United States

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

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

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

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

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

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

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

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

Existing deterrents

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

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

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

“To the friends of Silverado Policy Accelerator,

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

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

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

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

“* * *

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

1. Passage of a comprehensive federal cyber incident reporting law

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are other trade remedies needed?

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

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

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

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

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

Is it time for a new approach to bilateral trade with China?

Press accounts last week reviewed new record merchandise trade surpluses for China with the world and a growing trade surplus with the United States despite the Section 301 tariffs and other actions which reduced the bilateral trade deficit in 2019 and 2020 from the figures in 2018. See Reuters, China posts record trade surplus in Dec and 2021 on robust exports, January 14, 2022, https://www.reuters.com/markets/currencies/chinas-exports-imports-grow-more-slowly-december-2022-01-14/ (“The trade surplus hit $676.43 billion in 2021, the highest since records started in 1950, up from $523.99 billion in 2020, according to data from the statistics bureau.” “China’s hefty trade surplus with the United States, a key source of contention between the world’s two biggest economies, hit $39.23 billion in December, widening from $36.95 billion the month before, but below this year’s high of $42 billion in September.”). While U.S. trade data are not yet available for December, the U.S. bilateral trade deficit with China for eleven months of 2021 was $319.151 billion, suggesting full year deficit with China of more than $358 billion — reversing the declining deficits of the last several years with China.

For the U.S., 2021 will be the first year where the trade deficit in goods exceeds $1 trillion dollars. So while the U.S. has significant deficits with a number of countries, for the Biden Administration and Congress, the most concerning aspect of the deficit is the effect of distortions flowing from China’s economic system, one that is at odds with the U.S. market-based system and not consistent with WTO basic principles.

I have in prior posts reviewed the incompatability of the Chinese economic system with WTO norms. I have also provided the views of a former WTO Deputy Director-General on the importance of convergence of economic systems as opposed to coexistence, and the views of trade officials in the U.S. and EU on challenges posed by Chna’s economic system. See, e.g., December 11, 2021:  20 Years of China’s Membership in the WTO — a brief critique, https://currentthoughtsontrade.com/2021/12/11/20-years-of-chinas-membership-in-the-wto-a-brief-critique/; October 16, 2021:  What role China could play in WTO reform — possibilities are real but chances of a positive role are not, https://currentthoughtsontrade.com/2021/10/16/what-role-china-could-play-in-wto-reform-possibilities-are-real-but-chances-of-a-positive-role-are-not/; April 8, 2021:  USTR 2021 National Trade Estimate Report on Foreign Trade Barriers — areas of concern with a focus on China, https://currentthoughtsontrade.com/2021/04/08/ustr-2021-national-trade-estimate-report-on-foreign-trade-barriers-areas-of-concern-with-a-focus-on-china/; March 31, 2021:  “Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system, https://currentthoughtsontrade.com/2021/03/31/blowing-up-the-trading-system-clyde-prestowitzs-suggested-way-for-the-world-to-move-forward-in-light-of-chinas-economic-system/; March 29, 2021:  China and the WTO – remarks by Dennis C. Shea to the Coalition for a Prosperous America, https://currentthoughtsontrade.com/2021/03/29/china-and-the-wto-remarks-by-dennis-c-shea-to-the-coalition-for-a-prosperous-america/; January 17, 2021, USTR on January 14, 2021 released its 2020 report to Congress on China’s WTO compliance, https://currentthoughtsontrade.com/2021/01/17/ustr-on-january-14-2021-releases-its-2020-report-to-congress-on-chinas-wto-compliance/; November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/; August 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/; July 25, 2020:  A new WTO without China?  The July 20, 2020 Les Echos opinion piece by Mogens Peter Carl, a former EC Director General for Trade and then Environment, https://currentthoughtsontrade.com/2020/07/25/a-new-wto-without-china-the-july-20-2020-les-echos-opinion-piece-by-mogens-peter-carl-a-former-ec-director-general-for-trade-and-then-environment/.

As has been reviewed in annual USTR reviews of China’s compliance with WTO commitments, the challenges faced by China’s trading partners are many and largely unaddressed despite efforts through dispute settlement, through bilateral negotiations and otherwise. The U.S.-China Phase 1 Agreement resulted in minimal affirmative movement in U.S. exports to China and there are open issues in terms of China’s implementation and enforcement of other commitments. See, e.g., Peterson Institute for International Economics, December 23, 2021, US-China phase one tracker: China’s purchases of US goods, As of November 2021, https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods. While there were increases in U.S. exports to China over 2017 levels in 2020 and 2021 for agriculture, manufactured goods and energy, there were large declines for non-covered goods, so that there was relatively little actual overall progress on merchandise trade and large declines in services trade. See, e.g., USITC data web, U.S. total exports to China (2017, $130.0 BN; 2018, $120.2 BN; 2019, $106.4 BN; 2020, $124.5 BN; 2021 (11 mos.) $137.7 BN); U.S. Census Bureau and the U.S. Bureau of Economic Analysis, MONTHLY U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES, NOVEMBER 2021, January 6, 2022, https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf (Exhibit 20b).

Options

Obviously for nations facing the challenges of dealing with the distortions flowing from China’s economic system, one can attempt to work through the WTO and seek reforms that will address at least some of the major distortions. The U.S., EU, Japan and others are attempting that in the areas of industrial subsidies, state owned and controlled entities and other areas. The prognosis for movement is limited in the near term and even in the middle or long-term as long as China is committed to maintaining its system. Plurilateral negotiations on Joint Statement Initiatives also offer some hope for certain areas, assuming China is a participant and actually implements obligations undertaken.

Plurilateral trade agreements, such as CPTPP, could be another option. China has applied and would have to undertake some significant reforms to enter. The real question would be whether those changes would change the underlying disconnect between the state system pursued by China and market disciplines followed by many others.

Others have argued for major countries withdrawing from the WTO and setting up a system where China is either not a member or must become a market economy in fact to participate. Arguably if the EU and US were to join the CPTPP and seek further modifications, and if China’s application were not accepted until China’s system were significantly modified, this would be an option. A suggestion from the former EC Trade Commissioner is for the EU and U.S. to join the CPTPP. See PIIE’s Cecilia Malmstrom, The EU should use its trade power strategically, January 4, 2022, https://www.piie.com/blogs/realtime-economic-issues-watch/eu-should-use-its-trade-power-strategically (“The European Union should also seek to enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and convince the United States to do the same. The European Union already has agreements with most members of the CPTPP, but an FTA would signal the European Union’s readiness to strengthen global trading rules with its partners.”).

The United States has pursued a strategy of strengthening various tools to address discrete issues with China and working with China to have them honor their existing WTO and bilateral agreements. Presumably that approach will continue to be pursued, but the downside of such an approach without more is the long time delay to meaningful change which means ongoing harm to the U.S. industrial base, workers and communities.

Warren Buffett in 2003 and again in 2016 advocated for a system of issuing import certificates to exporters equal to the value of the exports which certificates could be sold, etc. and which would result in a trade balance in goods. See, e.g., Fortune, Warren Buffett: Here’s How I Would Solve the Trade Problem,
April 29, 2016, ttps://fortune.com/2016/04/29/warren-buffett-foreign-trade/. His idea was to address the trade deficit overall and not focus on trading partners whose economic systems don’t mesh with the U.S. model. But an approach vis-a-vis selected countries pending the necessary economic reforms would be a narrower option and more focused on the underlying concern.

Last month in the Harvard Business Review, an article by Thomas Hout argued for a cap and trade system with China. See Harvard Business Review, Thomas Hout, A New Approach to Rebalancing the U.S-China
Trade Deficit, December 20, 2021, https://hbr.org/2021/12/a-new-approach-to-rebalancing-the-u-s-china-trade-deficit. The cap and trade approach is similar to Warren Buffett’s idea but limited to trade with China, as the author notes.

“Such a cap-and-trade system for imports from China would be much like the one for greenhouse gas emissions in various parts of the world. The beauty of this system is its insulation from political favoritism and bureaucracy: Market forces would determine who buys licenses and what gets imported. The cap’s level can be managed relative to a target such as GDP or the size of the trade deficit.” The author suggests flexibility in its implementation to limit any disruptions to U.S. businesses.

Conclusion

The Biden Administration has put its initial efforts into addressing domestic competitive needs such as the infrastructure legislation and the Build Back Better bill. At the same time, the Administration has been reviewing how the U.S. should be dealing with China across a broad array of issues including trade.

A multifaceted approach will certainly be needed. While the U.S. has pursued various multifaceted approaches in the past, China’s decision not to abandon state direction and control requires a recognition that global trade principles alone will not ensure fair trade conditions for U.S. companies either in the U.S., in China or in third countries.

In such a situation, considering a cap and trade system for trade with China and encouraging our major market-based trading partners to do the same would seem an important tool for achieving greater sustainability in our trade relationship with China.

WTO efforts to address the COVID-19 pandemic — the January 10, 2022 General Council meeting and some current developments of interest

As the world enters the third full year of fighting the COVID-19 pandemic, the WTO continues to seek both a response to the current challenges and a path forward for future pandemics. India, which along with South Africa (and later support from other countries), has sought since October 2020 a waiver from certain intellectual property protections provided under the WTO’s Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) to address the COVID-19 pandemic, in late December 2021 sent a letter to the General Council Chair of the WTO seeking a virtual ministerial meeting to address the WTO response to the pandemic. This followed the postponement of the 12th WTO Ministerial Conference because of restrictions on travel flowing from the increase in COVID cases from the omicron variant.

The WTO press release on the General Council informal meeting held on January 10, 2022 to explore India’s request put a largely positive spin on the meeting, although press accounts suggest that there was push back from many other WTO Members to holding such a virtual Ministerial for various reasons, including lack of progress in developing an agreed text on any TRIPS waiver, need to address other pressing issues and the challenges of doing a Ministerial meeting virtually based on last year’s experience. See WTO news release, General Council discusses India’s call for virtual ministerial meeting on pandemic response, 10 January 2022, https://www.wto.org/english/news_e/news22_e/gc_10jan22_e.htm (” General Council Chair Ambassador Dacio Castillo (Honduras) convened the 10 January meeting in response to India’s recent proposal to hold a virtual Ministerial Conference on the WTO’s response to the COVID-19 pandemic, including a proposed waiver of relevant intellectual property protections. At the meeting, Director-General Ngozi Okonjo-Iweala urged WTO members to urgently step up their efforts, suggesting that with the requisite political will, members can in the space of the coming weeks reach multilateral compromises on intellectual property and other issues so that the WTO fully contributes to the global response to COVID-19 and future pandemics.”); Inside U.S. Trade’s World Trade Online, WTO members reluctant to hold virtual ministerial on TRIPS waiver, January 10, 2022, https://insidetrade.com/daily-news/wto-members-reluctant-hold-virtual-ministerial-trips-waiver (“India’s bid to schedule a virtual ministerial meeting focused on the proposed waiver of some intellectual property obligations to fight the pandemic did not win the support of other World Trade Organization members on Monday, as they raised concerns about the virtual format as well as with a lack of progress in the negotiations.”). While the U.S. was reportedly favorably disposed to such a meeting with greater clarifications, the European Union statement noted all of the issues raised in the Inside U.S. Trade article. See also The Hindu, WTO General Council discusses India’s call for holding virtual Ministerial meet on COVID-19 pandemic response, 11 January 2022, https://www.thehindu.com/business/wto-general-council-discusses-indias-call-for-holding-virtual-ministerial-meet-on-covid-19-pandemic-response/article38231454.ece.

While the U.S., under the Biden Administration, has stopped posting on the U.S. Mission website their statements at meetings other than the Dispute Settlement Body (unclear if this is due to a policy change or simply the lack of a Deputy USTR confirmed by the Senate), the EU is posting their statements on their Geneva website. See EU Statement at the General Council Informal Meeting, 10 January 2022, https://eeas.europa.eu/delegations/world-trade-organization-wto/109489/eu-statement-general-council-informal-meeting-10-january-2022_en. The entirety of the EU statement is copied below.

“Statement delivered by Ambassador João Aguiar Machado

“For the European Union, the WTO needs to put in place a process that is conducive to progress on all topics of the MC12 agenda.

“Of course, the European Union shares the view that the response to the pandemic is important. However, we need to be careful that a focus on this part of the MC12 agenda must not lead to a loss of momentum on the other key components, which are equally essential to the revitalisation of the organisation – such as the conclusion of the fisheries subsidies negotiations, agreeing on a way forward on agriculture, and finalising the Ministerial Declaration with a strong commitment on WTO reform – and this, building upon the work done by you, Chairman [Chairman of the General Council], in the run-up to the Ministerial meeting in November. These elements are all essential for the credibility and viability of this organisation. WTO reform is also essential from a health perspective. We need an efficient and effective organisation if we are going to be in a position to act decisively in the case of future pandemics.

“Before any decision to call a virtual Ministerial meeting and topics to be decided, we believe the WTO Director General and the Chair of the General Council should hold consultations with Members, to assess the way forward on all four issues that I referred to.

“As regards trade and health, the aim should be to seek consensus on the way forward both on intellectual property and on the Declaration and Action Plan. As regards the latter, Ambassador Walker’s draft text should be the basis for such consultations. And as regards intellectual property rights, consultations should continue with a view to identifying a text on which the WTO Membership can agree.

“Any virtual Ministerial should take place only once there is a consensus both on intellectual property rights and on the Declaration and Action Plan on the wider pandemic response. Only a comprehensive trade response to the pandemic can make a difference and address the identified bottlenecks as regards the production and distribution of COVID-19 vaccines such as restricted access to raw materials and other inputs as well as complex supply chains. Agreeing on the comprehensive elements contained in the Walker text will be important not only to tackle Covid-19, but also to address future pandemics.

