work programme and the possibility of encouraging Members to provide export data with the support of the Secretariat if deemed necessary.”); at 5-6 (export prohibitions or restrictions), paras. 4.5-5.8 (concerns of some re World Food Programme Annex, proposed work program on transparency); at 7 (cotton), para. 6.6 (“6.6. On the other hand, other Members considered that agreement on modalities for reductions by MC12 was out of reach in light of the short time left, the remaining strong divergence in positions, and the overall level of ambition for an agricultural package at MC12. The draft text therefore aims at finding a possible way forward reflecting Members’ commitment to continue the negotiations with a view to agreeing on modalities for the reduction of trade-distorting domestic support for cotton, in accordance with the mandate to address cotton ambitiously, expeditiously, and specifically, while also taking into account the overall context of the agriculture negotiations.”); at 7 (special safeguard mechanism), para. 7.1 (“7.1. Several developing Members attach importance to an outcome on SSM at MC12, especially in the wake of the COVID-19 pandemic. However, given the deep divergence among Members on some fundamental aspects of the SSM negotiations, including on the issue of linkage with market access, it has become apparent that a substantive outcome on SSM at MC12 – even in a limited or temporary setting – is increasingly unlikely. In these circumstances, and taking into consideration the current technical deficit in the SSM negotiations, my revised text proposes that Members engage in targeted thematic discussions post-MC12 to address this aspect – as my July draft text did as well. Technical elements of the SSG may inform these discussions to facilitate timely agreement on the numerous highly technical parameters of an SSM, including on scope, triggers and remedies. My draft revised text also proposes that the General Council makes recommendations on this matter to MC13 for the consideration of Ministers.”); at 8 (public stockholding for food security purposes), para. 8.6 (“8.6. My assessment that it would be extremely difficult to achieve a permanent solution at MC12 was not shared by some developing country Members, who insisted that I forward this issue to Ministers for their consideration and decision.6 Several Members strongly objected to this proposed course of action, notably due to the lack of detailed technical work on elements for a permanent solution and the absence of parallel progress on domestic support. Consequently, given the stalemate, my recommendation to Ministers is for the adoption of a work programme with a view to agreeing on a permanent solution by MC13. I also propose that the General Council regularly reviews progress in these negotiations. Given the importance attached to the PSH issue by several developing country Members, Ministers may, if they so wish, consider revisiting it, bearing in mind the significant divergent positions as outlined above, among the Membership.”).

Given the postponement of the 12th Ministerial Conference because of the COVID pandemic, some of the time pressures reflected in the documents from the Chair of the Agriculture Negotiations are reduced. Yesterday, January 24, 2022, there was an informal meeting of the Committee on Agriculture in Special Session. While there is no WTO press release on the meeting as of this post, press articles indicate that there was a split between agricultural exporting countries and others who were willing to work with the revised text and those calling for rejecting the revised text (India, the African Group, the African, Caribbean and Pacific Group and China). See, e.g., Inside U.S. Trade’s World Trade Online, WTO members debate fate of agricultural negotiating text, January 24, 2022, https://insidetrade.com/daily-news/wto-members-debate-fate-agricultural-negotiating-text. The United States has viewed agriculture negotiations as having potential to achieve short term agreement on transparency issues. The press reports indicate WTO Members are nowhere near a significant agriculture package for Ministers to consider whenever the 12th Ministerial occurs and obviously won’t achieve an early harvest ahead of the Ministerial.

Observations

Few topics are as important to as many WTO Members as the topic of agriculture. Despite the importance of the issue to populations around the world, governments have starkly different views of where WTO negotiations should go. India, South Africa and others have pushed for reducing obligations assumed during the Uruguay through proposals on public stockholding and special safeguard mechanisms. Major agricultural exporters have focused on market access liberalization and reduction of export and domestic subsidies. The U.S., EU and others have had concerns about the lack of transparency of many Members agricultural systems and the failure of timely and complete notifications. China, India and others have not wanted limits on special and differential treatment to developing countries and have not supported the level of differentiation between developing and least developed countries that is being proposed by the Chair.

