United States

WTO panel decision in United States – Tariff Measures on Certain Goods from China increases the need for comprehensive WTO reform

On September 15, 2020, the WTO panel considering China’s challenge to certain additional duties on its products imposed by the United States flowing from an investigation under Section 301 of the Trade Act of 1974, as amended, released its report and concluded that the U.S. action was inconsistent with most favored nation (MFN) obligations under GATT 1994 Art. I and U.S. tariff bindings under GATT 1994 Art. II(a) and (b) and was not justified under GATT 1994 Art. XX(a) as action to protect public morals.

The U.S. Trade Representative issued a press release which is copied below.

WTO Report on US Action Against China Shows Necessity for Reform

“09/15/2020

“Washington, DC – U.S. Trade Representative (USTR) Robert Lighthizer today criticized a World Trade Organization (WTO) panel report that stated that actions taken by the U.S. to combat China’s widespread and damaging theft of American technology and intellectual property were inconsistent with WTO rules.

“’This panel report confirms what the Trump Administration has been saying for four years: The WTO is completely inadequate to stop China’s harmful technology practices,’ said Ambassador Lighthizer. ‘Although the panel did not dispute the extensive evidence submitted by the United States of intellectual property theft by China, its decision shows that the WTO provides no remedy for such misconduct. The United States must be allowed to defend itself against unfair trade practices, and the Trump Administration will not let China use the WTO to take advantage of American workers, businesses, farmers, and ranchers. It is important to note that this report has no effect on the historic Phase One Agreement between the United States and China, which includes new, enforceable commitments by China to prevent the theft of American technology.’

“USTR issued a Section 301 report in 2018 documenting how China had engaged in unfair forced technology transfer practices, such as exploiting its foreign ownership and administrative requirements to extort U.S. intellectual property rights or supporting commercial cyber theft from U.S. entities. The report cited hundreds of sources and thousands of pieces of evidence, including reports from governments, firms, business associations, think tanks and researchers, and others. These unfair trade practices and other actions by China have cost U.S. innovators, workers, and businesses
billions of dollars every year.

“The actions USTR took in response to these practices led earlier this year to the historic Economic and Trade Agreement Between the United States of America and the People’s Republic of China (the ‘Phase One’ Agreement).

“Background: China initiated this WTO dispute – United States-Tariff Measures on Certain Goods from China (DS543) – in April 2018, and subsequently amended its request for consultations. In January 2019, the WTO established a panel at China’s request. The dispute covers two of the trade actions in the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation: the $34 billion trade action announced in June 2018, and the $200 billion trade action announced in September 2018.”

The Panel Report, WT/DS543/R

The panel report is relatively short (56 pages plus table of contents and list of disputes cited). The panel rejected two preliminary U.S. arguments and then addressed the core issues.

The U.S. had argued that the U.S. and China were engaged in negotiations and were handling the matter outside of the WTO and had reached a Phase I Agreement all of which meant the panel should not issue a report. That argument was rejected as China’s position was that no mutually satisfactory solution had been reached. Similarly, the U.S. effort to restrict the Chinese claim on the second action by the U.S. to 10% on $200 billion of trade and not the later increase to 25% was rejected.

On the two main challenges by China, that the tariffs imposed were inconsistent with most favored nation treatment under GATT Art. I and that the additional tariffs violated U.S. tariff bindings, the United States did not present argument. Thus, the panel reviewed whether China presented a prima facie case of violation and, when it so concluded then found U.S. actions to be inconsistent with those provisions.

The United States argument was limited to its right to deviate from other WTO obligations because of GATT 1994 Art. XX(a), actions taken necessary to protect public morals.

As reviewed in the panel report (para. 7.100), “The United States asserts that any inconsistency of the measures at issue with provisions of the GATT 1994 is justified as necessary to protect US public morals pursuant to Article XX(a) of the GATT 1994. This is because, according to the United States, China’s acts, policies, and practices addressed in the relevant Section 301 Report amount to ‘state-sanctioned theft and misappropriation of U.S. technology, intellectual property, and commercial secrets’182 which violates
the public morals prevailing in the United States.183″ [footnotes omitted]

“7.113. The United States asserts that the measures at issue protect public morals within the meaning of Article XX(a) because they have been adopted to ‘”‘obtain the elimination” of conduct that violates U.S. standards of rights and wrong, namely China’s unfair trade acts, policies, and practices’.201 In support of its argument, the United States has submitted evidence of several
domestic instruments that reflect prevailing US ‘standards of right and wrong’ and outlaw some (although not all) of the Chinese practices documented in the Section 301 Report.202 The United States contends that acts, policies, and practices of China referred to in the Section 301 Report violate US ‘standards of right and wrong’, in particular the prohibition of theft, extortion, cyber-enabled theft and cyber-hacking, economic espionage and the misappropriation of trade secrets, anti-competitive behaviour, as well as the regulation of governmental takings of property (hereafter referred to as ‘the public morals as invoked by the United States’).” [footnotes omitted]

The panel generally agreed with the United States that public morals objectives could include those identified by the United States and were not negated because there were economic effects as well. The U.S. argument was as follows:

“7.3.2.2.3 The public morals objective invoked by the United States

“7.127. The United States asserts that China’s actions documented in the Section 301 Report violate prevailing US ‘standards of right and wrong’ as reflected in US domestic legislation.226 The United States has submitted as evidence several domestic instruments that reflect prevailing US ‘standards of right and wrong’ and that outlaw some (although not all) of the Chinese practices documented in the Section 301 Report.227 Specifically, the United States refers to:

“• state and federal laws, under which the act of “theft” is universally deemed a criminal offence228;

“• US laws that generally prohibit extortion229;

“• US laws that criminalize cyber-enabled theft and cyber-hacking230;

“• US laws that criminalize economic espionage and the misappropriation of trade secrets (including though acts of ‘bribery’ or ‘extortion’)231;

“• US laws against anti-competitive behaviour (in particular the prohibition and criminalization of monopolization)232, which reflect ‘fundamental concepts of fair competition and fair play’233, and the breach of which the United States views as ‘a threat to the ‘preservation of our democratic political and social institutions”234;

“• US laws on contracts and torts235;

“• US laws on patents236; and

“• civil and criminal laws on, and governmental takings, of property.237

“7.128. The United States explains that the economic concerns underlying some of these legal instruments are related to notions of fair competition and fair play238, and that the United States does not view unfair competitive practices merely as a detriment to business and innovation, but
also as a threat to the preservation of its democratic political and social institutions.239 The United States also explains that it ‘imposes constraints on behavior based on national concepts of right and wrong to ensure market-oriented outcomes’.240 According to the United States, China
‘uses coercion and subterfuge to steal or otherwise improperly acquire intellectual property, trade secrets, technology, and confidential business information from U.S companies with the aim of advantaging Chinese companies and achieving China’s industrial policy goals.’241 The United States, considers that these acts, policies, and practices relating to intellectual property and technology transfer violate these US standards of right and wrong and thus implicate US public morals within the meaning of Article XX(a).242″ [footnotes omitted]

In the end the panel faulted the United States for not being able to demonstrate that the actions taken were necessary to achieve its public morals objective, looking at the number of products where there hadn’t been a showing that the products benefited from the Chinese government actions or where exclusions could be made for products where such actions were present but where there were economic reasons to exclude the product. The panel looked at List 1 and List 2 separately. The panel’s characterization of the U.S. position on each list is useful in understanding U.S. concerns.

“7.163. The United States argues that the additional duties at issue are “necessary” to protect public morals because they ‘play a necessary role toward the goal of eliminating China’s unfair trade acts, policies, and practices by raising the cost of such practices and reducing China’s incentive to continue engaging in such conduct going forward’.316 According to the United States, ‘it is reasonable to conclude that China will continue to pursue its unfair trade acts, policies, and practices while it is advantageous to China to do so, for example, until the economic costs of doing so begin to approach or outweigh the economic benefits’317, and for that reason, ‘to protect U.S. interests in moral (right or wrong) economic behaviour, it is necessary for the United States to adopt measures that are capable of changing China’s economic cost-benefit analysis’.318 The United States also asserts that the measures are necessary to achieve the public morals objective as invoked by the United States because it was only after their adoption that China agreed to enter into negotiations with the United States to address the concerns documented in the Section 301 Report.319 Finally, the United States asserts that so long as a WTO Member can establish that a measure that aims to influence the policies or practices of another Member is necessary to protect public morals, that measure can be justified under Article XX(a).320″ [footnotes omitted]

“7.216. The United States adopted and implemented the additional duties on List 2 products through the Notice of 21 September 2018. This Notice explains the rationale of the imposition of additional duties on List 2 products as follows:

“China’s unfair acts, policies, and practices include not just its specific technology transfer and IP polices referenced in the notice of initiation in the investigation, but also China’s subsequent defensive actions taken to maintain those policies. China has decided to impose approximately $50 billion in tariffs on U.S. goods, with the goal of encouraging the United States to drop its efforts to obtain the elimination of China’s unfair policies. Thus, instead of addressing the underlying problems, China has increased tariffs to further protect the unreasonable acts, policies, and practices identified in the investigation, resulting in increased harm to the U.S. economy.

“[…]

“The judgment during the period of investigation, based on then-available information, was that a $50 billion action would be effective in obtaining the elimination of China’s policies.

“China’s response, however, has shown that the current action no longer is appropriate. China has made clear – both in public statements and in government-to-government communications – that it will not change its policies in response to the current Section 301 action. Indeed, China denies that it has any problems with respect to its policies involving technology transfer and intellectual property.445” [footnotes omitted]


“7.218. The United States explains that ‘List 2 measures apply to a broader class of products than those found to directly benefit from the unfair trade acts, policies, and practices documented in the Section 301 Report’.446 The United States asserts that it imposed additional duties on List 2 products ‘after China “made clear – both in public statements and in government-to-government communications – that it [would] not change its policies’ and instead ‘responded … by increasing duties on U.S. exports to China”‘.447 According to the United States, the imposition of additional duties on List 2 products is ‘derivative’ of the imposition of additional duties on List 1 products.448 For that reason, the United States argues that the imposition of additional duties on List 2 products is ‘also necessary to protect public morals in part because to fail to respond to China’s economic retaliation would demonstrate that the United States Government is willing to acquiesce in theft and forced transfer of U.S. technology by one of its largest trading partners’.449” [footnotes omitted]

Reaction to the Panel Report

Much of the panel report is straight forward and unobjectionable. However, on the question of the GATT 1994 Art. XX(a) public morals provision, the analysis of core issues is too wooden and ignores the realities of government operations. The United States has worked for years to get China to address the myriad issues laid out in the 301 investigation which the panel accepts as important public morals issues for the United States. The effect of the many practices has been of major concern to the Untied States, to its businesses and workers for more than a decade. Duties were imposed exactly because prior efforts to get China to address the serious problems were never fruitful, and following the 301 investigation, China opted not to negotiate with the United States. The List One products were largely items known to benefit from one or more of the programs and the intent was to apply the tariffs until China would negotiate and resolve the matters. Thus, on the list one necessity issue, one can only conclude that the panel’s construction was too narrow. Similarly, finding fault with U.S. action because some products were excluded that may have benefited from the programs of concern ignores the political realities of applying pressure without imposing unintended consequences.

Conclusion

The U.S.-China trade dispute is obviously important bilaterally and multilaterally. While the China challenge to the U.S. action is understandable from their perspective, what is clear is that the panel report will make reform at the WTO more difficult and will likely result in the U.S. filing an appeal so that the dispute is not concluded in the foreseeable future.

On reform, China has taken the position on the question of the definition of “public body” that the issue is not subject to negotiations because of an Appellate Body report favorable to China. Similarly, despite the array of problematic practices of China that are not presently subject to WTO rules, the panel report will likely result in China refusing to negotiate on the underlying issues in an effort to kick the can down the road before the myriad Chinese policies that are inconsistent with market principles are ever brought under WTO rules.

At the same time, the panel report supports the views of the current U.S. Administration that the WTO doesn’t address many of China’s practices and rather restricts market-economy countries from addressing distortions not covered by existing rules to get conditions of fair trade established or restored. Thus, one should expect continued reluctance on the part of the U.S. to permit restoration of the Appellate Body with an expanded list of reform needs to cover the expanded list of inadequacies of the existing WTO rule book.

On appeal of the panel report, there is no reason for the U.S. not to file an appeal and there are likely interesting issues for an eventual appeal on the interpretation of GATT 1994 Art. XX(a). The U.S. did not pursue a case on the various retaliations undertaken by China — none of which would presumably pass WTO muster as they were taken without WTO authorization. As China has already taken and is maintaining retaliation, the two countries are presumably in the posture they intend to maintain until there is a broader resolution of their trade differences. While the U.S. may change its posture on the dispute if there is a different Administration, I would not expect a change in direction under the current Administration.

COVID-19 cases increase in last two weeks, setting new global record for new cases in fourteen day period.

In my last two posts of August 30 and August 16, I suggested that it appeared that the global spread of COVID-19 may have peaked or plateauted. See August 30, 2020, The global number of confirmed COVID-19 cases passes 25 million with more than 843,000 deaths – increased race to lock-up vaccine supplies, https://currentthoughtsontrade.com/2020/08/30/the-global-number-of-confirmed-covid-19-cases-passes-25-million-with-more-than-843000-deaths-increased-race-to-lock-up-vaccine-supplies/; August 16, 2020, Is the world at the peak of the COVID-19 pandemic?  Last two weeks suggest a peaking of the growth of global infections may be at hand, https://currentthoughtsontrade.com/2020/08/16/is-the-world-at-the-peak-of-the-covid-19-pandemic-last-two-weeks-suggest-a-peaking-of-the-growth-of-global-infections-may-be-at-hand/. However, data compiled by the European Centre for Disease Prevention and Control for the August 31-September 13 period shows a return to growth in new cases. The latest two weeks show total new cases of 3,780,469. This compares to the total new cases for the August 17-30 time period of 3,558,360, 3,624,548 for August 3-16 and 3,568,162 for the July 20-August 2 period. Total cases since the end of December 2019 are now just shy of 29 million.

The United States which has more confirmed cases (6,486,108) than any other nation and more confirmed deaths from COVID-19 (193,701), had a third two-week decline in new cases. The U.S. recorded the extraordinary number of 908,980 new cases during the fourteen day period July 20-August 2. That number declined to 740,721 during August 3-16 and further declined to 600,417 new cases in the August 17-30 period and was further reduced to 524,526 new cases in the August 31-September 13 period. The most recent period is still 28.21% higher than what had been the prior peak during April 13-26 of 409,102 new cases. Even with the significant reduction in new cases in the August 31-September 13 period, the United States had the second largest number of new cases, following only India whose number of new cases is continuing to rapidly increase, and were 1,211,623 in the last two weeks (the first country to have more than one million cases in a two week period). Brazil maintains its hold on third place though its new cases are also falling since July 20-August 2 (633,017 new cases) to 609,219 new cases during August 3-16, 529,057 new cases during August 17-30 and 469,534 new cases during August 31-September 13. India, the United States and Brazil accounted for an extraordinary 58.34% of the new global cases during the last two weeks and account for 54.01% of all cases confirmed since late December 2019. The United States with 4.3% of global population has accounted for 22.52% of total confirmed cases since December 2019. With the continued declining numbers in the last two weeks while the overall total of new cases grew, the U.S. was still 13.87% of new cases during August 17-30 or roughly three times the U.S. share of global population.

Continued growth of cases in the developing world

With the number of new cases in the United States declining, the trend to new cases being focused on the developing world continues although there has been some significant resurgence of new cases in a number of developed countries during the summer vacation period with a renewal of at least some international travel. While India and Brazil had by far the largest number of new cases from developing countries, they were followed by Argentina (143,681), Colombia (109,050), Peru (83,397), Mexico (72,261), Iraq (59,332), Indonesia (45,562), the Philippines (44,732), South Africa (25,663) and then dozens of other countries with smaller numbers of new cases.

Developed country resurgence in new cases

With the reopening of some international travel and with the end of the summer holiday season, there has been a noticeable surge of new cases in a number of developed countries, particularly in Western Europe. Spain showed the largest increase of a developed country that had gotten the COVID-19 spread under control until recently. For August 17-30, Spain saw an additional 96,473 new cases. The August 31-September 13 period saw a further large increase for Spain to 127,040 cases. France nearly doubled the large number it had experienced in the August 17-30 period (57,009 new cases) in the latest two weeks, with new cases reaching 101,381. Germany was up slightly from the prior two weeks (17,538 new cases) at 17,657 new cases. Italy added 19,444; Romania added 16,553; the United Kingdom added 32,422; the Netherlands increased by 11,374; Czechia increased by 11,307. Other countries in Europe (Russia and Ukraine) as well as Israel also saw significant additional new cases.

Deaths/100,000 population

The United States has the largest number of deaths of any country to date (193,701) and had the second largest number of deaths in the last two weeks (10,922) behind only India (15,088), though the U.S. number of new deaths declined from the prior two weeks while India’s number of new deaths continued to climb. The countries with the highest number of deaths per 100,000 population for the last two weeks were the following: Ecuador (24.91), Bolivia (20.49), Colombia (7.29), Argentina (6.48), Peru (6.11), Mexico (5.32), Brazil (5.09), Panama (4.05), Chile (3.77), Puerto Rico (3.65), Costa Rica (3.41) and the United States (3.32). All other countries (including all other developed countries) had lower rates of death per 100,000 population. For all countries, the death rate over the last two weeks was 1.02 deaths/100,000 population in the last two weeks.

If looking at the entire period since the end of December 2019 through September 13, the average number of deaths for all countries per 100,000 of population has been 12.13 deaths. The ten countries (of 71 which account for 98% of total deaths) with the highest death rates/100,000 for the full period are: Peru (94.10), Belgium (86.59), Bolivia (63.38), Spain (63.38), Chile (62.76), Ecuador (62.53), United Kingdom (62.45), Brazil (62.17), Italy (58.98), the United States (58.86). With the exception of Bolivia, Brazil, Chile, Ecuador, Peru and the United States, each of the other top countries overall has shown a drastic reduction since their peaks in April and as reflected in the experience in the last two weeks (the European countries were typically less than 1 death per 100,000).

Conclusion

The world in the first eight months of 2020 has struggled to get the COVID-19 pandemic under control. While many countries in Europe and some in Asia and the major countries in Oceania have greatly reduced the number of new cases over time, there has been some resurgence in many of these countries as their economies reopen, travel restrictions are eased and as schools reopen in many countries. But the number of new cases continues to rage in much of the Americas (other than Canada), in parts of Asia (in particular India) and in parts of Africa. Since most new cases are now in developing countries, it is unclear how many of these countries will be able to handle a significant number of cases, whether their healthcare infrastructure will be overwhelmed and whether they will have the medical goods needed to handle the cases safely.

The August 31-September 13 period has seen the global number of new cases growing after six weeks of what appeared to be a peak or plateau. That is not good news for the world as in many parts of the world schools are reopening and fall and winter will bring greater time indoors likely resulting in continued growth in new cases.

The progress on developing safe and effective vaccines is encouraging and has been sped by the willingness of major economies like the U.S. and the EU to fund manufacturing ahead of actual approval of the promising vaccines. Still the results of the phase three trials are not yet in and as a temporary delay by AstraZeneca with its phase three trial shows, the timing of outcomes remains unknown though anticipated by the end of 2020 and first part of 2021. Still the rollout of vaccines if approved will take time to get large parts of the global population vaccinated. This will likely place a large cloud over much if not all of 2021 even in an optimistic scenario.

Whether the world will rise to the challenges in terms of improving access to medical goods, to maintaining an open trading system, to aiding not only national populations but ensuring assistance to the most vulnerable, and when vaccines are approved to ensuring an equitable and affordable access by all are open questions. If the world is not able to collaborate on these issues, the 2020s will be a lost decade and will threaten global security.

U.S.-China Phase 1 Trade Agreement — How is China doing to Meet Purchase Commitments for the First Year; a Review of U.S. domestic exports through July 2020

As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020. The big question mark on the Phase 1 Agreement has to do with whether the agreement to increase imports from the United States is likely to be met. Prior posts on the U.S.-China Phase 1 Agreement can be found here: August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year (assumed to be February 14, 2020-February 13, 2021).

A six month review of progress on the overall Phase 1 Agreement by the U.S. and China was held by phone on August 24, 2020. The U.S. Trade Representative’s summary of the call is copied below and can be found here – https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/august/statement-call-between-united-states-and-china.

“Statement on Call Between the United States and China

“08/24/2020

“Washington, DC – Ambassador Lighthizer and Secretary Mnuchin participated in a regularly scheduled call this evening with China’s Vice Premier Liu He to discuss implementation of the historic Phase One Agreement between the United States and China. The parties addressed steps that China has taken to effectuate structural changes called for by the
Agreement that will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer. The parties also discussed the significant increases in purchases of U.S. products by China as well as future actions needed to implement the agreement. Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.”

As reviewed in earlier posts, some goods categories have data issues on the U.S. side (aircraft (orders and deliveries) show $0 exports for the entire period between 2017 and July 2020). Moreover, Amb. Lighthizer has testified to Congress that China has made some large agricultural purchases for shipments later in the year that don’t show up in the U.S. export data at the present time. Similarly, U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. However, services trade data with China for 2020 are not yet available. Total U.S. exports of services in the first half of 2020 to all countries was down 14.83%. Travel services were down more sharply, 46.32%. While the Phase 1 Agreement has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels), the data doesn’t presently exist to measure progress on services under the Phase 1 Agreement, though it is believed that China is far behind on its commitments to increase U.S. exports of services.

Looking just at U.S. domestic export data for goods to China for the period March – July 2020, China is far behind meeting the ambitious purchase commitments made with the United States for the first year of the Agreement.

Looking at total U.S. domestic exports to China for the period March-July 2020, U.S. exports were $38.963 billion ($7.792 billion/month) compared to $45.054 billion in 2017 ($9.011 billion/month). These include both products covered by the Annex 6.1 commitments and other products.

Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49 billion in 2017 (full year). For the period March – July, 2020 figures for the 18 categories have increased 4.19% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 36.10%, and total exports to China are down 13.52%.

Thus, the first five months of the 1st year of the U.S.-China Phase 1 Agreement suggest that U.S. domestic exports of the Annex 6 goods will be $71.496 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $31.306 billion, for total U.S. domestic exports to China of $102.802 billion. This figure would be far below 2017, below 2018 and just 9.25% above 2019. It is obviously dramatically below the target of $184.0 billion.

Even accepting the steep decline in non-covered goods, the first year should result in total U.S. domestic exports of $166.321 billion if the increase in covered goods is achieved — an amount 61.79% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the August 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $108.705 billion ($15.529 billion/month) an amount nearly three times the monthly rate of exports of the 18 categories to China in the March – July 2020 period ($5.262 billion/month).

Chinese data on total imports from all countries (in U.S. dollars) for January-July show a decline of 5.7% from the first seven months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, July 2020 (in USD). China’s imports from the U.S. were down 3.5% during the same time period. Total U.S. domestic exports to China are down slightly more for the first seven months vs. 2019, 4.151%. China data for August are also available. Total imports into China for the first eight months of 2020 are down 5.2%, those from the United States down 2.9%.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-July 2017, March-Julye 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

Product categoryMarch-July 2017March-July 2020% change 2017-2020 March-July$ Value needed in next seven months to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery
$4,598.5

$5,142.9

+11.84%
2. electrical equipment and machinery
$1,780.1

$2,018.5

+13.39%
3. pharmaceutical products $1,082.5 $1,191.1
+10.03%
4. aircraft (orders and deliveries)* NA NA NA
5. vehicles
$4,472.0
$1,560.8
-65.10%
6. optical and medical instruments
$1,309.1

$1,431.8

+9.37%
7. iron and steel
$516.0
$206.3
-60.02%
8. other manufactured goods $4,319.7 $5,884.5
+36.22%%
Total for mfg goods
$18,077.9

$17,435.9

-3.55%

$58,121**
Agriculture
9. oilseeds
$1,221.3

$567.2

-53.56%
10. meat
$252.4

$1,363.8

+440.33%
11. cereals
$679.6

$783.7

+15.32%
12. cotton
$363.2

$661.6

+82.16%
13. other agricultural commodities
$1,986.4

$1,682.1

-15.32%
14. seafood
$460.9

$330.7

-28.25%
Total for agriculture
$4,963.8

$5,389.1

+8.57%

$27.995
Energy
15. liquefied natural gas
$68.7

$344.7

+401.75%
16. crude oil
$1,251.0

$2,541.5

+103.16%
17. refined products
$707.9

$573.4

-19.00%
18. coal
$183.0

$25.5

-86.07%
Total for energy
$2,210.6

$3,485.1

+57.65%

$22,589
Total for 1-18$25,252.3$26,310.1 +4.19% $108.705**
  • HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-July 2020 period based on U.S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
  • The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first eight months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen, but seems highly unlikely despite the position taken by the U.S.

Conclusion

The U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun and will not begin before 2021 at the earliest.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement, there has been very little forward movement in expanding U.S. exports to China. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $63.5 – 81.2 billion. By back loading purchases of various U.S. agricultural products, China can project greater efforts to meet purchase targets and yet not actually take the goods ahead of the forthcoming Presidential elections.

With the process of selecting a new Director-General for the World Trade Organization entering the final phase where Members will be winnowing down the list of eight candidates to one which hopefully will receive consensus support by early November, it is unclear when and if the WTO will be able to engage in meaningful reform efforts such that the large bilateral concerns between the U.S. and China can be brought back under the WTO or whether the world is in for many years of bilateral tensions with actions outside of the system the norm and not the exception.

Race for WTO Director-General — additional material on The Rt Hon Dr. Liam Fox MP (United Kingdom)

The two month period for candidates for the position of Director-General of the World Trade Organization to make themselves known to the WTO Members ends today, September 7, 2020. The Chairman of the General Council along with the Chairs of the Dispute Settlement Body and Trade Policy Review Body will now start the process of holding “confessionals” with WTO Members to receive in confidence the four candidates whom each Member believes could generate consensus among the membership as part of the first round of reducing the candidates from eight to five. Two other rounds will follow to reduce the candidates from five to two and then from two to one.