“If we want to take forward work on all elements of the MC12 agenda, we must have a credible process in place.

“In summary, the European Union is open to consider the proposal by India and to reach an agreement on all aspects of the response to Covid-19 as quickly as possible. However, in the European Union’s view, it is premature to decide at this point in time on either the principle or on the date for such a virtual meeting.”

Thus, while the Director-General is pushing Members for an early resolution of the pandemic response (including any TRIPS waiver), the path forward looks certain to take significantly more time than a few weeks to reach agreement.

The WTO has added a page to its website entitled “Trade and health: WTO response to the COVID-19 pandemic”. The page accessed today states “State of Play – 6 January 2022” — i.e., before the informal General Council meeting on January 10th. However, it provides a good overview of what has been proposed and differences that exist on the waiver issue. See Briefing Note, State of Play 6 January 2022, Trade and health: WTO response to the COVID-19 pandemic, https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bftrade_and_health_e.htm. The briefing note is embedded below.

WTO-_-Ministerial-conferences-MC12-briefing-note

Some current developments of interest

By the end of 2021, COVID vaccines were being produced at a rate of about 1.5 billion doses per month. Additional vaccines are being added which will drive production up even higher during the early months of 2022. See, e.g., BBC, Covovax and Corbevax: What we know about India’s new Covid vaccines, 28 December 2021, https://www.bbc.com/news/world-asia-india-55748124.

Corbevax has received a lot of attention in the media in the last few weeks. The Indian producer has 150 million doses ready for distribution, will be producing 100 million doses per month and plans to export one billion doses to other countries. The developers and the Indian producer are working with the WHO to pursue emergency use authorization through the WHO as well. See, e.g., NPR, A Texas team comes up with a COVID vaccine that could be a global game changer, January 5, 2022, https://www.npr.org/sections/goatsandsoda/2022/01/05/1070046189/a-texas-team-comes-up-with-a-covid-vaccine-that-could-be-a-global-game-changer (“A vaccine authorized in December for use in India may help solve one of the most vexing problems in global public health: How to supply lower-income countries with a COVID-19 vaccine that is safe, effective and affordable. The vaccine is called CORBEVAX. It uses old but proven vaccine technology and can be manufactured far more easily than most, if not all, of the COVID-19 vaccines in use today. ‘CORBEVAX is a game changer,’ says Dr. Keith Martin, executive director of the Consortium of Universities for Global Health in Washington, D.C. ‘It’s going to enable countries around the world, particularly low-income countries, to be able to produce these vaccines and distribute them in a way that’s going to be affordable, effective and safe.'” “Hotez says that unlike the mRNA vaccines from Pfizer and Moderna, and the viral vector vaccine from Johnson & Johnson, protein subunit vaccines like CORBEVAX have a track record. So he and Bottazzi were relatively certain CORBEVAX would be safe and effective. ‘And it’s cheap, a dollar, dollar fifty a dose,’ Hotez says. ‘You’re not going to get less expensive than that.'”); The Times of India, Discussions underway for WHO approval for
Corbevax Covid-19 vaccine, says developer, 31 December 2021, https://timesofindia.indiatimes.com/world/us/discussions-underway-for-who-approval-for-corbevax-covid-19-vaccine-says-developer/articleshow/88604880.cms.

These developments are occurring at a time of record breaking numbers of new infections due to the more highly contagious omicron variant. While many parts of the world are seeing huge surges, Europe and the United States are seeing particularly huge increases. See, e.g., Reuters, U.S. reports 1.35 million COVID-19 cases in a day, shattering global record, January 11, 2022, https://www.reuters.com/business/healthcare-pharmaceuticals/us-reports-least-11-mln-covid-cases-day-shattering-global-record-2022-01-11/; WHO, WHO: 7 million new omicron COVID cases in Europe last week, January 11, 2022, https://www.washingtonpost.com/politics/who-7-million-new-omicron-covid-cases-in-europe-last-week/2022/01/11/7e901e28-72cc-11ec-a26d-1c21c16b1c93_story.html.

A few thoughts

When one looks at vaccination distribution in 2021, the concerns about inequity center largely on the vary small volume of vaccines that have gone to low income countries (as classified by the World Bank) and to some lower middle-income countries. See, e.g., December 30, 2021:  COVID-19 and vaccine equity — outlook for 2022, https://currentthoughtsontrade.com/2021/12/30/covid-19-and-vaccine-equity-outlook-for-2022/.

The largest volume of vaccines that COVAX had envisioned going to these countries were lower cost ones that would be easier to store, handle and administer than some of the high cost new technology vaccines. Production problems and export bans of the more cost effective and easier to store vaccines in 2021 were the largest reasons of poor distribution of vaccines to lower income countries.

With large volumes of donations committed for 2022 from countries like the U.S. and EU and others and with Indian production both ramping up significantly and exports having resumed and with the availability of low cost options, including new vaccines like Corbevax already approved in India and likely to be produced in various countries around the world at very low costs, and with the overall very high levels of global vaccine production by the end of 2021 continuing to expand, the question of getting the world vaccinated in 2022 against COVID will almost certainly be more about issues other than availability of vaccines.

So the WTO’s most important role in the coming weeks and months is to focus on reducing barriers to trade such as those covered by the Walker draft text (discussed in the briefing paper). The TRIPS waiver issue is one that has attracted a lot of attention because of the perception of global needs and whether intellectual property rights were restricting access. In my view, while the proposal was popular with many groups, the evidence of production during 2021 did not support the concern that the TRIPS agreement was restricting production. More than 10 billion doses of COVID-19 vaccines were produced and shipped in 2021 — twice as many doses as all vaccines produced and shipped in 2020 for all other needs. Many licenses were granted for production in other countries. A waiver would not have resulted in significantly more production in 2021.

Production in 2022 and the arrival of new low cost vaccines should mean there is adequate volumes for the world to achieve 70% vaccination rates this year. The issue of equity in 2021 had to do with distribution of the production, infrastructure in many countries, trade restrictions on vaccines and inputs. These do not require a TRIPS waiver to address in 2022.

Looking forward to the next pandemic, there is much that the WTO Members could agree to that would reduce many of the challenges COVID-19 has posed. It is not clear that actions on intellectual property beyond what is being proposed by the EU are needed or justified by the experience gained these last several years.

How to Make Trade Work for Working Men and Women in 2022 — changing the status quo is needed but unrealistic in the near future

In prior posts, I have reviewed how the existing global trading system is not working as intended because of the massive distortions created by different economic systems (in particular, the presence and growth on state directed economies). See, e.g., October 16, 2021:  What role China could play in WTO reform — possibilities are real but chances of a positive role are not, https://currentthoughtsontrade.com/2021/10/16/what-role-china-could-play-in-wto-reform-possibilities-are-real-but-chances-of-a-positive-role-are-not/ (“Trade and the WTO have obviously been highly beneficial to China and to many other Members. Nonetheless, China has been working hard not to have its economic system evolve to a market-based one. It has generally not pursued liberalization that benefits all versus favoring China. It insists on coexistence vs. convergence. It uses the consensus system to prevent evaluation of its practices which distort trade It has limited transparency of its actions and has engaged in actions against individual Members that are retaliatory and coercive. As the world’s largest exporter, China has a critical role in global trade. But the dangers Amb. Wolff has outlined in his speech where market principles and convergence are not the core values are manifesting themselves in the world marketplace as countries look for alternative approaches to deal with China’s trade distortions. Amb. Wolff’s speech outlines a number of ways that China can improve the functioning of the WTO and exhibit leadership in WTO reform. His speech is an important one which hopefully has had a receptive audience in China. Unfortunately, while there are some identified actions that China may take, it is unlikely that China will do anything to address the critical differences that its economic system poses to the survival of the global trading system.”); October 8, 2021: The gap between WTO activity and the needs of businesses and workers for the international trading system, https://currentthoughtsontrade.com/2021/10/08/the-gap-between-wto-activity-and-the-needs-of-businesses-and-workers-for-the-international-trading-system/ (“The challenges at the WTO flow from some historical challenges (the preference of India to see no agreements imposing obligations on them, now supported by South Africa and others), from the growing divergence in views as to the purpose of the WTO, from the increased importance of non-market economies in the global trading system and the current failure of existing rules to address their distortions to global trade flows and competition, and the inability of a consensus system with 164 Members to move forward in a timely manner, if at all.”); May 1, 2021:  Alan Wolff’s vision for saving the WTO — aspirational but is it achievable?, https://currentthoughtsontrade.com/2021/05/01/alan-wolffs-vision-for-saving-the-wto-aspirational-but-is-it-achievable/; March 31, 2021:  “Blowing up the trading system” — Clyde Prestowitz’s suggested way for the world to move forward in light of China’s economic system, https://currentthoughtsontrade.com/2021/03/31/blowing-up-the-trading-system-clyde-prestowitzs-suggested-way-for-the-world-to-move-forward-in-light-of-chinas-economic-system/, March 29, 2021:  China and the WTO – remarks by Dennis C. Shea to the Coalition for a Prosperous America, https://currentthoughtsontrade.com/2021/03/29/china-and-the-wto-remarks-by-dennis-c-shea-to-the-coalition-for-a-prosperous-america/; March 24, 2021:  When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang, https://currentthoughtsontrade.com/2021/03/24/when-human-rights-violations-create-trade-distortions-the-case-of-chinas-treatment-of-the-uyghurs-in-xinjiang/.

The Biden Administration has been advocating a worker centric trade policy and has advanced domestic policies intended to improve U.S. competitiveness. But the challenges for working men and women in a trading system that doesn’t operate in fact on market principles and doesn’t have effective tools for addressing quickly distortions can be seen in the conflicts that arise when trade actions are taken by a single country. Remedies imposed (such as duties, quotas, etc.) will help the harmed industries and workers, although based on the level of difficulty of achieving a remedy, may occur only after the industry and its workers have suffered isignificant harm (layoffs, plant closings, reduced investment, etc.). At the same time, downstream users who have to compete with products from producers in other countries who have access to the distortively priced products view themselves as harmed by conditions of fair trade being imposed on inputs.

When a country like China engages in massive distortions through state direction, subsidization and other means, global excess capacity of extraordinary amounts can put global competitors in a long term struggle to survive despite not having caused the excess capacity. The Trump Administration imposed Section 232 tariffs on steel and aluminum to address U.S. national security concerns about the sectors with the primary cause of the problem being China’s actions and the global reactions to massive excess capacity. Similarly, long standing concerns about a range of practices by China led to the Trump Administration’s Section 301 investigation in 2018 and action when China did not address the U.S. concerns (with retaliation and counter actions following).

While many countries filed WTO disputes in 2018 on the 232 actions of the U.S. and a number of countries retaliated without WTO authorization (many claiming U.S. was a safeguard action permitting at least some retaliation immediately) and China challenged the 301 action, and the U.S. filed challenges to the retaliation taken by trading partners, those disputes remain before panels at the beginning of 2022, with indications that panel reports will issue during the first half of 2022 (232 challenges) or second half of 2022 (cases on retaliation).

The Biden Administration has continued both sets of remedies though has come up wth alternatives to tariffs for steel and aluminum with certain trading partners (EU, Japan in negotiations).

Because users of products subject to Section 232 or 301 tariffs look at the short term issue of cost competitiveness (and the consequences to their businesses and workers), importers have pursued broader product exclusions from tariffs or an end to the tariffs altogether. As has been true over the last three years, such efforts have support from some members of Congress.

Thus, conflict exists among different groups within the United States but flows directly from the massive market distortions flowing from activities by some countries for which there are no existing remedies. While seeking changes in global trading rules is an important avenue for change, such change will take years (a decade or more in all likelihood) to achieve, if any resolution is actually possible. The steel and aluminum sectors have been seeking a global solution to the massive excess capacity problem caused by China and others for years now with no demonstrable progress.

For workers in the industries directly affected by the massive distortions, they have been promised a trading system where trade will be guided by market principles and where distortions can be addressed through trade defense instruments or other tools or where temporary relief from imports can take place to address significant problems. Very clearly, the trading system has not ensured a level playing field in fact and has not addressed the massive distortions that exist for countries with state-controlled or directed economies like China. This has put an unreasonable burden on workers and their employers to pursue trade remedies in a system where there is no compensation for past harm and relief is not available until jobs are lost, companies have shuttered factories, reduced investment including in R&D.

A recent letter to the U.S. Congress from the United Steelworkers International President Thomas M. Conway on various duties (301, 232 and other) lays out the frustrations of working men and women who are in the direct line of attack from trade distortions abroad and their need for relief from such practices. The letter is embedded below.

USW-letter-to-Hill-re-301-and-232-relief

The USW is a former client of my firm before my retirement. As a result, I am aware of the extraordinary effort they take to preserve jobs from the effects of market distortions in a wide array of manufacturing sectors in the U.S. The USW understandably views efforts to undermine trade actions to address distortions or to protect national security as contrary to the interests of working men and women.

While 232 and 301 relief have been subject to exclusion processes in the U.S., for users, such processes will work only when applicants are actually attempting to work with domestic producers or third country producers for alternative sources of supply (for either immediate supply or for supply in the coming months/years) and only where frivolous requests carry some costs for the applicant. Exclusions should only continue until an alternate source or sources of supply are found and shouldn’t frustrate efforts of domestic producers and their workers to expand offerings. The existence of a lower price from China or others should not be the basis for an exclusion where a domestic producer is producing or will product the specific product of interest.