The inability to move broad-based agricultural reform and liberalization forward at the WTO despite ongoing negotiations since 2000 is a good example of the breakdown of the WTO system to achieve results through negotiations. The 2008-2009 financial crisis and the ongoing COVID pandemic with resulting significant export prohibitions or restrictions of some agricultural products have not resulted in long term solutions or rules even on this limited issue. It is hard to see multilateral progress in the coming months or even years in the agriculture space on many of the present issues. This will place ongoing pressure on countries with agriculture export or import interests to explore regional or bilateral arrangements. It also undermines the ability of the world to meet UN sustainability goals.

Without a common vision of the goals for the WTO, WTO Members are likely to continue talk past each other rather than move forward together. These challenges are complicated by the different economic systems of major players, some of which are incompatible with the WTO system.

The concept that negotiations can go on for decades is plainly unacceptable if the WTO is to maintain relevance. Unfortunately, the path forward to relevance is unclear at best.

COVID-19 Omicron variant – hopeful signs of peaking in the U.S. and Europe; supply disruptions continue from zero tolerance policy in China

In a recent post, I reviewed vaccine equity issues around the COVID-19 pandemic and recent developments including a new low-cost vaccine being produced in India and available to be produced in many countries with no licensing costs. See January 11, 2022:  WTO efforts to address the COVID-19 pandemic — the January 10, 2022 General Council meeting and some current developments of interest, https://currentthoughtsontrade.com/2022/01/11/wto-efforts-to-address-the-covid-19-pandemic-the-january-10-2022-general-council-meeting-and-some-current-developments-of-interest/.

The omicron variant has wreaked havoc in Europe and in the U.S., though there are signs of the huge surge in cases starting to ebb. See, e.g., European Centre for Disease Prevention and Control, COVID-19 situation update worldwide, as of week 2, updated 20 January 2022 (data for last two weeks of 2021 not available; huge surge from omicron reflected in curve; dark blue is Europe, light blue is the Americas). The following chart shows new cases worldwide.

COVID-19 situation update worldwide, as of week 2, updated 20 January 2022

Distribution of COVID-19 cases worldwide, as of week 2 2022
The ECDC data show the U.S. being the first country to record more than 10 million infections in a fourteen day period (10.586 million; weekly data from the ECDC actually show 12.52 million cases reported in the U.S. in the first two weeks of 2022). The huge surge in Europe in the last several months is spread across many countries. France has been particularly hard hit with new cases numbering in the hundreds of thousands per day for nearly every day in January (highest, 464,679 on January 19 with declines since then). See ECDC, Data on the daily number of new reported COVID-19 cases and deaths by EU/EEA country 20 January 2022, https://www.ecdc.europa.eu/en/publications-data/data-daily-new-cases-covid-19-eueea-country.

In the United States, there is a note of optimism as the national number appears to be coming down. The decline is significant in some states where omicron was first identified but cases are still increasing in other parts of the country. See, e.g., NBC News, ‘An optimistic trend’: Covid cases are falling, but U.S. isn’t out of the woods yet, January 22, 2022, https://www.nbcnews.com/health/health-news/omicron-wave-covid-cases-finally-peaked-us-rcna13103 (“Cases are already falling in parts of the Northeast, Walensky said. ‘We are starting to see steep declines in areas that were first peaking, so areas of the Northeast — New York, Rhode Island, Connecticut — are really starting to come down.’ Shea said that cases in the rest of the country and deaths, which lag behind cases, are expected to trail shortly after. The big dropoff in cases in large states like New York can make the nationwide average look lower, even though cases are still rising in many states, but she expects all states to hit their peaks soon after Northeastern states.” 

Supply chain problems that have plagued the world for many months now and led to both shortages and large inflationary pressures may continue in part because of China’s zero-tolerance COVID policy has resulted in more shutdowns ahead of the approaching winter olympic games. See, e.g., New York Times, Supply Chain Woes Could Worsen as China Imposes New Covid Lockdowns, January 16, 2022, https://www.nytimes.com/2022/01/16/business/economy/china-supply-chain-covid-lockdowns.html (“Companies are bracing for another round of potentially debilitating supply chain disruptions as China, home to about a third of global manufacturing, imposes sweeping lockdowns in an attempt to keep the Omicron variant at bay.”).