Today I review some other press articles about the candidate from the United Kingdom to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. The other seven candidates were reviewed previously. Yesterday, I posted material about H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia), the day before on H.E. Amina C. Mohamed (Kenya), on September 4 on H.E. Yoo Myung-hee (Republic of Korea), on September 3 on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 6, 2020, Race for WTO Director-General – additional material on H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia), https://currentthoughtsontrade.com/2020/09/06/race-for-wto-director-general-additional-material-on-h-e-mohammad-moziad-al-tuwaijri-saudi-arabia/; September 5, 2020, Race for WTO Director-General – additional material on H.E. Amina C. Mohamed (Kenya), https://currentthoughtsontrade.com/2020/09/05/race-for-wto-director-general-additional-material-on-h-e-amina-c-mohamed-kenya/; September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

As noted above, today’s post looks at a few articles featuring The Rt Hon Dr. Liam Fox MP from the United Kingdom, the eighth and final candidate nominated for the position of Director-General.

  1. The Asean Post, September 5, 2020, Pandemic Is ‘Kiss of Death’ For Managed Trade, https://theaseanpost.com/article/pandemic-kiss-death-managed-trade.

“The coronavirus pandemic has heaped pressure on the troubled World Trade Organization (WTO), a WTO leadership candidate said, warning the crisis could spell the end of rules-based international trade altogether.

“Liam Fox, Britain’s first post-Brexit international trade secretary and one of eight candidates vying to become the WTO’s next director-general (DG), voiced concern that countries might turn their backs on its multilateral trading model.

“‘The reaction of some countries to the COVID emergency will be to seek solace in protectionism and to believe that they will get more resilience by … closing themselves off, if you like, from the global economy,’ he said Thursday in an interview.

“‘Exactly the opposite I believe is true,’ he explained during a conversation using the video link Zoom, insisting that countries will find more security by opening up and ensuring diversity of supply.

“‘For the rules-based trading system, COVID could be the kiss of life if we embrace the right policies – or the kiss of death if we don’t.'”

2. Government of the United Kingdom, Department for International Trade, 19 August 2020, Liam Fox pledges half his team will be women if he is the WTO DG, https://www.gov.uk/government/news/liam-fox-pledges-half-his-team-will-be-women-if-he-is-the-wto-dg.

“Dr Liam Fox has pledged that women will make up at least half of his senior leadership team if he is appointed the next Director General of the World Trade Organization (WTO).

“The UK has nominated former International Trade Secretary Dr Fox to be a candidate to replace current Director General Roberto Azevedo who stepped down this month after seven years.

“Dr Fox, the only elected politician in the running for the role, believes changes need to be made to attract more women into senior trade roles at the WTO. He states:

  • “Women’s economic empowerment through trade can only continue with widespread commitment to advancing the WTO and rules-based trading systems
  • “There is a need for the WTO to embrace the ‘talents, innovation and creativity’ of women to ensure it can lift another one billion people out of poverty
  • “Thirty years of progress is under threat from rising levels of unilateral actions and protectionism and those bearing the economic impact will disproportionately be women

“Dr Fox believes securing the input of women at a senior level at the WTO will help reduce the many barriers women face in accessing trading opportunities.

He said:

“‘As someone who trained and practised as a medical doctor I was used to half, and sometimes more, of my colleagues being female. But, despite real progress being made, women continue to face disproportionate barriers in accessing trading opportunities and markets due to discriminatory attitudes, poor conditions and harassment as well as unequal access to inputs such as credit and land.’

“‘And, as we look around us at the rising levels of unilateral actions and protectionism, we know that the remarkable achievement of the last three decades is under threat and that those bearing the brunt will be women.’

“Dr Fox believes the WTO and rules-based trading systems have created opportunities for women in both developed and developing countries which will be key to helping the global economy recover from the effects of the coronavirus pandemic.

“In 2016, McKinsey estimated that creating more opportunities for women to work, including in export-led sectors, could add $12 trillion to the global economy by 2025.

“Dr Fox said:

“‘What could be more counterproductive than failing to utilize the talents, innovation and creativity of half the planet’s population? Women’s economic empowerment through trade can and has played a key role in creating political stability and so the conditions for wider economic progress. This matters to all of us, wherever we are.’

“Currently, neither the Director General nor any of the four Deputy Director Generals at the WTO are female. The latest diversity breakdown of the WTO secretariat shows that of the 24 staff members in the most senior grades, only five were female.

Dr Fox said:

“‘To attract more women into the architecture of trade, we need to make changes at all levels.’

“‘We need more input for women, by women if the WTO is to play its part in taking another one billion people out of extreme poverty. That is why, if I am successful in my candidacy, women will account for at least half of my senior leadership team.'”

3. Inside U.S. Trade’s World Trade Online, September 2, 2020, Fox: Congress should leverage TPA renewal to resolve WTO appellate impasse, https://insidetrade.com/trade/fox-congress-should-leverage-tpa-renewal-resolve-wto-appellate-impasse.

The article reviews statements by Dr. Fox that his political thinking would identify outreach to the U.S. Congress after the upcoming election as a way to make progress in resolving the impasse on the WTO’s Appellate Body. Dr. Fox opines that the renewal of trade promotion authority (“TPA”) in the front half of 2021 gives Congress significant say on trade matters which could be used to find solutions on the Appellate Body impasse.

4.  Chatham House, 10 August 2020, In Conversation with The Rt Hon Dr Liam Fox MP: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/conversation-rt-hon-dr-liam-fox-mp-candidate-director-general-world-trade-organization.

Chatham House has conducted interviews with each of the candidates for Director-General. The session with Dr. Fox was held on August 10, 2020 and was on the record. My notes of some of the questions asked and of Dr. Fox’s responses are contained below.

Q:  You are a free trader.  Could you share your philosophy about international trade?  What is your vision of trade?

A:  One of the great benefits of international trade is its contribution to moving one billion people out of poverty in a generation, one of the greatest accomplishment in history.  We live in a very interdependent and interconnected world.  Trade is not an end in itself but a means to spread prosperity around the world which leads to security.  If countries try to block trade, there are consequences such as mass migration of peoples.

Q:  How do you deal with the view that many people in developed world feel that trade has undermined their prosperity?

A:  Such views flow from a failure to understand the benefits that come from free and open trade.  In developed countries we take benefits of trade for granted and simply look at the downside costs.  If you consider benefits to consumers from trade, the benefits include a much broader selection of goods and services at lower prices.  Countries always have the trade off between trade liberalization and protectionism.  Those seeking protection may have better lobbyists, but they don’t have better products.  Typically trade ministers don’t mention consumers at all when discussing trade policies.  Yet that is one of the basic advantages of trade – greater choice, lower prices.

Q:  What are the top three challenges you would face if selected as the next Director-General?

A: Dr. Fox views there are different types of issues facing the WTO.  The most important issue in his view is to get Members to reconnect with the vision of a shared endeavor.  One of the dangers of undermining the multilateral system is the resulting free-for-all that would result among countries which will hurt most countries including major countries like the United Kingdom and Germany.  Secondly, there are a host of practical issues – restoring the appellate body would be one. Without the ability to enforce rights and obligations, the WTO is denying Members one of the value added elements of membership. Other practical issues include dealing with and recovery from the COVID crisis and how we treat our members.  At the time of the webinar with Chatham House, Dr. Fox had done 72 bilaterals with Members. There is a common view that small members who are a nuisance get listened to as do the large members. However, the rest of the 164 Members don’t feel that they do get listened to. This is a big problem for the WTO.  For the organization to function well, the Members need trust among themselves. For Member who don’t feel that their views are being listened to, the trust breaks down.

Q:  Members will be much more involved in their own economies post-COVID.  What can WTO do to get ahead of this situation?

A:  Governments will be much more concerned with domestic issues in the post-COVID world.  The focus on domestic needs will potentially lead to more protectionism, greater subsidies and other trade distorting measures. The key point for Members and the WTO is the resilience of the multilateral system.  What we have learned during the COVID pandemic is that the way we have organized global value chains has shifted from a structure of resilience to one of efficiency. The world will likely get some rebalancing of global value chains to improve resilience. The role of the WTO is to make the case openly and constructively that resilience is to be found in greater diversity of supply, not from massive onshoring or attempting to go it alone.  If a country onshores everything, the country potentially will be more vulnerable in another crisis.  During the COVID pandemic, one can see many elements of global trade that have been disrupted.  Vessels ended up in the far east disrupting timing of the movement of goods. With far fewer passenger flights, there has been less air cargo which has raised costs. The lock down in countries has led to less government work on various trade related ares (e.g., certifications).  Yet all of these problems we have seen during the pandemic are not technical in nature but rather political.  That is the reason Dr. Fox believes that the next Director-General of the WTO needs to have a political background.  Many issues will be sorted out in capitals based on political will and not in technical discussions in Geneva.

Q:  How would you engage the big players, like the U.S., China and the EU?

A:  Engaging the major players is about getting the political commitment from them to wok within the system.  What their voters want is a successful economy. In Dr. Fox’s view, a successful economy is enhanced by open trade.  In terms of the US-China dispute, typically disputes end when costs become too great for the disputants to sustain.  In a global environment like existed in 2018 and much of 2019 where growth was occurring, costs may have been sustainable by the U.S. and China.  Dr. Fox believes that the costs are less likely to be sustainable in the post-COVID world.  If true, one would expect there would be increased internal pressures to come to a compromise in the two countries.

Q:  UNCTAD has confirmed a major contraction of trade during the pandemic. What is most important for the WTO to do to facilitate dismantling trade barriers?

A:  The first task for the WTO and the next Director-General is to deal with the COVID export-restriction measures.  In Dr. Fox’s view, nothing is as permanent as temporary measures entered during a crisis.  The WTO needs to improve notifications (export restrictions or other barriers). Dr. Fox is worried how existing export barriers on medical goods may apply to vaccines when they are developed.  Moreover, many countries are dependent on open trade to avoid starvation.  Must understand of where we differ from the end of the financial crisis.  During the financial crisis only 0.7% of G20 trade was subject to trade restrictions. In 2018 more than 10% of G20 trade was covered by trade restrictions.  This change is a major problem. The G20 countries have to lead by example in terms of eliminating trade restrictions.  Getting an understanding that we are in a bad place and likely to worsen is important.  We cannot have business as usual.

Q: As the next Director-General, if selected, would you try to pick a particular sector (e.g., digital trade) to make progress?

A:  Dr. Fox believes that the next Director-General needs to look at connected problems – trade crisis, COVID crisis and environmental crisis — and see where the crises intersect.  Fisheries subsidies is all about sustainability.  The WTO needs to get NGOs and the young people who are concerned to put pressure on their governments.  As stated before, it is not just what happens in Geneva that is important but what happens in capitals.  An Environmental Goods Agreement is another potentially important issue.

Q:  The EU has been talking about a border carbon tax/tariff.  Where should WTO stand on carbon border adjustment mechanisms?

A:  This is going to be a big issue for the WTO.  For developed countries, a price should be paid to achieve reduced carbon levels.  The difficulty will come in the concept of a green subsidy.  If the subsidy becomes distortive in areas like agriculture, that will be problematic for many Members.  Then again the question of a carbon border adjustment mechanism is a political issue.  If we want to see environmental objectives met there will be a price to pay.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Fox are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Race for WTO Director-General — additional material on H.E. Mohammad Moziad Al-Tuwaijri (Saudi Arabia)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about H.E. Amina C. Mohamed (Kenya), the day before on H.E. Yoo Myung-hee (Republic of Korea), on September 3 on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 5, 2020:  Race for WTO Director-General – additional material on H.E. Amina C. Mohamed (Kenya), https://currentthoughtsontrade.com/2020/09/05/race-for-wto-director-general-additional-material-on-h-e-amina-c-mohamed-kenya/; September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Mohammad Moziad Al-Tuwaijri from Saudi Arabia, the seventh candidate nominated.

  1. Inside U.S. Trade’s World Trade Online, August 17, 2020, Saudi DG candidate aims to quantify and deliver outcomes at the WTO, https://insidetrade.com/daily-news/saudi-dg-candidate-aims-quantify-and-deliver-outcomes-wto.

Inside U.S. Trade conducted interviews with each of the eight candidates for the Director-General position. The publication’s write-up of its interview with Minister Al-Tuwaijri was posted on August 17th. As reviewed in earlier posts, Minister Al-Tuwaijri brings a business approach to the position of Director-General if selected.

“‘My delivery-oriented approach is all about regaining trust and regaining confidence in the organization. And I am a great believer that if that’s the case, I think the big powers – the big countries – will go back to negotiation,’ he told Inside U.S. Trade in an interview on Monday.”

His first priority if selected as the Director-General would be to do a review of the challenges the WTO faces to identify priorities for addressing by the Members, but noted Members viewed fixing the dispute settlement system and bringing life back to the negotiating function as two broad agenda issues.

Minister Al-Tuwaijri views an approach that includes developing information that shows the effects of particular policies or actions on Members as critical to helping solve various problems including how special and differential treatment is applied and various Chinese practices that are causes of the U.S.-China tensions.

2.  Chatham House, August 17, 2020, In Conversation with H.E. Mohammad Maziad Al-Tuwaijri, https://www.chathamhouse.org/file/conversation-he-mohammad-maziad-al-tuwaijri.

Chatham House has done a series of webinars with each of the candidates vying for the WTO Director-General position. On August 17, Chatham House featured Minister Al-Tuwaijri of Saudi Arabia. What follows are my notes on some of the questions asked and Minister Al-Tuwaijri’s responses.

Q:  What is your overarching philosophy of international trade and your vision for the WTO as a 21st century organization?

A:  Recovery from COVID-19 will be different for each country and each region.  Minister Al-Tuwaijri has reviewed the stimulus programs put in place by various governments to cushion the economic effects of addressing the COVID-19 pandemic, and he designed the stimulus plan for Saudi Arabia. There are questions of whether the stimulus provided will be sufficient and how quickly economies will rebound.  The economic uncertainty and unpredictability is harmful to business activity and investment.  Looking at the WTO, there is no question that reform is needed.  But the question is what type of reform is needed.  Another question is what type of candidate is needed (an insider or someone with a fresh set of eyes).  Minister Al-Tuwaijri views himself as the right candidate.  The WTO faces many challenges. Digital trade is a game changer, but there are currently no WTO rules.  The WTO has accomplished relatively little in its first 25 years.  The WTO faces challenges on all three pillars — negotiations, disputes, and notifications and transparency.  There are increased tensions geopolitically.  The WTO must in Minister Al-Tuwaijri’s view go back to its core principles.  In G20 one of the objectives has been to gather political will of the G20 countries to support reform at the WTO. 

Q:  What are the three most important challenges that the WTO faces?

A:  For Minister Al-Tuwaijri, the three pillars of the WTO — negotiations, transparency, disputes — are interconnected.  However, the root cause of the WTO current situation is the failure of the negotiating function to provide results.  If the negotiating process can be improved, WTO Members can regain trust. As Director-General, Minister Al-Tuwaijri would start a process where the WTO can identify early warning signs that negotiations are not proceeding.  On transparency, the WTO needs to understand why countries are not as transparent as required by the WTO.  If the reason is technical, such as lack of infrastructure in certain Members, then the WTO need to address through technical assistance.  If the issue is really political, the Director-General needs to do outreach to capitals. Similarly, if rules need to be modified, the WTO needs to address that as well.  Minister Al-Tuwaijri believes the next Director-General needs to ask the tough questions to identify the root causes of issues before the WTO Members try to fix the issues.  The next Director-General can facilitate the WTO Members making some successes to show the organization can move forward and be relevant.  But unless the WTO adopts an holistic approach to the needs and causes, the WTO will be back to the same dysfunctional state in the future.

Q:  What would you do in the first 100 days?  You have mentioned creating a delivery unit in the Director-General’s office and shifting to annual Ministerials. Are these some of the actions you would take in the first 100 days?

A:  In Minister Al-Tuwaijri’s view, the intensity of trade-relevant events is happening frequently which requires more frequent Ministerial meetings.  But having more meetings is not an end in itself. The key is how to prepare for the meetings, how to make the meetings more impactful.  Minister Al-Tuwaijri would want to include voices of the business community within the Ministerial.  In his first 100 days as Director-General, Minister Al-Tuwaijri would engage with all members to understand their views on issues. For example, he would look at ideas around the appellate body impasse (Amb. Walker’s proposal, the MPIA) and discuss why these proposals haven’t resolved the impasse.  He would complete the deep dive into all matters pending before the WTO and potential reform issues and tracking the root causes. This would be important to do in the first 100 days.

Q:  On the politics of trade, re US and China, the U.S. Trade Representative Robert Lighthizer has said that it is important for the next Director-General to understand that large state-run economies aren’t adequately disciplined under existing WTO rules. Do you agree?

A:  Both the United States and China are important members of the WTO.  Minister Al-Tuwaijri was pleased to see that the two countries were able to reach a Phase 1 agreement which shows they can negotiate some of their differences.  The WTO needs both countries to go back to negotiations.  The WTO is a Member-driven organization, so what gets negotiated is a matter of Members agreeing.  It is clear that resolving the tensions between the two Members matters to businesses in both countries.  If selected as the next Director-General, Minister Al-Tuwaijri would encourage both countries to go back to negotiations within the WTO.

Q:  How do you plan to fold trade sustainable development goals (SDGs) into WTO reform program?

A:  Minister Al-Tuwaijri indicated that he was privileged to implement the SDGs in the Kingdom of Saudi Arabia.  He believes it would be helpful to have some unified definitions and fresh thoughts on the SDG issues.  There is ongoing work within the WTO on some of the SDGs, and many members are working on the issues.  Minister Al-Tuwaijri believes that addressing SDGs in the WTO, like many other issues, goes to how do Members implement objectives and measure progress.  Only way that progress was made in Saudi Arabia was to map SDGs and the Saudi 2030 program and connect the dots. Minister Al-Tuwaijri would look forward to working with WTO Members to address SDGs as appropriate in the WTO reform program.

Q:  on deglobalization, what are best steps DG can take to address the problem?  With export restriction measures and subsidy measures from Pandemic response, does this make WTO more relevant?

A:  Minister Al-Tuwaijri understands nations responding to the shock of the COVID-19 pandemic with panic and restrictive measures.  He believes that the pandemic provides the WTO membership a huge opportunity.  Every crisis teaches us something.  The pandemic provides an opportunity for the WTO to be more relevant.  The question is how.  Minister Al-Tuwaijri belives that the WTO needs to do an impact analysis of all the actions taken.  As Director-General, he would undertake that analysis.  Minister Al-Tuwaijri stated that the WTO is still needed.  He has seen that in the G20 process where the G20 countries have talked about the need for reform in the WTO and the G20 support for reform.  It is important to evaluate whether the reform ideas are doable and doable in a timely manner. Minister Al-Tuwaijri believes that there are many issues that can be resolved that can bring back trust and confidence in the organization. 

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Al-Tuwaijri are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for the last candidate, The Rt Hon Dr. Liam Fox MP (United Kingdom).

Race for WTO Director-General — additional material on H.E. Amina C. Mohamed (Kenya)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about H.E. Yoo Myung-hee (Republic of Korea), the day before on Amb. Tudor Ulianovschi (Modolva), On September 2 on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 4, 2020:  Race for WTO Director-General – additional material on H.E. Yoo Myung-hee (Republic of Korea), https://currentthoughtsontrade.com/2020/09/04/race-for-wto-director-general-additional-material-on-h-e-yoo-myung-hee-republic-of-korea/; September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Amina C. Mohamed from Kenya, the sixth candidate nominated.

  1. Financial Times, August 4, 2020, Leading WTO candidates back US bid for dispute system reforms, https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193.

“The two leading candidates to run the World Trade Organization have called for reform to address US criticisms that have paralysed the institution’s legal body and risk undermining the entire organisation.

“Kenya’s Amina Mohamed and Nigerian Ngozi Okonjo-Iweala are the favourites to be appointed WTO director-general after incumbent Roberto Azevedo steps down in September. In interviews with the Financial Times, both said that American criticisms of judical over-reach by the organisation’s dispute settlement system were valid.

* * *

“Asked by the FT whether the US criticisms were fair, Ms Mohamed, a former diplomat and trade minister, said: ‘Yes, I think that the US concerns are real.’

“She added: ‘The feeling in Geneva among very many members is that they [the appellate body] went outside the mandate that was granted to them.’

“WTO member governments should reassert their authority over rulemaking in the organisation, Ms Mohamed said.

“‘We need to make sure . . . that the appellate body members understand that is the only mandate that they can have, that they cannot add to or diminish the rights of parties. Those rights were negotiated by member states,’ she said. The body’s habit of deliberately creating legal precedent to apply to other cases involving other governments ‘was not right’, she added.”

2. Inside U.S. Trade’s World Trade Online, July 21, 2020, Kenya’s Mohamed says she has delivered at the WTO before and will again, https://insidetrade.com/daily-news/kenya’s-mohamed-says-she-has-delivered-wto-and-will-again.

As part of the publication’s interviews with all WTO Director-General candidates, Inside U.S. Trade interviewed Minister Mohamed in July. Minister Mohamed repeated views she has expressed at the WTO and in various webinars. The WTO has serious problems including a negotiating function that is stalled, the impasse on the dispute settlement system and more. As a member-driven organization, it is the Members who will have to set the reform agenda, though the Director-General can help facilitate Members’ efforts. Reform will require support from all Members including the largest, such as the U.S. and China.

Minister Mohamed noted that the issues the U.S. has raised, whether on the operation of the Appellate Body or other issues, are of concern to other Members as well and need to be addressed if the WTO is to maintain relevance. Both the U.S. and China have been major beneficiaries of the trading system. Tensions between the major players is in part due to lack of reform. The rule book needs to be updated and added to to ensure it reflects the realities of 21st century trade developments.

3.  Chatham House, 6 August 2020, In Conversation with Ambassador Amina Mohamed: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/conversation-ambassador-amina-mohamed-candidate-director-general-world-trade-organization.

Chatham House has conducted a series of webinars with each of the eight candidates for the Director=General position. The webinar with Minister Mohamed was held on August 6, 2020. My notes on some of the questions and Minister Mohamed’s responses follows.

Q:  what is your overarching philosophy for international trade?

A:  Following the Great Depression and World War II, the creation of the Bretton Woods institutions focused on multilalteral cooperation.  Multilateral cooperation and trade liberalization led to unprecedented growth and development.  Trade was a big part of the progress.  Minister Mohamed has seen the dynamism that trade can have to help countries  develop and integrate into the global economy.  However, there have been instances where countries haven’t had the ability to integrate, where assistance was needed

Multilateral trade rules have not kept up to  date.  There are many developments and challenges facing global trade — digital trade, environmental challenges, sustainable development, and now the pandemic.

The WTO will need reform, recovery, and renewal to play the role it needs to play.

Q:  Based on the economic effects from the COVID-19 pandemic, the WTO is predicting a huge trade decline in 2020 with a smaller recovery in 2021.  What does WTO need to do to help countries deal with the pandemic and recover?

A:  The WTO needs to do what the WTO does best, insist on transparency.  Out of  fear at the start of the pandemic. Members of  the WTO erected trade restrictions on the export of medical goods and some on agricultural goods.  Members were focused on national needs versus working on international cooperation.  The WTO must be sure  that the gateways of trade are open.  The WTO must  look at members’ responses  to the pandemic.  For outside observers, the WTO’s monitoring/transparency function is often overlooked.  In the pandemic, the transparency function of the WTO has become incredibly important.  The WTO must make sure the transparency mechanism works well.  If  WTO Members put in place trade facilitation measures, Members can get out of  the pandemic all together and quickly.  WTO Members must be sure medical supplies  and agricultural goods are available to all, particularly those who don’t produce medical goods and must import them.

Q:  There is a crisis in the WTO’s dispute settlement system.  How would you address?

A: In Minister Mohamed’s view, the whole WTO system is a complete system.  Negotiations, monitoring, disputes,  If you take one piece out, you create a gap which must be filled.  The WTO dispute settlement system is a two-tiered system.  If rules are not obeyed, you need an effective system or the rules lack legitimacy.  Based on Minister Mohamed’s outreach to Members, she knows that there is broad support for reform of the dispute settlement system.  If Members don’t  agree on and complete reform, Members will put in interim measures.  The way to  create reform is to get proposals out  on the table.  There are important questions such as why does the AB not exist any more?  Where did we get off  track?  How can we get it back on track?  Members are interested in getting dispute settlement back on track.  There have been a number of proposals.  One, from Amb. Walker, has  been gaining traction.  The process must include all Members in the discussion and get agreement on how to proceed.

Q:  Where is the aid for  trade initiative going?

A:  Minister Mohamed was at the WTO when the aid-for-trade initiative was adopted.  Members need such an initiative to permit integration of least developed  and some developing countries where capacity building is required to permit participation (e.g., developing standards).  The WTO came up with a program that attracted funding from countries that could  help.  It has worked really, really well.  If Minister Mohamed becomes the Director-General, she would work with other international organizations to increase financing.  She noted that all other multilateral organizations have trade desks.  A key objective is to ensure the aid-for-trade initiative has the resources to help as many countries as possible.  It is a critical initiative, but needs a lot  of support.

Q:  What role will sustainable development goals have on WTO moving forward?.

A:  Minister Mohamed noted that sustainable development has been an aspect of WTO work and will continue to be going forward..  She focused on this at the Nairobi Ministerial in 2015 and obtained an agreement on agricultural export subsidies which goes to reducing hunger by eliminating distortions in agricultural trade which should permit more food to be produced locally.  At the present time, the WTO has fisheries subsidies negotiations underway.  An agreement, when reached, is important for trade but also for sustainable development.  Other issues have effects on sustainable development as well – agricultural negotiations on domestic  support), plurilateral negotiations on digital trade (must be sure that benefits area shared on an MFN basis and have provisions that will help address the digital divide).  And the WTO looks at issues involving trade and the environment..

Q:  On climate change, as Director-General of the WTO how will you ensure WTO is engaged on climate change?

A:  At the WTO, there are a range of issues that look at trade and another topic.  Thus, the WTO has a Trade and Environment Committee.  When Minister Mohamed was Ambassador to the WTO, the Committee was very active and did  a lot  of work.  For example, the Committee started on a list  of goods and services that were environmental goods.  If Minister Mohamed becomes Director-General, she would try to  energize the Committee, update the list and ensure that the WTO is engaged in global discussion on environmental issues.

Q:  What  strategy do you have to build cooperation within WTO? 

A:  As Director-General, Minister Mohamed would deal with tensions in the system by addressing reform to deal with shortcomings in the rules.  Must update the rule book which Members feel is outdated.  The needs from the Pandemic, the rise of digital trade, sustainable development goals — all are topics where a review and revision of the rule book are required.  There are old issues that need new rules or updated rules. There are new issues that need new rules.   Without updated rules, the WTO will face continued tensions.  The Director-General can create the space  for  parties to negotiate, be an honest broker and help facilitate progress.

Q:  Looking at the tension between the US  and China, how can you convince the U.S. that multilateralism is in the U.S.’s interest?