The challenge for the United States and other WTO Members is to adopt rules that deliver a level playing field in fact, that prevent massive global excess capacity, that permit defensive action to be taken before plants are closed, workers laid off, investments postponed or cancelled and R&D reduced, and that compensate companies and workers injured by dumping, subsidization and other distortive practices to reduce the incentive to engage in such practices.

The WTO and Member governments can’t be surprised at the lack of support for the trading system from many working men and women when a fundamental promise of the system is not kept — competition based on market principles with remedies to address distortions in a timely manner. The WTO has never been able to move quickly. Many issues simply never get addressed because of the consensus system and the lack of agreement on fundamental purpose and principles by the existing 164 Members. Thus, one should expect continued concern among working men and women with the ability of the WTO to deliver market based competition with effective remedies for distortions.

The Russian Federation’s compliance with WTO obligations — the recent USTR Report

The Russian Federation became the 156th Member of the WTO on August 22, 2012. Since the accession of the Russian Federation, eight other countries have acceded, the last on July 29, 2016 with 23 additional countries in the queue at the WTO. Like other WTO Members, the Russian Federation goes through periodic Trade Policy Reviews (“TPR”) as part of the WTO’s effort to ensure transparency in Member policies and to permit Members to raise questions on policies and practices of each other. The first TPR for the Russian Federation was conducted in 2016. See TRADE POLICY REVIEW, REPORT BY THE SECRETARIAT, RUSSIAN FEDERATION, 24 August 2016, WT/TPR/S/345; TRADE POLICY REVIEW, REPORT BY
RUSSIAN FEDERATION, 24 August 2016, WT/TPR/G/345; TRADE POLICY REVIEW, REPORT BY THE SECRETARIAT, RUSSIAN FEDERATION Revision, 6 December 2016, WT/TPR/S/345/Rev.1; TRADE POLICY REVIEW, RUSSIAN FEDERATION, MINUTES OF THE MEETING, 25 November 2016, WT/TPR/M/345; TRADE POLICY REVIEW, RUSSIAN FEDERATION, MINUTES OF THE MEETING, Addendum (written questions and replies), 19 December 2016, WT/TPR/M/345/Add.1; TRADE POLICY REVIEW: RUSSIAN FEDERATION, 28 AND 30 SEPTEMBER 2016, Concluding remarks by the Chairperson, https://www.wto.org/english/tratop_e/tpr_e/tp445_crc_e.htm.

The second TPR was conducted in 2021 with the two day meeting with Members happening on October 27 and 29, 2021. See TRADE POLICY REVIEW, REPORT BY THE SECRETARIAT, RUSSIAN FEDERATION, 22 September 2021, WT/TPR/S/416; TRADE POLICY REVIEW, REPORT BY RUSSIAN FEDERATION, 22 September 2021, WT/TPR/G/416; TRADE POLICY REVIEW MECHANISM, COMMUNICATION FROM THE CHAIRPERSON OF THE TRADE POLICY REVIEW BODY, RUSSIAN FEDERATION, Arrangements for Review Meeting, 6 October 2021, WT/TPR/466; TRADE POLICY REVIEW: RUSSIAN FEDERATION, Concluding remarks by the Chairperson, 27 and 29 October 2021, https://www.wto.org/english/tratop_e/tpr_e/tp516_crc_e.htm; EU Statement at the Trade Policy Review of the Russian Federation, 27 October 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/106279/eu-statement-trade-policy-review-russian-federation-27-october-2021_en; Statement by H.E. Ambassador LI Chenggang at the 2nd Trade Policy Review of Russia, http://wto.mofcom.gov.cn/article/meetingsandstatements/202111/20211103214021.shtml.

While the Russian Federation is not an important trading partner of the United States, because of the geopolitical relationship for the last many decades, the U.S. Congress has required an annual report on the Russian Federation’s compliance with WTO obligations since Russia’s accession in 2012. The ninth such report was released by the Office of the U.S. Trade Representative on December 21, 2021. See USTR Press Release, USTR Announces 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments, December 21, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/december/ustr-announces-2021-report-implementation-and-enforcement-russias-wto-commitments; United States Trade Representative, 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments, December 2021, https://ustr.gov/sites/default/files/enforcement/WTO/2021%20Report%20on%20Russia’s%20WTO%20Compliance.pdf.

Today’s post reviews some of the USTR findings but starts with some background information on the Russian Federation and a look at the recent Trade Policy Review for the country.

Background information on the Russian Federation

The CIA World Factbook provides a lot of information on countries. The entry for the Russian Federation was last updated on December 17, 2021. See CIA, World Factbook, Russia, https://www.cia.gov/the-world-factbook/countries/russia/. According to the CIA World Factbook, the Russian Federation:

o is the largest country by land area (and roughly 1.8 times as large as the USA);

o has borders with fourteen countries (Azerbaijan, Belarus, China, Estonia, Finland, Georgia, Kazakhstan, North Korea, Latvia, Lithuania, Mongolia, Norway, Poland and Ukraine);

o has a coastline of 3,653 km;

o has the ninth largest population in the world (142,320,790 as of July 2021 est.);

o had a negative population growth rate in 2021 (-0.2%, placing it 207th on population growth);

o has a low birth rate (9.71 births per 1000 population, or 193rd in the world)

o has a high literacy rate (99.7% of those 15 years of age or older);

o had relatively low GDP growth in 2017-2019 (1.34% – 2.54%) or 160th in the world

o has low public debt (15.5% of GDP in 2017);

o has large foreign exchange reserves and gold (6th largest);

o is the world’s second largest producer and exporter of crude oil;

o is the world’s 3rd largest producer of refined petroleum products and 2nd largest exporter;

o is the world’s 2nd largest natural gas producer and largest exporter.

The CIA World Factbook has a great deal more information but the above are some examples of data on the Russian Federation.

Despite the Russian Federation’s high levels of education and abundant natural resources, the country in 2022 is rated by the World Bank as only an upper middle-income country (2020 GNI per capita of between $4,096 and $12,695). See World Bank Country and Lending Groups, Country Classification, July 1, 2021, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups. Russia in 2020 had a per capita GNI in current U.S. dollars of $10,690 which ranked the Russian Federation 74th. See World Bank, GNI per capita, Atlas method (current US$) – Russian Federation, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=RU

Because so much of the economy is driven by the gas and oil sectors, increasing prices for both in 2021 led to strong growth in GDP in the Russian Federation, although growth is expected to moderate in 2022 and 2023. See World Bank, Amidst Strong Economic Rebound in Russia, Risks Stemming from COVID-19 and Inflation Build, Says World Bank Report, December 1, 2021,https://www.worldbank.org/en/news/press-release/2021/12/01/amidst-strong-economic-rebound-in-russia-risks-stemming-from-covid-19-and-inflation-build-says-world-bank-report.

The World Trade Organization provides useful information on each Member in various publications including its annual Trade Profiles. The 2021 publication shows that in 2020, the Russian Federation accounted for 1.89% of world merchandise exports and 1.35% of world merchandise imports. Total Russian Federation exports were $332.227 billion and its total imports were $240.380 billion. Its five largest export markets were the European Union (41.3%), China (13.4%), Belarus (5.1%), Turkey (5%) and the Republic of Korea (3.8%). The Russian Federation’s five largest trading partners for imports into the Russian Federation were the European Union (34.2%), China (21.9%), Belarus (5.5%), the United States (5.4%) and Japan (3.6%).

As noted, fuels and mining products are the largest exports — 59.1% of total Russian exports in 2020 with petoleum oils (crude and refined) accounting for$189.176 billion (49.49%). Coal ($15.987 billion) and natural gas ($9.501 billion) are the next largest export products.

The Russian Federation accounts for a smaller shares of the export trade in commercial services — 0.95% of global exports and a slightly larger share of imports of commercial services, 1.38%. The European Union accounts for the largest share of commercial service exports from the Russian Federation (35.9%) and 47.5% of the Russian Federation’s imports of commercial services. The U.S. accounts for 6.5% of Russia’s exports of commercial services and 4% of imports of such services into the Russian Federation. China is the third largest importer of Russian commercial services (6.2% of Russia’s exports) and 3.7% of Russia’s imports.

See World Trade Organization Trade Profiles 2021 at 298-299, October 2021,https://www.wto.org/english/res_e/booksp_e/trade_profiles21_e.pdf.

WTO Trade Policy Review of the Russian Federation in 2021

While the minutes to the 2021 TPR of the Russian Federation and the written questions and replies are not yet available, the Secretariat review along with the Russian Federation write-up are available as is the concluding statement of the chairman of the review on the Russian Federation. Both the EU and China’s statements on October 27 at the review are also available.

For brevity, the Chair’s concluding comments and the statement of the European Union (as the largest trading partner for the Russian Federation) are copied below. Both follow norms for the WTO by identifying areas where the Member being reviewed has made contributions to the system and then follows with particular concerns of some other Members. First the concluding remarks by the Chairperson on 29 October 2021. TRADE POLICY REVIEW: RUSSIAN FEDERATION, Concluding remarks by the Chairperson, 27 and 29 October 2021, https://www.wto.org/english/tratop_e/tpr_e/tp516_crc_e.htm

“Concluding remarks by the Chairperson

“The second Trade Policy Review of the Russian Federation has allowed us to better understand and discuss recent developments regarding trade, economic, and investment policies in the Russian Federation. 57 delegations took the floor, which demonstrates the importance Members attach to the review of the policies and practices of the Russian Federation. 1,017 advance written questions were submitted by Members, with additional questions submitted during and following the first day of our meeting.

“I would like to thank the delegation of the Russian Federation, headed by Ms Ekaterina MAYOROVA, Director of the Department of Trade Negotiations, Ministry of Economic Development, for their constructive participation in this exercise.

“I would like to express my gratitude to our discussant, His Excellency Ambassador Didier CHAMBOVEY of Switzerland, for his insightful remarks touching on macroeconomic and other developments, remaining trade and trade-related challenges, and the role the TPRM can play in overcoming these.

“I would like to thank the delegations that took the floor for their valuable contributions to this Review. Members commended the Russian Federation for its stable and resilient economic performance since the previous Review in 2016, including measures taken to stabilize the banking sector. They particularly stressed the effective macroeconomic and monetary policies undertaken, and the demonstrated resilience to the economic consequences of the COVID-19 pandemic, as well as to volatile energy markets. Some Members commented on policies aimed at diversifying the economy and addressing structural impediments to economic growth.

“Members also positively noted a number of policy reforms undertaken by the Russian Federation affecting, among others, trade facilitation, import tariffs and export duties, competition policy, protection of IPRs, and supporting MSMEs. Regarding trade facilitation, Members highlighted reforms to improve customs procedures and requirements in areas such as risk management, automation, electronic documents, and reducing clearance times.

“While Members appreciated the overall reduction in MFN tariffs, they nevertheless encouraged the Russian Federation to further simplify the tariff structure. Members expressed the hope that the Russian Federation would continue to deepen the reforms and to ensure that any new policies, regulations, and reforms would be in line with its WTO commitments.

“Many Members stressed the Russian Federation’s strong involvement in, and support of, the multilateral trading system. They highlighted the constructive engagement of the Russian Federation in the discussions around WTO reform, preparations for MC12, fisheries subsidies negotiations, the four Joint Statement Initiatives, and trade and gender.

“Regarding the JSI on Services Domestic Regulations, some Members encouraged the Russian Federation to swiftly submit its draft schedule of commitments. Members also encouraged the Russian Federation to complete its process of accession to the Agreement on Government Procurement in the near future.

“Members expressed their desire for the Russian Federation to continue its leadership role at the WTO. In this regard, they welcomed the stated commitment by the Russian Federation to the rules-based multilateral trading system with the WTO at its core.

“Some Members also commended the Russian Federation for its support to developing countries, for example, through the delivery of COVID-19 vaccines. In this regard, Members also emphasized the importance of trade preferences under the Generalized System of Preferences.

“Import substitution, localization policies, and local content requirements, especially in the context of public procurement, were issues raised by many Members. They were particularly interested in the impact such policies can have on trade, FDI, productivity, and the integration of the Russian Federation into global value chains. Members encouraged the Russian Federation to review such policies in light of WTO principles and the process of its accession to the Agreement on Government Procurement. For some Members, these policies were representative of a broader set of policies that they perceived as discriminatory and reducing predictability, transparency, and competition.

“Members commended the Russian Federation for the reforms undertaken to improve the business and investment environment, for example, the introduction of a “regulatory guillotine” mechanism, and the establishment of key conditions for electronic commerce. Members also expressed concerns regarding the remaining challenges in this area.

“Thus, in addition to the recent increase in restrictions on FDI, Members identified several factors as potentially having a negative effect on the conditions of doing business in the Russian Federation. These include governance and other rule-of-law issues, the dominant position of the State in key sectors of the economy and the lack of transparency regarding state-owned enterprises, the existence of a high degree of concentration in certain sectors, and the use of various subsidies in favour of domestic firms. Concerns were voiced in relation to developments in specific services sectors, including financial services and maritime transport.

“While many Members expressed appreciation for the numerous notifications submitted, they nevertheless encouraged the Russian Federation to further improve the timeliness and completeness of its notification record, mentioning in particular notifications related to state trading enterprises, licensing procedures, agriculture, and technical regulations applied at the national level.