Many countries, including the U.S. and EU, are reviewing supply chain issues to improve resiliency and reduce risks. Both the U.S. and EU for example have been looking at legislation to bolster semiconductor chip manufacturing. See, e.g., World Economic Forum, ‘There’s no digital without chips’: New European Chips Act announced, 20 January 2022 (“European Commission President Ursula von der Leyen has announced a new European Chips Act”), https://www.weforum.org/agenda/2022/01/theres-no-digital-without-chips-new-european-chips-act-announced/; Reuters, U.S. House bill on China competitiveness, chip investment, coming soon – Pelosi, January 21, 2022, https://www.reuters.com/world/us/pelosi-says-us-house-will-soon-introduce-competitiveness-bill-2022-01-21/.

While discussions continue around trade and health issues at the WTO including what, if any, temporary waiver from TRIPS obligations or other actions to improve vaccine production may be needed, data available on vaccine production and shipments continue to suggest that the issue is not necessary for a resolution to the COVID-19 pandemic. See, e.g., WTO-IMF COVID-19 Vaccine Trade Tracker, Last updated: 17 January 2021, https://www.wto.org/english/tratop_e/covid19_e/vaccine_trade_tracker_e.htm (showing total supply to the end of December at 11.5 billion doses; exports of 4.4 billion doses, with rapidly increasing shipments to low income and lower-middle income countries in the last few months of 2021). Several tables from the latest WTO-IMF COVID-19 Vaccine Trade Tracker are copied below.

“3. Imports

“Imports are defined as the number of doses received from producing economies, mirroring the information provided in the exports section. This definition does not take into account imports of vaccine substances in bulk form to be used in ‘fill and finish’ sites.”

Income Group ImportsNumber of doses (million)Doses per 100 peoplePopulation (million)
Low income234.034.5678.4
Lower middle income1,482.149.52,994.7
Upper middle income1,748.559.72,930.4
High income935.675.41,241.6
Note: as of 31 December 2021

ContinentNumber of doses (million)Doses per 100 peoplePopulation (million)
Asia2,372.551.04,652.6
South America682.7157.3434.0
Africa638.546.51,371.7
North America460.577.7592.8
Europe217.829.0750.8
Oceania28.365.543.2
Note: as of 31 December 2021

With more vaccines being reviewed by the WHO and individual countries, production of vaccines in 2022 will exceed volumes produced in 2021. Exports will also increase as trends in the second half of 2021 show have been happening.

While different sources look at vaccinations for individual countries and territories, attached is an excel spreadsheet of data from the World Health Organization for data available as of January 20, 2022. There are countries not covered by the WHO data (e.g., Taiwan) and others for which there is no World Bank 2022 income designation. I have added the categories of the World Bank GNI per capita income (low income, lower-middle income, upper-middle income, high income) to the WHO table. At the end of the WHO listing I have broken the data out by income group. For those countries/territories with no World Bank designation, they are listed “na”. For countries or territories in the World Bank list but not shown on the WHO list, I have included the name of the country/territory at the end of the income grouping.

As reviewed in prior posts, for groups and organizations focuses on vaccine equity, it is important to understand the causes of the very large differences in vaccines/100 people shown within at least the low income, lower-middle income and upper-middle income categories. For example, Rwanda (97.195 vaccinations/100 people), Mozambique (54.492 vaccinations/100 people) are low income countries. But their experience in vaccine access is much different than many other low income countries (most under 30 vaccine doses/100 people, many under 20 or 10/100 people, one less than 1/100 people). Medical infrastructure and many other factors are certainly important components in improving vaccine access to many low income countries. See GAVI, World leaders launch call for renewed support for vaccination in 2022 as part of the global fight against COVID-19, https://www.gavi.org/news/media-room/world-leaders-launch-call-renewed-support-vaccination-2022-part-global-fight (” Specifically, COVAX leaders called for at least US$ 5.2bn in new funding: US$ 3.7 billion to fund a 600 million dose Pandemic Vaccine Pool to address uncertainties and related uncovered risks, such as boosters, additional coverage, new variant vaccines if required, and to make sure there is reliable supply for the poorest countries. In addition, catalytic delivery funding of US$ 1 billion is requested to support getting doses into arms rapidly and safely without undermining routine immunization activities. A further US$ 545 million is needed to cover ancillary costs such as syringes, transport and insurance for donations.”).