A:  There is no real question that multilateral trade has been beneficial for all.  The purpose of GATT was to see that trade disputes were resolved according to agreed rules, without going to conflict.  At present, there are heightened tensions because the WTO rules are weak or are absent.  So must put in place the conditions to permit parties to confidentially meet and resolve matters.  The Director-General acts as an honest broker.   Tensions have existed in the past and have been resolved within the GATT and now the WTO.  Need to build confidence among Members and need to put issues on the table and discuss.  There is no doubt in Minister Mohamed’s mind that trade issues can be resolved within the WTO. 

Q:  Concerned about the Doha Round not being active.  This is a question of how we use  trade as a means of development?

A: This is a concern raised by a number of countries.  The Doha Development Agenda (DDA) was launched in 2001.  Followed 9-11 where needed to show international community could come together and achieve  something  significant.  DDA remains unfinished.  However at  the 2015 Nairobi Ministerial, WTO Members resolved the issue of export subsidies.  If the WTO can deal with domestic  support, market opening, fisheries subsidies will have resolved a number  of important  matters from the DDA.  So some DDA issues have been resolved already, others are under negotiation.  Need to see that the other two pillars of the agriculture package will be restarted again (domestic support, market liberalization).  Will try to get  agreement to reopen these at next Ministerial and move for progress on remaining agricultural issues (including  cotton).

Q:  The Trade Facilitation Agreement (TFA) is the only multilateral agreement since the start of the WTO.  What lessons for WTO going forward?

A:  TFA is a new generation agreement.  By that Minister Mohamed means that the agreement bases the flexibilities and the concessions on the abilities and needs of individual Members.  That approach of fashioning exceptions to obligations to the needs of specific Members is likely to be typical of future agreements. There may also be capacity building and other similar features.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Mohamed are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

WTO Director-General candidates — Nigeria’s Dr. Ngozi Okonjo-Iweala and the United Kingdom’s Dr. Liam Fox generate potential controversy

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala is Nigeria’s candidate to become the next Director-General. When she was put forward by the Nigerian government her biographical sketch submitted did not contain information on her having also become a citizen of the United States in 2019. Her biography as available from the WTO webpage is embedded below.

bio_nga_e

In the highly politicized atmosphere that characterizes the current dysfunction at the WTO, omitting her U.S. citizenship may become a liability to Dr. Okonjo-Iweala’s chances of becoming the next Director-General. Chinese and other news reports raise that very issue. See, e.g., South China Morning Post, September 4, 2020, Ngozi Okonjo-Iweala’s US passport will not help her chances in WTO leadership race, Chinese trade experts say, https://www.scmp.com/economy/global-economy/article/3100280/ngozi-okonjo-iwealas-us-passport-will-not-help-her-chances; Naija247News, September 2, 2020 (posting a Bloomberg News piece), WTO Hopeful Economist Okonjo-Iweala Balances Nigeria, U.S. Citizenships, https://naija247news.com/2020/09/02/wto-hopeful-economist-okonjo-iweala-balances-nigeria-u-s-citizenships/#.X1OeZ5PsZ9A.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

In an article earlier this week, Inside U.S. Trade reported that Dr. Fox had indicated that the next Director-General should prioritize the U.S. Congress over the U.S. Administration (President and USTR) to seek a resolution of the WTO’s Appellate Body impasse, seeking Congress to mandate a resolution as part of its consideration of renewal of Trade Promotion Authority. See Inside U.S. Trade’s World Trade Online, September 2, 2020, Fox: Congress should leverage TPSA renewal to resolve WTO appellate impasse, https://insidetrade.com/trade/fox-congress-should-leverage-tpa-renewal-resolve-wto-appellate-impasse.

Congress may well have an interest in the topic as part of trade promotion authority. However, for a candidate seeking to be selected as the next Director-General of the World Trade Organization to suggest the path to progress is by circumventing the U.S. Administration seems likely to raise concerns about his objectivity. Circumventing the U.S. Administration essentially indicates Dr. Fox’s belief that the problem at the WTO on the issue is U.S. intransigence. While that may be the European Union view, articulating such a position is unlikely to win friends at USTR. While Dr. Fox apparently believes he has the U.S. support, his statement on the approach he would take as Director-General may result in the U.S. supporting others. The Inside U.S. Trade piece quotes Dr. Fox as saying that when he is being frank, it usually gets him in trouble. Time will tell whether his recent comments repeat that self appraisal.

Race for WTO Director-General — additional material on H.E. Yoo Myung-hee (Republic of Korea)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Amb. Tudor Ulianovschi (Modolva), the day before on Mr. Abdel-Hamid Mamdouh (Egypt), on September 1 on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 3, 2020,   Race for WTO Director-General – additional material on Amb. Tudor Ulianovschi (Moldova), https://currentthoughtsontrade.com/2020/09/03/race-for-wto-director-general-additional-material-on-amb-tudor-ulianovschi-moldova/; September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces or videos in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring H.E. Yoo Myung-hee from the Republic of Korea, the fifth candidate nominated.

  1. Hankyoreh, August 9, 2020, S. Korea’s candidate for WTO director-general emphasizes reform, http://english.hani.co.kr/arti/english_edition/e_international/957072.html.

“Speaking with reporters at the Government Complex in Sejong on Aug. 6, Yoo provided an explanation on the current situation with the director-general election.

* * *

“’What I detected from my conversations with dozens of ministers is that many countries are feeling disappointed and frustrated with the WTO’s inability to do its job. They all agreed that there need to be reforms to restore the WTO’s functions in terms of negotiations, disputes, and implementation,’ Yoo said. Regarding the methods of carrying out WTO reforms, she said she planned to ‘hold discussions involving several different approaches,’ noting that there were ‘large differences of opinion among member countries on the role and authority of the Appellate Body.’

“Yoo also stressed that the WTO ‘will need to guarantee free movements of products and services, particularly in the event of another future crisis like the COVID-19 pandemic, while ensuring that [such a crisis] is not abused as an opportunity for applying protective trade measures.’”

2. Inside U.S. Trade’s World Trade Online, August 5, 2020, Korea’s DG candidate on retoling the WTO: ‘Success breeds success,’ https://insidetrade.com/daily-news/korea%E2%80%99s-dg-candidate-retooling-wto-%E2%80%98success-breeds-success%E2%80%99.

As part of Inside U.S. Trade’s series of interviews with each of the eight candidates, Minister Yoo was interviewed in early August. In the August 5 write-up by the publication on the interview, Minister Yoo covered both her experience as a trade negotiator and her ability to close deals as strengths in her candidacy and stressed that achieving some successes at the next WTO Ministerial Conference was crucial to permit the organization to move forward and rebuild trust and be able to address the larger reform issues before the WTO.

Restoring the negotiating function is key to progress, to helping major members like the U.S. and China see that their concerns can be handled through the WTO and would take pressure off of the dispute settlement system.

On dispute settlement, all Members want an effective system, but there are wide differences on what that means. Minister Yoo would urge engagement by Members, outreach to capitals to encourage political will, and perhaps outside input for novel possible solutions.

3. Chatham House, 25 August 2020, In Conversation with Minister Yoo Myung-Hee:  Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/file/conversation-minister-yoo-myung-hee-candidate-director-general-world-trade-organization; https://www.youtube.com/watch?reload=9&v=8ebGAH4MYOM.

The webinar was part of Chatham House’s series talking to each candidate for the Director-General post. The event was an “on-the-record” event. Below are my notes on some of the questions posed to Minister Yoo and her responses

Q:  Tell us about your overarching view of international trade? 

A:  Minister Yoo stated that trade has been the engine for global economic growth and has contributed to a very large reduction of poverty.  Trade is a means not an end.  Since 1995 trade has increased from $5.2 trillion to over $19 trillion in 2018 with a significant reduction in global poverty occurring during the same time.  But the trading system must adapt, change and evolve.  The world has seen slowing economic growth, rising protectionism, and in the last year the emergence of the COVID-19 pandemic.  Global trade contracted last year for 1st time since the 2008-2009 financial crisis and will do so again this year.  At the same time, there has been concern among some as trade is affecting more aspects of our lives than ever before.

Minister Yoo believes that in a rapidly changing world, the WTO has not been able to pull its weight. The WTO has struggled with all three pillars of the system – negotiations, transparency, dispute settlement.  She states that the WTO needs to come out of the crisis stronger than before.  To do that, Minister Yoo believes the next Director-General must work with Members to achieve what she describes as her three Rs – relevance, resilience and responsiveness. First, the WTO must be relevant. To do that, the WTO rule book must evolve with the changing realities of 21st century trade. It is critical that the WTO reenergize its negotiating function and restore the two-tier dispute settlement system.  Second, the WTO must be resilient.  The WTO must address the needs of countries who haven’t gotten many benefits from WTO membership. Third, the WTO must be responsive to future emergencies.  In times of crisis, like the current COVID-19 pandemic, the WTO must be there to ensure stability and predictability.  Historically, in times of crisis, world collaboration has emerged to help the world move forward. This was true at the end of World War II with the creation of the Bretton Woods organizations and during the 2008-2009 financial crisis with the emergence of the G20.  So the current COVID-19 crisis could be an opportunity to move the global trading system forward.   

Q:  The U.S. led the Bretton Woods efforts, but today the U.S. is skeptical of global collaboration.  How can the WTO foster the role of global engagement?

A: The U.S. has shown continuing interest in the multilateral trading system as can be seen from their various proposals for WTO reform and their extensive materials on dispute settlement.  But over the last 25 years, there have been no major trade agreements at the WTO other than trade facilitation. This lack of ability to update the rule book has led to frustration and loss of trust in the WTO not just by the U.S. but by others as well.  So we need to use this moment to reform the WTO to revitalize the system. Such revitalization could provide an important reason for countries to handle problems through the WTO rather than outside of the system.  Minister Yoo, based on her conversations with trade ministers around the world and ambassadors in Geneva, sees the same frustration with the WTO from many Members.  However, Members are committed to the multilateral system.  COVID-19 provides an impetus for taking action.  Minister Yoo believes that the WTO needs successes. The WTO needs to go step by step; success will spur success and permit addressing larger issues over time.

Q:  You mentioned the slowing down of the global economy and the COVID-19 pandemic.  What role should the WTO play in COVID-19?  

A: Minister Yoo believes that the WTO can and should play many roles.  COVID-19 is both a health crisis and an economic crisis.  First, the WTO can enhance transparency of trade restrictive measures adopted and ensure that such measures are consistent with WTO obligations (e.g., targeted, temporary).  Second, the WTO needs to ensure the free flow of goods and services (during the pandemic this is basically medical and agricultural goods and services).  The WTO should review its rules to ensure that in a future crisis, the WTO can in fact ensure stability and predictability in the trade arena.  Third, the WTO can work with other multinational organizations to overcome both the health and the economic crises.  On the health crisis, the WTO should work with the WHO and other organizations dealing with availability and affordability of medical goods, on the promotion of R&D so we can have vaccines and therapeutics and so that there can be equitable and affordable availability to the people of the world.     On the economic crisis, the WTO should work with IMF, the World Bank, regional development banks and others to reduce the damage caused by the pandemic and to promote a quick recovery and build back better.  For vulnerable economies (and sectors within economies), there is likely ongoing needs for assistance from the WTO and other organizations to weather the pandemic.  Minister Yoo believes that there are also many other roles that the WTO could play.

Q:  There have been growing trade tensions between the U.S. and China, but specifically when it comes to industrial subsidies, S&D in the WTO, what role should WTO take to reduce tensions.

A:  In Minister Yoo’s view, the WTO must revitalize the multilateral trading system. This is important to permit countries to handle trade issues within the WTO versus taking action outside of the system.  On bilateral issues, such as industrial subsidies, the WTO should look at the spillover effects of such policies on other WTO Members and examine the existing rule book.  If rules address the specific problem, then the issue may be enforcement of existing obligations.  But if rules are unclear or don’t cover the policy involved, then Members need to be open to revising existing agreements or adopting new agreements consistent with basic principles of the WTO (e.g., fair competition).  While this is a member-driven organization, the Director-General plays the role of facilitator.

Q:  On WTO dispute settlement, what needs to be changed?

A:  Restoring a functioning dispute settlement system is a top priority issue for the next Director-General.  Why is there the current impasse at the WTO on the Appellate Body?  Minister Yoo believes that the impasse flows from longstanding different views of Members on the role of dispute settlement.  Some are concerned that the Appellate Body is creating rights or obligations — that is overreaching their authority — contrary to the limits in the Dispute Settlement Understanding.  Other Members say that the Appellate Body’s actions are necessary as the Appellate Body is tasked with finding a positive resolution to a case and that may lead to interpretations of gaps or silence or ambiguous language.  Minister Yoo believes that the lack of progress in negotiations may have led Members to overly rely on dispute settlement for issues that could have been resolved through negotiations.  Still, based on her extensive discussions with ministers and ambassadors, Minister Yoo understands that Members share the value of having an effective dispute settlement system.  There are some proposals for reform before the WTO. The Walker proposal addresses some suggestions on procedural and some substantive issues.  US has put forward their views on the problems.  But, as said before, there are very fundamental differences in the views of Members.  Minister Yoo believes that the next WTO Director-General needs to put all proposals on the table and have Members engage in discussions.  She believes that outreach to capitals will also be necessary to secure Members’ buy-in to resolving the current impasse.

Q:  What should WTO do to address the environmental crisis (e.g., coordinate carbon taxes)?

A;  COVID-19 has put a focus on the need for sustainable development.  The pandemic could wipe out economic progress over the last decade.  Thus, it is important to pursue sustainable development.  The question is how to achieve sustainable development in trade, or how to operationalize sustainable development goals in trade?  Minister Yoo started by reviewing what the WTO is currently doing. She noted that the fisheries subsidies negotiations are ongoing. A conclusion of the negotiations would advance sustainable development goals.  Similarly, the WTO has had a Committee on Trade and Environment.  WTO Members and the next Director-General should look at the Committee’s agenda and see if Members are open to updating the agenda. Finally, there used to be negotiations to liberalize trade in environmental goods. Hopefully, such negotiations can be resumed.

As to anti-carbon measures, Minister Yoo understands that the objective is to reduce carbon gases  It is important that trade agreements and environmental agreements be able to work together.  Some countries have expressed concerns about environmental objectives being applied to discriminate against trade from certain countries.  Minister Yoo states that it is important that any such measures be done on a nondiscriminatory basis.  If selected as the next Director-General, Minister Yoo hopes to help Members to find mutually acceptable solutions on these matters.

Q:  On developed and developing countries, should there be different obligations in the environmental area?

A:  WTO Members understand that developing countries may need additional policy space when adopting various agreements.  So during negotiations, it is often the case that Members adopt flexibilities for developing and least developing countries.  In trade negotiations, Members negotiate those flexibilities.  The key in Minister Yoo’s view is to focus on the actual needs of Members. Those needs may be longer implementation periods, the need for technical assistance, the need for capacity building, etc.  The WTO should be able to provide technical assistance and capacity building where needed.

Q:  Currency in U.S.-China trade affects the value of other currencies in Asia and elsewhere.  How can you deal with these trade tensions?

A:  In many areas, there are tensions between U.S. and China.  At the WTO, Members can deal with trade-related tensions.  The WTO can provide a meaningful platform to address trade-related issues.  The WTO has not fully addressed currency issues as curency is largely in the IMF’s area of expertise.  Minister Yoo noted that the WTO has received no official proposal to address currency at the WTO.  It is an issue that can be addressed in some trade remedy cases.  But there is limited actual case law, so it is too early to consider the issue at the WTO.  On other issues, WTO can be part of the solution through both dispute settlement and by updating the rule book.  The WTO should provide a platform for the U.S. and China to address trade issues between them.  This could permit building up new rules.  Even small successes between the Members would permit addressing larger issues.

Q:  WTO must be able to deal with state capitalism.  Is there an inevitability of increased tension? 

A:   On state capitalism, rather than addressing the economic model itself, the WTO should look at specific government policies since those can have spillover effects on other countries. If the policies have negative effects on trade that are inconsistent with WTO principles, then WTO Members should review the rule book and see if Members need to be updated existing rules or if new rules are needed or if the question is simply enforcement of existing rules.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Minister Yoo are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Amb. Tudor Ulianovschi (Moldova)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Mr. Abdel-Hamid Mamdouh (Egypt), the day before on Dr. Ngozi Okonjo-Iweala (Nigeria) and on August 31 on Dr. Jesus Seade Kuri. See September 2, 2020, Race for WTO Director-General – additional material on Mr. Abdel-Hamid Mamdouh (Egypt), https://currentthoughtsontrade.com/2020/09/02/race-for-wto-director-general-additional-material-on-mr-abdel-hamid-mamdouh-egypt/; September 1, 2020, Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Amb. Tudor Ulianovschi from Moldova, the fourth candidate nominated.

  1. Inside U.S. Trade’s World Trade Online, August 24, 2020, Moldovan DG hopeful: WTO needs a ‘dynamic,’ courageous leader, https://insidetrade.com/daily-news/moldovan-dg-hopeful-wto-needs-%E2%80%98dynamic%E2%80%99-courageous-leader.

As part of Inside U.S. Trade’s series of interviews with candidates for the Director-General position, the publication published its summary of the interview with Amb. Ulianovschi on August 24. A good part of the article reviews Amb. Ulianovschi’s views on his strengths as a candidate and the need for reform for the WTO.

On substantive priorities, Amb. Ulianovschi is focused on deliverables for the next Ministerial to be held in 2021, mentioning a fisheries subsidies agreement and various plurilaterals (Joint Statement Initiatives) that were under negotiation among various members. He would also seek a Ministerial Declaration on the role of the WTO in alleviating the negative trade consequences from COVID-19.

Amb. Ulianovschi views the need for Members to address the challenges from COVID-19 as a means for building momentum to deal with other pressing issues like tightening rules on industrials subsidies or how special and differential treatment is handled for countries at different stages of economic development.

On WTO reform, Amb. Ulianovschi, in addition to updating the rule book to reflect 21st century trading reality, stated that deep reform is needed. He would encourage Members to review all WTO rules and decide which rules needed to be rethought and which ones have not been implemented properly.

2. Xinhuanet, August 8, 2020, Interview: Moldova’s WTO candidate urges new, inclusive digital trade rules, http://www.xinhuanet.com/english/2020-08/08/c_139273598.htm.

Amb. Ulianovschi stated in the interview that rulemaking on e-commerce was needed now and called for more inclusiveness for least-developed and developing countries in the digital economy. There are capacity issues for many least-developed countries and developing countries that need to be addressed. He pointed to the importance of digital trade during the COVID-19 pandemic and noted that further development of digital trade would improve resilience.

3. Chatham House, September 2, 2020, Webinar: In Conversation with Ambassador Tudor Ulianovschi: Candidate for Director-General of the World Trade Organization, https://www.chathamhouse.org/event/webinar-conversation-ambassador-tudor-ulianovschi-candidate-director-general-world-trade.

Chatham House has done a series of on-the-record webinars with the candidates for Director-General of the WTO. What follows are my notes on some of the questions posed and answers given by Amb. Ulianovschi.

Q:  What is your overarching attitude towards international trade?

A:  Amb. Ulianovschi is a strong advocate of free and fair trade; he favors multilateral trade.  He believes that the WTO has done good for its Members during its existence and that it will continue to do so.  However, any organization needs to adapt to 21st century realities (e.g, the COVID-19 pandemic, the rise of protectionism, the financial crisis, changing nature of trade).  Key issues for the WTO include how are rules negotiated; how are the rules followed; and how are disputes between Members handled.  Amb. Ulianovschi takes a very holistic approach to the WTO and its future.  He states that it is better to have a system than not to have a system.  So in Amb. Ulianovschi’s view, the question is how to adapt the WTO to the 21st century.  The WTO very clearly needs reform.  Pursuing reform must be an overarching priority for the next Director-General.  Amb. Ulianovschi believes that the WTO needs to help increase economic development of people who are lagging behind.  While the WTO and liberalized trade have helped many people get out of poverty, there remain many more who need help.  COVID-19 has highlighted the inequalities that exist today. In his view, the WTO is more necessary than ever to help address the inequalities and expand world trade for the benefit of all.

Q:  is free trade always fair trade?  Where are the limits?  If you remove all subsidies immediately, what would happen? Aren’t there problems with over-regulation and with under-regulation too?

A:  Amb. Ulianovschi stated that if governments go to extremes at either end of the spectrum, the WTO system won’t work.  The key for the WTO is finding the right balance.  How fast can you liberalize trade flows free?  Amb. Ulianovschi believes that the WTO must refocus the organization to integrate those Members who haven’t benefited to date from the WTO.  The WTO must help Members with capacity building needs and be sensitive to those concerned with potential adverse effects from opening up home markets to imports too fast. 

Amb. Ulianovschi noted that the COVID-19 pandemic has hurt industries in both goods and services.  The WTO must help strengthen least developed countries and developing countries and ensure that regional or plurilaterals help all nations (e.g., by providing benefits on an most favored nation basis).  Amb. Ulianovschi stated that micro-, small and medium businesses (MSMEs) should be the focus of the WTO as such entities make up some 95% of many developing countries’ and least-developed countries’ economies.  there should be a focus on trade facilitation measures for many of these countries.  This is the way to move forward.

Finally, on monitoring and notification requirements, every WTO Member must promptly notify any domestic measures taken. Prompt notifications will improve transparency which should help reduce the risk of spillover effects on other economies from actions taken.

Q:  what role precisely can the WTO play in avoiding the worst effects of a global recession and negative effects of COVID-19?

A:  According to Amb. Ulianovschi, COVID-19 should be seen as a wake-up call to Members for the need for greater transparency. The key role of the WTO during a pandemic is to keep trade flows open and non disrupted for goods and services because of global value chains.  Where there are disruptions, improved transparency will help focus on what is needed.  Amb. Ulianovschi believes that the WTO must work much closer with WHO and FAO to be sure there is a more holistic approach to dealing with COVID-19 effects and recovery.  On vaccines, Amb. Ulianovschi believes Members must avoid nationalization of vaccines.  The WTO must make sure there are as few barriers as possible on vaccines, so all peoples can receive vaccines.

In Amb. Ulianovschi’s view, COVID-19 has caught most or all countries off-guard.  Many governments focused initially on protecting their own citizens and their economies.  As required, restrictive measures should be notified to WTO promptly. Any such measures are not to be permanent. Governments must reduce and then eliminate such measures based on lack of continued need.

Q:  On climate change and environmental degradation – what is the connection between global trade and sustainable development?  Is there a tension?  Can they be connected?

A:  Trade doesn’t need to be at odds with sustainable development. There are multilateral negotiations ongoing on fisheries subsidies.  These negotiations are not only important for WTO Members but also for the achievement of one of the UN Sustainable Development Goals, 14.6. So trade can be connected to achieving sustainable development goals.

Q:  Where do you see US and EU aligned and where are the major differences?

A:  Amb. Ulianovschi noted that he has had discussions with major capitals in Europe, the Americas and Asia.  On a fundamental level, while there are concerns in the U.S. and the EU that the current system is not fully beneficial for them, they and China and other major countries are all in favor of a multilateral system.  This is a good starting point.  However, there is great mistrust within the organization among Members.  Some of the concerns expressed by both the EU and US on the dispute settlement system are important for the next Director-General to address at the political level to get Members willing to deal with reform of the dispute settlement.  On digital trade, the WTO must see that digital trade is made an empowering tool.  However, there are many regulatory issues (e.g., privacy, customs duties, localization, etc.) that need to be addressed in the discussions as these are important for businesses to be able to operate.  In Amb. Ulianovschi’s view, it is critical that WTO Members avoid a vacuum of rules in any area of importance (e.g., digital trade) .  Where there is a vacuum of multilateral or plurilateral rules, then conflict is likely.  The US is concerned about lack of rules and application of rules on different issues.

Q:  do you consider the challenges to be primarily technical or primarily in political?

A:  Amb. Ulianovschi has indicated that the current challenges are a bit of both, but he leans towards political as the most important.  The next Director-General must have both political and technical skills and background.  Looking at issues where both elements are needed, Amb. Ulianovschi identified unfinished business on agriculture as an example. Many items raised in the Doha Development Agenda remain unresolved after nearly 20 years. In Amb. Ulianovschi’s view, the WTO needs technicians to come forward with new approaches to moving elements forward, but the WTO also needs political will from Members to agree to forward movement.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Amb. Ulianovschi are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest.

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Mr. Abdel-Hamid Mamdouh (Egypt)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Dr. Ngozi Okonjo-Iweala (Nigeria) and the day before on Dr. Jesus Seade Kuri. See September 1, 2020:  Race for WTO Director-General – additional material on Dr. Ngozi Okonjo-Iweala (Nigeria), https://currentthoughtsontrade.com/2020/09/01/race-for-wto-director-general-additional-material-on-dr-ngozi-okonjo-iweala-nigeria/; August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive, and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Mr. Abdel-Hamid Mamdouh from Egypt, the third candidate nominated.

  1. Daily News Egypt, August 25, 2020, Reviving WTO role as guarantor for stable international trade is my priority: Director General Candidate, https://dailynewsegypt.com/2020/08/25/reviving-wto-role-as-guarantor-for-stable-international-trade-is-my-priority-director-general-candidate/.

“In an interview with Daily News Egypt, Mamdouh highlighted that,
should his election campaign prove successful, his priority will be to
revive the organisation’s role as the guarantor of stability and
predictability in international trade relations.

“Mamdouh noted that the WTO was created to promote the growth and
expansion of world trade through a rules-based system guaranteeing the
rights and obligations of its members.

“He added that the organisation has suffered from a serious breakdown in
its three vital functions, namely dispute settlement, negotiations, and its
monitoring and deliberative capacities. These three functions are closely
interconnected, and the system was designed to operate with balance
across these three pillars.

“’My first priority will be to revive the three functions, starting with the
negotiating function,’ Mamdouh said, ‘If we cannot bring people to the
table to negotiate solutions to problems, we will get nowhere.’

* * *

“Regarding the challenges facing the organisation, in my view, over the
past quarter of a century, the WTO has suffered from a chronic
imbalance across all its vital functions. That is, dispute settlement,
negotiations, and the transparency/deliberative functions.

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

“At the same time, the international trade landscape has dramatically
changed, and the WTO system has been unable to update its rule book.
This has caused unsustainable pressure on the dispute settlement
function, which produced the current breakdown in the Appellate Body,
and as the saying goes, if you cannot negotiate, you litigate.

“The world of trade has changed, and so have the dynamics within the
organisation. Whereas the General Agreement on Tariffs and Trade
(GATT) started its journey back in 1947 with merchandise trade across
borders, we have now expanded into trade in services and intellectual
property.