“Sanitary and phytosanitary measures and technical regulations have also received much attention in this Review. Thus, for example, several Members raised issues regarding inspection procedures for meat imports and the ‘Track and Trace’ regime. Some Members expressed concerns regarding the application of measures that they consider were not based on international standards, unsupported by scientific evidence, and without adequate transparency. Some Members stressed the need for more clarity regarding the relationship between EAEU rules and rules applied at the national level.

“Other issues of interest for some Members included the introduction of export bans on agricultural and wood products, the imposition of temporary export restrictions and the increased use of export tariff rate quotas since the beginning of the pandemic, and measures relating to transit.

“This Trade Policy Review was characterized by open and constructive discussions around the Russian Federation’s trade and trade-related policies. As highlighted by the Russian Head of Delegation, the discussant, and many Members, the TPRM represents an opportunity to improve policies going forward.

“I therefore hope that the authorities will find the questions, comments, and experiences shared during this Review useful in their efforts to review and design their policies. Members look forward to receiving the answers to outstanding questions from the Russian Federation within one month, at which point the Review will be successfully concluded.”

A number of the concerns raised were also raised in the 2016 review, indicating limited if any improvement on important issues (e.g., import substitution, localization policies, and local content requirements). Others reflect actions by the Russian Federation following the start of the pandemic (“the introduction of export bans on agricultural and wood products, the imposition of temporary export restrictions and the increased use of export tariff rate quotas since the beginning of the pandemic, and measures relating to transit.”).

The European Union raised many of these same issues in its statement at the TPR meeting on October 27, 2021. As the largest trading partner of the Russian Federation, the concerns raised likely reflect the broadest understanding of problems with the Russian Federation’s compliance with WTO obligations. EU Statement at the Trade Policy Review of the Russian Federation, 27 October 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/106279/eu-statement-trade-policy-review-russian-federation-27-october-2021_en

“Statement delivered by Ambassador João Aguiar Machado

“The EU welcomes this second Trade Policy Review of the Russian Federation, almost a decade since itsaccession to the WTO. We welcome the delegation of Russia, led by Ms. Ekaterina Mayorova (Director of theDepartment of trade negotiations, Ministry of Economic Development) and thank the Discussant, Ambassadorof Switzerland H.E. Didier Chambovey, for his remarks.

“The EU is the main trade partner of the Russian Federation, both for goods and for services, and its main source of foreign direct investment, with some 75% of total inward FDI. Bilateral trade in 2020 represented some 4.8%of EU foreign trade in goods, down from 6% at the time of the previous TPR.

“Back in 2016, at its first Trade Policy Review, the EU had emphasized that Russia’s WTO accession represented an opportunity for its modernisation. A chance to diversify its economy and reduce its reliance on raw materials and commodities, but equally to adjust its judicial and legal framework to bring in a more dynamic and responsive market. The European Union continues to hold that belief.

“Over the last few years, Russia’s efforts to play a constructive role in various areas in the WTO have not gone unnoticed – be it in its involvement in the Joint Statement Initiatives, or in its general support to achieve a meaningful MC12 including through its openness towards WTO reform in order for the organization to remain strong and credible. The EU looks forward in making progress in the different Joint Statement Initiatives, and in particular concluding the Domestic Regulation JSI in the margins of MC12. We hope that Russia will be in the position to submit their schedule of specific commitments as soon as possible, noting that the schedules of all participants are an essential component for a successful conclusion of this negotiation.

“However, the Russian Federation needs to redouble its commitment to the WTO. Today, we regret to
note that since its accession the Russian authorities have expanded, rather than reduced, the scope of its import substitution policy without any realistic furthering their pretended aim of localisation. This not only has a negative effect on trade with the EU but is done in most cases to the direct detriment of Russian consumers.

“In addition, the arguments used by the Russian authorities to justify protectionist policies namely that they are a direct consequence of the sanctions of individual economies on the Russian Federation – are questionable in our view. These Russian policies started immediately after Russia’s WTO accession and predate the political tensions that Russia highlights.

“Some of the specific questions tabled by the EU better explain the underlying concerns that we have. Allow me to highlight some:

“Several questions target the contradiction between the aspiration of the Russian Federation to become a member of the Government Procurement Agreement, and the reality of its practice. The ability of foreign bidders to participate in government procurement has been obstructed or effectively denied through
a growing body of regulations granting advantages to domestic products via price preferences, quotas, or exclusion of foreign goods and services.

“A large part of the Russian state’s presence in the economy – up to 20% of Russian GDP — corresponds to state-owned enterprises providing products and services in a commercial context. Despite the applicable WTO rules in this area, the Russian Federation has introduced such a growing body of restrictions as to make the participation of foreign bidders in tenders uneconomic, or a practical impossibility.

“As to export restrictions – under the rationale of preventing illegal logging and supporting domestic forest-based industries – the Russian Federation has announced a ban on the export of unprocessed wood from 2022. It remains unclear how the Russian Federation intends to reconcile these measures
with the schedule of its concessions, which include export tariff-rate quotas in some of the categories of wood covered by the announced ban.

“One primary mission of the WTO is to facilitate transparency. For this, a reliable notification practice is
imperative. The Russian Federation’s performance in this area leaves much to be desired. For example,
Russian Federation notifications in the area of technical barriers to trade have concerned only
Eurasian Economic Union-level measures. A number of Russian Federation national measures falling within the scope of the TBT Agreement entered into force without any notification whatsoever to the WTO, including those regarding the wines and spirits sector. Not a single measure adopted at the national level has been notified to the WTO.

“The same can be said about the exclusive rights in the area of foreign trade granted to certain entities
in the Russian Federation including, for example, for the export of natural gas. The Russian Federation
has failed, since its accession, to notify a single state-trading enterprise to the WTO. At the same time, around 50% of the EU’s imports from the Russian Federation are sold by a single export monopoly of natural gas. Let me also remark that, beyond its non-notification, this fact sits uneasily with the overall principles of the WTO, and in our view also with the long-term interests of Russia.

“To conclude, the EU welcomes the Russian Federation’s commitment in its report to an open, non-discriminatory and transparent multilateral trading system, and for a reform aimed at preserving the WTO’s role in maintaining and developing new trade rules. We commend this as a good foundation for the necessary efforts that Russia should undertake to abide by the spirit and the letter of its WTO commitments, and to build a more open, transparent and non-discriminatory business environment.

“Thank you.”

USTR’s 9th Report to Congress on the Russian Federation’s Compliance with WTO obligations

USTR Katherine Tai’s press release on the latest USTR report on the Russian Federation’s compliance with WTO obligations summarizes concerns that the U.S. has more than nine years after the Russian Federation became a WTO Member.

“USTR Announces 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments

“December 21, 2021

“WASHINGTON – The Office of the United States Trade Representative today released its ‘2021 Report on the Implementation and Enforcement of Russia’s World Trade Organization (WTO) Commitments.’

“‘This Report provides an overview of Russia’s continued departure from the guiding principles of the World Trade Organization, such as non-discriminatory practices, more open trade, predictability, transparency, and fair competition,’ said Ambassador Katherine Tai. ‘Failure to follow WTO norms, rules, and commitments puts American workers and businesses at an economic disadvantage and prevents them from competing on a level playing field. USTR will continue to work with like-minded partners and use the tools of the WTO to hold Russia accountable for its behavior in the multilateral trading system.’

“The Report highlights areas in which USTR has raised concerns about Russia’s compliance with its WTO
commitments, including:

“‘Russia continues to adopt and implement localization measures to provide preferential treatment to both domestically produced goods and services.’

“‘In the agriculture sector, Russia maintains non-science-based import restrictions and refuses to recognize other countries’ guarantees on exporting facilities.’

“‘Russia’s import substitution strategies for the IT sector, such as the ‘Digital Economy of the Russian Federation,’ also raise additional national treatment and import substitution concerns.’

“‘As economies around the world were forced to retract and retrench in response to the COVID-19 pandemic, the government of Russia exacerbated those trends by extending its control over the Russian economy and tightening restrictions on trade.’

“Background

“This report was prepared pursuant to section 201 of the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012 (P.L. 112-208), which requires the U.S. Trade Representative to submit a report to the Committee on Finance of the U.S. Senate and the Committee on Ways and Means of the U.S. House of Representatives describing the commitments that Russia made upon entering the World Trade Organization on August 12, 2012, and assessing the extent to which Russia has implemented those commitments after 9 years of WTO membership.”

The USTR report is 62 pages in length and reviews an array of areas where the Russian Federation undertook commitments on acceding to the WTO and provides the USTR evaluation of whether there has been implementation to date. See 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments, December 2021, https://ustr.gov/sites/default/files/enforcement/WTO/2021%20Report%20on%20Russia’s%20WTO%20Compliance.pdf. The table of contents (pages i-ii) reviews the topics reviewed and is copied below.

Implementation and Enforcement of Russia’s WTO Commitments
Contents
I. Introduction ………………………………………………………………………………………………………….. 1
II. Executive Summary ………………………………………………………………………………………………. 2
III. Russia and the Customs Union/Eurasian Economic Union ………………………………… . 5
IV. Russia in the World Trade Organization ………………………………………………………………. 6
V. Import Regulation ………………………………………………………………………………………………… 7
A. Tariffs and Border Fees ………………………………………………………………………………………. 7
B. Customs Fees…………………………………………………………………………………………………….. 9
C. Customs Valuation …………………………………………………………………………………………….. 9
D. Trade Facilitation …………………………………………………………………………………………….. 10
E. Trading Rights …………………………………………………………………………………………………. 11
F. Quantitative Restrictions …………………………………………………………………………………… 12
G. Import Licensing ……………………………………………………………………………………………… 13
H. Trade Remedies ……………………………………………………………………………………………….. 15
VI. Export Regulation ……………………………………………………………………………………………….. 16
VII. Agriculture …………………………………………………………………………………………………………. 18
A. Sanitary and Phytosanitary Measures …………………………………………………………………. 18
B. Domestic Supports and Export Subsidies ……………………………………………………………. 24
VIII. Internal Policies Affecting Trade ……………………………………………………………………….. 26
A. Non-Discrimination ………………………………………………………………………………………….. 26
B. Industrial Policy, Including Subsidies …………………………………………………………………. 29
C. State-Owned, -Controlled, and -Trading Enterprises …………………………………………….. 31
D. Pricing Policies ………………………………………………………………………………………………… 33
E. Standards, Technical Regulations and Conformity Assessments ……………………………. 34
F. Government Procurement ………………………………………………………………………………….. 37
IX. Services ……………………………………………………………………………………………………………… 39
A. Financial Services ……………………………………………………………………………………………. 40
B. Telecommunications ………………………………………………………………………………………… 41
C. Computer and Related Services …………………………………………………………………………. 41
D. Distribution Services ………………………………………………………………………………………… 43
E. Audio-Visual and Media Services ………………………………………………………………………. 43
X. Intellectual Property Rights ………………………………………………………………………………….. 44
A. Legal Framework …………………………………………………………………………………………….. 44
B. Enforcement ……………………………………………………………………………………………………. 47
XI. Investment ………………………………………………………………………………………………………….. 50
A. Trade-Related Investment Measures …………………………………………………………………… 50
B. Special Economic Zones …………………………………………………………………………………… 53
XII. Rule of Law………………………………………………………………………………………………………… 53
A. Eurasian Economic Union …………………………………………………………………………………. 53
B. Transparency …………………………………………………………………………………………………… 54
C. Judicial Review ……………………………………………………………………………………………….. 56
XIII. Conclusion ………………………………………………………………………………………………………… 57

A portion of the Executive Summary section reveals U.S. concerns with Russia’s implementation of obligations. The excerpt (from pages 3-5) is copied below.

” Over the past year, Russia has continued its trajectory of an economy moving away from the guiding principles of the WTO: non-discrimination, freer trade, predictability, transparency, and fair competition. Rather, Russia maintains restrictive at-the-border measures, institutes behind-the-border measures to inhibit trade, and implements an industrial policy seemingly driven by the guiding principles of import substitution and forced localization.

“Russia maintains tariffs ranging from 25 percent to 40 percent on various industrial products imported from the United States in retaliation against tariffs imposed on U.S. imports of steel and aluminum articles under Section 232 of the Trade Expansion Act of 1962, as amended. Russia also maintains a near complete ban on imports of agricultural goods from the United States and other WTO Members. Russia also continues to apply quantitative restrictions or outright bans on certain agricultural exports.

“In addition to these border measures, Russia maintains various behind-the-border measures that interrupt the smooth flow of global trade, such as outmoded import licensing requirements and a mandatory labeling regime. In 2021, Russia introduced yet another regime to monitor products, a traceability regime, that requires tracking consignments of goods (as opposed to individual goods subject to the mandatory labeling regime) through the chain of commerce in Russia. In the agriculture sector, Russia maintains non-science-based import restrictions and refuses to recognize other countries’ guarantees on exporting facilities.

“Compounding these at-the-border and behind-the-border restrictions, Russia continues to adopt and implement localization measures to provide preferential treatment to both domestically produced goods and services. In response, the United States, often working with other WTO Members, has raised concerns about Russia’s import substitution plans, subsidies (including those contingent on use of domestic over imported content), preferential taxes, preferential pricing mandates, prohibitions on purchasing imported goods and services, and domestic purchasing requirements, among others.

“The United States has also continued to raise concerns about Russia’s lack of transparency, manifested, for example, in its refusal to notify a single state trading enterprise and its delay (or complete refusal) to provide written answers to questions about its import substitution policies. The United States, joined by other WTO Members, will continue to remind Russia of its transparency obligations.