The same is true for lower-middle income countries with Cambodia and Mongolia recording 189.643 and 164.686 vaccine doses/100 people respectively while Nigeria, Cameroon and and Zambia report just 9.007, 3.859, and 5.665 vaccine doses/100 people respectively. Seventeen countries have reported more than 100 vaccine doses/100 people while 9 have reported 20 vaccine doses/100 people or fewer.

The same is true for upper-middle income countries where the range of vaccine doses/100 people range from 32.258 for Equitorial Guinea to 283.945 for Cuba.

1-21-2022-WHO-COVID-vaccine-data-low-income-countries.xlsx

Cybertheft of intellectual property – do there need to be greater trade deterrents?

Cybertheft is a tremendous problem for governments, companies and individuals. While actors in the space are pursuing a range of objectives, this post looks at cybertheft of intellectual property and its effects on industry. Thus, the huge losses incurred by governments and by individuals outside of the business arena are not addressed nor are the misinformation campaigns of recent years.

In 2011, The Council on Foreign Relations published an interview with Dmitri Alperovitch, then McAfee’s vice president of threat research. The interview was titled “Cybertheft and the U.S. Economy”. See Council on Foreign Relations, Cybertheft and the U.S. Economy, August 11, 2011, https://www.cfr.org/interview/cybertheft-and-us-economy. The summary introduction paragraph summed up the situation as follows:

“In August 2011, the cybersecurity firm McAfee released an eye-opening report (PDF) detailing its investigation into a multi-year, most likely state-sponsored cyberattack that includes intrusions into the U.S. federal government and defense contractors, resulting in the theft of massive stores of intellectual property. The report’s author and McAfee’s vice president of threat research, Dmitri Alperovitch, describes these attacks, known as Operation Shady RAT, as a profound threat, indicative of a larger trend that may result in ‘the complete destruction’ of the U.S. economy. Rather than focus on the potential for a theoretical ‘cyber Pearl Harbor,’ he says that U.S. policymakers should use all of the nation’s power to stem the steady theft of national secrets.”

A 2019 report prepared by Price Waterhouse Cooper for the European Commission examined the scope of the cybertheft problem for businesses in the EU. See PWC, Study on the Scale and Impact of Industrial Espionage and Theft of Trade Secrets through Cyber, 2019, https://www.pwc.com/it/it/publications/docs/study-on-the-scale-and-Impact.pdf. The estimated cost to EU industry was summarized in the conclusion on the last page:

“Estimates of February 2018 provide details of the negative impacts at the European level of cyber theft of trade secrets: about €60 billion lost in economic growth, resulting in a loss of competitiveness, jobs and reduced R&D investments. More specifically, 289,000 jobs could be at risk in 2018 in Europe and 1 million jobs could be at risk by Stakeholders emphasized that direct impacts account for about 10% of costs the company will have to face. Therefore, the remaining 90% of costs are due to indirect impacts that are effectively measured and assessed 5-6 years after the cyber-intrusion.”

There have been many other reports looking at the costs and problems from cyber theft. See, e.g., U.S. Department of Justice, REPORT OF THE ATTORNEY GENERAL’S CYBER DIGITAL TASK FORCE, 2018, https://www.justice.gov/archives/ag/page/file/1076696/download.