“Today, the way we trade links goods, services, ideas, capital, and
regulation. That requires a comprehensive and coherent approach by the
WTO, that leads to a ‘deal’ that is truly inclusive of all sectors and
interests of Members.

“For example, I see the role that digitalisation has played for many
industries across the economy, with technology-driven business models.
At the same time, I also see the rising tide of legitimate domestic
regulation in areas like privacy, consumer protection and cyber-security.
The interface between the two needs to be managed, to ensure the lowest
trade restrictiveness of regulatory measures, while not intruding on
regulatory sovereignty.

“To complete the picture of where we stand today, we must look at the
crisis caused by the novel coronavirus (COVID-19) pandemic, and make
sure that we retain the lessons we are currently learning. The world will
need a strong and stable WTO to support the post-crisis economic
recovery.

* * *

A lot of challenges await the WTO’s new head, including the
increasing US-China tensions. How do you evaluate these
challenges and how you will deal with them?

“In my view, the tensions between the US and China are, to a very large
extent, a result of the WTO malfunctioning. The organisation was
specifically designed to avoid such tensions, by providing a forum for
resolving trade problems, not only through discussions and deliberations,
but also by updating the rule book through negotiations.

“The WTO Director General should use his or her soft power to persuade
the two parties that the organisation could be part of the solution, not the
problem. The best way to resolve such tensions would be through
seeking multilateral rule-base solutions, as opposed to bilateral deals.

“Furthermore, such tensions also have serious implications that go far
beyond the two parties directly involved. They affect a very wide range
of other WTO Members. Similarly, resolutions of such tensions will also
concern other parties, and that should be considered. Therefore,
multilateral solutions of such problems will always be the best option.

“I don’t believe that we should look at such situations in terms of having
winners and losers, but rather in terms of how we can find win-win
outcome through good mediation and creative negotiating solutions that
involve trade-offs acceptable to all.”

2. African Business Magazine, 13 August 2020, ‘The honest broker’ — Egypt’s Abdel-Hamid Mamdouh sets out his WTO leadership bid, https://africanbusinessmagazine.com/in-the-news/the-honest-broker-egypts-abdel-hamid-mamdouh-lays-out-his-wto-leadership-bid/.

“Promising not to repeat the same mistakes, Mamdouh believes the difference between the ‘Doha Round’ and the successful ‘Uruguay Round’, which led to the creation of the WTO in 1995, was the lack of strategic balance that kept the latter moving forward.

“’In the Doha Round that is not what we did,’ he says.

“’We had a big agenda with balance inside it, but we did not actually preserve the integrity of the balance as we proceeded. What happened really was the collapse of the negotiating process.’

* * *

“’We really are facing a situation where the system is threatened to fall apart,’ he says.

“’But let’s not let this crisis go to waste. Let’s use this crisis to mobilise all the political will and to move forward.’

“The first step is to ‘recall and reconstruct’ the common purpose of the WTO, based around the principles that trade is important for economies and that the best way to benefit from trade is to ensure the predictability and stability of trading conditions.

“The next step is to reform the 1947 General Agreement on Tariffs and Trade; the WTO’s underlying treaty to eliminate trade barriers that was successfully built upon during the Uruguay Round and less so during the Doha Round.

“Moving towards the next ministerial meeting in Kazakhstan in 2021, specific areas of focus include negotiations on fisheries subsides, e-commerce, investment facilitation, domestic regulation services, trade and women empowerment and SMEs.

“To make the reforms possible the WTO must reimagine itself as an institution that can accommodate the demands of all its different members even though they often hold competing points of view.

“’What we need is a political vision that advances the different interests of different constituencies to bring everyone around the table, because the system can serve the interests of all,’ he says.

“’Successful relationships do not depend on how much we agree on, they depend a lot more on how we deal with our differences.’”

3. The National, August 13, 2020, WTO is in system meltdown according to the Egyptian who wants to run the body, https://www.thenational.ae/world/europe/wto-is-in-system-meltdown-according-to-the-egyptian-who-wants-to-run-the-body-1.1062808.

“Speaking at a webinar hosted by the London-based think tank Chatham House, Mr Mamdouh said the WTO had not been faced with comparable problems since it replaced the General Agreement on Tariffs and Trade (GATT).

“’The WTO is facing a stress test that reminds me of the stress test on the GATT when I came to Geneva in [1985], when the reform was necessary,’ he said.

“Mr Mamdouh explained that the systems within the WTO were now in a state of ‘complete breakdown’ because of ‘excessive pressure’ on its dispute settlement function.

“’That was not sustainable, so it failed as well,’ he said.

* * *

“The Egyptian nominee for the WTO’s top post has said it would be his goal to hit the ground running with the body’s 12th ministerial conference, which is scheduled for June 2021.

“’I would say that there are two sets of issues that I would have as my priorities. The first is to have a clear vision for a reform agenda and reform process. So we would agree that [the ministerial conference], what do we want to do with this organisation?’

“Secondly Mr Mamdouh said there were a number of crucial negotiations, foremost among which was fisheries subsidies negotiations, which needed to be concluded.

“’There are ongoing negotiations on eCommerce, investment facilitation, domestic regulation services, small and medium-sized enterprises, trade and women empowerment. We need to register concrete progress on those,’ he said.

“’We need to, we need to use the next ministerial to move the WTO into positive territory,’ Mr Mamdouh added.”

3. The Cairo Review of Global Affairs, July 29, 2020, The Race for the World Trade Organization (podcast of interview), https://www.thecairoreview.com/podcasts/the-race-for-the-world-trade-organization/. What follows are my notes on some of Mr. Mamdouh’s responses to questions

Mr. Mamdouh noted that there has been a Breakdown in negotiating function and in transparency/monitoring function. In his view, the first task is to get the negotiating function operating again.

In response to a question on how COVID-19 has affected world trade, Mr. Mamdouh distinguished between short-term and long-term issues.

Within the short-term, Mr. Mamdouh views that there has been a lot of panic analysis. The WTO system allows some restrictions to be applied, particularly export restrictions, and a number of countries have applied such restrictions. If such restrictions are imposed, they have to be transparent, notified to the WTO, used only to the extent necessary, and terminated when not needed. What the WTO needs to ensure now is that goods and services flow smoothly. Moreover, during the COVID pandemic, not all goods have been affected by restrictions. Rather, we are basically talking about medical products and food products. So the range of goods restricted by some Members is quite limited.

Mr. Mamdouh stated that once countries get past the short term, all will need a strong WTO to ensure predictability and stability to let trade serve its role in restoring growth.

On a question dealing with negotiating issues important to developing countries, Mr. Mamdouh responded that there are negotiating items on the table now that need to be resolved which support developing country development by securing stability and predictability and which should take account of special needs of developing countries. Mr. Mamdouh believes that the WTO Members need to ensure that all three legs of the organization (negotiations, transparency/monitoring, and dispute settlement) function properly, so the organization doesn’t find itself back in the dysfunctional situation Members now find themselves in. One of the important opportunities for developing countries is the issue of digital trade, but many developing countries are presently unable to take advantage of the technological developments. Stated differently, there is a digital divide. So an important issue is how can trade negotiations at the WTO and work by the WTO with other multilateral organizations support addressing the digital divide.

How trade has changed? Mr. Mamdough responded that the trend over the last 20 years has been towards a more global value chain model of trade which depends on the smooth cross-border movement of goods and services. WTO Members need a clear and predictable trade regime to permit the smooth movement of goods and services. Many developing countries have not focused on the growing importance of the role of services in global value chains (e.g., transport, logistics, electronic payments, R&D, production engineering, etc.). Governments need to look at their regulation of services to be sure they are competitive. The third way in which trade has changed, is the digitalization of trade. Thus, how we produce, trade and consume goods and services have all changed.

On dispute settlement, Mr. Mamdouh stated that the WTO needs reform. But major surgery is not needed. The concerns expressed are not about the rules as such but how the rules are applied. Moreover, in looking at reform of dispute settlement, WTO Members must keep in mind the role that the breakdown in the negotiating function and the monitoring/governance function has had in putting undue pressure on dispute settlement. Restoring balance among the key functions will reduce the pressure on dispute settlement.

4. Inside U.S. Trade’s World Trade Online, June 15, 2020, Egypt’s Mamdouh: WTO needs to find its ‘common purpose’ again, https://insidetrade.com/daily-news/egypt%E2%80%99s-mamdouh-wto-needs-find-its-%E2%80%98common-purpose%E2%80%99-again.

Inside U.S. Trade has conducted interviews with all of the eight candidates for the Director-General position. The interview with Mr. Mamdouh was an early one conducted by the publication in mid-June.

Mr. Mamdouh takes instruction from the reform success of the Uruguay Round which succeeded because the reform agenda was balanced such that all participants had items of importance to them in the negotiations. This resulted in Members having a common purpose. Mr. Mamdouh doesn’t believe Members currently have a common purpose and that has prevented there being a viable negotiating function.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Mr. Mamdouh are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.) or discussions of other issues of potential interest..

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Dr. Ngozi Okonjo-Iweala (Nigeria)

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. Yesterday, I posted material about Dr. Jesus Seade Kuri. See August 31, 2020, Race for WTO Director-General – additional material on Dr. Jesus Seade Kuri (Mexico), https://currentthoughtsontrade.com/2020/08/31/race-for-wto-director-general-additional-material-on-dr-jesus-seade-kuri-mexico/.

There is no intention on my part to be exhaustive and the research has been limited to press pieces in English. Rather the intention is to identify information not addressed in my earlier posts that may be of interest to readers.

Today’s post looks at a few articles featuring Dr. Ngozi Okonjo-Iweala from Nigeria, the second candidate nominated.

  1. The Australian, August 17, 2020, Should WT address antai-dumping measures?, https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a_GGL&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusiness%2Fleadership%2Fshould-wto-address-antidumping-measures%2Fnews-story%2F995b960b1de450c1d983f4aabeca2351&memtype=anonymous&mode=premium&nk=1fc9f182863545ef2c82ab30edd82766-1598966889

The summary of the article states that “Ngozi Okonjo-Iweala says the WTO should investigate whether Australia was inappropriately using anti-dumping provisions to keep out foreign steel.” I am not a subscriber to the Australian and so the information provided above is limited.

2. Nikkei Asian Review, July 13, 2020, Good listener or strong negotiator? WTO candidates make case for top job, https://asia.nikkei.com/Editor-s-Picks/Interview/Good-listener-or-strong-negotiator-WTO-candidates-make-case-for-top-job.

Ngozi Okonjo-Iweala

* * *

Q: How would you go about navigating reforms at the WTO amid a rise of unilateralism and U.S.-China trade clashes?

A: This is the topical question of the hour, the growing nationalism, the divide. But if you listen carefully, you find that there’s some intersecting interests. After all, the same big powers that seem to have a big divide are sitting across each other at the table and negotiating some deals. 

“The WTO should work with all members including the big ones to find out what are those intersecting areas — however small they may be — how do we begin to deliver to make the two sides see their common interests that we can work on and build trust.

“It will take time, it will be challenging, there’s no magic wand to it, but you need someone with the energy, the passion, who is not a quitter, and who can deliver and work with these powers and listen — listen to them, because sometimes they feel they’re not even listening to the big powers.

Q: Could you talk about your visions for reforms?

A: First, updating WTO rules to the 21st century to take account of 21st-century issues, such as e-commerce and the digital economy, such as climate change, the green economy and biodiversity and circular economy … the issue of women and trade and micro-, medium and small enterprise. Even technology, what technology is doing to supply chains.

“Then you’ve got to look at existing rules and see whether they are serving the purpose. There are some members who feel that some rules may be leading to circumvention and disturbing the balance of rights and obligations of members. Issues like special and differentiated treatment, which developing countries feel very strongly about [but] developed countries have a different view.

“The dispute settlement system is paralyzed. You cannot have a rules-based organization, which is the sole place where people can take their grievances and complaints, but rules are not being followed. 

“A third area I would mention is transparency and notification. Transparency is so vital to the multilateral trading system, and notification for businesses. If something is going to be done in a country,  businesses  need to know that you’re willing to take one action or another, otherwise they can’t function.

“The WTO has to start achieving more outcomes. If it doesn’t do that then people continue to see it as irrelevant. 

Q: How should the WTO address Washington’s complaint about China’s state capitalism and developing country designation?

A: Those are some critical issues that members will need to discuss and debate on. But let’s put it this way, we must make sure that all members of the WTO feel that the balance of rights and obligations for all members of the WTO is about a fair system. So, that’s why it’s important to listen to who feels it’s not fair and then restore that balance of rights and obligations that members need to undertake.”

3. Nairametrics, August 12, 2020, WTO Job: Okonjo-Iweala reveals how to resolve rift between US and China, https://nairametrics.com/2020/08/12/wto-job-okonjo-iweala-reveals-how-to-resolve-the-rift-between-us-and-china/.

“On healing the rift between the US and China, Okonjo-Iweala admitted that it is going to be challenging and not be easy. She said:

“‘Well this is not going to be easy, if it was easy, it could have been done a long time since. So it would be very challenging but it is not an impossible job. It is very clear that both the US and China have been helped and benefitted from the multilateral trading system in the past. Hundreds of millions have been lifted out of poverty. They have experienced shared prosperity in the economies and their countries.’

“The Nigerian candidate pointed out that it is important to remind the US and China of this shared prosperity. She then disclosed that she would listen to both countries to find out what really are the issues causing distrust among them. She said that she will not want to be involved in the larger political problems, but will rather separate the trade issues and focus on them and build this trust.

“Going further on how to settle their rift, Okonjo-Iweala said, ‘You need to begin to find areas where there can be confidence-building and trade. Building trust is not talking about it, you have to have areas where both can work together and agree and we have a golden opportunity in the fisheries subsidies negotiations that are going on now because the US is a party to it, China is a party, the EU, all other members.’

“‘It is a multilateral negotiation, so if they can sit around the table with others to negotiate this and have a successful outcome, that is one thing that will be shared in common between the 2. So that will begin to build confidence. Then reaching out both in the US and in China to talk to the policymakers, go where the decisions are made, talk to congress also in the US and begin to show the benefits of the system again.’

“She also said they will look at reasons why they need to work together because their rift may be causing negative externalities for other members. She is of the opinion that exposing all of these, working with them, and listening carefully will begin to build confidence.

“She believes that while achieving this will be difficult, focusing seriously on trade issues can create room for a breakthrough.”

4. P.M. News, August 4, 2020, Okonjo-Iweala: My priorities as WTO chief, https://www.pmnewsnigeria.com/2020/08/04/okonjo-iweala-my-priorities-as-wto-chief/.

“’I would be focusing, if I get the job, on the dispute settlement system. Because this is the fundamental pillar of the WTO,’ Okonjo-Iweala said.

”If you have a rules-based organisation, you must have a place where rules are arbitrated and that’s what happens with the dispute settlement system. So restoring that will be a top priority as well.’

* * *

“The candidate showed her confidence to ‘find a way to unlock the seeming division’ on the trade side, between China and the United States, underlining that finding areas of mutual interest and to build trust within the WTO trading system would be important.

“’Actually, if you listen to the two members, they have some things in common,’ Okonjo-Iweala added.

“’The dispute settlement system of the WTO is valued by both, they want it to reform, they don’t want it to disappear.’

“Okonjo-Iweala also noted that she hopes China will play the role of an economic growth engine in the current COVID-19 pandemic as it did during the 2008 global financial crisis.

“’I think the best thing China can do is to recover quickly. Because it’s one of the engines of growth in the world and it’s almost a quarter of world trade,’ she told Xinhua.

“’So if it recovers quickly, it means that it can help the rest of the world recover. So that’s the role I would see for China.’”

5. Financial Times, August 4, 2020, Leading WTO candidates back US bid for system reform, Amina Mohamed and Ngozi Okonjo-Iweala say American criticisms of over-reach are valid, https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193.

Article also reviews Dr. Okonjo-Iweala’s view that the WTO should be taking a lead on COVID-19 and should take steps to see that the early introduction of export restraints on medical goods and medicines is not repeated.

6. Inside U.S. Trade’s World Trade Online, July 22, 2020, Nigeria’s candidate: Technical skill won’t solve WTO problems, https://insidetrade.com/daily-news/nigeria%E2%80%99s-candidate-technical-skill-won%E2%80%99t-solve-wto-problems.

Inside U.S. Trade has conducted interviews with each of the eight candidates. In its July 22 write-up of Dr. Okonjo-Iweala’s interview, the publication noted that Dr. Okonjo-Iweala would see who is behind on notifications and see if the problem is due to a lack of technical capability which is a real but solvable problem for many developing countries. For those with the ability to provide notifications but who haven’t, she would see what could be done including some proposals where “sticks” have been suggested to address non-compliance.

On U.S. concerns about China’s state-run economy, Dr. Okonjo-Iweala noted that the WTO doesn’t comment on Member’s economic systems but should address the consequences to the global trading system of different economic systems. She believes the WTO should start by establishing a definition of “public body” and look at improving rules on industrial subsidies and would urge the U.S., EU and Japan to table their proposal in that regard.

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Okonjo-Iweala are a small sample of what is available online. The excerpts or summaries from the various publications have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.).

Future posts will look at additional materials for other candidates.

Race for WTO Director-General — additional material on Dr. Jesus Seade Kuri (Mexico)

The eight candidates for the Director-General spot at the World Trade Organization have just eight days left in their efforts to get themselves known to the WTO Members before the phase three process of finding the candidate most likely to achieve consensus within the membership starts.

In prior posts I have provided a summary of statements made at the General Council meetings during July 15-17 and the press conferences that followed and then did a series of posts looking at each candidate’s publicly expressed views on four issues of importance drawing from the same two sources as well as a series of webinars hosted by the Washington International Trade Association and the Asia Society Policy Institute. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/; August 10, 2020 [updated August 27],  The race to become the next WTO Director-General – where candidates are on important issues:  reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/10/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-reform-of-the-appellate-body/; August 13, 2020 [updated August 27], The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/; 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/; 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 23, 2020 [updated August 27], The race to become the next WTO Director-General – where the candidates stand on important issues:  fisheries subsidies and e-commerce/digital trade, https://currentthoughtsontrade.com/2020/08/23/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-fisheries-subsidies-and-e-commerce-digital-trade/.

Today I review some other press articles about the candidates to provide additional perspective on important issues or the candidate’s approach to the position of Director-General if selected. There is no intention to be exhaustive and the research has been limited to press pieces in English. Today’s post looks at a few articles featuring Dr. Jesus Seade Kuri from Mexico, the first candidate nominated.

  1. CNBC, August 26, 2020, China needs to make ‘a greater, clear contribution’ to solve trade disputes, WTO hopeful says, https://www.cnbc.com/2020/08/26/china-has-to-make-greater-efforts-in-trade-disputes-wto-hopeful-says.html.

The press excerpt from the interview states that Dr. Seade indicated that “China must make greater efforts to overcome trade disputes with its World Trade Organization (WTO) partners.”

“There are issues with China that China needs to make a greater, clear contribution to resolve those issues between them and everybody else.”

“He argued that there needs to be progress over a price mechanism and over technological differences, adding that in 19 years of membership, there have been 44 disputes initiated against China. ‘That’s a lot,’ he said, although he noted that ‘at the same time, China has been very engaged in many other respects.'””

The video interview of Dr. Seade on CNBC is available at the following link, https://www.cnbc.com/video/2020/08/27/china-is-very-important-to-the-wto-say-director-general-candidate.html.

2. Successful Farming (Reuters article), August 17, 2020, Time for Forceful Leader to Fix WTO, Not a “Butler,” Mexico’s Pick Says, https://www.agriculture.com/markets/newswire/time-for-forceful-leader-to-fix-wto-not-a-butler-mexicos-pick-says.

“To restore U.S. faith in the dispute resolution body that Washington accuses of overreach, he said members could consider a stronger supervisory mechanism to make sure the powerful appellate body did not stray beyond its mandate.”

3. The Jamaica Gleaner, August 11, 2020, Jesus Seade Commentary, Caribbean’s Place at the World Trade Organization, http://jamaica-gleaner.com/article/commentary/20200811/jesus-seade-caribbeans-place-world-trade-organization.

“POSSIBLE TO SUPPORT SVEs (small and vulnerable economies)

“Later on, during my time with the International Monetary Fund, the World Bank, and the WTO, I gained invaluable experience working with many Caribbean countries. From that involvement, I believe that it is possible to support SVEs with developing risk-management programmes and cooperative schemes to mitigate the impact of external shocks, supporting faster recovery, and promoting economic diversification. As the only candidate to have the honour of having served at senior positions in all three Bretton Woods organisations, I believe that I fully understand the intertwined interaction among trade, development, and finance and how comprehensive policies can solve problems in different areas.

“Back to the WTO. The organisation is facing important challenges itself. It has failed to achieve significant progress in much-needed negotiations since its creation 26 years ago, its Appellate Body is in a state of disrepair, and the organisation will now have to face the severe dislocation of world trade caused by the pandemic. Staying as it is now, the WTO will fail to offer the support SVEs need. The Caribbean, in particular, has been struggling in recent years with the weakness of global trade, compounded by the region’s economic dependence on the trade of a limited array of goods and services, and its fragility vis-à-vis climate change. Those issues require suitable flexibilities and support from the WTO. Moreover, they require the scaffolding that goes beyond stop-gap measures.

“As members recognise, there is a need to reignite our work at the WTO and engage in a true 21st-century agenda, with development at the core. In that sense, CARICOM will play a vital role in improving the WTO’s work on small developing economies, with emphasis on special and differential treatment. It is imperative to enhance the work at the councils and committees. Moreover, the WTO must invest more in training and technical assistance, possibly leveraging resources with assistance in kind from member countries and other partner agencies.”

4. Inside U.S. Trade’s World Trade Online, July 31, 2020, Seade: Transparency could help break WTO divide on industrial subsidies, https://insidetrade.com/trade/seade-transparency-could-help-break-wto-divide-industrial-subsidies

Inside U.S. Trade has done a series of interviews with the candidates for the WTO Director-General position. The Seade interview is summarized in the July 31 article cited above. Dr. Seade highlighted the potential importance of transparency in helping WTO Members forge a path forward on industrial subsidies and other issues.

There has been a serious concern by the U.S., EU and others on inadequate transparency of subsidy programs provided by some Members (including China and India) as is clear from counternotifications filed by the U.S. in the past.

The article indicates that Dr. Seade viewed the issue of industrial subsidies as “perhaps the most serious” one before WTO Members. As Dr. Seade has commented in other settings, it is up to those seeking changes in industrial subsidies (U.S., EU, Japan) to work with China to see what package of issues need to be addressed for China to be at the table.

5. Archyde, August 2, 2020, Candidate for the presidency of the WTO, Jesus Seade wants to revive international trade, https://www.archyde.com/candidate-for-the-presidency-of-the-wto-jesus-seade-wants-to-revive-international-trade/.

What do you propose to overcome the blockade of the United States which prevents the appointment of new judges to the Appellate Body (OA) and cripples the dispute settlement mechanism?

J. S. : These problems are not insurmountable. The United States complains not about the trade agreements, but about their interpretation by the AB. This is autonomous and must remain so. In order to move forward, I propose the creation of a supervisory committee of the OA, made up of five ambassadors and three lawyers. It is up to him to determine whether the appeals body is confined to applying the agreements or whether it has exceeded its powers. We could thus reassure the Americans and relaunch the WTO.”

6. CGTN, 24 July 2020, WTO ‘in a very serious situation’: Leadership candidate Jesus Seade urges reform, https://newseu.cgtn.com/news/2020-07-24/WTO-in-a-very-serious-situation-Leadership-candidate-urges-reform-SkWda4vrDq/index.html.

“He stressed that the WTO had to provide more space for new negotiations on international trade to adapt to the demands of contemporary geopolitics, especially the rise of emerging economies.

“‘Now you have major new players on the block. China was not a member; now, it is formidably important.’ 

“He warned that the WTO had to overhaul the ‘broken’ system for dispute resolution to accommodate such shifts. But in spite of its challenges and shortcomings, Seade described the organization as ‘a fundamental piece of global architecture.'”

7. Nikkei Asian Review, July 13, 2020, Interview, Good listener or strong negotiator? WTO candidates make case for top job, https://asia.nikkei.com/Editor-s-Picks/Interview/Good-listener-or-strong-negotiator-WTO-candidates-make-case-for-top-job.

Jesus Seade

Q: How do you see the situation of trade at this moment?

“A: I feel bad that an organization I helped to create is now in a situation that needs a serious fix. I think I can provide that fix.

“The crisis in the WTO is in good measure a crisis between the United States and Europe, not China, for dispute settlement.

“For Europe, the dispute settlement system had to be like a “court” who decides things and establishes jurisprudence, whereas the United States always wanted a more basic approach for facilitation of the solutions.

“The United States is very uncomfortable about how things have happened and has taken extreme measures, strong measures. That is why the appellate body now is no longer functional. So that’s a crisis as important as COVID or as differences with China.

“We need to fix that, urgently. It is a very complicated process it’s not one country versus another country. There are many parties in many aspects. This is a very complex crisis. That is why we need a real expert. 

“Q: How will you become the bridge between the U.S. and China?

“A: The United States and China are not talking. The director general has to get involved and lead the discussions. What they need is a strong personality, a strong leader to call them to discussions and be engaged on that discussion.

“For the [director general] position, you need to be a top trade negotiator. Because if you come from a background in finance and politics, you can have fantastic leadership and leadership is very important, but at the first difficult discussion between the United States and China, or between the United States and Europe, what will happen?

“I don’t think we should have a director general only encouraging [the parties] to discuss. He has to be part of that, he has to lead the discussion.

“Q: How would you enable the appellate body to function again?

“A: What I have in mind is taking measures that diverse countries — most of them, except the United States — have proposed, which is called the Walker Principles, a package of measures [put forth by New Zealand’s Ambassador to the WTO David Walker] that basically reinforce the measures that already exist. The United States is not rejecting the proposal, just saying that’s not enough.

“So what I’m saying is that I will propose those proposals and then two other measures I have in my mind that would have to be developed in detail, but the fundamental idea is already in my mind and would be additions to those proposals. I see no reason why Japan or the European Union or China would reject my extra proposals. What I hope is for the United States to say, ‘Ah! With those extra proposals maybe, this is going to be interesting,’ and then we’ll hear from the United States.

“It’s not a very complex thing because nobody — not the United States, not Japan, not Europe — nobody is saying that it’s necessary to change the dispute settlement understanding. I think there is something we should be able to solve in the matter of the weeks.”