“The United States has urged Russia to meet its commitments with regard to the protection and enforcement of intellectual property rights. In particular, the United States has reviewed Russia’s implementation of WTO commitments on data exclusivity, pharmaceutical patent protection, and collective management organizations. Moreover, Russia’s record on enforcement remains weak.

“Since early 2014, the U.S. Government has curtailed its bilateral engagement with Russia in response to Russia’s actions in Ukraine, limiting USTR’s ability to raise directly with Russia our concerns about the trajectory of its trade policies. The sequestration resulting from the COVID-19 pandemic further limited engagement with Russian officials. Nevertheless, the interagency team of Russia specialists in the U.S. Government continued to monitor and evaluate Russia’s trade and investment policies and practices, and where and when possible, USTR continues to raise concerns in WTO meetings and on the margins of committee and council meetings to hold Russia accountable for its actions. As it has to date, if the United States finds that Russia’s actions appear to be inconsistent with its WTO commitments. The United States will investigate and use all appropriate means to resolve the matter and keep Russia’s markets open to U.S. exports.”

The Russian Federation’s reaction to U.S. report

The Russian Federation has rejected U.S. claims of non-implementation and calls attention to sanctions imposed on the Russian Federation by the U.S. and EU. See Tass Russian News Agency, ‘Beyond absurdity’: Diplomat slams US claims about Russia’s import substitution, December 24, 2021, https://tass.com/economy/1380631.

The Road Forward

Most of the concerns raised by the United States in its latest report on the Russian Federation’s implementation of WTO commitments mirror concerns that have been raised by the European Union and presumably others in the latest TPR of the Russian Federation. Moreover, some of the concerns have persisted since the Russian Federation first joined the WTO in 2012 as reflected in the first TPR from 2016 and earlier USTR reports to Congress on the Russian Federation’s implementation of WTO commitments. It is unclear whether the Russian Federation has any intention of addressing these longstanding and more current concerns.

The Chairman of the TPR for the Russian Federation in his concluding remarks and the EU Ambassador in his statement during the TPR highlighted areas where the Russian Federation has made positive contributions to the WTO such as in the fisheries negotiations and a number of the Joint Statement Initiatives and in supporting WTO reform. Thus, the Russian Federation has the potential to make some meaningful contributions in the areas where it is contributing. Such contributions will hopefully continue in 2022.

While Russia is treated as a market economy by the U.S. and the EU in trade remedy cases, the reality is that a large portion of Russia’s economy remains state owned or state directed. Such state ownership and direction are fundamentally at odds with the multilateral trading system and the concept of a level playing field. WTO reform is likely critical to address distortions caused by state ownership and control. While the Russian Federation is supportive of reform, it is unlikely to support meaningful reform on the state-owned/directed sector.

In addition, the many behind the border restrictions reviewed above simply contribute to the lack of meaningful access to the market of the Russian Federation for many WTO Members and have led to the size of the Russian Federation’s trade surplus. There does not appear any likelihood that the Russian Federation will meaningfully address these issues.

Perhaps the biggest unknown in 2022 is whether potential actions by the Russian Federation vis-a-vis one of its neighbors (Ukraine) will be implemented. The U.S., EU and others will certainly impose expanded sanctions against the Russian Federation if there is further encroachment by the Russian Federation into Ukraine. A souring of political relations would also likely cause a broader fallout for the trading system.

Whether the Russian Federation will be a meaningful contributor to supporting the global trading system is solely in the hands of the Russian Federation. 2022 is likely to be a year where the Russian Federation has some positive contributions but fails to address the longstanding concerns.

WTO Dispute Settlement — What the Recently Adopted Panel Report on United States – Antidumping and Countervailing Duties on Ripe Olives from Spain says about the existing dispute settlement system and about needed WTO reforms

On November 19, 2021, the WTO panel hearing the dispute brought by the European Union against the United States on trade remedies imposed on ripe olives from Spain released publicly its report. See UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON RIPE OLIVES FROM SPAIN, WT/DS577/R (19 November 2021). The panel made some findings in the countervailing duty investigation by the U.S. Department of Commerce adverse to the U.S. determinations including finding a statutory provision contrary to the WTO obligations in the Subsidies and Countervailing Measures Agreement “as such”. The panel also disagreed with the EU on various aspects of its challenges to the U.S. countervailing duty investigation and disagreed on all claims of WTO violations from the U.S. International Trade Commission final injury determination in both the antidumping and countervailing duty investigations.

At the Dispute Settlement Body (“DSB”) meeting on December 20, 2021, the United States did not oppose adoption of the panel report despite reservations on parts of the decision. While the EU and U.S. statements at the DSB meeting paint different pictures of the relevance and/or importance of the panel report, U.S. acceptance of the report moves the dispute to the phase where the U.S. considers how it will bring itself into compliance with its WTO obligations. It is another case where the “losing” party has not opted to file an appeal into the void (i.e., where the Appellate Body is not functioning because of lack of AB members). It is another example of the U.S. and EU looking for ways to resolve bilateral disputes to permit greater focus on reform needs at the WTO. Indeed, the U.S. and EU agreed to delay the release of the panel report for several months — time while other bilateral matters were being handled. Adoption of the report by the U.S. also avoids the EU acting contrary to its WTO obligations by retaliating against a WTO Member who takes an appeal vs. pursuing other resolution.

The panel report raises some challenging issues for WTO Members if trade remedies are to be available to all industries in fact. That said, the analysis in the report is largely well reasoned and well articulated.

Statement of Parties at the DSB meeting of December 20, 2021

At the DSB meeting on December 20th, consideration of the panel report on olives was the seventh agenda item. See Airgram, WTO/AIR/DSB/113 10 DECEMBER 2021, SUBJECT: DISPUTE SETTLEMENT BODY.

The WTO press release on the WTO DSB meeting had the following discussion of the olive dispute panel report.

“United States — Anti-dumping and countervailing duties on ripeolives from Spain

“The European Union thanked the panel for its work in this dispute. The panel report circulated on 19 November (https://www.wto.org/english/news_e/news21_e/577r_e.htm) substantially upheld the EU’s claims and largely confirmed that in the anti-subsidy duties imposed by the US on ripe olives from Spain, the US acted inconsistently with the WTO Agreement on Subsidies and Countervailing Measures (ASCM), the EU said. The panel found that the US did not comply with its obligation in the determination of “de jure” specificity of the subsidy and in the calculation of the subsidy benefit for one specific EU company. It also found that Section 771B of the US Tariff Act of 1930, which presumes that the entire benefit of a subsidy provided in respect of a raw agricultural product passes through to the downstream processed agricultural product, is ‘as such’ inconsistent with the ASCM. The EU said it expects the US will promptly and fully implement the panel’s findings.

“The United States said that while it was disappointed in certain respects, it welcomed the panel’s findings on key issues in the dispute. The panel rightly rejected many of the numerous claims brought by the EU regarding the anti-dumping and countervailing duties at issue, including key EU claims relating to injury and so-called “decoupled” payments.

“The United States said it appreciated the panel’s rejection of all eight claims concerning the US International Trade Commission’s injury determination and that, contrary to certain comments, the panel rejected the EU position that so-called “decoupled” agricultural payments cannot be subject to countervailable duties. In particular, the panel did not find that the EU Common Agricultural Policy programs at issue were outside the scope of the ASCM. Although disappointed with some of the panel’s findings, the US has decided to allow the report to be adopted in light of all the circumstances, including the overall quality of the panel report and the US desire to work with the EU to resolve this dispute, the US said.

“Canada highlighted the panel’s important finding that an investigating authority must establish the existence and extent of indirect subsidization, taking into account all relevant factors, in order to impose countervailing duties.

“The DSB took note of the statements made and adopted the panel report.”

WTO Press Release, WTO panels to review Russian procurement measures, Dominican duties, 20 December 2021, https://www.wto.org/english/news_e/news21_e/dsb_20dec21_e.htm.

The WTO Press Release contained the entirety of the prepared EU statement on the dispute. See EU Statements at Regular Dispute Settlement Body (DSB) meeting, 20 December 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/109169/eu-statements-regular-dispute-settlement-body-dsb-meeting-20-december-2021_en. The U.S. statement was longer and is presented below in its entirety.

“7. UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON RIPE OLIVES FROM SPAIN

“”A. REPORT OF THE PANEL (WT/DS577/R AND WT/DS577/R/ADD.1)

“• The United States thanks the Panel, and the Secretariat staff assisting it, for their work in this dispute. We acknowledge the Panel’s thorough review of the legal arguments put forward by the parties, and while we are disappointed in certain respects, we welcome the Panel’s findings on key issues in this dispute.

“• The EU brought numerous claims regarding antidumping and countervailing duties on ripe olives from Spain, as well as one statutory provision. The Panel rightly rejected many of those claims, including key EU claims relating to injury and so-called “decoupled” payments.

“• First, the United States appreciates the Panel’s rejection of all eight claims concerning the U.S. International Trade Commission’s injury determination.

“• For example, the Panel agreed with the United States that nothing in Articles 15.1 and 15.2 of the SCM Agreement or Articles 3.1 and 3.2 of the Antidumping Agreement prohibits an investigating authority from paying particular attention to one segment of the domestic industry in its injury analysis. And as a factual matter, the USITC did not exclude certain segments of the domestic industry in its analysis.

“• Furthermore, the USITC properly considered whether there was a significant increase in the volume of subsidized and dumped imports, and was not required to make a finding of absolute or relative volume increase, pursuant to Article 15.2 of the SCM Agreement or Article 3.2 of the Antidumping Agreement.

“• The Panel also agreed that the USITC considered all of the relevant economic factors having a bearing on the state of the entire domestic industry, established a causal link between subject imports and injury to the domestic industry, and accounted for any injury caused by factors other than subject imports as part of its non-attribution analysis.

“• Accordingly, the EU failed to make out its claims under Articles 15.1, 15.2, 15.4, and 15.5 of the SCM Agreement and Articles 3.1, 3.2, 3.4, and 3.5 of the Antidumping Agreement. We are gratified that the Panel agreed, and rejected all of the EU’s injury claims. (See, e.g., para. 7.319.)

“• Second, we welcome the Panel’s narrow findings with respect to specificity. While we disagree that the U.S. Department of Commerce erred in certain aspects of its factual evaluation, the Panel correctly rejected the EU’s broader challenge regarding the proper interpretation of Article 2 of the SCM Agreement.

“• Contrary to certain comments, including in press reports, the Panel has rejected the EU position that so-called ‘decoupled’ agricultural payments cannot be subject to countervailable duties:

“o In particular, and contrary to certain characterizations of these findings, the Panel did not find that the Common Agricultural Policy (CAP) programs at issue were outside the scope of the SCM Agreement.

“o To the contrary, the Panel rejected the EU’s arguments that the legal design of the CAP – in particular, ‘decoupling’ subsidies from current production or basing them on an earlier reference program – means the subsidies conferred cannot be countervailed. (See, e.g., paras. 7.30-7.33, 7.37-7.39, 7.51-7.52, 7.85, and 7.124.)

“o In doing so, the Panel similarly rejected the EU argument that decoupled ‘Green Box’ subsidies under the Agreement on Agriculture are not actionable under the SCM Agreement. The Panel found that Article 2.1(a) does not prescribe particular facts or factors that may or may not be taken into account by an investigating authority, or any particular methodology or analytical approach in evaluating that information.

“• Thus, on these two core issues in this panel proceeding, injury and countervailing so-called ‘decoupled’ payments, the Panel disagreed with the very premise of the EU’s claims.

“• We are disappointed with other of the Panel’s findings, however, and in particular its findings on a U.S. statute related to the calculation of subsidies for certain processed agricultural products.

“• By enacting Section 771B, the U.S. Congress sought to eliminate the possibility that ‘a foreign nation could avoid U.S. countervailing duty on an agricultural product merely by doing some minor processing of the agricultural product before it is exported to the United States’.1 The United States is evaluating the Panel’s findings with a view to ensure that countervailing duties account for the economic realities of trade in raw agricultural products and processed downstream products.

“• Mr. Chairman, although the United States is disappointed with certain of the Panel’s findings, on balance, we have decided to permit the report to be adopted today. We take this step in light of all the circumstances, including the overall quality of the Panel report and our desire to work with the European Union to resolve this dispute.

“• We thank Members for their attention to this statement.

“1 See 133 Congressional Record S8814 (Exhibit USA-9) at S8815. See also Issues and Decision Memo for Final Determination C-469-818 (Exhibit EU-2), p. 23.”

Statements by the United States at the Meeting of the WTO Dispute Settlement Body Geneva, December 20, 2021, pages 9-10, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2021/12/Dec20.DSB_.Stmt_.as_.deliv_.fin_.pdf

Panel conclusion

Because of the number and complexity of issues explored in the panel report, the panel’s conclusion is a good basis for understanding the extent of the EU “win” and US “loss”.