But efforts at cybertheft have continued and intensified. See, e.g., New York Times, U.S. Accuses Hackers of Trying to Steal Coronavirus Vaccine Data for China, July 20, 2020, https://www.nytimes.com/2020/07/21/us/politics/china-hacking-coronavirus-vaccine.html, (“The Justice Department accused a pair of Chinese hackers on Tuesday of targeting vaccine development on behalf of the country’s intelligence service as part of a broader yearslong campaign of global cybertheft aimed at industries such as defense contractors, high-end manufacturing and solar energy companies.”).

Existing deterrents

Theft of intellectual property and other cybertheft actions face civil and criminal penalties in many countries, including the U.S. and other WTO Members. U.S. law also permits blockage of imports that violate IP holders rights (e.g., patents). The WTO since its launch in 1995 has had a Trade Related Aspects of Intellectual Property Rights Agreement, which incorporates provisions from a range of IP conventions, and requires WTO Members to provide adequate enforcement of such rights. The WTO has dispute settlement provisions which permit challenging trading partners who are not enforcing intellectual property rights. In addition, the U.S. has worked through its Special 301 authority to work with governments where the U.S. doesn’t perceive adequate enforcement occurring. It has also entered into bilateral agreements (e.g., U.S.-China Phase I Agreement) to address enforcement concerns including on cybertheft of intellectual property.

Despite these tools and the vast sums spent by industry trying to protect its intellectual property, the problems continue and in many ways are intensifying.

Experts like Dmitri Alperovitch have put forward a series of proposals for U.S. Congressional and Executive Branch action in 2022 to improve the situation for U.S. companies. See January 14, 2022 email from Silverado Policy Accelerator, Inc. (Mr. Alperovitch is Co-founder and Executive Chairman), Silverado’s 2022 Cybersecurity Policy Priorities for the Legislative and Executive Branches. The contents of the email are copied below (NOTE: I serve as one of a number of strategic advisors to Silverado but was not involved on the cybersecurity issues).

“To the friends of Silverado Policy Accelerator,

“The past year witnessed several notable bipartisan policy advances in the cyber arena. In March, Congress authorized $1 billion for the Technology Modernization Fund as part of the bipartisan American Rescue Plan to support new investments in federal agencies’ cybersecurity infrastructure. In May, the Biden administration released its Executive Order on Improving the Nation’s Cybersecurity, which included provisions to increase security standards for vendors who supply high-risk software through the government acquisition process and a number of critical technology implementation requirements that raise the bar for security across federal government networks. Finally, the Infrastructure Investment and Jobs Act, passed by Congress in November, included $1.9 billion for a range of cyber-related investments. 

“Although these bipartisan initiatives collectively represent a historic investment in the nation’s cybersecurity, there is much still to do to ensure that government agencies—as well as American companies and organizations—are protected from cyber attacks. As the legislative and executive branches look ahead to the coming calendar year, Silverado Policy Accelerator has compiled its own list of six policy priorities that deserve particular attention in 2022 (included below).

“Additionally, please join us tomorrow, January 13 from 9:00-10:00 am ET as Silverado’s Co-Founder and Executive Chairman Dmitri Alperovitch sits down with Congresswoman Yvette Clarke (D-NY), Congressman John Katko (R-NY), DHS Under Secretary for Policy Robert Silvers, and the FBI Cyber Division’s Assistant Director Bryan Vorndran to hear their perspectives on cybersecurity policy priorities for the coming year. You can register for tomorrow’s event here.

“A recording of tomorrow’s event will be available on Silverado’s website following the live broadcast. 

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Silverado’s 2022 Cybersecurity Policy Priorities for the Legislative and Executive Branches 

1. Passage of a comprehensive federal cyber incident reporting law

“In light of the 2022 National Defense Authorization Act not including provisions requiring companies to report hacks and ransom payments to the government, Congress should consider alternative paths to enacting a mandatory cyber incident reporting requirement in 2022. Such a law should require major private companies, including critical infrastructure entities, to report technical indicators associated with breach attempts to the Cybersecurity and Infrastructure Security Agency (CISA).  CISA should also build the architecture to immediately pass the information on to other agencies with a need to know, such as the FBI and sector-specific relevant agencies. Rapid access to these incident reports by CISA and FBI, among others, is necessary to allow the government to have a clear view into adversary campaigns targeting the U.S. and to support timely federal action. Such legislation is critical to provide insights to the government about the true nature of the threat to the private sector in order to take appropriate deterrent action (criminal investigation, cyber offense, sanctions, etc), as well as to help warn and notify other victims or vulnerable organizations who may not be aware that they had been targeted.