Conclusion

Each candidate has been very busy these last several months meeting with WTO Members both in Geneva and in capital (whether in person or virtually), talking to the media, doing events with academia and think tanks and others. The above additional materials on Dr. Seade are a small sample of what is out there. The excerpts have largely been limited to some of the key issues my previous posts have examined (appellate body reform, industrial subsidies, etc.).

Future posts will look at additional materials for other candidates.

The global number of confirmed COVID-19 cases passes 25 million with more than 843,000 deaths — increased race to lock up vaccine supplies

In my post of August 16, I suggested that it appeared that the global spread of COVID-19 may have peaked in the August 3-16 period. See August 16, 2020, Is the world at the peak of the COVID-19 pandemic?  Last two weeks suggest a peaking of the growth of global infections may be at hand, https://currentthoughtsontrade.com/2020/08/16/is-the-world-at-the-peak-of-the-covid-19-pandemic-last-two-weeks-suggest-a-peaking-of-the-growth-of-global-infections-may-be-at-hand/. Data compiled by the European Centre for Disease Prevention and Control show total new cases for the August 17-30 time period to be 3,558,360 compared to 3,624,548 for August 3-16 and 3,568,162 for the July 20-August 2 period. Thus, global new cases seem to have peaked or to have reached a plateau.

The United States which has more confirmed cases than any other nation and more confirmed deaths from COVID-19, had a second two-week decline in new cases. The U.S. recorded the extraordinary number of 908,980 new cases during the fourteen day period July 20-August 2. That number declined to 740,721 during August 3-16 and further declined to 600,417 new cases in the August 17-30 period. The most recent period is still 46.76% higher than what had been the prior peak during April 13-26 of 409,102 new cases. Even with the significant reduction in new cases in the August 17-30 period, the United States had the second largest number of new cases, following only India whose number of new cases is continuing to rise and were 953,051 in the last two weeks. Brazil maintains its hold on third place though its new cases are also falling since July 20-August 2 (633,017 new cases) to 609,219 new cases during August 3-16 and to 529,057 new cases during August 17-30. India, the United States and Brazil accounted for an extraordinary 58.5% of the new global cases during the last two weeks and account for 53.39% of all cases confirmed since late December 2019. The United States with 4.3% of global population has accounted for 23.82% of total confirmed cases since December 2019. With the declining numbers in the last two weeks, the U.S. was still 16.87% of new cases during August 17-30 or roughly four times the U.S. share of global population.

Continued growth of cases in the developing world

With the number of new cases in the United States declining, the trend to new cases being focused on the developing world continues although there has been some significant resurgence of new cases in a number of developed countries during the summer vacation period with a renewal of at least some international travel. While India and Brazil had by far the largest number of new cases from developing countries, they were followed by Colombia (143,225), Peru (113,632), Argentina (109,585), Mexico (73,998), Iraq (54,863), the Philippines (55,213), South Africa (38,898) and then dozens of other countries with smaller numbers of new cases.

Spain showed the largest increase of a developed country that had gotten the COVID-19 spread under control until recently. For August 17-30, Spain saw an additional 96,473 new cases. France added 57,009 new cases; Germany saw 17,538 new cases. Other countries in Europe as well as Japan and Korea also saw significant additional new cases.

Deaths/100,000 population

The United States has the largest number of deaths of any country to date (182,779) and had the second largest number of deaths in the last two weeks (13,298) behind only India (13,518). The countries with the highest number of deaths per 100,000 population were the following: Colombia (8.45), Bolivia (8.12), Peru (7.79), Brazil (6.27), Argentina (6.12), Mexico (5.70), Panama (5.58),Chile (4.15), United States (4.04). All other countries (including all other developed countries) had lower rates of death per 100,000 population. For all countries, the death rate over the last two weeks was 1.01 deaths/100,000 population.

If looking at the entire period since the end of December 2019 through August 30, the average number of deaths for all countries per 100,000 of population has been 11.10 deaths. The nine countries (of 71 which account for 98% of total deaths) with the highest death rates/100,000 for the full period are: Belgium (86.34), Peru (87.99), United Kingdom (62.27), Spain (61.81), Chile (59.00), Italy (58.77), Brazil (57.08), Sweden (which did not impose any restrictions)(56.90), the United States (55.54). With the exception of Brazil, Chile, Peru and the United States, each of the other top countries overall has shown a drastic reduction since their peaks in April and as reflected in the experience in the last two weeks (all the European countries were less than 1 death per 100,000).

Race for vaccines

There have been many press articles looking at efforts by the United States, by the EU and by others to lock up large quantities of vaccines from companies whose vaccines are in third phase trials for early availability to their populations. See, e.g., European Commission, 14 August 2020, Coronavirus: Commission reaches first agreement on a potential vaccine, https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1438. The Russian Federation has released a vaccine that did not go through a third phase trial and has received interest from some developing countries. After international criticism, the Russian Federation is now pursuing Phase 3 trials. AP, Putin touts Russia’s COVID-19 vaccine as effective and safe, August 27, 2020, https://apnews.com/f505b2fe730b56b558b8f76bf1932af0.

China has been promising some trading partners preferential access to its vaccines. See, e.g., Wall Street Journal, August 17, 2020, China Seeks to Use Access to COVID-19 Vaccines for Diplomacy, https://www.wsj.com/articles/china-seeks-to-use-access-to-covid-19-vaccines-for-diplomacy-11597690215

For the Philippines, their President has been shopping with the U.S., Russia and China for early access. See, e.g., Nikkei Asia, August 11, 2020, Duterte takes Russia’s offer of COVID vaccine after asking China, https://asia.nikkei.com/Politics/International-relations/Duterte-takes-Russia-s-offer-of-COVID-vaccine-after-asking-China.

Beyond the national or regional efforts to secure priority for vaccines when developed, joint efforts continue as part of the WHO effort to ensure that vaccines and other medical goods relevant to addressing COVID-19 are available equitably to all people and at affordable prices. See, e.g., European Union, Coronavirus Global Response, https://global-response.europa.eu/index_en.

So while it may not be surprising to see countries looking first and foremost about the health of their own citizens, the World Health Organization has warned that no one is safe until all are safe from the COVID-19. The next six months to a year will be a test of whether the efforts of many to provide funding and other resources to ensure greater equitable access to vaccines at affordable prices can coexist with national efforts to prioritize their own citizens.

Conclusion

The world in the first eight months of 2020 is struggling to get the COVID-19 pandemic under control. While many countries in Europe and some in Asia and the major countries in Oceania have greatly reduced the number of new cases over time, there has been some resurgence in many of these countries as their economies reopen, travel restrictions are eased and as schools reopen in many countries. But the number of new cases continues to rage in much of the Americas (other than Canada), in parts of Asia (in particular India) and in parts of Africa. Since most new cases are now in developing countries, it is unclear how many of these countries will be able to handle a significant number of cases, whether their healthcare infrastructure will be overwhelmed and whether they will have the medical goods needed to handle the cases safely.

August has seen the global number of new cases peak and possibly start to decline. That is some good news although the number of new cases on a daily basis continues to strain the global supply system.

The progress on developing safe and effective vaccines is encouraging and has been sped by the willingness of major economies like the U.S. and the EU to fund manufacturing ahead of actual approval of the promising vaccines. While this puts a lot of money at risk should one or more of the vaccines in trials not prove safe or effective, it saves a great deal of time in getting product to market if approved. In a global economy in which least developed countries, small and vulnerable economies and other developing countries are experiencing significant economic challenges because of travel restrictions and trade contractions flowing from efforts to address the pandemic, achieving equitable and affordabale access to vaccines when available is a global imperative. Time will tell if the imperative is achieved or not.

WTO Dispute Settlement Body Meeting of August 28, 2020 — How disputes are being handled in the absence of reform of the Appellate Body

No forward movement has been made on resolving the impasse of the WTO’s Appellate Body which effectively ceased to operate for new appeals after December 10, 2019 when the number of active Appellate Body members fell below the minimum of three needed to hear appeals. At every monthly Dispute Settlement Body meeting, one of the Members presents the proposal to start the process of selecting new Appellate Body members and the U.S. indicates it is not in a position to agree to that action.

While the impasse continues, Members are dealing with how to proceed on specific disputes that have been filed and how to deal with panel decisions that get issued. For the EU and 22 other Members who are parties to the multi-party interim appeal arrangement (MPIA), disputes involving two members of the MPIA are handled through the MPIA after a panel decision if one or both parties are dissatisifed with the panel decision. Current members of the MPIA are Australia, Benin, Brazil, Canada, China, Chile, Colombia, Costa Rica, Ecuador, the European Union, Guatemala, Hong Kong (China), Iceland, Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Singapore, Switzerland, Ukraine and Uruguay. This means that more than 110 WTO Members are not parties to the MPIA including the United States, Japan, Korea, India, Indonesia, Malaysia, Argentina, Peru, Egypt, South Africa, Saudi Arabia, the Russian Federation and many others.

Disputes between all other WTO Members or between other Members and one of the MPIA members require the parties to the dispute either before the panel decision or afterwards to decide how they will proceed. Concerns of many WTO Members is that a party dissatisfied with a panel decision will take an appeal which will effectively stop resolution of the matter as an appeal cannot be heard while there is no functioning Appellate Body.

MPIA members can take appeals where they are in a dispute with a non-MPIA member instead of seeking resolution through other means. For example, the Russian Federation is not a member of the MPIA. Their dispute with the EU on its antidumping methodology resulted in a panel decision that the EU found problematic. The EU filed an appeal on August 28, 2020. See WTO, Dispute Settlement, EU appeals panel report on EU dumping methodologies, duties on Russian imports, https://www.wto.org/english/news_e/news20_e/ds494apl_28aug20_e.htm. When raised at the August 28 dispute settlement body (DSB) meeting, Russia provided the following comment:

“The Russian Federation made a statement regarding the European Union’s appeal of the panel ruling in in DS494 (https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds494_e.htm) (EU —
Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia). Russia said it was disappointed with the EU’s decision and that that the EU’s action, in the absence of a functioning Appellate Body, essentially meant that the matter was being appealed “into the void.” The EU was seeking to escape its obligations by not trying to resolve the dispute,
Russia said.” https://www.wto.org/english/news_e/news20_e/dsb_28aug20_e.htm.

Interestingly, the EU has been working to be able to retaliate on any WTO Member who is not a party to the MPIA who appeals from a panel decision where the EU is a party. Presumably they understand that their action will encourage countries like the Russian Federation to take unilateral action against the EU where the EU appeals a panel decision instead of seeking a mutually agreeable solution.

The United States has reviewed at prior DSB meetings that there are many ways for Members to resolve disputes between themselves. At the recent DSB meeting, the U.S. in its prepared statement, after reviewing its ongoing concerns with the Appellate Body and the need to understand why the Appellate Body ignored the clear limits on its authority under the Dispute Settlement Understanding, provided examples of how Members are resolving disputes since December 10, 2019:

“ As discussions among Members continue, the dispute settlement system continues to function.

“ The central objective of that system remains unchanged: to assist the parties to find a solution to their dispute. As before, Members have many methods to resolve a dispute, including through bilateral engagement, alternative dispute procedures, and third-party adjudication.

“ As noted at prior meetings of the DSB, Members are experimenting and deciding what makes the most sense for their own disputes.

“ For instance, in Indonesia – Safeguard on Certain Iron or Steel Products (DS490/DS496), Chinese Taipei, Indonesia, and Vietnam reached procedural understandings that included an agreement not to appeal any compliance panel report.3

“ Similarly, in the dispute United States – Anti-Dumping Measures on Certain Oil Country Tubular Goods from Korea (DS488), Korea and the United States agreed not to appeal the report of any compliance panel.4

“ Australia and Indonesia have agreed not to appeal the panel report in the dispute Australia – Anti-Dumping Measures on A4 Copy Paper (DS529).5

“ Parties should make efforts to find a positive solution to their dispute, consistent with the aim of the WTO dispute settlement system.

“ The United States will continue to insist that WTO rules be followed by the WTO dispute settlement system. We will continue our efforts and our discussions with Members and with the Chair to seek a solution on these important issues.

“3 ‘Understanding between Indonesia and Chinese Taipei regarding Procedures under Articles 21 and 22 of the DSU’, (WT/DS490/3) (April 11, 2019), para. 7 (‘The parties agree that if, on the date of the circulation of the panel report under Article 21.5 of the DSU, the Appellate Body is composed of fewer than three Members available to serve on a division in an appeal in these proceedings, they will not appeal that report under Articles 16.4 and 17 of the DSU.’) and ‘Understanding between Indonesia and Viet Nam regarding Procedures under Articles 21 and 22 of the DSU’, WT/DS496/14 (March 22, 2019), para. 7 (‘The parties agree that if, on the date of the circulation of the panel report under Article 21.5 of the DSU, the Appellate Body is composed of fewer than three Members available to serve on a division in an appeal in these proceedings, they will not appeal that report under Articles 16.4 and 17 of the DSU.’).

“4 ‘Understanding between the Republic of Korea and the United States regarding Procedures under Articles 21 and 22 of the DSU’, (WT/DS488/16) (February 6, 2020), para. 4 (‘Following circulation of the report of the Article 21.5 panel, either party may request adoption of the Article 21.5 panel report at a meeting of the DSB within 60 days of circulation of the report. Each party to the dispute agrees not to appeal the report of the Article 21.5 panel pursuant to Article 16.4 of the DSU.’).

“5 Minutes of the Meeting of the Dispute Settlement Body on January 27, 2020 (WT/DSB/M/440), paras. 4.2 (‘Indonesia also wished to thank Australia for working together with Indonesia in a spirit of cooperation in order to reach an agreement not to appeal the Panel Report’ and 4.3 (‘Australia and Indonesia had agreed not to appeal the Panel Report and to engage in good faith negotiations of a reasonable period of time for Australia to bring its measures into conformity with the DSB’s recommendations and rulings, in accordance with Article 21.3(b) of the DSU.’).”

Statements by the United States at the Meeting of the WTO Dispute Settle- ment Body, Geneva, August 28, 2020 at 14, https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug28.DSB_.Stmt_.as-deliv.fin_.public.pdf.

Thus, there are ways for WTO Members to resolve disputes between themselves even with the Appellate Body inoperative. Some countries, like Australia, have sought positive resolutions where the other disputing party is not a member of MPIA. To date, the European Union has not sought resolution with members who are not party to the MPIA but have rather filed appeals so cases will sit in limbo until such time as the impasse is resolved.

Concluding comments

While each of the eight candidates to become the next Director-General of the WTO believe resolution of the dispute settlement system impasse is an important priority for the WTO, they differ in how quickly they believe Members will be able to overcome the impasse — Dr. Jesus Seade (Mexico) believes it can be resolved in the first 100 days. Amb. Tudor Ulianovschi believes that the challenges presented will not be resolved ahead of the 12th Ministerial Conference in 2021 but will be resolved sometime thereafter. Most other candidates hold out hope that the impasse can be resolved by the next Ministerial in 2021. Thus, the current situation of no functioning Appellate Body may continue for some time.

The U.S. Trade Representative Robert Lighthizer in an Op Ed last week in the Wall Street Journal suggested that reform of the dispute settlement system is critical but may involve changing the system from its existing two-tiered configuration under the DSU to a one-tier process more like commercial arbitration. If that is the path that the United States pursues, resolution of the current situation will take years. See 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/.

Similarly, if dispute settlement reform is lumped into the broader WTO reform being discussed, the timing will be significantly delayed if reform of the WTO is to be meaningful and return the organization to a place of relevance in the 21st century.

With the queue of panel decisions that are yet due this year involving some high profile issues (e.g., national security actions by the United States on steel and aluminum and retaliation taken by many trading partners) and with the recent panel report on the U.S. countervailing duty order on Canadian softwood lumber, pressure will likely build on WTO Members to find a lasting solution to the current impasse. Increased pressure suggests heightened tensions in an organization already suffering from distrust among Members and, as a result, largely nonfunctioning pillars of negotiation, notification/monitoring, dispute settlement. In short, 2021 promises to be a challenging environment for the WTO Members and the incoming Director-General.

Recent Congressional Research Service report, Global Economic Effects of COVID-19

Governments around the world have been struggling with the health and economic costs of the COVID-19 pandemic. Multilateral institutions generate a great deal of information on the pandemic and its effects and many countries do as well.

On August 21, 2020, the Congressional Research Service released an updated report on Global Economic Effects of COVID-19, Report No. R46270, https://crsreports.congress.gov/product/pdf/R/R46270.

While the United States went through a huge resurgence of COVID-19 cases, hospitalizations and deaths in the June-August 2020 time period, there have been smaller resurgences in a number of other developed countries in the July – August time frame including Australia, Japan, Korea, France, Germany, Spain and others. At the same time, the pandemic is raging in much of the Americas (other than Canada), in India, in some parts of Asia and increasingly in a number of African countries. While it is likely that the world total on new cases peaked in the two weeks ending August 16, the two weeks that end on August 30 will be very close to those numbers (3.6 million cases),

Most global economic outlook projections have been premised on the pandemic’s worst economic effects being in the 2nd quarter of 2020 with a strong recovery in the third quarter and a continued rebound through 2021. Those projections are increasingly at risk as major economies struggle to return to normal without the need for further economic restrictions to address new surges of the pandemic. In the United States, despite efforts by the House of Representatives to pass legislation several months ago to continue the stimulus to the economy to help those unemployed and avoid massive evictions, help schools prepare for the fall season and state and local governments deal with the massive shortfall in revenue among other matters, the Senate didn’t take up legislation until late July and had trouble agreeing on any additional funding. The impasse between the Democrats and the Republicans and White House has led to limited if any support in August and heading into the fall with the potential for millions of additional job losses and reopenings that are not adequately prepared. The opening of schools in recent weeks has had a number of challenges and many schools are proceeding virtually in an effort to remain safe but putting downward pressure on the economy. Thus, the global challenges are likely to worsen in the remaining months of 2020 making the global economic recovery slower and later than has been hoped.

The first pages of the CRS report (pages 5-8, Overview (excluding Table 1)) do an excellent job of reviewing the challenges for the United States and the world and re copied below.

“Overview

“The World Health Organization (WHO) first declared COVID-19 a world health emergency in January 2020. Since then, the emergency has evolved into a global public health and economic crisis that has affected the $90 trillion global economy beyond anything experienced in nearly a century. Governments are attempting to balance often-competing policy objectives between addressing the public health crisis and economic considerations that include, but are not limited to these:

“ Confronting ballooning budget deficits weighed against increasing spending to support unemployed workers and social safety nets.

“ Providing financial support for national health systems that are under pressure to develop vaccines while also funding efforts to care for and safeguard citizens.

“ Implementing monetary and fiscal policies that support credit markets and sustain economic activity, while also assisting businesses under financial distress.

“ Implementing fiscal policies to stimulate economic activity, while consumers in developed economies sharply increase their savings as households face limited spending opportunities, or a form of involuntary saving, and concerns over their jobs, incomes, and the course of their economies, or precautionary saving.

“ Intervention by central banks and monetary authorities generally in sovereign debt and corporate bond markets to stabilize markets and insure liquidity are raising concerns among some analysts that this activity is compromising the ability of the markets to perform their traditional functions of pricing risk and allocating capital.

“ Fiscal and monetary policies that have been adopted to date to address the immediate impact of the health crisis compared with the mix of such policies between assisting households, firms, or state and local governments that may be needed going forward should the health and economic crises persist.

“Policymakers and financial and commodity market participants generally have been hopeful of a global economic recovery starting in the third quarter of 2020, assuming there is not a second wave of infections. Some forecasts, however, raise the prospects that the pandemic could negatively affect global economic growth more extensively and for a longer period of time with a slow, drawn-out recovery. Without a quick resolution of the health crisis, the economic crisis may persist longer than most forecasters have assumed and require policymakers to weigh the most effective mix of additional fiscal and monetary policies that may be required without the benefit of a relevant precedent to follow. Additional measures may have to balance the competing requirements of households, firms, and state and local governments. Various U.S. States reversed course in late June to impose or reimpose social distancing guidelines and close down businesses that had begun opening as a result of a rise in new confirmed cases of COVID-19, raising the prospect of a delayed recovery.

“In its July 29 policy statement and subsequent press conference, the U.S. Federal Open Market Committee (FOMC) indicated that the rise in COVID-19 cases in the United States since mid-June was weighing down economic growth and that, ‘The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.’

“Differences in policy approaches between countries are threatening to inflict longer-term damage to the global economy by impairing international political, trade, and economic relations, particularly between countries that promote nationalism and those that argue for a coordinated international response to the pandemic. Policy differences are also straining relations between developed and developing economies and between northern and southern members of the Eurozone, challenging alliances and conventional concepts of national security, and raising questions about the future of global leadership.

“In some countries, the pandemic has elevated the importance of public health as a national security issue and as a national economic priority on a par with traditional national security concerns such as terrorism, cyberattacks, and proliferation of weapons of mass destruction.1 The pandemic-related economic and human costs could have long-term repercussions for economies through the tragic loss of life and job losses that derail careers and permanently shutter businesses. Fiscal and monetary measures implemented to prevent a financial crisis and sustain economic activity may also inadvertently be adding to income and wealth disparities. Within some countries, the economic fallout may be adding to widening racial and socio-economic cleavages and increasing social unrest. In speaking about these costs for Americans, Federal Reserve Chairman Powell said on May 19, 2020,

“‘Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs, reversing nearly 10 years of job gains. This precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.2’

“The virus was first diagnosed in Wuhan, China, but has been detected in over 200 countries and all U.S. states.3 In early March 2020, the focal point of infections shifted from China to Europe, especially Italy, but by April, the focus had shifted to the United States, where the number of infections was accelerating. The infection has sickened more than 20.2 million people, about one-fourth in the United States, with over 800,000 fatalities. At one point, more than 80 countries had closed their borders to arrivals from countries with infections, ordered businesses to close, instructed their populations to self-quarantine, and closed schools to an estimated 1.5 billion children.4

“Over the 22-week period from mid-March to mid-August 2020, 56.3 million Americans filed for unemployment insurance.5 On a seasonally adjusted basis, the number of insured unemployed workers was 14.8 million in mid-August, down from a peak of 25 million in mid-May, as indicated in Table 1. The total number of people claiming benefits in all programs in the week


1 Harris, Shane and Missy Ryan, To Prepare for the Next Pandemic, the U.S. Needs to Change its National Security Priorities, Experts Say, The Washington Post, June 16, 2020. https://www.washingtonpost.com/national-security/to-prepare-for-the-next-pandemic-the-us-needs-to-change-its-national-security-priorities-experts-say/2020/06/16/b99807c0-aa9a-11ea-9063-e69bd6520940_story.html.
2 Powell, Jerome H. Coronavirus and CARES Act, Testimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, May 19, 2020.
3 “Mapping the Spread of the COVID-19 in the U.S. and Worldwide,” Washington Post Staff, Washington Post, March 4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-COVID-19/?arc404=true.
4 “The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,” The Economist, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-get-ahead-of-the-COVID-19.
5 Unemployment Insurance Weekly Claims, Department of Labor, August 20, 2020. https://www.dol.gov/; Romm, Tony and Jeff Stein, 2.4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week Total to 38.6 Million, The Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-coronavirus/

ending August 1, totaled 28 million, up from 1.7 million in the comparable week in 2019. The insured unemployment rate was 10.2%, also down from the peak reached in early May. On May 8, 2020, the Bureau of Labor Statistics (BLS) reported that 20 million Americans lost their jobs in April 2020, pushing the total number of unemployed Americans to 23 million,6 out of a total civilian labor force of 158 million. The increase pushed the national unemployment rate to 14.7% (with some caveats), the highest since the Great Depression of the 1930s.7 On June 6, BLS reported that nonfarm employment increased by 2.5 million in May, reducing the total number of unemployed Americans to 21 million8 and pushing the unemployment rate down to 13.5%, again with some caveats.9 On July 2, the BLS also released data on the employment situation in June, indicating that nonfarm payroll rose by 4.8 million, lowering the unemployment rate to 11.5%; on August 7, the BLS reported that nonfarm payrolls rose by 1.8 Million in July, lowering the number of unemployed individuals to 16.4 million and the unemployment rate to 10.2%.10

“Preliminary data also indicate that U.S. GDP fell by 9.5% in the second quarter of 2020 from the previous quarter, but at an annualized rate of 33%, the largest quarterly decline in U.S. GDP recorded over the past 70 years.11 In its May 27 Beige Book analysis, the Federal Reserve (Fed) reported that economic activity had fallen sharply in each of the 12 Federal Reserve districts.12

“In Europe, governments have attempted a phased reopening of businesses.13 After several months of data indicating an economic rebound had begun in the Eurozone, surveys of business activity in August reportedly indicated that the recovery was slowing amid a rise in new COVID-19 cases and countries reimposing new quarantines and lockdowns in various parts of the Euro area.14 Industrial production across the Eurozone as a whole fell by 17% in April, raising the annual decline to 28%, surpassing the contraction experienced during the global financial crisis.15 The European Commission’s July 8, 2020, forecast projected that EU economic growth in 2020 could contract by 8.3% and only partially recover in 2021.16 In addition, a July forecast by the European Commission forecasts a larger drop in gross domestic product (GDP) in 2020 among European economies than it had forecasted in its spring report, with a less vibrant recovery in 2021. Second quarter data indicate that economic growth in the EU contracted by 11.7% from the first quarter and by 14.1% compared with the same quarter in 2019.17 Second quarter data indicate the UK economy contracted by 20.4%, the largest quarterly decline on record.

“After protracted talks, European leaders agreed on July 21 to a new €750 billion (about $859 billion) pandemic economic assistance package to support European economies. Second quarter data also indicated that employment among the EU countries fell by 2.6%, or 5.5 million jobs. The jobs data, however, does not include roughly 45 million people, or a third of the workforce in Germany, France, Britain, Italy, and Spain, currently covered by employment protection programs.18 Similarly, Japan reported on August 17 that its economy contracted by 7.8% in the second quarter of 2020, compared with the previous quarter, or at an annual rate of 27.8%.19

“On May 27, 2020, European Central Bank (ECB) President Christine Lagarde warned that the Eurozone economy could contact by 8% to 12% in 2020, a level of damage to the Eurozone economy that Lagarde characterized as being unsurpassed in peacetime.20 Foreign investors have pulled an estimated $26 billion out of developing Asian economies not including more than $16 billion out of India, increasing concerns about a major economic recession in Asia. Some estimates indicate that 29 million people in Latin America could fall into poverty, reversing a decade of efforts to narrow income inequality. Some analysts are also concerned that Africa, after escaping the initial spread of infections, is now facing a sharp increase in rates of infection outside South Africa, Egypt, Nigeria, Algeria, and Ghana, where most of the infections have occurred to date.21

“1 Harris, Shane and Missy Ryan, To Prepare for the Next Pandemic, the U.S. Needs to Change its National Security Priorities, Experts Say, The Washington Post, June 16, 2020. https://www.washingtonpost.com/national-security/to-prepare-for-the-next-pandemic-the-us-needs-to-change-its-national-security-priorities-experts-say/2020/06/16/b99807c0-aa9a-11ea-9063-e69bd6520940_story.html.