“8 CONCLUSIONS AND RECOMMENDATION

“8.1. For the reasons set forth in this Report, the Panel concludes as follows:

“a. With respect to the European Union’s claims regarding the USDOC’s de jure specificity determination:

“i. the European Union has demonstrated that the USDOC’s 29 May 2020 Remand Redetermination as it relates to the USDOC’s original findings of de jure specificity is a measure or is part of the measure that is before the Panel in this dispute;

“ii. the European Union has not demonstrated that the USDOC acted inconsistently with Articles 2.1 and 2.1(a) of the SCM Agreement merely because the USDOC based its findings of de jure specificity in the ripe olives countervailing duty investigation on the rules in the relevant subsidy programmes governing the calculation of the amounts of subsidies available to eligible enterprises;

“iii. the European Union has not demonstrated that the USDOC acted inconsistently with Article 2.1(a) of the SCM Agreement because the USDOC’s determination of de jure specificity was dependent upon how certain alleged features of past subsidy programmes no longer in force were relied upon and integrated into the BPS programme;

“iv. the European Union has not demonstrated that, as a matter of fact, the USDOC found that the BPS/GP and SPS subsidies were de jure specific to olive growers as a result of being coupled or tied to olive production;

“v. the USDOC acted inconsistently with Articles 2.1, 2.1(a), and 2.4 of the SCM Agreement because:

“(1) the USDOC did not properly examine and account for the rules governing the allocation and valuation of BPS entitlements with respect to new farmers, farmers holding entitlements transferred under the SPS programme, and farmers no longer growing olives;

“(2) the USDOC relied upon erroneous factual findings with respect to function and role of the so called “regional rate” to support its determination of de jure specificity; and

“(3) the USDOC did not properly examine and account for the rules governing the allocation and valuation of SPS entitlements with respect to farmers with SPS entitlements obtained via transfer, and farmers holding COMOF programme-based entitlements no longer producing olives.

“For the reasons set out in (v)(1)-(3), the USDOC’s determination of de jure specificity was not based on a reasoned and adequate explanation of why access to the BPS and SPS subsidies was explicitly limited to olive growers, within the meaning of Articles 2.1 and 2.1(a) of the SCM Agreement, and was not clearly substantiated on the basis of positive evidence, as required by Article 2.4 of the SCM Agreement;

“vi. the USDOC acted inconsistently with Article 2.4 of the SCM Agreement to the extent that the USDOC’s determinations of de jure specificity with respect to the SPS and BPS/GP subsidies relied upon an erroneous factual finding concerning the calculation of assistance under the COMOF programme832;

“vii. the European Union has not demonstrated that the USDOC acted inconsistently with Articles 2.1, 2.1(a), and 2.4 of the SCM Agreement because, contrary to the European Union’s assertions:

“(1) the USDOC’s rejection of the arguments concerning the application of the convergence factor under the BPS programme was supported by record evidence, and to this extent, reasonably and adequately explained and based on clearly substantiated positive evidence;

“(2) the totality of the USDOC’s discussion of the rules governing the calculation of SPS payments reveals that the USDOC correctly understood that SPS payments were made to farmers and that Spain did not implement the SPS programme on a regional basis; and

“(3) the lack of a formal specificity finding under US law does not undermine the USDOC’s determinations of de jure specificity with respect to the SPS, BPS, and GP programmes, given the absence of any suggestion on the part of the European Union that the COMOF programme subsidies were not de jure specific, and in the light of the fact that the USDOC considered it had made sufficient factual findings to satisfy itself that those subsidies would be de jure specific under its domestic legislation, had it been required to make such a determination.

“viii. given our findings at paragraphs 8.1.a.v and vi, the Panel declines to make further findings under Articles 1.2, 2.1, 2.1(a), 2.1(b), and 2.4 of the SCM Agreement.

“b. With respect to the European Union’s claims in relation to Section 771B of the Tariff Act of 1930 and its application in the ripe olives countervailing duty investigation:

“i. Section 771B of the Tariff Act of 1930 is as such inconsistent with Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement because it requires the USDOC to presume that the entire benefit of a subsidy provided in respect of a raw agricultural input product passes through to the downstream processed agricultural product, based on a consideration of only two factual circumstances, without leaving open the possibility of taking into account any other factors that may be relevant to the determination of whether there is any pass-through and, if so, its degree;

“ii. the USDOC acted inconsistently with Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement regarding its application of Section 771B of the Tariff Act of 1930 in the Spanish ripe olives countervailing duty investigation because it failed to establish the existence and extent of indirect subsidization taking into account all relevant facts and circumstances; and

“iii. given our findings at paragraphs 8.1.b.i and ii, the Panel declines to make further findings under Articles 19.1, 19.3, 19.4, and 32.1 of the SCM Agreement, either with respect to Section 771B of the Tariff Act of 1930 as such or the USDOC’s application of Section 771B of the Tariff Act of 1930 in the Spanish ripe olives countervailing duty investigation.

“c. With respect to the European Union’s claims regarding the USITC’s Injury Determination:

“i. with respect to the United States’ request for a preliminary ruling, the United States has not demonstrated that the European Union’s claims under Article 15.4 of the SCM Agreement and Article 3.4 of the Anti-Dumping Agreement are not properly before the Panel;

“ii. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.2 of the SCM Agreement, and Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to undertake an analysis of the volume of ripe olives from Spain based on an objective examination of positive evidence;

“iii. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.2 of the SCM Agreement, and Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to consider a “volume effect” within the meaning of Article 15.2 of the SCM Agreement and Article 3.2 of the Anti-Dumping Agreement;

“iv. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.2 of the SCM Agreement, and Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to undertake an analysis of the price effects of ripe olives from Spain that was based on an objective examination of positive evidence;

“v. given our findings at paragraphs c.ii-iv, the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.4 and 15.5 of the SCM Agreement, and Articles 3.4 and 3.5 of the Anti-Dumping Agreement, as a consequence of alleged violations concerning the USITC’s volume analysis and price effects analysis;

“vi. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.4 of the SCM Agreement, and Articles 3.1 and 3.4 of the Anti-Dumping Agreement, by failing to undertake an analysis of the consequent impact of ripe olives from Spain on the domestic industry that was based on an objective examination of positive evidence;

“vii. given our findings at paragraph c.vi, the European Union has not demonstrated that the USITC acted inconsistently with Article 15.5 of the SCM Agreement, and Article 3.5 of the Anti-Dumping Agreement, as a consequence of alleged violations concerning the USITC’s impact analysis; and

“viii. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.5 of the SCM Agreement, and Articles 3.1 and 3.5 of the Anti-Dumping Agreement, by failing to undertake a causation analysis that was based on an objective examination of positive evidence.

“d. With respect to the European Union’s claims concerning Aceitunas Guadalquivir’s final subsidy margin and countervailing duty rate calculation:

“i. the USDOC acted inconsistently with Article VI:3 of the GATT 1994 because, by relying on the volume of Aceitunas Guadalquivir’s raw olive purchases reported in its response to the initial 4 August 2017 questionnaire to determine Aceitunas Guadalquivir’s final subsidy margin and countervailing duty rate, the USDOC did not ensure, and take the necessary steps to ascertain as accurately as possible the amount of subsidization bestowed on the investigated products;

“ii. the USDOC acted inconsistently with Article VI:3 of the GATT 1994 because the USDOC relied upon the margin of subsidization incorrectly determined for Aceitunas Guadalquivir in its determination of the ‘all others’ rate of countervailing duties imposed on exporters of ripe olives that were not individually investigated;

“iii. given our findings at paragraphs 8.1.d.i and ii, the Panel declines to make further findings that the same USDOC actions are also inconsistent with Articles 10, 19.1, 19.3, 19.4 and 32.1 of the SCM Agreement;

“iv. the USDOC acted inconsistently with Article 12.1 of the SCM Agreement because the USDOC failed to notify the respondents that the USDOC required information regarding the volume of purchases of raw olives processed into ripe olives; and

“v. the USDOC acted inconsistently with Article 12.8 of the SCM Agreement because the USDOC failed to inform interested parties before the final determination that the volume of purchases of raw olives processed into ripe olives was an ‘essential fact under consideration’.

“8.2. Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. We conclude that, to the extent that the measures at issue are inconsistent with the GATT 1994, the SCM Agreement and Anti-Dumping Agreement, they have nullified or impaired benefits accruing to the European Union under that agreement.

“8.3. Pursuant to Article 19.1 of the DSU, we recommend that the United States bring its measures into conformity with its obligations under the GATT 1994, the SCM Agreement, and the Anti-Dumping Agreement.

“832 See para. 7.127(d) above.”

Comments on the Panel Report

With the dispute settlement system likely to be without an agreed solution to the reforms needed and role of a second tier review (“appeal”) for the next several years, the panel report and the response thereto shows that Members can find solutions to disputes even if there is only the panel process, depending on the quality of the panel report and the goodwill of the parties. This is not surprising as most disputes in the GATT system resulted in eventual adoption by the parties. While many Members, including the U.S. and the EU and China, have filed appeals into the void, resolution of disputes is achievable even in these unusual circumstances.

While many of the panel findings of U.S. violations of existing obligations are arguably addressable by the U.S. without statutory or regulatory change, absent from the panel’s analysis is the practical ability of investigating governments to seek and of investigated companies and their governments to provide ever increasing quantities of information in the 12-18 month time frame of investigations. This is particularly true in most agricultural cases and processed agricultural cases where the number of producers can be in the thousands, tens of thousands or more.

In the United States, all industries are supposed to be able to avail themselves of statutory tools to address injurious dumping or subsidization. For many agricultural producers, there can be issues of seasonality that should be addressable in cases so that relief if warranted only addresses products entering during the relevant season.

But the same concern applies if options under U.S. law or the WTO agreements require gathering information from huge numbers of producers and/or processors. For example, in the olive case, there is the open question of whether benefits to farmers raising olives are larger than to other producers, whether there is a concentrated group receiving large funds, etc. Gathering information on benefits received under different programs from hundreds or thousands or tens of thousands of agricultural producers would provide factual information to confirm whether there is de facto specificity even if further refined analysis would be unclear on whether there is de jure specificity. No country sends questionnaires to such large numbers of producers and analyzing such data would presumably be impractical in the statutory time frame available to investigators.

Thus, the panel report puts into focus whether trade defense agreements like the countervailing duty law are available in fact to all industries or just to more concentrated industries. This is an issue that should concern trade officials and obviously is important to industries. A cornerstone right under the GATT and now WTO has been the right to seek redress from injurious dumped or subsidized imports. That right cannot be limited to a subset of industries without causing loss of support in a number of Members where such rights are important.

The same concern exists with regard to the panel finding “as such” inconsistency in Section 771B of the Tariff Act of 1930, as amended. 19 U.S.C. 1677-2. The panel report is probably at its weakest in its conclusion that the two factors listed under the statute are not a reasonable basis to find a pass through in processed agricultural cases or at least that it can be in many situations. That should have eliminated the as such claim. That would have left the EU’s as applied claim. The U.S. concern as articulated by the Commerce Department and the U.S. Congress is a real one. The WTO SCMA and U.S. law should not permit evasion of the countervailing duty law because of minor processing of agricultural products. Common sense approaches such as that adopted in 771B are important to ensure all industries can pursue relief when needed. Subsidization of upstream agricultural products will almost always result in excess production which will depress prices resulting in artificial advantages to downstream processors that are unaffiliated. That common sense understanding of reality in agricultural market was not accepted by the panel. It will be interesting to see how, if at all, the U.S. chooses to address this finding.

All of the above strongly suggests that WTO Members need to examine the needs of the trade defense agreements to be sure all industries facing injurious dumping or subsidization can seek relief, and that the agreements are administrable in fact without impossible factual data gathering requirements.

Forced labor and trade — U.S. Congress passes legislation to address China’s treatment of Uyghurs

In prior posts I have reviewed how concerns over perceived human rights abuses (particularly forced labor) have trade implications. See, e.g., April 27, 2021:  WTO and forced labor in cotton — Commentary by Amb. Dennis Shea, former Deputy U.S. Trade Representative, https://currentthoughtsontrade.com/2021/04/27/wto-and-forced-labor-in-cotton-commentary-by-amb-dennis-shea-former-deputy-u-s-trade-representative/; March 24, 2021:  When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang, https://currentthoughtsontrade.com/2021/03/24/when-human-rights-violations-create-trade-distortions-the-case-of-chinas-treatment-of-the-uyghurs-in-xinjiang/; January 25, 2021:  Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, https://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/; January 24, 2021:  Forced labor and child labor – a continued major distortion in international trade for some products, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/.

There have been a number of reports generated by various groups over the years on the depth of the human rights problems in China’s Xinjiang Uyghur Autonomous Region and the treatment of ethnic minorities — particularly the Uyghurs. See, e.g., Australian Strategic Policy Institute and International Cyber Policy Centre, Uyghurs for sale, ‘Re-education’, forced labour and surveillance beyond Xinjiang (authors Vicky Xiuzhong Xu with Danielle Cave, Dr James Leibold, Kelsey Munro, Nathan Ruser), Policy Brief Report No. 26/2020, https://ad-aspi.s3.ap-southeast-2.amazonaws.com/2021-10/Uyghurs%20for%20sale%2020OCT21.pdf?VersionId=zlRFV8AtLg1ITtRpzBm7ZcfnHKm6Z0Ys.

The U.S. State Department releases an annual report on Human Rights issues in other countries, including China. The 2020 report on China contains the following excerpts relevant to the human rights concerns in the Xinjiang Region and the question of forced labor.

“CHINA 2020 HUMAN RIGHTS REPORT

“EXECUTIVE SUMMARY

“* * *

“Genocide and crimes against humanity occurred during the year against the predominantly Muslim Uyghurs and other ethnic and religious minority groups in Xinjiang. These crimes were continuing and included: the arbitrary imprisonment or other severe deprivation of physical liberty of more than one million civilians; forced sterilization, coerced abortions, and more restrictive application of China’s birth control policies; rape; torture of a large number of those arbitrarily detained; forced labor; and the imposition of draconian restrictions on freedom of religion or belief, freedom of expression, and freedom of movement.