2. Provide CISA with the appropriate authorities and resources to eventually become the operational federal CISO, or Chief Information Security Office, for the civilian federal government (excluding DoD and IC)

“Congress took an important step toward centralizing federal cybersecurity strategy by creating CISA in DHS in 2018, but the next step is to give CISA both the authority and the resources that it needs to effectively execute its mission. The long-term goal for CISA should be to evolve into an operational cybersecurity shared services provider for most civilian federal government agencies, taking over fully or partially their cybersecurity operations. Achieving this objective would result in streamlined and more effective cybersecurity efforts, centralized accountability and a higher standard for security across the government.

“Congress should support CISA’s ongoing efforts in the following ways: 

  • Provide CISA with the resources and authority to create a 24/7 threat hunting operation center to search for intrusions on federal networks. 
  • Authorize CISA to conduct a trial in which it assumes responsibility for running cybersecurity operations of a small executive agency. The trial would allow the government to gauge what sort of additional resources CISA would need to be able to evolve into an operational Chief Information Security Office (CISO) for the civilian federal government.
  • Create budgetary and FISMA compliance incentives for federal agencies to outsource their cybersecurity operations to CISA, turning it into a Shared Service Provider for cybersecurity.
  • Provide CISA with the appropriations that are commensurate with its growing importance by reallocating resources from agencies that opt into the Shared Service Provider model. 

3. Adopt speed and outcome-based metrics to measure agencies’ response time to cyber threats

“In cyberspace, the only way to reliably defeat an adversary is to be faster than they are. For this reason, Congress should require federal agencies to adopt speed-metrics that measure agencies’ response to cyber threats based on the time it takes to begin and complete fundamental defensive tasks. ​

“Through legislation, Congress could require agencies to adopt speed-based metrics by mandating that they collect data on the average time it takes to perform three fundamental defensive actions: (1) detecting an incident; (2) responding to an incident; and (3) fully mitigating the risk of high-impact vulnerabilities. Taking these measurements should be as simple as recording the times of the initial discovery of the event (intrusion or vulnerability) and the time when the investigation or mitigation action is finished. Thus, it should require minimal additional resources to implement. Congress could also include a “recoverability metric” to measure agencies’ ability to recover data in the event of a ransomware attack or major cyber incident.

“Over time, these metrics would provide objective and diachronic measurement of an agencies’ incident response capabilities that they could report to CISA, OMB, and the relevant oversight committees in Congress. If the metrics prove effective at driving the right behavior to decrease agencies’ response time to cyber threats, Congress should also consider models to extend their adoption by the private sector.

“In addition to these fundamental intrusion and mitigation metrics, CISA should also be given the authority to develop new metrics beyond these fundamental intrusion and mitigation ones to respond to changes in the threat and defense landscape. To incentivize agencies to drive down the times it takes to discover and respond to intrusions or vulnerabilities, CISA should also implement a civilian-government-wide annual awards program to publicly acknowledge agencies and their leaders who achieve the best metrics.

4. Strengthen the executive branch’s authority to sanction foreign cryptocurrency exchanges that fail to comply with basic “Know Your Customers” and anti-money laundering requirements

“Ransomware criminals rely on widely-available and largely anonymous cryptocurrency such as Bitcoin to collect hundreds of millions of dollars in ransom payments each year and to launder ransom payments into fiat currencies without risk of disclosing their identities to victims or law enforcement. Although U.S.-based exchanges are required by law to comply with robust “Know Your Customer” (KYC) and other anti-money laundering regulations, foreign exchanges have been slow to adopt similar requirements. The lack of widespread compliance undermines the efficacy of the U.S.’s and other like-minded governments’ efforts to clean up the global cyber ecosystem, since malicious actors can easily circumvent security requirements simply by using less secure foreign exchanges.