“2 Powell, Jerome H. Coronavirus and CARES Act, Testimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, May 19, 2020.

“3 ‘Mapping the Spread of the COVID-19 in the U.S. and Worldwide,’ Washington Post Staff, Washington Post, March 4, 2020. https://www.washingtonpost.com/world/2020/01/22/mapping-spread-new-COVID-19/?arc404=true.

“4 ‘The Day the World Stopped: How Governments Are Still Struggling to Get Ahead of the COVID-19,’ The Economist, March 17, 2020. https://www.economist.com/international/2020/03/17/governments-are-still-struggling-to-get-ahead-of-the-COVID-19.

“5 Unemployment Insurance Weekly Claims, Department of Labor, August 20, 2020. https://www.dol.gov/; Romm, Tony and Jeff Stein, 2.4 Million Americans Filed Jobless Claims Last Week, Bringing Nine Week Total to 38.6 Million, The Washington Post, May 21, 2020. https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-coronavirus/.

“6 This total does not include 10.9 million workers who were working part time not by choice and 9.9 million individuals who were seeking employment.

“7 The Employment Situation-April 2020, Bureau of Labor Statistics, May 8, 2020. https://www.bls.gov/.

“8 This total does not include 10.6 million workers who were working part time not by choice and 9.4 million individuals who were seeking employment.

“9 The Employment Situation-May 2020, Bureau of Labor Statistics, June 5, 2020, https://www.bls.gov/. BLS indicated that some individuals were misclassified in April and May. Instead of being classified as unemployed, they were misclassified as employed, but absent from work due to coronavirus-related business closures. If such individuals had been classified as unemployed, the unemployment rate would have been 5 percentage points higher in April.

“10 The Employment Situation-July 2020, Bureau of Labor Statistics, August 7, 2020. https://www.bls.gov/. The unemployment number does not include 8.4 million workers who were working part time not by choice and 7.7 million individuals seeking employment. In addition, BLS indicated that some workers had been misclassified as employed, but should have been classified as unemployed, which would have raised the rate of unemployment by one percentage point.

“11 Gross Domestic Product, 2nd Quarter 2020 (Advance Estimate) and Annual Update, Bureau of Economic Analysis, July 30, 2020. https://www.bea.gov/news/2020/gross-domestic-product-2nd-quarter-2020-advance-estimate-and-annual-update.

“12 The Beige Book, Federal Reserve System, May 27, 2020. https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.

“13 Stott, Michael, Coronavirus Set to Push 29m Latin Americans Into Poverty, Financial Times, April 24, 2020. https://www.ft.com/content/3bf48b80-8fba-410c-9bb8-31e33fffc3b8; Hall, Benjamin, Coronavirus Pandemic Threatens Livelihoods of 59m European Workers, Financial Times, April 19, 2020, https://www.ft.com/content/36239c82-84ae-4cc9-89bc-8e71e53d6649, Romei, Valentina and Martin Arnold, Eurozone Economy Shrinks by Fastest Rate on Record, Financial Times, April 30, 2020, https://www.ft.com/content/dd6cfafa-a56d-48f3-a9fd-aa71d17d49a8.

“14 Arnold, Martin, Eurozone Economic Rebound is Losing Steam, Surveys Suggest, Financial Times, August 21, 2020. https://www.ft.com/content/cc4fa3df-40e7-4e19-be9f-9d01efb74f69. Chazan, Guy and Anna Gross, Europe Battles to Contain Surge in Coronavirus Cases. Financial Times, July 29, 2020. https://www.ft.com/content/bcddc297-b7f2-444d-908f-54e8ce6f4f98.

“15 Arnold, Martin, Eurozone Industrial Production Falls by Record 17.1% in April, Financial Times, June 12, 2020. https://www.ft.com/content/e3301cd6-27ce-35f0-829a-c6613849b378.

“16 European Economic Forecast Summer 2020, European Commission, July 8, 2020.

“17 Newsrelease, Eurostat, August 14, 2020.

“18 Ben Hall, Ben, Delphine Strauss, and Daniel Dombey, Millions of European Jobs at Risk When Furlough Support Ends, Financial Times, August 14, 2020. https://www.ft.com/content/0f01a9ed-5b15-4e2d-921c-6eed7a80d0bd.

“19 Quarterly Estimates of GDP for April – June 2020 (First Preliminary Estimates), Cabinet Office, August 17, 2020.

“20 Arnold, Martin, Coronavirus Hit to Eurozone Economy Set to Dwarf Financial Crisis, Financial Times, May 27, 2020. https://www.ft.com/content/a01424e8-089d-4618-babe-72f88184ac57.

“21 Pilling, David, The Pandemic is Getting Worse: Africa Prepares for Surge in Infections, Financial Times, July 20, 2020.” https://www.ft.com/content/1b3274ce-de3b-411d-8544-a024e64c3542.

The complete CRS report is embedded below.

CRS-8-21-2020-Global-Economic-Effects-of-COVID-19

Conclusion

The world is going through the worst economic contraction since World War II. The pandemic has affected the health of people around the world, with close to 24 million confirmed cases and likely a multiple of that considering the extent of infections in people without symptoms. More than 800,000 people have died, a number which is also likely to be low based on the number of people who die but never are hospitalized and thus not likely reported as COVID-19 related in many countries.

Most developed countries have followed the tried and true methodology of aggressive testing, tracing, and quarantining to slow the spread of the pandemic and then drastically reduce the number of new cases. For most developed countries this included some form of stay at home orders, social distancing, mask wearing with severe negative effects on many economic sectors. The United States has largely been alone among developed countries in having a generally poor, unorganized and mixed message response to the spread of the coronavirus. Yet other developed countries, as they have reopened, have experienced some of the rebound in cases that the United States experienced on steroids these last three months. The result has been deep economic contraction in the second quarter of 2020 and slower economic recovery likely in the third and fourth quarters of 2020.

At the same time, developing countries have become the center of the pandemic in recent months and may face greater health care challenges because of their infrastructure. These countries are facing severe economic contractions as well both from internal demand declines and from international market contractions.

While the billions being poured into development of vaccines and therapeutics will hopefully result in tools to reduce and then stop the spread of the pandemic, 2021 is the early side of likely massive amounts of vaccines and therapeutics being available.

With the ongoing economic challenges, worsening debt structure of nearly all countries and the collapse of many businesses and employment (e.g., travel and tourism employment is projected to drop by 100-120 million jobs in 2020), the world needs greater coordination of recovery strategies, increased attention on keeping global markets open (and limiting export restraints) and renewed attention to see that vaccines and therapeutics are equitably available to all at affordable prices as new products become available.

USTR Lighthizer’s Op Ed in the Wall Street Journal — How to Set World Trade Straight

Most countries and customs territories that are Members of the World Trade Organization (WTO) agree that the WTO is need of reform to make it more relevant and to address the challenges with the current system that the first 25 1/2 years of operation of the WTO have laid bare.

The United States has raised concerns for more than twenty years with the Dispute Settlement System and under the Trump Administration laid out detailed critiques of the Appellate Body and various deviations from the agreed text of the Dispute Settlement Understanding (DSU). The U.S. refusal to permit new Appellate Body members to be selected until its concerns were addressed led to the effective (temporary) shutdown of the Appellate Body from December 11, 2019 for new appeals. While trading partners put forward various proposals to address U.S. concerns, the U.S. has viewed it as critical to have Members discuss why the Appellate Body has been willing to depart from clear requirements in the DSU.

Similarly, the United States has been raising concerns about self-selection of developing country status with the resulting use of special and differential treatment provisions by some three quarters of the WTO Members. The basic U.S. position has been that there has been enormous economic development by many countries over the last twenty-five years such that a static system of designation is unwarranted. The U.S. has proposed various factual criteria to determine whether a given country should be eligible for developing country status. A few countries have indicated that they will not seek special and differential treatment in ongoing and future negotiations.

Similarly, the United States has argued that the WTO should reaffirm that the WTO rules envision Members who operate under market economy principles and that non-market economic systems (including so-called state capitalism economies) are not appropriate for WTO rules. The U.S. has also been working with the EU and Japan to develop a proposal on industrial subsidies, state-owned enterprises and forced technology transfer — all issues viewed as outgrowths of non-market economies.

While the U.S. has not presented a formal statement at the WTO on the subject, the U.S. has also raised concerns about the level of tariff bindings and the lack of progress in obtaining further liberalization over the last twenty-five years, suggesting a need for a rebalancing of tariff bindings.

USTR Lighthizer’s Op Ed in the Wall Street Journal, How to Set World Trade Straight

While the WTO is in the process of selecting a new Director-General with the current Director-General stepping down on August 31, much attention has understandably been on the eight candidates seeking to become the new Director-General.

Many government officials around the world are on holiday. In the U.S., the 2020 Presidential election process and campaigns are heating up with elections for the President and for the House of Representatives and a third of the Senate set for November 3. One would expect that various actions by the current U.S. Administration would be aimed at election political needs. The recently announced agreement between the U.S. and the EU to reduce tariffs on U.S. lobsters exported to the EU and a reduction of various tariffs that the US has on products of interest to the EU is likely one such example, with lobster fishermen in Maine in trouble with the loss of the EU market.

Last week, Ambassador Lighthizer, the U.S. Trade Representative, published an op ed in the Wall Street Journal entitled “How to Set World Trade Straight”. https://www.wsj.com/articles/how-to-set-world-trade-straight-11597966341. Whether the op ed is meant for domestic consumption during the election cycle or is an amplification of U.S. positions already taken in Geneva is not clear but is an interesting review of the current Administration’s concerns with the global trading system.

The piece by Amb. Lighthizer reviews the need for WTO reform, and notes various problems that he sees with the current WTO: (1) uneven tariffs; (2) the nonappicability of rules to some Members; (3) the huge number of free trade agreements which may lock in protectionism and by definition aren’t applied on a most favored nation (MFN) principle; (4) the shift in the system from negotiations to litigation because of the current dispute settlement system; (5) the inability to address distortions created by non-market economies.

Amb. Lighthizer then calls for WTO Members to recommit “to the principles of market reform and most-favored-nation status.” He then identifies five reforms that are needed:

  1. find baseline tariffs that all Members will apply with limited exceptions;
  2. limit Free Trade Agreements to those fostering regional integration;
  3. see that large and advanced economies are not eligible for special and differential treatment;
  4. adopt new rules to address economic distortions caused by China’s state capitalism system;
  5. overhaul the dispute settlement system to be more like commercial arbitration.

Amb. Lighthizer views that the two options for global trade are (1) “a WTO that is truly committed to most-favored-nation norms and focused on multilateral trade negotiations and (2) a system of bilateral trade agreements. While U.S. could go either way, it is willing to work with WTO Members to achieve the first outcome.

Analysis of the Five Proposals

Free Trade Agreements (FTAs)

Of the five proposals included in Amb. Lighthizer’s op ed, only the second deals with an issue (the increasing number of Free Trade Agreements) where the U.S. has not identified problems with the status quo at the WTO. Amb. Lighthizer’s concern about the hundreds of free trade agreements that have been created has a focus on the European Union where the EU has some 72 FTAs and works to include provisions that are not part of the WTO and that the U.S. views as simply protectionist, such as geographical indications on food, and which harm U.S. and other exporters.

While there is no question that FTAs have resulted in a fair amount of trade diversion and that countries negotiating FTAs often add topics not part of the WTO of interest to them, it is hard to imagine WTO Members agreeing to shut down the vast majority of FTAs that have been established. Looking just at the U.S., many of its existing FTAs would not qualify under Amb. Lighthizer’s test — those with Israel, Korea, Singapore, Australia, Oman, Morocco, Jordan, Bahrain, CAFTA, Colombia, Costa Rica and Peru (though the Central and South American countries could fit under regional integration if expanded beyond North America). Similarly, current negotiations with Japan, with the EU, with the United Kingdom and with Kenya wouldn’t qualify.

So it is hard to see how WTO Members agree to modify the right to establish Free Trade Agreements. And changing GATT Articles would be a very time consuming process even if there were interest among Members.

No one has brought a dispute at the WTO (or at the GATT before 1995) on whether a particular FTA meets the actual requirements of the WTO. Nor has any Member challenged aspects of an FTA that imposes conditions that adversely affect trade of other Members where the conditions are not part of a WTO Agreement and otherwise are inconsistent with WTO principles. Thus, there could be ways to address some of the concerns that Amb. Lighthizer has with FTAs. But disputes won’t return MFN to the primacy role Amb. Lighthizer is espousing.

Special and differential treatment

Amb. Lighthizer’s third proposal to limit which countries have access to special and differential treatment is consistent with the papers that the U.S. has presented at the WTO. In prior posts, I have reviewed both the U.S. proposal and the views of the eight candidates to become the next Director-General on the issue. See December 28, 2019, WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved? https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/; August 13, 2020, The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/.

New rules to address economic distortions caused by China’s state capitalism system

Amb. Lighthizer’s fourth proposal reflects the ongoing U.S. concern about whether current WTO rules adequately discipline distortions flowing from the economic system of China (and other countries with similar systems). As reviewed above, the U.S. has sought reconfirmation of core WTO principles that rules apply to market economies and has worked with the EU and Japan to develop proposals (not yet presented at the WTO) on enhanced subsidy rules on industrial goods and new rules on state-owned enterprises and forced technology transfer. The fourth proposal is focused on new and modified rules.

In prior posts, I have reviewed both the U.S. proposal and the views of the eight candidates to become the next Director-General on the issue. See February 22, 2020, WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/; August 19, 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 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/.

Baseline tariffs that all Members will apply with limited exceptions

The first proposal from Amb. Lighthizer provides for the first time some content to his earlier comments that tariff bindings needed to be rebalanced. The proposal would seem to flow from Pres. Trump’s concern about trade deficits the U.S. runs with many countries, the lack of trade liberalization negotiations in the last twenty-five years, and the large variation in bound rates with developed countries typically having very low rates compared to large and advanced developing countries.

There has never been since the GATT’s start in the late 1940s an effort to rebalance tariffs like that envisioned by Amb. Lighthizer. His proposal would flatten tariff bindings for nearly all countries and would result in upward movement of tariff bindings for some products from developed countries. There has never been the view within the GATT or now the WTO that one tariff rate on a product fits all countries (with limited exceptions).

It will undoubtedly be helpful to have WTO Members focus on the imbalances that have arisen as multilateral trade liberalization has ground to a halt and advanced developing countries have typically not taken the lead in purusing tariff reductions among those with continued high tariff bindings. That said, it is hard to see how the proposal has actual legs in terms of any future WTO reform.

Reform of the dispute settlement system

The fifth proposal by Amb. Lighthizer deals with an issue, reform of the dispute settlement system, which has occupied a lot of time and attention at the WTO. However, the proposal put forward by Amb. Lighthizer is different from the problems that the U.S. has been chronicling in various statements and papers over the last several years.

The DSU has a two-tiered dispute settlement system – panel review with possible appeal of legal issues to the Appellate Body. Nearly all WTO Members actively support a two-tiered system and many have set up an interim multiparty appeal arbitration agreement to provide them with a substitute until the impasse created by the United States is resolved.

Amb. Lighthizer’s proposal reflects U.S. concerns with the apparent inability to limit the Appellate Body to the role it was given by the DSU and the general unwillingness of other Members, particularly the EU, to agree to the proper role of the Appellate Body. While the proposal from Amb. Lighthizer isn’t two tiered, it does have binding effect on the parties to the particular dispute between them without creating precedent.

As Amb. Lighthizer’s proposal would require a reworking of the DSU, if accepted by other Members as a road forward, resolution would likely be years away.

I have written extensively on the impasse on the dispute settlement system as well as reviewing the views of the eight candidates to be the next Director-General. See, e.g., August 10, 2020, The race to become the next WTO Director-General – where candidates are on important issues:  reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/10/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-reform-of-the-appellate-body/; August 9, 2020,  USTR Lighthizer on WTO dispute settlement – answers to Congressional questions from June 17 hearings, https://currentthoughtsontrade.com/2020/08/09/ustr-lighthizer-on-wto-dispute-settlement-answers-to-congressional-questions-from-june-17-hearings/; 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/.

Conclusion

Considering the timing of the op ed, it is hard to know if the intended audience is largely U.S. workers or is intended for an international audience considering WTO reform.

Some of the five proposals, regardless of intellectual merit, seem certain to be viewed as nonstarters, although potentially leading to discussion of key principles of the WTO in Geneva. If the intent is to have items that can be set aside if others are achieved, then Amb. Lighthizer’s five proposals may be a successful approach. To the extent that all five are must have issues for the U.S., one doesn’t need to worry about WTO reform during the next four and a half years as it is hard to imagine the circumstances when all are accepted by the WTO membership.

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

[Updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova at a WITA webinar held on August 26.]

In a post on August 17, I provided background on a group of issues that are important to various Members though opposed by some that for shorthand will simply be referred to issues surrounding WTO rules’ applicability to economies operating differently than market economies. See 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/.

What follows is a review by candidate of his/her prepared statement to the General Council (Juy 15-17, 2020), my notes from the press conference for each candidate which followed immediately after his or her meeting with the General Council and my notes on each candidate’s webinar organized by the Washington International Trade Association (WITA) and generally also by the Asia Society Policy Institute (ASPI).

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade did not in his prepared comments address directly any of the issues surrounding the question of compatibility of different economic systems with the WTO rules, or whether changes in rules to address some of the distortions perceived to be caused by economic systems which vary widely from market-economy structures are needed. Dr. Seade did include at the end of his prepared statement an indication of neutrality to all Members.

“All along my career I have worked with Ministers and legislators, often Heads of State. I present myself to you with my fullest energy, passion and experience, at a difficult time for the WTO. My commitment is to achieve with you the reform and restoration of a WTO back at the center of global governance for the benefit of world economic growth. My solemn commitment to you is to be an effective DG and interlocutor, close to all members north and south, east and west, and indeed fully equidistant from you all.”

During the press conference held after his meeting on July 15 with the General Counsel, Dr. Seade was not asked a question dealing with any of the issues surrounding different economic systems.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade was asked several questions that dealt with U.S.-China tensions. My notes on Dr. Seade’s responses (and on at least one of the questions) follow.

The animosity between the United States and China in a way is understandable.  The hardest part of negotiations during the Uruguay Round for GATT Contracting Parties to conclude was not the agriculture negotiations or the negotiations on intellectual property but rather the negotiations on antidumping.  To simplify, the antidumping negotiations pitted the U.S. and EU against the Asian tigers who were excessively competitive and creating problems in world markets.  But the Asian tigers were much smaller in size than China is today and were much more market oriented than China is today.  So the chasm in the system was much smaller than what exists today   So it is not surprising that there is a big challenge today.  But challenges are there to be met and solutions found. Dr. Seade is convinced that China will want to respond to avoid chaos in the system.  Once they view the U.S. as serious about engaging, China will want to know what they need to do to get the WTO functioning again.  The same question should apply to the U.S. and the EU.  So we should be able to save the system.

Question on the U.S.-China dynamic: USTR Lighthizer has indicated he has three criteria for next DG – he or she must support a robust reform agenda; he or she must acknowledge that the current system doesn’t adequately deal with China’s economy and state trading practices; he or she can’t have a “wiff” of anti-Americanism.  China may have a different set of priorities.  How do you get US and China to do business in the WTO? 

Dr. Seade response:  on the US-China conflict, how do you handle China?  One way is through dispute settlement.  To date there have been 44 cases brought by WTO Members against China.  This is a good way to address problems a Member has with another Member, and it has worked.  We have to resolve the problems with the dispute settlement system and make it work better. At the same time, there are initiatives that have been begun by the US (e.g., EU, Japan and US) on industrial subsidies.  Dr. Seade believes that it is really for US to work out with China how to incorporate more disciplines on industrial subsidies or other issues. This will likely require the U.S. and others to add items of interest to China to make negotiations more acceptable to China.  While China is a tough negotiator, China will not risk bringing down the WTO.  In Dr. Seade’s view, the most important thing China has done in last fifty years other than the start of the reform process back in 1978 was joining the WTO.  So we need to amend the dispute settlement system which would be a good starting point to helping address existing problems.  Dr. Seade agrees with the U.S. that there have not been real negotiations on most agreement areas in the last 25 years. As China was not part of WTO in the 1990s, there can be little question that rules need to be updated both to reflect changing trade realities and to incorporate China in the process and resulting rules.   

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Okonjo-Iweala in her prepared statement reflected that Members have differenting views on “new or enhanced rules” identifying state-owned enterprises (SOEs) but by implication including industrial subsidies.

“Members’ views differ on a number of fundamental issues, such as special and differential treatment or the need for the WTO to tackle new issues and develop new or enhanced rules to deal with SOEs and agricultural subsidies, for example. Trade tensions among the membership have flared up, threatening the fundamental architecture of the MTS. With all these, the WTO, unfortunately, is now perceived by some as an inefficient organization that has failed to keep abreast of developments in the global economy.”

Her prepared statement goes through a range of issues that need to be addressed by the WTO but does not include in that list any of the issues flowing from different economic systems. Dr. Okonjo-Iweala does link being able to renew the WTO to getting Members to recall core objectives and principles. The objectives and principles to many would be understood to require updating rules so that different economic systems are subject to effective rules to eliminate or minimize distortions.

“Renewing and improving the organization will require recalling the core objectives and principles on which the MTS was built – the value of open trade, competition and non-discrimination, security and predictability of market access, and transparency. These principles have contributed to economic growth and development and will continue to do so if Members renew their commitment to them.”

During the press conference on July 15th after Dr. Okonjo-Iweala had met with the General Council, she was asked one question about what she would say to the U.S. about staying in the WTO. The question doesn’t directly address different economic systems, but concerns about U.S. staying in the WTO are generally understood to reflect U.S. problems with many aspects of the WTO including rules which do not effectively address distortions created by non-market economies. My notes on Dr. Okonjo-Iweala’s answer to the question are provided below.

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

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. During the webinar, Dr. Okonjo-Iweala was asked a number of questions that resulted in answers that touched on tension between the U.S. and China, industrial subsidies and more. My notes on Dr. Okonjo-Iweala’s responses and to some of the questions follows:

Q: On the important issue of building trust between Members, there are major differences between the U.S. and China, including (for the U.S.) whether existing WTO rules adequately discipline Chinese policies and (for China) whether US is abiding by the rules.  What do you see to be the main challenges to building trust among Members to permit a reform agenda to move forward?

A:  Dr. Okonjo-Iweala noted that building trust between the Members is critical.  When developed countries bring an agenda item to the WTO, developing countries may view the issue as not in their interest (and vice versa) because of a lack of trust.  On the conflicts between the U.S. and China, we need to find areas of common interest for the two Members. We are used to looking at what are the differences between the Members, but we should be looking for common interests among Members. If we can use those common interests to accomplish incremental progress, that will help build trust..  You build trust negotiation by negotiation (using the issue of special and differential treatment as example).  If we can solve any problem, it helps build trust.  Another way to build trust between developed and developing Members is to conclude the fisheries subsidies negotiations taking into account the needs of individual Members.  If the WTO Members can wrap up those negotiations, the success will start to build trust. 

Q: On resetting of tariff commitments (comment from USTR Lighthizer as a problem within the WTO based on changing economic development of many countries), would this be in the best interest of the system? 

A:  This is a critical question and issue.  Renegotiating any agreement would require consensus building that would be very difficult to achieve.  That would certainly be true on bound tariffs. The balance of rights and obligations raised by the United States flows from the concerns about state-led economies and state-owned enterprises and whether such economies belong in the system.  Dr. Okonjo-Iweala stated that the WTO is not there to comment on the economy of any Member.  In her view, the key question is what disciplines does the WTO have around any issue that arises.  Are the disciplines sufficient to address the imbalances in rights and obligations that may arise?  We need to start there.  What are the fundamental issues —  state-owned enterprises (SOEs), public body.  Can we come to agreement on the meaning of the term public body?  Can we tighten subsidy disciplines that already exist or can we negotiate new subsidy or other disciplines to address the concerns that arise from these types of economies? That is the approach all Members should be pursuing. 

Q: On industrial subsidies, China has signaled that they will oppose tightening disciplines.  The U.S., EU and Japan have been working on a proposal and discussing with some Members.  How can the Director-General help the membership navigate these issues? 

A:  If Dr. Okonjo-Iweala becomes the next Director-General, she would encourage that proposals from the U.S., EU and Japan be tabled so all Members can see what they are and how acceptable they are to other Members (including China).  Let’s start to work with an actual proposal.  Sometimes countries are not as far away as one might think.  Members need to work on a specific proposal and see what happens.

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh in his prepared statement to the General Council on July 15 made only one reference to the issues pertaining to differences in economic systems when he acknowledged that addressing industrial subsidies should be a priority.

“Reviving the built-in agenda of agriculture and services must be a priority because WTO Members agreed on this, and it has not happened. Trade distorting subsidies, both agricultural and industrial, will also be a priority.”

During Mr. Mamdouh’s press conference on July 15 after his meeting with the General Council, Mr. Mamdouh was asked one question about the U.S.-China conflicts. My notes on his response to the question are provided below.

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

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. During the webinar, Mr. Mamdouh was asked various questions that dealt with the U.S.-China conflicts, need for better rules on industrial subsidies, state-owned enterprises and more. My notes on Mr. Mamdouh’s response and to some of the questions follows.

Q:  Why are you well suited to deal with the deep and potentially ruinous conflicts between US, China, EU?  How would you get these big powers to do business with each other?

A:   Mr. Mamdouh responded that this issue is the first frontier for a new Director-General.  The key is to have the right attitude toward the conversation (less political).  The types of problems that Members face deal with noncompliance and with inadequacy of rules.  Both need to be handled. The issues must be addressed in an intellectually honest and politically courageous way if there is to be progress.  In the past, reform occurred at the GATT when there was a perceived threat to the survival of the system.  Mr. Mamdouh believes that the WTO is facing such a threat now.  Do WTO Members have a common purpose?  Do Members need a WTO?  If the answer to the latter question is no, the conversation among Members has nowhere to go.  It is in everybody’s interest to have the answer to the question be “yes”.  For progress, the Director-General needs to bring the players to the table to identify problems with the current system.  The system needs more transparency.  For progress, it is important to keep the conversation at the level of looking at the contract and whether the contract adequately addresses the problems identified.  If the contract is not adequate to the current needs, then WTO Members must modify the contract.