“Significant human rights issues included: arbitrary or unlawful killings by the government; forced disappearances by the government; torture by the government; harsh and life-threatening prison and detention conditions; arbitrary detention by the government, including the mass detention of more than one million Uyghurs and other members of predominantly Muslim minority groups in extrajudicial internment camps and an additional two million subjected to daytime-only ‘re-education’ training; political prisoners; politically motivated reprisal against individuals outside the country; the lack of an independent judiciary and Communist Party control over the judicial and legal system; arbitrary interference with privacy; pervasive and intrusive technical surveillance and monitoring; serious restrictions on free expression, the press, and the internet, including physical attacks on and criminal prosecution of journalists, lawyers, writers, bloggers, dissidents, petitioners, and others as well as their family members, and censorship and site blocking; interference with the rights of peaceful assembly and freedom of association, including overly restrictive laws that apply to foreign and domestic nongovernmental organizations; severe restrictions and suppression of religious freedom; substantial restrictions on freedom of movement; refoulement of asylum seekers to North Korea, where they have a well founded fear of persecution; the inability of citizens to choose their government; restrictions on political participation; serious acts of corruption; forced sterilization and coerced abortions; forced labor and trafficking in persons; severe restrictions on labor rights, including a ban on workers organizing or joining unions of their own choosing; and child labor.

“* * *

“Section 7. Workers’ Rights

“* * *

“b. Prohibition of Forced or Compulsory Labor

“The law prohibits forced and compulsory labor. The law provides a range of penalties depending on the circumstances, including imprisonment, criminal detention, administrative blacklisting, and fines. Penalties were commensurate with those for analogous serious crimes, such as kidnapping. The law was not effectively enforced.

“The PRC used state-sponsored forced labor in detention camps, prisons, and factories in and outside Xinjiang.

“There is evidence of forced labor exacted by the use of force, threats of detention or other abusive practices against workers laboring in the camps, large industrial parks, and residential locations in Xinjiang. There are also reports of individuals ‘graduating’ from ‘vocational training centers’ and then being compelled to work at nearby facilities or sent to factories in other parts of China.

“China’s State Council issued a white paper on employment and labor rights in Xinjiang Uyghur Autonomous Region on September 17, 2020, in which it acknowledged that the Chinese Government has provided ‘vocational training’ to an average of 1.29 million workers in Xinjiang every year from 2014 to 2019.

“Xinjiang government documents indicate the existence of a large-scale PRC government plan, known as the ‘mutual pairing assistance’ program, where 19 cities and provinces, mostly in eastern China, have established factories in Xinjiang. There is significant risk that these factories are using camp labor and other exploitative labor practices.

“Persons detained in internment camps in Xinjiang (see section 6) were subjected to forced labor. The detainees worked in factories producing garments, hair accessories, and electronics and in agricultural production, notably picking and processing cotton and tomatoes. In March an Australian Strategic Policy
report stated the PRC government transferred Uyghur and other ethnic minorities from Xinjiang to technology, clothing, and automotive factories across the country; conditions for many transferred workers strongly suggested forced labor. A New York Times investigation published on April 15 stated some Chinese companies used forced labor to produce personal protective equipment. In December a Center for Global Policy report detailed the PRC’s coercive labor training and transfer schemes that led to forced labor of nearly half a million people in the Xinjiang cotton harvest.

“A December 2020 Jamestown report used evidence from public and nonpublic Chinese government and academic sources indicating that labor transfers of ethnic minorities in Xinjiang to other regions and other provinces are part of a state-run scheme to forcibly uproot them, assimilate them, and reduce their population. Using Chinese government documents, the report estimates that up to 1.6 million transferred laborers are estimated to be at risk of being subjected to forced labor as a result of the government policy that intends to ‘displace’ populations deemed ‘problematic’ by the government.

“Chinese-flagged fishing vessels subjected workers from other countries to forced labor. On August 26, an Indonesian social media outlet posted a video of three Indonesian fisherman pleading for rescue from a PRC-flagged fishing vessel. The fishermen claimed they were subjected to physical violence, forced to work 20-hour days, and not paid for their work.

“Although in 2013 the NPC officially abolished the re-education through labor system, an arbitrary system of administrative detention without judicial review, numerous media outlets and NGOs reported forced labor continued in prisons as well as drug rehabilitation facilities where individuals continued to be detained without judicial process. An August, Epoch Times article stated prison labor was used in apparel, artificial flowers, and cosmetic production in Shenyang, Liaoning. There were reports of forced labor in other provinces in the production of items such as bricks, coal, and electronics.

“Also see the Department of State’s Trafficking in Persons Report at https://www.state.gov/trafficking-in-persons-report/.”

U.S. Department of State, CHINA 2020 HUMAN RIGHTS REPORT, pages 1, 78, 81-82 (March 2021 updated in November), https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/china/.

U.S. law for more than 90 years has banned the importation of goods made with forced labor. The problem of forced labor is not limited to China and the U.S. Customs and Border Protection in recent years has taken action to deny entry to imports from a number of countries of goods suspected of being made with forced labor. See, e.g., Testimony of Jennifer (JJ) Rosenbaum, JD, Executive Director, Global Labor Justice – International Labor Rights Forum, Before the House Committee on Ways and Means Subcommittee on Trade, The Global Challenge of Forced Labor in Supply Chains: Strengthening Enforcement and Protecting Workers, Wednesday July 21, 2021, https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/Witness%203%20Jennifer%20Rosenbaum%20Testimony.pdf (citing various USCBP Withhold Release Orders under Section 307 of the Tariff Act of 1930 on products from Malawi, Democratic Republic of Congo, Turkmenistan, Malaysia as well as China).

With the broader concern about the perceived extreme human rights abuses against the Uyghurs and other ethnic minorities in the Xinjiang Uyghur Autonomous Region and reports of dozens of multinationals apparently “benefitting” from forced labor of Uyghurs, Congress held hearings in 2021 and in December passed legislation directed at improving the enforcement of Section 307 of the Tariff Act of 1930 including creating a presumption of use of forced labor for products coming from Xinjiang Province. See, e.g., Inside U.S. Trade’s World Trade Online, Uyghur Forced Labor Prevention Act heads to Biden’s desk, December 16, 2021, https://insidetrade.com/daily-news/uyghur-forced-labor-prevention-act-heads-biden%E2%80%99s-desk.

The U.S. Trade Representative issued a statement on December 16th about the legislation going to the President.

“This bill represents our country’s commitment to protecting human dignity and leading the fight against forced labor. We have a moral and economic imperative to eliminate this practice from our global supply chains, including those that run through Xinjiang, China, and exploit Uyghurs and other ethnic
and religious minorities.

“This fall in London, the G7 trade ministers released a Joint Statement affirming our belief that there is no place for forced labor in a rules-based multilateral trading system. By passing this bill with strong, bipartisan support, the United States can set an example for the world to follow.

“I am grateful to Congress for its leadership and look forward to continuing this necessary work with our trading partners and allies to ensure every worker is treated with respect and dignity – no matter where they live.”

USTR Press Release, STATEMENT BY AMBASSADOR KATHERINE TAI ON THE PASSAGE OF THE UYGHUR FORCED LABOR PREVENTION ACT, December 16, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/december/statement-ambassador-katherine-tai-passage-uyghur-forced-labor-prevention-act.

The bill as passed by the House and Senate is enclosed below. It is expected that President Biden will sign the legislation in the coming days.

uyghur-forced-labor-compromise

The legislation consists of six sections. The first is a statement of policy including the strengthening the porhibition against importation of goods made with forced labor, leading international efforts to end forced labor, coordinating with Canada and Mexico implementation of Art. 23.6 of the USMCA prohibiting the importation of goods manufactured with forced labor, working to end human trafficking, regarding the prevention of atrocities as in the U.S. national interest, and addressing gross violations of human rights in the Xinjiang Uyghur Autonomous Region through diplomatic channels, multilateral institutions, by using all authorities available to the U.S. government including visa and financial sanctions, export restrictions and import controls.

Section 2 details a strategy to enforce Section 307 of the Tariff Act of 1930 (prohibiting the importation of goods made through forced labor in Xinjiang). There will be opportunity for public comments, a public hearing and development of a strategy by the Formed Labor Enforcement Task force (established by Sec. 741 of the USMCA Implementation Act) in consultation with the Department of Commerce and the Director of National Intelligence. The strategy will include elements that assess the risk of importing prohibited goods from Xinjiang and procedures to be implemented to reduce the risks, a factual description of various practices in China on forced labor including a list of entities using forced labor or working with the government on forced labor, a list of products made with such labor, a list of entities that exported such goods to the U.S., information on third parties using such goods, a list of high-priority sector (including at a minimum cotton, tomatoes and polysilicon) and other matters including additional resources needed by USCBP to enforce the law and guidance to importers. Within 180 days of enactment of the legislation, the strategy report shall be submitted to the appropriate Congressional Committees. The strategy will be updated annually.

Section 3 creates a rebuttable presumption that imports of goods mined, produced or manufactured in the Xinjiang Uyghur Autonomous Region is produced with forced labor. There are exceptions but CBP needs to submit a report to appropriate Congressional Committees within 30 days after determining an exception applies. The section takes effect 180 days after enactment of the legislation.

Section 4 deals with having a diplomatic strategy to address forced labor in the Xinjiang Uyghur Autonomous Region. The Secretary of State will submit a strategy within 90 days to the appropriate Congressional Committees including plans to enhance bilateral and multilateral coordination among other matters.

Section 5 deals with sanctions relating to forced labor in the Xinjiang Uyghur Autonomous Region. The President is to identify any official of China’s Government who is determined to be responsible for serious human rights abuses in connection with forced labor in the Xinjiang Uyghur Autonomous Region and shall impose sanctions on such individuals.

Section 6 sunsets Sections 3-5 eight years after enactment or when the President determines the Chinese Government has ended the human rights abuses in the Xinjiang Uyghur Autonomous Region, which is earlier.

Comments

Historically, human rights issues have not been viewed through a trade lense. Many human rights abuses are not easily addressed through trade and may have marginal trade effects. That is not true of the issue of forced labor which affects the costs of goods and services where such labor is involved either in an end product or service or in an upstream product or service.

The United States under the Biden Administration is working to address some of the trade distortions flowing from forced labor as can be seen in the ongoing Fisheries Subsidies negotiations. The human rights issues reportedly flowing from treatment of Uyghur and other minorities in the Xinjiang Uyghur Autonomous Region have caused concerns in many countries. Treasury, Commerce, Customs and Border Protection are all taking actions to address trade distortions caused by forced labor whether from China or elsewhere. The legislation sent to the President last week (that will likely be signed by President Biden by the end of the year) is an important step in raising awareness and trying to address the underlying situation in the Xinjiang Uyghur Autonomous Region.

While China is reacting negatively and now has legislative tools to take retaliation (regardless of WTO inconsistency), the U.S. and other countries have to address the human rights problems flagged in the Xinjiang Uyghur Autonomous Region and ensure that trade distortions from forced labor are neutralized.

20 Years of China’s Membership in the WTO — a brief critique

On December 11, 2001, China became the 143rd Member of the WTO. There is little doubt that China has benefitted from Membership, and that global trade has been heavily influenced by China’s rapid growth. There have been numerous programs marking the milestone of 20 years including yesterday’s (December 10) high level forum at the WTO and a joint program by the Washington International Trade Association and the Asia Society Policy Institute on December 9.

A WTO press release reviews the High-Level Forum event and summarizes views of the major participants. See WTO Press Release, High-Level Forum marks 20 years of China’s WTO membership, 10 December 2021, https://www.wto.org/english/news_e/news21_e/acc_10dec21_e.htm. The full statement of Director-General Ngozi Okonjo-Iweala was made available as well. See Remarks by DG Okonjo-Iweala, 20 Years of China’s WTO Membership: Integration & Development — High-level Opening session (virtual), 10 December 2021, https://www.wto.org/english/news_e/spno_e/spno19_e.htm. The DG’s statement lays out many of the positive developments for China from membership and notes the belief of some other WTO Members that China can and needs to do more, a position commented on by former DG Pascal Lamy and by former USTR negotiator Wendy Cutler. A portion of DG Okonjo-Iweala’s statement is copied below.

“For the WTO, welcoming China marked a significant step towards becoming a truly ‘world’ organization. Over a fifth of the world population — 1.3 billion producers and consumers — gained full entry into the multilateral trading system.

“For other WTO members, China’s accession meant the promise of more predictable and mutually beneficial trading relations with a large and fast-growing economy.

“Accession to the WTO is never easy, and China’s accession process was particularly demanding. China requested to resume its status as a contracting party to the GATT in 1986 — 15 years before its eventual accession to the WTO. Over that time, China and its partners together:

“Convened 38 Working Party meetings;

“Reached 44 bilateral market access agreements, the terms of which went on to be multilateralized; and

“Produced over 750 pages of legal text that spell out China’s WTO commitments.  

“The reforms China was asked to make could not have been easy at the time, requiring difficult changes by Chinese policymakers and within the Chinese economy. But looking back, China’s determination to pursue WTO membership as the cornerstone of its economic liberalization strategy has been fully vindicated.

“China has become the textbook case for how global trade integration can drive growth and development. The country’s economic rise has lifted millions out of poverty, not only within China but also in China’s trading partners across the developing world.

“In 2001, China’s GDP was $1.3 trillion. By 2020, it had reached $14.7 trillion. This is really an astonishing improvement. China’s economy has performed well through the pandemic, and the IMF expects Chinese output to grow by 8% in 2021 and by 5.6% in 2022. China is now by some margin the world’s largest manufacturing producer and exporter.