“The United States should pursue a two-pronged strategy to level the international playing field. First, it should work with existing and new trading partners to ensure they have adequate KYC and AML safeguards in place for cryptocurrency exchanges based in their jurisdictions. Second, the executive branch should explore its ability to sanction foreign cryptocurrency exchanges that fail to comply with minimum KYC and other anti-money laundering requirements or that refuse to cooperate with U.S. law-enforcement on investigations. 

“The Treasury Department currently has broad authority to sanction specific foreign exchanges based on evidence that they cooperate with prohibited nations or entities, but it does not have the authority to sanction exchanges for non-compliance with KYC and AML regulations. Granting them such authority explicitly would likely encourage foreign institutions to implement these regulations in order to avoid the prospect of sanctions.

5. Incorporate cyber-specific details into OFAC’s SDN list

“The most difficult task facing many foreign cyber threat actors is procuring anonymous, reliable, fast, and long-lasting infrastructure (such as domains and cloud servers) to support malicious cyber attacks. These actors frequently go to great lengths—including registering shell companies and developing complex anonymous payment mechanisms—to disguise their activity, since using stolen bank accounts and credit cards for payment often results in the rapid shutdown of their infrastructure once the chargebacks start being reported. In addition, threat actors are increasingly taking advantage of legal constraints on the U.S. intelligence community’s ability to monitor domestic networks to gain access to the U.S.-based cyber infrastructure needed to carry out attacks against both private sector companies and U.S. government agencies. 

“The United States needs stronger mechanisms to deter cyber threat actors from leveraging U.S.-based cyber infrastructure to carry out cyber attacks. The Treasury Department’s Office of Foreign Assets Control (OFAC) already maintains a Specially Designated Nationals and Blocked Persons List (SDN), but the list only contains names of cyber criminals and other threat actors and does not include bank account information, credit card numbers or cryptocurrency wallets. As a consequence, the list is not always effective at identifying and blocking cyber threat actors, who almost always use fake names to procure infrastructure. 

“The Treasury Department should consider how to add these other identifying financial elements to the SDN to allow payment processors and cryptocurrency exchanges to block adversary-initiated transactions at the point of sale.

6. Require threat hunting on Defense Industrial Base (DIB) networks

“In March of 2020, the Cyberspace Solarium Commission recommended that Congress direct regulatory action that the executive branch could pursue in order to require companies that make up the Defense Industrial Base, as part of the terms of their contract with DoD, to create a mechanism for mandatory threat hunting on DIB networks. This recommendation was partially authorized in Section 1739 of the FY21 NDAA, but that article only required DoD to conduct an assessment on the feasibility and suitability of a DIB threat-hunting program without requiring DoD to establish the program after the report is issued. Congress should pass the necessary legislation to fulfill the intent of the initial proposal and enable DoD to execute threat hunting operations on the networks of cleared defense contractors that hold sensitive national security information.”

Are other trade remedies needed?

When the only remedies available to companies are individual or company specific and require the cooperation of the country from which cybertheft is occurring (if offshore), there is often a reluctance of companies who have been harmed to identify the problem or pursue legal actions. Fear of retaliation by foreign governments can also reduce the willingness of companies to defend their commercial interests in such situations.

This raises the question whether broader-based remedies should be available to deter such activity and provide a major incentive better behavior by trading partners where such conduct is not being addressed adequately.

For example, where a country provides notice to a trading partner of problems and there is no resolution in a relatively short period (e.g., 90 days), should the complaining party block imports of products in the same general category, prohibit investments in the sector, and/or other actions?

If the cybertheft from companies appears to be for the benefit of a foreign government or at the direction of a foreign government, should there be a loss of MFN treatment for the sector or more broadly?

The concerns around cybertheft could be addressed within the WTO or within bilateral or regional agreements. Considering the length of time that cybertheft has been harming many economies, unilateral action may be warranted pending broader agreement.