Q:  is the near death experience the WTO is experiencing now an opportunity to move to a meaningful reform agenda?

A:  Mr. Mamdouh responded that yes the current crisis can lead to a meaningful reform agenda, if there is the political will of the Members.  But political will can only be generated if there is a common purpose. 

The WTO needs to address issues of interest to Members, including those raised by the US (e.g., e-commerce, SOEs, forced technology transfer).  Increasingly, the WTO is facing complex issues that go beyond simple trade liberalization but also deal with regulatory objectives. In these complex areas, such as e-commerce, the WTO Members need to find ways to accomplish differing regulatory objectives in a least trade restrictive manner. That can only be accomplished if there is a thorough discussion of the regulatory needs and development of factual information on possible trade options that can be taken back to capitals for review and for negotiation.  Unfortunately, the deliberative function has nearly died at the WTO. To address the increasingly complex issues of importance to Members, the WTO needs to restore the deliberative function.

Amb. Tudor Ulianovschi (Moldova)

Amb. Ulianovschi’s prepared statement that he provided to the General Council on July 16 doesn’t contain direct reference to any of the issues dealing with different economic systems. Amb. Ulianovschi does indirectly reference the need to address other important issues through negotiations.

“In terms of immediate priorities for the future Director General of the WTO, the following should be considered (including in the preparation process for MC12): * * *

“3. Facilitating dialogue with Members regarding on-going negotiations on the remaining and other important issues.”

During the July 16th press conference following Amb. Ulianovschi’s General Council meeting, Amb. Ulianovschi was asked a question about U.S.-China conflict and how he, as Director-General, would be able to reduce tensions. My notes on his response to the question are provided below.

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

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020, https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi was asked several questions where answers dealt with some aspect of the U.S.-China conflict, differences in economic system, need for improved rules, etc. My notes on the questions and responses from Amb. Ulianovschi follow.

Q:  How important is it to have a reform agenda, and how can you convince the major Members to agree on a common agenda?

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system. 

Q:  US-China relations and how it affects the WTO.  Amb. Lighthizer says he is looking for a Director-General who recognizes that the current system doesn’t address Chinese trade practices and that changes need to be made.  Do you agree?  There has been some work done by the U.S., EU and Japan on industrial subsidies and other topics.  Would you support improving industrial subsidies?

A:  Amb. Ulianovschi believes that the topic has to be of priority for the next Director-General.  The Director-General can provide his/her good offices to the U.S. and China to take up any issue, but such discussions must be consensual.  Based on Amb. Ulianovschi’s conversations with the broader membership, he knows that there is interest by many on the spillover effects on other economies from the US-China conflict.  Having said that, Amb. Ulianovschi reiterated the need for the organization to have a Director-General with political experience not to politicize the organization but to reach out to the decision makers and raise awareness of the concerns of the larger membership and encourage the two Members to sit down and discuss issues they consider appropriate.  On industrial subsidies and other issues, we need to have more indepth discussions at the WTO to have a better understanding of the issues, coverage of the current rules and the existing situation.  As a member driven organization, the incoming Director-General will have to see whether the membership is willing to move to more discipline on industrial subsidies.  Amb. Ulianovschi also believes  that a review of transparency and notifications could be useful.  An open, sincere dialogue based on timely and full information would lead to a better understanding of the issues of concern and then lead to a better decision making process to address the issues.

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

Minister Yoo included a general reference in her July 16 prepared statement to the General Council to “sensitive” proposals for reform which presumably include the U.S. proposal on non-market economies and the efforts by the European Union, Japan and United States to tighten disciplines on industrial subsidies.

“I am well aware of the proposals that Members have put forward on WTO reform. I also know how sensitive these issues can be to individual Members. A high degree of trust among Members must be the starting point in exploring cooperative solutions.”

Minister Yoo was not asked a question during her press conference that dealt with different economic systems or distortions flowing therefrom.

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. Minister Yoo was asked some questions on how she would address the U.S.-China conflicts and the U.S. view that the current WTO rules don’t adequately address the market distortions caused by the Chinese economic model. Below I provide my notes on the questions and Minister Yoo’s responses.

Q: In prepared statement you mention you can serve as a bridge between US and China.  Please elaborate.  Second, Amb. Lighthizer is looking for a Director-General who recognizes that current rules don’t adequately discipline China. Do you agree there is a problem in terms of adequacy of WTO rules for China’s policies?

A:  On the first issue of serving as a bridge, Minister Yoo believes that the WTO can provide a good place for US-China issues to be addressed if the negotiating function is working.  In her view, part of the problem which has led to actions outside of the WTO has been the lack of progress on negotiations.  Thus, Minister Yoo believes WTO Members need to revitalize the negotiating function, so Members will use the WTO to ensure adequacy of rules in an evolving world.  Minister Yoo believes the next Director-General needs to engage in dialogue with the U.S. and China to find and understand the real issues between them.  Minister Yoo reviewed that she has done negotiations with both the United States and China.  She believes that she can use that experience to engage in dialogue with each country and find commonalities between them among the real issues.  By focusing on commonalities, Minister Yoo believes that one can find a path forward to achieve a negotiated success, even if small, and build trust.  After finding small successes, the Members then move forward to address the more challenging issues.

On the second question relating to Amb. Lighthizer’s concern that current rules are not sufficient to discipline China’s practices, Minister Yoo believes one needs to look at the rule book.  In her view, all policies adopted by governments can have spillover effects on trade.  If policies do have such spillover effects and are not covered by existing WTO rules, one needs to evaluate whether the policies are consistent with WTO principles (fair competition, nondiscrimination, etc.).  If a policy is not consistent with WTO principles and has spillover effects on trade, one must determine if current rules can be used to address the policy. If not, then the WTO needs to look at whether modifications to existing rules or the addition of new rules are needed.  Minister Yoo believes Members will need to be willing to engage in this type of process.

H.E. Amina C. Mohamed (Kenya)

Like other candidates, Minister Mohamed didn’t directly address the issue of different economic models reflecting the conflicting positions of some major Members. Rather, Minister Mohamed acknowledged that there were different reform priorities for different Members and that Members needed to get past the challenges in current negotiating approaches. The following four paragraphs from Minister Mohamed’s prepared statement to the General Council on July 16 provides some general comments on the road forward which can be viewed as applicable to differing economic models and many other contentious issues.

“12. You do not all share the same reform priorities. This makes it essential to work together for convergence around elements that all can support. We need to break the cycle of despair and enter into a new phase of hope and realism.

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

“14. The WTO has to engage again in good faith negotiations, and this means openness to change and to new ideas, within a culture of inclusiveness and transparency.

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

During Minister Mohamed’s press conference on July 16 after her meeting with the General Council, she received two general questions about how she would work with major players to resolve trade tensions. Below is my summary of the questions asked and her response.

Q: If selected as the next Director-Generaly, will you be more engaged in resolving trade tensions between major players? If yes, what tactics would you use?

A: Minister Mohamed reviewed the types of powers that a Director-General has to work with Members. For example, the Director-General has engagement powers and can encourage members to consult, to use the good offices of the Director-General. So while the Director-General has only limited powers, those powers ca be used effectively by a Director-General to help Members to use the WTO system to resolve differences.

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

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed addressed briefly the rise of China as a major trading nation and was asked about whether current WTO rules adequately address distortions that flow from China’s policies. My notes from Minister Mohamed’s comments follow.

Minister Mohamed stated that since the WTO was set up in 1995, new and powerful players have emerged onto the trade scene, in particular China.  The resulting tensions with the United States have fed the dysfunction within the WTO.  Minister Mohamed believes that to address the tensions, the WTO needs to pursue reform.  However, governments don’t share the same reform priorities.  The WTO needs to identify issues all can support if reform is to move forward. 

Q: Amb. Lighthizer has raised his concern that the current WTO rules are not capable of disciplining conduct of non-market economies, particularly China.  Do you agree?  How would you go about finding common ground?

A:  Minister Mohamed’s response was that one needs to start by looking at the existing rule book.  The rule book is outdated in some cases.  Moreover, some rules are weak and are being circumvented.  If you have candid discussions with WTO Members, you will find the problems are with the adequacy of the rules.  If the rules are inadequate, WTO Members need to address them to achieve modifications or new rules.  For example, the U.S.-EU-Japan effort on industrial subsidies is potentially important.  If Minister Mohamed becomes the next Director-General she would urge the U.S., EU and Japan to table their proposal, so all WTO Members can discuss what are being raised as the real issues.  It is important to understand what conduct is driving up the tension between Members.

H.E. Mohammad Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri was the first candidate the General Council met with on July 17. In his prepared statement, Minister Al-Tuwaijri did not directly address the issue of different economic systems and the potential distortions created by non-market economies. Rather he indicated that any negotiating agenda would work only where all Members view the agenda as including items of interest to them. Applied to different economic systems, this would suggest that for negotiations to occur on the topic it would have to be part of a larger package of issues of interest to those Members (like China) who would potentially perceive themselves the target of the industrial subsidies issue or the differing economic systems issue.

“Concerning working together through negotiations, I believe that Members will participate in negotiations when they are convinced that the agenda includes an incentive for them to participate. Therefore, in order to have a successful multilateral negotiation, the agenda needs to be balanced – it needs to include something for everyone.”

At the press conference after his meeting with the General Council, Minister Al-Tuwaijri was not asked any questions dealing with the issue of differing economic systems or on industrial subsidies.

WITA had a webinar with H.E. Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar, Minister Al-Tuwaijri was asked several questions dealing with the relationship between some of the major trading Members (U.S., China, EU) and specifically whether he supported negotiations on industrial subsidies to address U.S. concerns that existing rules don’t discipline the policies of China. Below are my notes on the questions asked and answers provided.

Q: Can you have a successful launch of a reform agenda if the leaders in key Members (China, US, EU) aren’t committed to help you make it work?  In the first six months as the new Director-General if selected, how would you get these Members to buy into a reform ageanda?

A:  Minister Al-Tuwaijri started his response by noting his involvement in working with G20 countries where the major WTO Members are involved. He noted that one of the issues G20 countries have supported is engaging in reform at the WTO.  Individual countries may have different views on reform — how, when, and what — but all agree reform is needed.  Minister Al-Tuwaijri believes that six-months is too long a period to determine if there is support among the major Members for a reform initiative.  He believes that within the first two – three months of becoming the next Director-General he should know if the intent of the major Members is to support reform or not.  He would reach out with a specific set of questions (e.g., here are top five issues for reform discussions) and seek input on where Members are on a willingness to address the issues.  Minister Al-Tuwaijri has the ability to reach out to the major Members and be viewed as an honest broker.  Saudi Arabia has always been a neutral country and has been serving as President this year in the G20. 

Q:  On China, Amb. Lighthizer is looking for a candidate to be the next Director-General who understands that the current WTO rules don’t discipline China.  Do you agree that the current rules don’t adequately discipline China?  Would you support efforts to improve disciplines on industrial subsidies?

A:  Minister Al-Tuwaijri supports all efforts of WTO Members to engage in negotiations.  China is a major country and major trading nation.  He believes that the more that is done to promote negotiations and promote timely resolution of issues, the better it is for restoring the negotiation function.  He believes that the U.S. and China should bring all of their issues with each other to the table.  He knows that there are many.  But WTO Members need to move the negotiating process forward to ensure rules are adequate.

The Rt Hon Dr. Liam Fox MP (United Kingdom)

Dr. Fox was the last of the candidates to meet with the General Council and the second candidate who met on July 17. His prepared statement talks about the array of issues likely to be addressed heading into the twelfth Ministerial Conference in 2021 and the agreed need for broader reform. However, he does not mention in his prepared statement the issues surrounding different economic systems or the need for revised rules on industrial subsidies.

During Dr. Fox’s press conference on July 17, he was asked one question that was broad but fairly did include the U.S. effort to address non-market economies (how would you deal with the broad U.S. concerns with the WTO). Dr. Fox viewed the main U.S. concerns as being with the Appellate Body and limited his remarks to that issue.

He was asked a different question on why the multilateral trading system is important to large parties. My notes on his response are provided below.

Q: Why is the multilateral trading system important to the large parties?

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

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. During the webinar, Dr. Fox was asked several questions about China, including whether existing rules adequately discipline China’s policies and whether new negotiations on industrial subsidies are needed. My notes on the questions asked and Dr. Fox’s responses are provided below.

Q:  USTR Lighthizer has indicated there are three factors he is looking for in considering candidates for the Director-General post: (1) no anti-Americanism; (2) a belief that there is a need for broad reform at the WTO; and (3) someone who understands that the current WTO rules don’t adequately discipline China’s policies.  Do you agree with Amb. Lighthizer’s last point on the need for new rules to address Chinese policies?

A:  Dr. Fox’s answer dealt with all three factors including that he is not anti-America. He also believes there is a need broad-based reform.  In Dr. Fox’s view, the reform needed is both internal at the Secretariat as well as in changing the rule book.  For example, Dr. Fox had had dozens of meetings by the time of the webinar with WTO Members. Many countries felt that if you weren’t a large Member or a squeeky wheel, your voices were not heard.  In Dr. Fox’s view, the next Director-General needs to review the operation of WTO Secretariat to be sure all Members can be heard and improve the outreach to all Members and listening to their views and concerns.   Dr. Fox believes that there is also a need to reform how the WTO operates during negotiations.  He used the example of the fisheries subsidies negotiations. He opined that better outreach to NGOs and other groups about the negotiations and encouraging their engagement with Members would help constituencies better understand that the WTO is engaged in issues that are importance to them. The failure to have such engagement can undermine the concept of shared endeavor which is important to forward movement at the WTO.  So different forms of reform are needed at the WTO.

On the question about whether rules adequately discipline the policies of China, Dr. Fox stated that reform is not about focusing on any one country.  He stated that, of course, all Members must comply with the existing rules.  In his view, Members need an effective dispute resolution system to ensure such compliance.  Beyond that, the question is how do WTO Members take forward and address common challenges (e.g., e-commerce).  The key for the WTO is to bring the rule book up to date with the changing commercial realities.  Up-to-date rules and getting all Members to comply are the main objectives of reform.

Q:  what about industrial subsidies.  Is this an area that needs to be updated.

A:  Dr. Fox indicated that WTO Members have a lack of trust in each other.  One way to improve trust is to improve transparency.  Dr. Fox used as an example, efforts by the OECD to quantify subsidies to aluminum producers around the world. He had visited the OECD recently and heard from them about the extraordinary efforts they went to to make up for a lack of available data on items like production capacity and production. The efforts undertaken were both expensive and time consuming.  The example of aluminum indicates that it is important to improve objective data that are provided by Members to the WTO.  If WTO Members want improved transparency and improved accuracy of information provided, the WTO also will need to find better ways to verify data submitted.

Conclusion

The question of whether non-market economies or state-directed economies or state-capitalist economies properly fit within the WTO Agreements was not addressed by any candidate, though Dr. Okonjo-Iweala took the position that the nature of the economic system of any Member was not an issue for the WTO to consider.

On whether the current rules of the WTO adequately discipline the policies of China (and more broadly other non-market economies), candidates generally were of the view that the reform process should permit an evaluation of the changing global landscape and developments and where issues were not addressed or inadequately addressed by current rules, Members should consider what changes would be appropriate. Dr. Seade noted that since China was not part of the GATT in the 1990s during the Uruguay Round negotiations, with all the change that has occurred in the first 25 years of the WTO and limited update of rules, there is little doubt that rules need to be updated both to address practices of new Members and to incorporate their views on needed updates. Minister Yoo suggested a somewhat similar approach.

On the question of the need for an update to the rules on industrial subsidies, Minister Mohamed and Dr. Okonjo-Iweala were of the view that the proposal being worked on by the U.S., EU and Japan should be tabled in Geneva so all Members could start the process of understanding the concerns and appropriateness of the approaches recommended to address. Mr. Mamdouh included updating industrial subsidies rules as one of the priority issues to be addressed by the WTO.

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

Background

When China acceded to the World Trade Organization in 2001, it had had a long working party process as WTO Members focused on the wide array of changes to laws, regulations and practices that China would need to undertake to have an economic system and policies that were consistent with WTO norms. China made many changes to its policies ahead of accession. However, the extent of modifications needed to the Chinese system that were still not accomplished by 2001 meant that the Protocol of Accession and the Working Party Report that China and WTO Members agreed to were unprecedented in terms of the number of additional changes that needed to be made for China’s system to be compatible with WTO norms. Indeed, periodic reviews over a decade were included of China’s actions to permit other WTO Members to understand the extent of compliance with the wide ranging modifications still needed. As China was moving from a state-controlled economy towards a market economy, WTO Members insisted on special rules to address some of the likely distortions a large economy like China with significant state controls was anticipated to create. A country-specific safeguard and special recognition of nonmarket economy provisions in trade remedies were included in the Protocol of Accession. While China accepted all three provisions to obtain membership in the WTO, China always expressed its views that these additional provisions were discriminatory and an effort to hold China back in terms of economic growth.

While China continued to make progress in its reform program for a number of years after acceding to the WTO, beginning with the financial crisis of 2008-2009 China reversed direction and increased the importance of state-owned and state-invested enterprises, state planning and state control of a wide array of factors of production. A former Director-General of the WTO and former EC Trade Commissioner reviewed the challenges for market economy countries in dealing with a country with a large share of its economy controlled by the state. See July 27, 2020, Pascal Lamy’s recent comments on the challenges facing the WTO, https://currentthoughtsontrade.com/2020/07/27/pascal-lamys-recent-comments-on-the-challenges-facing-the-wto/.

Many major trading partners have worked with China since its WTO accession to address perceived distortions flowing from its economic system and to help China handle the obligations it had undertaken upon joining the WTO. Many commitments for change were made by China with limited actual forward movement achieved in the views of at least some trading partners. Members like the United States undertake their own annual review of China’s compliance with WTO obligations in an effort to chronicle China’s changing economic system and whether there are distortions of concern to China’s trading partners. See, e.g., U.S. Trade Representative, 2019 Report to Congress on China’s WTO Compliance (March 2020)(embedded below). As stated on page 4:

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

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

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

2019_Report_on_Chinas_WTO_Compliance

The 11th Ministerial Conference and a Joint Statement by EU, Japan and the United States

The challenges of China’s economic system have been felt in many global industries in a number of ways. There has been massive excess capacity created by China’s policies (and those of some other countries). Efforts to address excess capacity in steel proved unsuccessful. But literally dozens of industries faced excess capacity in China which has resulted in flooded global markets and harm to competing producers in other countries.

At the same time there have been major concerns about forced technology transfers for companies wanting to operate in China, a myriad and changing set of barriers (formal and informal) discriminating against imports and foreign owned enterprises in certain sectors.

By the 11th WTO Ministerial Conference, the United States, European Union and Japan had decided more formal action was needed to address the ongoing distortions being created by China and other countries emulating the Chinese model of economic system. At the end of the Conference, the three WTO Members issued a joint statement which stated in large part,

“We shared the view that severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, unfair competitive conditions caused by large market-distorting subsidies and state owned enterprises, forced technology transfer, and local content requirements and preferences are serious concerns for the proper functioning of international trade, the creation of innovative technologies and the sustainable growth of the global economy.

“We, to address this critical concern, agreed to enhance trilateral cooperation in the WTO and in other forums, as appropriate, to eliminate these and other unfair market distorting and protectionist practices by third countries.”

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/december/joint-statement-united-states

There have been a series of meetings of the three trade ministers since then providing an update on their joint efforts. A joint statement in January 2020 outlined the types of industrial subsidies where the three major WTO Members believed greater disciplines were needed and outlined other areas where joint efforts were underway. The 2018, 2019 and 2020 joint statements can be found here, with the 2020 statement embedded after the links. See Joint Statement on Trilateral Meeting of the Trade Ministers of the United States, Japan, and the European Union, 09/25/2018, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/august/statement-meetings-between-united; Joint Statement of the Trilateral Meeting of the Trade Ministers of the United States, European Union, and Japan, 05/23/2019, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/may/joint-statement-trilateral-meeting; Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States, and the European Union, 01/14/2020, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/january/joint-statement-trilateral-meeting-trade-ministers-japan-united-states-and-european-union.

1-14-2020-Joint-Statement-of-the-Trilateral-Meeting-of-the-Trade-Ministers-of-Japan-the-United-States-and-the-European-Union-_-United-States-Trade-Representative

U.S. Section 301 Investigation of Certain Chinese Policies, U.S. imposition of tariffs and Chinese retaliation

In August 2017, the U.S. Trade Representative initiated an investigation on certain of China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation. 82 Fed. Reg. 40,213-40,215 (Aug. 24, 2017). The investigation resulted in a determination by USTR on March 22, 2018 that various Chinese acts, policies and practices violated Section 301 of the Trade Act of 194, as amended. The President authorized the imposition of additional duties to encourage China to address the problems raised. China retaliated and through a series of further escalations, the U.S. has imposed additional duties on some $350 billion of imports from China and China has imposed additional duties on the vast majority of U.S. exports to China. The 301 report and supplement are embedded below.

Section-301-FINAL

301-Report-Update

The United States viewed the Section 301 investigation as necessary to address practices of China not addressed by WTO rules or not adequately addressed. China viewed the investigation as not permitted under WTO rules. The trade conflict and efforts to find a solution, resulted in a Phase 1 Agreement between the United States and China with most additional duties remaining in place, some substantive changes made on some issues of concern to the United States and a Phase 2 negotiation to resolve outstanding issues which has not begun as of mid-August 2020.

China’s effort to be treated as a market economy under trade remedies

China has long felt that nonmarket economy methodology employed by trading partners discriminated against China and was unjustified. On December 12 2016, the day after certain language in China’s Protocol of Accession became ineffective, China filed requests for consultations with each of the European Union (WT/DS/516) and the United States (WT/DS/515). China has not actively pursued the action against the United States. On the action against the European Union, after the matter was fully briefed at the panel stage and it was understood that an interim panel report was released to the parties, China requested on 7 May 2019 the panel to suspend its proceedings in accordance with Article 12.12 of the DSU. The panel proceeding was suspended on 14 June 2019. On 15 June 2020, the Secretariat released a note indicating that the panel’s authority in the dispute had lapsed since China had not requested the resumption of work within one year.

Thus, China remains subject to nonmarket economy methodologies by certain of its trading partners.

Proposed General Council decision submitted by the United States

The United States has raised an issue for WTO Member consideration in the form of a proposed General Council decision. The issue goes to whether the WTO is predicated on market-oriented economic principles and rests on the concern that some large WTO Members (including China) have economic systems that are characterized as non-market and that create various distortions in the global marketplace including creating massive excess capacity and other issues. While the issue has been raised by the United States for the last several years within the WTO, the U.S. permanent representative to the WTO made a strong case at the General Council meeting (Dec. 9, 2019), raised the matter again along with the draft General Council decision at the March 3, 2020 General Council meeting and raised it again at the July 22-23, 2020 General Council meeting. The proposal was opposed by China at each General Council meeting. Many Members provided comments either supporting, opposing, raising questions with the proposal or indicating the matter was being considered in capital (minutes for the July General Council meeting are not yet available). Members besides the U.S. and China who spoke include the European Union, Japan, Canada, Australia, United Kingdom, Switzerland, Norway, Mexico, Brazil, Colombia, Chinese Taipei, Uruguay, Indonesia, Nigeria, South Africa, India, Pakistan, Russian Federation, and Sri Lanka. See, e.g., Minutes of General Council Meeting, 9-10 December, 2019, WT/GC/M/181 at 59-64 (24 February 2020); The Importance of Market-Oriented Conditions to the World Trading System, Draft General Council Decision, Communication from the United States, WT/GC/W/796 (20 February 2020)(embedded below); Minutes of General Council Meeting, 3 March 2020, WT/GC/M/182 at 35-44 (16 April 2020); General Council Meeting of 22-23 July 2020, Proposed Agenda, WT/GC/W/802 (item 11)(20 July 2020).

WTGCW796

Conclusion

The crisis at the WTO has many elements but a central concern of many is whether the current WTO can be effective in ensure competitive markets when one or more major Members have an economic system largely at odds with that of most Members. The tensions created by the distortions caused by different systems has led both to increasing use of trade remedies, efforts to identify changes or additions to rules needed if convergence is not required of Members, and actions outside of the WTO where long term discussions have not resulted in the level of changes needed by countries working from market-oriented economies.

While the U.S. has reviewed provisions of the WTO that indicate the system is premised on market economy principles, a number of Members disagree that the WTO can address different economic systems. One of the Deputy-Directors General has identified core principles of the WTO and opined that the system supports convergence not coexistence. See Remarks before the Korean International Trade Association. 27 May 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_27may20_e.htm back to text

It is against this complex background that candidates for the Director-General post of the WTO will be evaluated by many Members. In the next post, I turn to how the eight candidates have addressed these complex issues in terms of their prepared statements to the General Council, press conference after the General Council meeting and in the WITA webinars.

Stay tuned.

Is the world at the peak of the COVID-19 pandemic? Last two weeks suggest a peaking of the growth of global infections may be at hand

Much of the world recorded sharp contractions in GDP during the second quarter as countries restricted travel, issued mandatory stay at home orders and took other steps to try to control the spread of the COVID-19 pandemic. Many countries have been easing restrictions in the last several months that were imposed typically in March. The hoped for revival of the global economy is being slowed by the continued high incidence of new COVID-19 cases, the resurgence of cases (albeit so far at low levels) following reopening actions in many of the countries who had gotten control of the virus. In a number of countries, schools are reopening presenting additional challenges for governments in trying to control the spread of the COVID-19 virus. News reports continue to be promising that one or more vaccines may be approved by the end of 2020 or early 2021, and the Russian Federation has gone into production of a vaccine which reportedly has not undergone a phase three trial.

One question of potential importance in mid-August is has the world gotten to the peak of the number of new cases during the last two weeks or will the number of new cases resume an upward trajectory in the coming weeks?

The world has seen a rapid growth of new cases during the March – July period. As recently as the two week period of May 11-May 24, the total new cases globally in the two week period was 1.28 million. The next two weeks (May 25-June 7) showed new cases of 1.57 million. June 8-June 21 recorded 1.93 million new cases; June 22 – July 5 added 2.46 million. July 6-July 19 added 3.02 million new cases. July 20-August 2 added 3.57 million new cases. The data for the last two weeks, August 3-16 added 3.62 million new cases. So the rate of growth is slowing. While the number of new cases in the most recent two weeks was nearly three times as many as recorded in mid-May, in the last two weeks, the growth was only 1.4%.

The United States for the first time since early June has seen the number of new cases fall from the prior two weeks, although the new cases in August 3-16 were still the second largest (740,721) after only India (838,959) and remain two and a half times as high as the May 25-June 7 period (297, 391) and were 81.5% higher than the original peak figure (409,102) in the latter part of April. Complicating the picture going forward for the United States are the early problems with school reopenings in certain states with most school districts working to open in person, remotely or in some combination in the coming weeks. The U.S. also has a very high incidence of affirmative tests in large parts of the country which is problematic particularly as testing (while large in number) continues to have problems in timeliness of results. Despite the need for even larger numbers of tests (that are timely), the number of tests has been declining in the U.S. despite the continued high level of new cases on a daily basis. In addition, the U.S. continues to suffer from mixed messages from government officials on actions needed to control the virus, and from a general fatigue by large parts of the public with the efforts to minimize the spread. This past week’s Sturgis motorcycle rally, where some 250,000 bikers from around the country were expected to attend, is an example of a huge social gathering where limited safety precautions have been seen at least at some events with unknown consequences for the spread of the virus not just in South Dakota (Sturgis is a small town in South Dakota) but across the United States.

Brazil was also slightly lower in the last two weeks (609,219) than the preceding two-week period (633,017) but remains a major source of new cases. South Africa showed a significant decline from 152,411 new cases in the July 20-August 2 period to 80,363 new cases in the last two weeks.

India has taken over the top spot for most new cases in the last two weeks, 838,959, more than 160,000 higher than the prior two weeks (673,108).

There have been upticks in the number of new cases in a number of developed countries reflecting presumably the effects of reopening the economy — Germany, France, Spain, Poland, Australia, New Zealand, Japan. The spike of cases (though still small compared to prior volumes) has led for some tightening up on the economic restrictions in particular cities or more broadly.

Continued growth of cases in the developing world

With the number of new cases in the United States declining, the trend to new cases being focused on the developing world continues. While India and Brazil had by far the largest number of new cases from developing countries, they were followed by Colombia (150,508), Peru (103,620), Argentina (91,135), Mexico (83,521), South Africa (80,363) and then dozens of other countries with smaller numbers of new cases.

Deaths/100,000 population

The United States has the largest number of deaths of any country to date and in the last two weeks. If one looks at deaths/100,000 population, in the lats two weeks, the countries with the highest number of deaths per 100,000 population were the following: Peru (20.91), Colombia (8.90), Bolivia (8.16), Mexico (7.11), Panama (6.99), Brazil (6.48), South Africa (6.02), United States (4.57). All other countries (including all other developed countries) had lower rates of death per 100,000 population. For all countries, the death rate over the last two weeks was 1.06 deaths/100,000 population.

If looking at the entire period since the end of December 2019 through August 16, the average number of deaths for all countries per 100,000 of population has been 10.09 deaths. The seven countries (of 71 which account for 98% of total deaths) with the highest death rates/100,000 for the full period are: Belgium (86.73), Peru (80.20), United Kingdom (62.06), Spain (60.97), Italy (58.54), Sweden (which did not impose any restrictions)(56.53), the United States (51.50). With the exception of Peru and the United States, each of the other top countries overall has shown a drastic reduction since their peaks in April and as reflected in the experience in the last two weeks (all the European countries were less than 1 death per 100,000).

Conclusion

The world in the first seven and a half months of 2020 has not managed to get the COVID-19 pandemic under control. While many countries in Europe and some in Asia and the major countries in Oceania have greatly reduced the number of new cases over time, that has not been true for the Americas (other than Canada), for parts of Asia and for parts of Africa where the pandemic has turned its attention or where the pandemic has not been brought under control.

That said, the last two weeks suggest the global total of new cases in a two week period may have just peaked in August. There are major challenges ahead as reopening of economies gets tested against possible resurgence of cases, schools reopen in many countries, and greater indoor months approach. So there are potentially unwelcome scenarios that could see the huge number of new cases resume an upward trend. But with effort, the world may see the backside of the growth curve.

With the sharpest global economic contraction since World War II, with slumping global trade, with even the wealthier countries struggling to maintain the needed stimulus to reduce the severity of the economic contraction and with potentially hundreds of millions of people around the world losing their jobs, and food insecurity rising with increasing poverty, the world needs to see the pandemic receding and needs breakthroughs in both vaccines and therapeutics, although realistically, 2021 is more likely than the rest of 2020 for the medicaL breakthroughs.

The WTO webpage has a page dedicated to COVID-19, and the WTO Secretariat has generated a host of information notes reviewing the range of challenges that the pandemic is presenting to nations. The most recent looks at the increased costs of trade that flow from the travel and other restrictions. My post from yesterday, looked at the rising food insecurity for dozens of countries facing rising extreme poverty because of the economic contraction being experienced around the world. Stated differently, the trade, economic, health and humanitarian challenges flowing from the COVID-19 pandemic are extraordinary. Stemming the number of new cases is an important step to reduce the pressures on governments, companies and citizens.

The race to become the next WTO Director-General — where candidates are on important issues: eligibility for Special and Differential Treatment/self-selection as a developing country

[Updated August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova at a WITA webinar held on August 26]

During the years of the General Agreement on Tariffs and Trade, countries engaged in a series of rounds of tariff liberalization. The basic principle of Most Favored Nation ensured that any participating country or customs territory would receive the benefits of trade liberalization of others whether or not the individual country made tariff liberalization commitments of its own.

Moreover, the GATT and now the WTO have recognized that countries at different levels of economic development will be able to make different contributions and some may need special and differential treatment to better participate.

Historically, there has been a distinction between developed countries and developing countries, with special and differential (S&D) treatment reserved for the latter. Typically, S&D treatment would permit, inter alia, lesser trade liberalization commitments and longer phase-ins for liberalization undertaken.

During the Uruguay Round, least-developed countries, as defined by the United Nations, were broken out from developing countries to receive lesser obligations than other developing countries. But the categorization as a developing country has always been a matter of self-selection within the GATT and now within the WTO.

Some three quarters of WTO’s current 164 Members have self-declared themselves to be developing countries or are least-developed countries under UN criteria. Thus, only one fourth of WTO Members shoulder full obligations under the current system.

While the Uruguay Round negotiations attempted to deal with “free riders” by requiring all countries and customs territories to bind all or nearly all tariff lines, the results at the creation of the World Trade Organization was a system where the vast majority of Members had relatively high tariff rates in their bindings while developed countries typically have very low tariff rates bound.

After twenty-five years of operation and dramatic economic development by many Members and limited trade liberalization through WTO multilateral negotiations, questions have been raised by the United States and others as to whether the concept of self-selection by countries of developing country status has contributed to the inability of the WTO to achieve further liberalization through negotiations. The U.S. has put forward a definition of who would eligible for developing country status based upon a country not qualifying under any of four criteria. See December 28, 2019, WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved? https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/. Countries who would not qualify under the U.S. proposal include:

Member of the OECD or in the accession process:

Chile, South Korea, Mexico, Turkey, Colombia, Costa Rica.

Member of the G-20:

India, South Africa, Turkey, Argentina, Brazil, Mexico, China, Indonesia, South Korea.

Classified by World Banks as “high income” for 2016-2018 (includes):

Antigua and Barbuda, Bahrain, Brunei Darussalam, Chile, Hong Kong, South Korea, Kuwait, Macao, Panama, Qatar, Saudi Arabia, Seychelles, Singapore, St. Kitts and Nevis, Trinidad and Tobago, United Arab Emirates, Uruguay.

0.5% of Merchandise Trade (includes):

China, South Korea, Hong Kong, Mexico, Singapore, United Arab Emirates, Thailand, Malaysia, Vietnam, Brazil, Indonesia, Turkey, South Africa.

For many countries who have self-declared as developing countries, the concept of changing their status, regardless of economic development, is untenable and has been actively opposed at the WTO (including by China, India and South Africa).

Four WTO Members who had self-declared as developing countries — Korea, Singapore, Brazil and Costa Rica — have indicated to the WTO that they will not seek special and differential treatment in ongoing or future negotiations (but maintain such rights for existing agreements). Other countries who are self-declared developing countries have blocked an Ambassador from one of the four who have agreed to accept greater obligations from assuming the Chair post for one of the WTO Committees.

The United States has also raised questions about the imbalance of tariff bindings which have flowed from economic development of some countries without additional liberalization of tariffs by those countries and the lack of progress on negotiations. Thus, for the United States there is also the question of whether tariff bindings should be reexamined in light of economic developments over the last twenty-five years. From the WTO’s World Tariff Profiles 2020 the following simple bound tariff rates for all goods are identified for a number of countries. See https://www.wto.org/english/res_e/booksp_e/tariff_profiles20_e.pdf. While for developing countries, bound rates are often much higher than applied rates, the bound rates give those countries the ability to raise applied tariffs without challenge:

“Developed Countries”

United States: 3.4%

European Union: 5.1%

Japan: 4.7%

Canada: 6.4%

“Developing Countries”

China: 10.0%

Brazil: 31.4%

Chile: 25.2%

Costa Rica: 43.1%

Republic of Korea: 16.5%

India: 50.8%

Indonesia: 37.1%

Singapore: 9.5%

South Africa: 19.2%

Thus, for the eight candidates competing for the position of Director-General of the World Trade Organization, a challenging topic within the WTO for possible reform is whether the issue of Special and Differential treatment needs review to ensure that its provisions apply to those who actually have a need and not to three quarters of the Members simply because they self-selected. While not necessarily encompassed by the S&D question, for the United States, the issue also subsumes whether WTO reform needs to permit a rebalancing of tariff bindings based on changing economic development for WTO Members.

What follows is a review of the prepared statements to the General Council made by each candidate during July 15-17, my notes on candidates’ responses to questions during the press conference immediately following each candidate’s meeting with the General Council, and my notes on candidates’ responses to questions during webinars hosted by the Washington International Trade Association (WITA) and Asia Society Policy Institute (ASPI) (as of August 13, seven of the eight candidates have participated in such webinars; the webinar with the Moldovan candidate is being scheduled).

Dr. Jesus Seade Kuri (Mexico)

Dr. Seade did not take up the question of special and differential treatment directly as part of his prepared statement. One can read part of his statement to indicate that part of the challenges facing the WTO flow from the lack of success of the negotiating function on traditional issues (which would include further tariff liberalization). Also one could construe the need to modernize the organization as including the need to better reflect the need for all Members to carry the extent of liberalization that their stage of economic development permits.

“In the medium and long term, and in order to prevent the Organization from becoming obsolete and obsolete, it is important that mechanisms be
adopted to modernize it. I will seek to establish an informal dialogue on the
weaknesses and challenges of the Organization in the current context, through annual forums or specialized conferences.

“But thinking about long-term expectations, I am convinced that they have been affected by the lack of significant results in the negotiations since the
creation of the WTO. Thus, as results are achieved on 21st century issues, it will be very important to also energetically take up the traditional priority issues on the sustainable development agenda.” (Google translation from French)

During the press conference, Dr. Seade was asked a question on the issue of developed versus developing country designation. My notes on his response are as follows:

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

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. Dr. Seade was asked about the issue of self-selection of developing country status and how he would try to get Members to address. My notes on his response follow:

Dr. Seade had this to say:  he believes countries are looking at the issue the wrong way.  Special and differential treatment is like a discount card which you can use at a store.  Some customers have the discount card; some don’t.  The reality in the WTO is that everything is negotiated.  When you negotiate, you can talk to every Member.  If Members make whether and what type of special and differential treatment a Member needs part of negotiations, the outcome can be tailored so that Members are contributing what they can while still accommodating Members where there is a real need. While seeking to define who is a developing country may be an approach that can be taken, Dr. Seade believes that actually getting Members to agree to changing status is an impossible issue.  In his view, status is “theological” for many Members. 

One can look at the trade facilitation agreement for an example of where Members were asked to take on obligations to the extent they could; there were negotiations if more was felt possible from a Member.  The same type of approach can be taken in ongoing and new negotiations.  He believes this is the way to go.  The key question is not who is eligible, but for what does a Member need S&D.  This will be true at a country level (e.g., in Dr. Seade’s view Mexico and Brazil don’t need the same flexibilities as Angola).  But the need for differentiation in a given country may also differ by sector.  In fact the need for special and differential treatment can vary by product. Dr. Seade mentioned Mexico’s agriculture sector, where corn production is not efficient or modern and hence S&D may be necessary but where that is not the case for fruits and vegetable production.  Thus, Dr. Seade believes that going about it on a more practical way is the right way to make progress in the WTO.  Negotiate by agreement by country, etc.

Dr. Ngozi Okonjo-Iweala (Nigeria)

Dr. Ngozi Okonjo-Iweala’s prepared statement directly notes the differing positions on the issue of special and differential treatment and also mentions concerns of Members in terms of imbalances in rights and obligations and distribution of gains (which presumably includes the U.S. concern about high bound tariff rates of many countries who have gone through significant ecoonomic growth in the last 25 years).

“Members’ views differ on a number of fundamental issues, such as special and differential treatment or the need for the WTO to tackle new issues and develop new or enhanced rules to deal with SOEs and agricultural subsidies, for example.”

“While a key objective of the WTO is the liberalization of trade for the mutual benefit of its Members, it appears that this very concept is now a divisive issue as a result of the perceived imbalances in the rights and obligations of Members and the perceived uneven distribution of the gains from trade. I would constantly remind Members about the value of the MTS and help energize them to work harder to overcome the challenges that have paralyzed the WTO over the years.”

During the press conference on July 15th, Dr. Ngozi Okonjo-Iweala was not a question on S&D treatment, classification of developing countries or on tariff bindings.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/. Dr. Ngozi Okonjo-Iweala in her opening comments identified the issue of special and differential treatment as an issue that could be considered as part of WTO reform, although it wasn’t in her list of topics for tackling by the next WTO Ministerial Conference. She was asked a question about how to restore trust among Members and used that question to review her thoughts on special and differential treatment and the question of self-selection by Members as developing countries. Below is my summary of Dr. Ngozi Okonjo-Iweala’s discussion of the issue.

One issue being pushed by the United States and others that is very divisive is the issue of special and differential treatment and self-selection of developing country status.  The concern of those wanting a change is that self-selection and the automatic entitlement to S&D treatment shifts the balance of rights and obligations to advanced developing countries.  There is no disagreement that least-developed countries need special and differential treatment. In her view, the real question is whether other countries that view themselves as developing should get special and differential treatment automatically.  Dr. Ngozi Okonjo-Iweala believes the WTO needs a creative approach to resolve the issue.  For example, Members should address the need of individual Members for special and differential treatment on a negotiation by negotiation basis.  Members should, as part of each negotiation, consider what other Members believe their needs are based on level of development.  She references the Trade Facilitation Agreement as an example where Members took on obligations based on their level of development vs. a one size fits all approach.  Dr. Ngozi Okonjo-Iweala believes that if the Members can reach a resolution on this issue, the resolution would help build trust among Members and hence help the WTO move forward.

Mr. Abdel-Hamid Mamdouh (Egypt)

Mr. Mamdouh’s prepared statement did not directly deal with the topic of special and differential treatment or the changing economic competitiveness of Members. There is one statement towards the end of his statement which recognizes the evolving nature of the Membership.

“Since then, global trade has transformed, and trading powers have evolved. The circumstances and dynamics have changed. But the skillset we require of the leadership: imaginative thinking, and the ability to come up with legally sound and enforceable solutions – remain the same.”

During his press conference on July 15, Mr. Mamdouh was not asked a question on S&D treatment or the criteria for being a developing country.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. Mr. Mamdough was asked a question during the webinar on whether the large number of WTO Members who have self-declared as developing countries and hence are eligible for special and differential treatment doesn’t undermine the credibility of the organization and what he would do about it if he was Director-General. Below is my summary of Mr. Mamdouh’s response.

Mr. Mamdouh believes that the issue should be addressed in a pragmatic maner. He referred back to the General Agreement on Trade in Services (GATS) negotiated during the Uruguay Round and noted that the GATS contains no special and differential treatment provisions.  Thus, in the GATS, Members moved away from a system of country classifications.  In Mr. Mamdouh’s view, obligations should be customized based on a Member’s needs/abilities through negotiations.  Flexibilities to address particular Member needs can be determined individually.  While this was the approach in GATS, Members can do that on goods on any area that can be scheduled but also rule making areas.  In Mr. Mamdouh’s view for any substantive obligations, there is room to customize obligations through negotiations.  He believes that big developing countries wouldn’t oppose different countries taking on different obligations.  He doesn’t believe that a solution will be in negotiating a different categorization system.  The solution for the WTO is to take a pragmatic approach and customize the outcome based on negotiations.  Mr. Mamdouh referenced fisheries subsidies as an example where that could occur.  He believes customizing obligations based on individual Member needs will be increasingly necessary, citing the 164 current Members.  But he cautions that no “one size fits all”.  Every solution would need to be tailored on the basis of the area being negotiated.

Amb. Tudor Ulianovschi (Moldova)

Amb. Ulianovschi’s prepared statement to the General Council on July 16 covers a wide range of issues that need to be addressed going forward, but, does not mention the issue of special and differential treatment or which Members should not be eligible to be developing countries based on economic developments. Amb. Ulianovschi does have one sentence in his prepared statement which talks generally about addressing global inequalities.

“The WTO is one of the most complex organizations in the world today, and it’s one of the most needed as to ensure open, predictable, inclusive, rule based multilateral trading system, as well as – to address global inequalities and bridge the gap between the least developed, developing and developed countries.”

At the press conference on July 16, Amb. Ulianovschi was asked many questions but none of the developing country/special and differential treatment issue.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. During the webinar, Amb. Ulianovschi mentioned special and differential treatment both in his opening statement and in answer to a question. My notes on Amb. Ulianovschi’s comments are provided below.

From his opening statement, Amb. Ulianovschi noted that as a member driven organization, the WTO needs Members to negotiate to move forward.  He believes that a diplomatically active Director-General can help the WTO move forward, and he can help address lack of trust which he believes is largely psychological primarily based on unfinished business but also dispute settlement, special and differential treatment and other issues.

Q:  How important is it to have a reform agenda, and how can you convince major Members to agree on a common agenda? A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the WTO needs to address the horizontal issue of Special and Differential Treatment (S&D).  The S&D principle is at the core of the organization, but it is how you apply the principle which determines commitments of Members.  From that point of view, Amb. Ulianovschi sees it as a positive signal that major players are putting forward proposals on this topic.  The proposals should be the starting point for discussions.  Amb. Ulianovschi would invite those who have put forward proposals to start discussions with other Members.  Negotiations need political will to succeed, and Members need to agree on how to proceed.  He believes that if he is Director-General, he can get Members to that point.

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

Minister Yoo’s prepared statement covers many issues but does not address the issue of special and differential treatment/developing country classification.

In her press conference on July 17 after meeting with the General Council, Minister Yoo was asked a question on developing vs. developed country status. My notes on her response follow:

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

WITA had a webinar with Minister Yoo on August 11.  https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. Below is my summary of the question asked on the issue of special and differential treatment and self-selection of developing country status, and Minister Yoo’s response:

Korea has informed the WTO that Korea will not seek S&D treatment in ongoing or future negotiations.  Many Members thinks the self-selection of developing country status is undermining the system.  How do you evaluate the issue and how important is it to resolve?

Minister Yoo indicated that this is an important issue to resolve to make progress in ongoing and future negotiations.  She believes it is important to reflect on a core principle of the WTO to ensure that developing countries and least-developed countries secure their fair share of global trade.  The question for the WTO is how to effectuate this embedded principle.

Over half of WTO Members are developing countries and 36 others are least developed countries. In total roughly three fourths of all Members get special and differential treatment.  If so many are eligible for special and differential treatment, it likely means that the countries with the greatest needs are not receiving the assistance actually needed to help their development and greater participation in international trade.

In Minister Yoo’s view, the WTO has very divergent views among Members about changing the classification process for Members from self-selection to a set of factual criteria.  US has put forward a proposal to categorize members as developed based on different factual criteria.  However, there is no consensus at the WTO at the moment which means that changing the classification process will not happen until there is consensus.  In light of the lack of consensus, a pragmatic approach may be to have countries who can take on more responsibilities to do so voluntarily.  This will permit those who need assistance to get it.

Looking at the Trade Facilitation Agreement, while the Agreement is not necessarily representative of other areas under negotiation, it shows one way to handle the issue of special and differential treatment in a pragmatic way.  Some developing countries take on more responsibility than others without S&D treatment and without a transition period.  This is an example of how through negotiations, Members can customize obligations to individual Member capabilities.  Such an approach is practical and pragmatic.

In Korea’s case, Korea indicated that they would not seek S&D treatment in ongoing and future negotiations based on Korea’s state of economic development.  It was not an easy decision and required extensive internal consultations.  Korea wants to promote the WTO system.  She believes it is useful for each country to step up and take on more responsibility if they are capable of doing so.  The U.S. proposal has been important in raising the issue.  While no consensus exists at the moment, the U.S. action has gotten Members discussing the matter.  If Minister Yoo is selected to be the next Director-General, she would continue to raise the issue with Members to achieve a good outcome for all. She believes resolution of the issue can help unlock progress in ongoing and future negotiations.

H.E. Amina C. Mohamed (Kenya)

Minister Mohamed’s prepared statement contains a number of statements which recognize the need of Members to contribute according to their ability, although she does not address the classification of developing countries or the need for special and differential treatment specifically.

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

“All Members should contribute to trade opening and facilitation efforts, especially those most in a position to do so.”

“We need a WTO that is fair and equitable, taking into account the level of economic development of each member. All WTO Members must be prepared to contribute to improving and strengthening the organization, so that it can facilitate trade for the benefit of all, and contribute to economic recovery from the effects of the pandemic.”

During Minister Mohamed’s press conference on July 16, no questions were asked about developing country status or on special and differential treatment.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. During the webinar, Minister Mohamed both made several comments on special and differential treatment and self-selection of developing country status, but also answered a question. My notes on her comments and the question asked are summarized below:

One of issues needing to be addressed by the WTO are the current “divisions over developing country status”.

We need a WTO that is fair and equitable considering the level of economic development of each Member.  The WTO should give effect to its development objectives in a practical and enabling way that takes into account needs and results.  All WTO Members must be prepared to contribute to strengthening and improving the WTO system.

Q: The U.S. has raised the issue of self-declaration of developing country status.  How would you handle the issue if you become Director-General?

Minister Mohamed noted that special and differential treatment is an integral part of existing agreements.  However, going forward, the journey to modify the approach to S&D has already begun. ” The train has already left the station.” Minister Mohamed noted that in the Trade Facilitation Agreement, any special treatment was based on the need of the individual Member. Countries assumed obligations they were able to, so different developing countries assumed different levels of obligations with or without transition periods.

Second, self-declaration by certain countries that they would no longer seek special and differential treatment has already occurred (Korea, Brazil, Singapore and Costa Rica).  Minister Mohamed believes the WTO will see more of this going forward by other countries.  If Minister Mohamed is selected to be the next Director-General, she would continue discussions among the Members and have candid discussions with some of the Members.  But she believes moving forward, special and differential treatment will be increasingly based on actual need.

H.E. Mohammed Maziad Al-Tuwaijri (Saudi Arabia)

Minister Al-Tuwaijri in his prepared statement to the General Council on July 17 addressed briefly the proposal from the U.S. on special and differential treatment (classification of developing countries):

“Concerning Special and Differential Treatment, the bottom line is, without negotiations that include incentives for everyone to participate actively, I do not think it will be possible for Members to address the issue of SDT. This is one of the main reasons that the negotiating function needs to start working. Members have various capacities to implement and take advantage of new rules and commitments, so it is clear that each Member must decide for itself what is in its own interest.”

At his press conference on July 17, Minister Al-Tuwaijri was not asked a question on special and differential treatment or of classification of developing countries.

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/. During the webinar Minister Al-Tuwaijri was not asked a question on self-selection of developing country status or on special and differential treatment.

The Rt Hon Dr. Liam Fox MP

Dr. Fox’s prepared statement to the General Council on July 17 did not include any references to special and differential treatment or to the classification of developing countries.

During his press conference on July 17, Dr. Fox was not asked a question dealing with special and differential treatment or the classification of developing countries.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. Dr. Fox was asked about the concerns expressed by the U.S. and others that the process of self-selection of developing country status had resulted in too many Members having special and differential treatment. There was a need to see that S&D is limited to those who actually need help. How would Dr. Fox address this issue if he were selected as the Director-General? What follows reflects my notes on Dr. Fox’s response.

Dr. Fox stated that first, the WTO must reassess that we are all aiming at the same goal.  As the WTO has expanded membership, Members knew that the organization would have countries with vast differences in capabilities and that it would take different countries different amounts of time to get to full implementation.  Thus, special and differential treatment is available. However, Dr. Fox understands that there are some WTO Members who want to be perpetually exempted from undertaking full obligations regardless of the level of economic development they have achieved. Dr. Fox views this approach as unacceptable. Membership in an organization envisions equal rights and obligations, though it may take some members longer to get there.

On the topic of special and differential treatment, Dr. Fox believes that it is important to accelerate the rate of development for countries that are developing or least-developed, so that their improved level of economic development means they don’t need special and differential treatment.  One of the reasons some Members gave Dr. Fox for not wanting to be moved into a different category, was the concern over loss of trade preferences.  Dr. Fox used as an example, small coastal economies who can experience wide swings in per capita GDP based on external events (hurricanes, etc.) which can move them from high income to low income and back in short order.  Dr. Fox believes WTO Members must think creatively on how to address concerns of Members that giving up developing country status will put them in difficulties. On his example, he suggested using multiple year averages.

Conclusion

As the WTO has become a much more universal organization, membership has widely expanded beyond the historical developed country proponents of the GATT. At the same time, in recent decades there has been tremendous economic development by many countries which should mean that the ability of Members to handle full or increased obligations of the WTO has increased for many countries.

Yet, the current system does not provide a means for modifying obligations of Members who joined as developing country members regardless of the level of development achieved after joining. The view of some Members is that this disconnect between actual economic development and level of commitments undertaken has contributed to the inability to conclude negotiations. The issues raised by the United States have resulted in a few countries indicating that they will not seek special and differential treatment in ongoing or future negotiations. In at least one recent agreement, the Trade Facilitation Agreement, countries have assumed obligations based on their perceived need and not as a general right with the result of countries who may have self-selected developing country status taking on more obligations with lower or no delay in implementation than other developing countries.

For the incoming Director-General, finding a solution to this issue acceptable to all Members could be critical to unlocking progress on other negotiations.