“People in China have seen dramatic increases in living standards. Per capita incomes, in purchasing power terms, have risen from around US$3,400 in 2000 to US$16,200 today in 2020. Extreme poverty has all but been eliminated.

“China is a major destination for foreign direct investment, and has become a significant source of outward investment itself . The stock of FDI in China has risen 10-fold – from about 200 billion US dollars in the year 2000 to close to 2 trillion US dollars in 2020. Meanwhile, China’s stock of outward FDI has soared to 2.3 trillion US dollars, 84 times higher than at the time of its accession.”

The December 9th virtual event hosted by WITA and ASPI had interviews with former USTR Charlene Barshevsky and Minister Long Yongtu (former Vice Minister and Chief Negotiator for China’s Accession). There were also remarks by Amb. Xiangchen Zhang one of the current Deputy Director-Generals and a past Permanent Representative of China to the WTO. There was also a panel of experts from various organizations, many of whom served at USTR at one time or another. The link for the video of the event can be found in WITA’s Friday Focus on Trade, Volume 250, December 10, 2021. See https://www.wita.org/event-videos/china-wto-20-years/. Based on the deep concerns within the United States on dealing with a host of ongoing systemic problems with China, one of the questions addressed by the panelists and by Amb. Barshevsky was whether it was a misstake for the United States to support China’s accession to the WTO in 2001. Most U.S. speakers supported China’s accession although various concerns were expressed.

A brief critique

Neither event explored to any extent challenges posed by China’s accession or ongoing economic system and behavior. This is perhaps not surprising at the WTO where the event was more celebratory in nature even if cautions were raised by non-Chinese speakers.

But the WITA/ASPI virtual event also tended to overlook many of the core problems. Amb. Barshevsky provided a misleading choice the U.S. and others had back in 2001. The choices were not limited to accession or no accession as suggested by Amb. Barshevsky. The third option that could have been pursued would have been consistent with accessions for most other countries — continue negotiations until China’s system was basically consistent with WTO requirements.

Specifically, For most countries seeking accession, the process goes on until existing Members are comfortable that the acceding Member’s economic and legal system is largely consistent with WTO norms. This was not true of the decision to let China into the WTO in 2001. A longer accession process could have ensured that the reforms needed were in fact undertaken and implemented.

While China had undertaken many reforms prior to accession, there were so many remaining issues needing to be addressed that a variety of special rules were imposed on China to permit Members to monitor China’s progress in the necessary massive remaining reforms and limit damage to other Members while the reforms took place. While most protocols of accession are a few pages at most, China’s protocol (including Annexes) was 102 pages. See ACCESSION OF THE PEOPLE’S REPUBLIC OF CHINA, Decision of 10 November 2001, WT/L/432. China greatly resented the China-specific provisions that were included in the Protocol (the annual trade policy review for the first eight years and a final one at year ten; the special safeguard provisions and the articles dealing with special rules while China’s economy remained state-controlled). China worked to block implementation of the “discriminatory” provisions and largely refused to permit the annual trade policy reviews to be conducted as they should have been and discouraged trading partners from pursuing special safeguard cases.

The core issue for the U.S. and others with China was whether China would adopt the far reaching reforms that would be needed to have China’s economy operate on market principles. While China had made some changes prior to joining and made others after joining, the core issue troubling many WTO Members in 2021 is the massive distortions that occur in a wide range of industries through state involvement, control and direction. As former Deputy Director-General Alan Wolff has raised on a number of occasions, the multilateral trading system requires convergence of economic systems not coexistence. See October 16, 2021:  What role China could play in WTO reform — possibilities are real but chances of a positive role are not, https://currentthoughtsontrade.com/2021/10/16/what-role-china-could-play-in-wto-reform-possibilities-are-real-but-chances-of-a-positive-role-are-not/; November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/. Ensuring convergence would have been possible during the accession process if continued. It is nearly impossible after accession where a Member refuses to pursue that path as is the case with China.

The same could be said for problems with transparency of subsidy regimes, problems with human rights issues affecting trade, the proliferation of products subject to export taxes, forced technology transfer and many more topics of ongoing concern to U.S., EU and other businesses. See, e.g., March 24, 2021:  When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang, https://currentthoughtsontrade.com/2021/03/24/when-human-rights-violations-create-trade-distortions-the-case-of-chinas-treatment-of-the-uyghurs-in-xinjiang/. Monitoring progress prior to accession could have significantly reduced the problems that have plagued Members for the last twenty years.

And there are, of course, other troubling issues of China’s participation in the WTO, such as their use of threats, coercion and punitive conduct towards countries who make statements or take positions with which China disagrees. The problems Australia has faced from China on a wide range of products is but one example. See, e.g., December 22, 2020:  China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/. Similarly, their use of retaliation without WTO authorization is another serious problem in their actions and undermines the international rule of law.

So bottom line, China has been a Member of the WTO for 20 years and has benefitted enormously from its membership. But its different economic system and failures on a host of transparency and other obligations and its willingness to abuse other Members through threats, coercion and unauthorized retaliation are major reasons the WTO is in trouble. China’s behavior is also causing many historic supporters of liberalized trade to rethink options.

As the world marks the 20th anniversary of China’s joining the WTO, it is important to understand just how far from the objective of accession on terms that would ensure a level playing field reality has proven to be. Without a change in approach by China, the road forward for the multilateral trading system is uncertain at best.

Conclusion of Joint Statement Initiative on Services Domestic Regulation — a win for the WTO and services trade

For an organization seeking to regain relevance and facing continued delays in holding its 12th Ministerial Conference because of restrictions on travel from increased COVID-19 cases, the conclusion of the Joint Statement Initiative (JSI) on Services Domestic Regulation through the issuance of a declaration on December 2 was an important accomplishment. Sixty-seven WTO Members agreed to a reference paper and a process for amending services schedules for the participants over the next months with benefits accruing to all WTO Members and with transition periods for developing and least developed countries. See Declaration on the Conclusion of Negotiations on Services Domestic Regulation, 2 Deember 2021,WT/L/1129 (includes Annex 1, Reference Paper on Services Domestic Regulation, 26 November 2021, INF/SDR/2 and Annex 2S, Schedules of Specific Commitments, 2 December 2021, INF/SDR/3/Rev.1). The 67 WTO Members participating the JSI reportedly account for 90% of services trade. The 67 countries are Albania, Argentina, Australia, Kingdom of Bahrain, Brazil, Canada, Chile, China, Colombia, Costa Rica, El Salvador, European Union (and member states), Hong Kong, Iceland, Israel, Japan, Kazakhstan, Republic of Korea, Liechtenstein, Mauritius, Mexico, Republic of Moldova, Montenegro, New Zealand, Nigeria, North Macedonia, Norway, Paraguay, Peru, Philippines, Russian Federation, Kingdom of Saudi Arabia, Singapore, Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Kingdom, United States and Uruguay.

According to the WTO press release on the completion of negotiations, the aim of the JSI was “slashing administrative costs and creating a more transparent operating environment for service providers hoping to do business in foreign markets.” WTO Press Release, Negotiations on services domestic regulation conclude successfully in Geneva, 2 December 2021, https://www.wto.org/english/news_e/news21_e/jssdr_02dec21_e.htm.

It is the first agreement at the WTO barring discrimination between men and women. WT/L/1129 at 10 (Annex I, para. 22(d), development of measures — “such measures do not discriminate between men and women.”).

The WTO and OECD released a short paper looking at the benefits to global services trade through a successful conclusion to the JSI on services domestic regulation. The study estimated that savings to service providers and their customers would be around $150 billion/year. See World Trade Organization and OECD, Services Domestic Regulation in the WTO: Cutting Red Tape, Slashing Trade Costs and Facilitating Services Trade, 19 November 2021, https://www.wto.org/english/news_e/news21_e/jssdr_26nov21_e.pdf. The four “key messages” in the study (page 1) are copied below.

“Key messages

“• Improving business climate: At the 12th WTO Ministerial Conference, the Joint Initiative on Services
Domestic Regulation will conclude negotiations on a set of good regulatory practices with a focus on procedural aspects of licensing and authorization procedures for services suppliers. By enhancing the transparency, efficiency, and predictability of regulatory systems, the disciplines on services domestic regulation that the Joint Initiative has negotiated will address the practical challenges that affect the ability of businesses and suppliers to operate.

“• Facilitating services trade: Building on efforts to identify and disseminate good regulatory practice, an
increasing number of “new generation” trade agreements have moved beyond the removal of quantitative restrictions and discriminatory measures to include a comprehensive set of disciplines largely equivalent to those developed by the Joint Initiative. At the same time, economies at all levels of income have also implemented reforms with a view to making their regulatory environment more trade facilitative for services businesses.

“• Lowering trade costs and generating broader trade benefits: Through the full implementation of the
disciplines on services domestic regulation, economies can lower trade costs and reap substantial trade
benefits: annual trade cost savings could be in the range of USD 150 billion, with important gains in financial services, business services, communications and transport services. Moreover, a positive correlation between the implementation of services domestic regulation measures and services trade by all four modes of supply, as well as a more active engagement of economies in global value chains, hints to even broader economic benefits.

“• Widespread gains beyond participants: Exporters from all WTO members will benefit from the improved regulatory conditions when they trade with participants of the Joint Initiative. However, significantly larger benefits will accrue to WTO members that are implementing the disciplines themselves in their internal regulatory frameworks.”

The study provides a summary of improved disciplines the 67 WTO Members have identified in the reference paper. The improved disciplines are grouped under transparency, legal certainty and predictability, regulatory quality and facilitation. See id at 2.

While the estimated savings once fully implemented is small in comparison to global services trade ($150 billion of 2019 estimated trade of $6.1 trillion (2.6%)(UNCTAD, 2020 Handbook of Statistics, page 33, data for 2019, https://unctad.org/system/files/official-document/tdstat45_en.pdf) as noted in the WTO press release, it is the first update of WTO rules on services in more than a quarter century. The negotiations had three co-chairs — Costa Rica, Australia and the European Union. Part of the EU’s statement by Ambassador Aguiar Machado from the December 2 meeting and announcement of the declaration is provided below. See Services Domestic Regulation Joint Initiative Meeting to conclude the negotiations (co-hosted by Costa Rica, the European Union and Australia), 2 December 2021, Geneva, https://eeas.europa.eu/delegations/brazil/108266/services-domestic-regulation-joint-initiative-meeting-conclude-negotiations-co-hosted-costa_en.

“Today, we are following up on a joint commitment we collectively took two years ago in Paris to finalize the negotiations that had started with the Joint Statement of Buenos Aires in 2017. Since then, several new Members have joined the group and a tremendous amount of work has been done by our negotiators under the valued Chairmanship of Costa Rica. In particular, warm welcome to the Philippines and Bahrain who joined our negotiations most recently.

“We are here today to conclude our negotiations in this JSI and on the Reference Paper with domestic regulation disciplines. This step will allow us to commence our respective domestic procedures required for the certification of our improved schedules of commitments, which will give legal effect to the negotiated disciplines.

“The work on services domestic regulation is of critical importance. It is the first WTO deliverable in the area of trade in services since a very long time. Our additional commitments for domestic regulation will benefit all other WTO Members by giving them the reassurance that we will apply good regulatory and administrative practices also to their service suppliers. 

“Good regulatory practices are crucial for the well-functioning of today’s economy. I believe that the clear rules on transparency and authorisation in the area of services – that were agreed as part of this initiative – will facilitate trade in services significantly. Especially for micro, small and medium-sized enterprises who do not have the same resources and experience to cope with complex processes as their larger competitors.

“The services sector has been hit hard by the pandemic – as other parts of our economy. The adoption and implementation of the disciplines of the reference paper will reduce trade costs for service suppliers substantially and thus help the sector in its recovery. It is a sector where women entrepreneurs often play an important role. The reference paper recognises this role by ensuring non-discrimination between men and women in authorisation processes. This is the first rule of this kind in the WTO.

“Delivering on the WTO services agenda is a long overdue objective we all have. Since Buenos Aires, we have collectively developed a pragmatic approach to negotiations. We have allowed groups of interested Members to advance negotiations on some important issues – through open, inclusive and transparent processes.

“Today, we prove that this plurilateral approach can lead to tangible results. This demonstrates that the Joint Initiative model is a viable one. A large and diverse group of WTO Members can work together towards a common objective, overcome their differences, show flexibility and agree on tangible results that are important for businesses and consumers.

“I believe that this Joint Initiative can be a source of inspiration for work in other areas, allowing interested Members to move ahead while ensuring that the outcome, in its substance and its form, remains supportive of and strengthens the multilateral trading system.”

Since the collapse of the Doha Development talks in 2008, the reality has been that most progress on trade talks have taken place in bilateral, and plurilateral settings. The sole meaningful exception was the completion of the Trade Facilitation Agreement which hopefully will be supplemented by a completion to the Fisheries Subsidies negotiations in the near future. Stating at the WTO’s 11th Ministerial, many WTO Members have started Joint Statement Initiatives to seek progress on important issues facing the trading system.

As noted in earlier posts, India and South Africa (WTO Members who are not participating in any of the Joint Statement Initiatives) have raised objections to the use of JSIs to update rules claiming such approaches are inconsistent with existing WTO requirements. See, e.g., November 17, 2021:  The role of plurilaterals in the WTO’s future, https://currentthoughtsontrade.com/2021/11/17/the-role-of-plurilaterals-in-the-wtos-future/.

The view of the participants in the services domestic regulation JSI is that existing WTO provisions permit the updating of service schedules by Members. The reference paper will apply to those who have participated or who later accept the reference paper. New obligations taken on by the 67 Members are applied by them on an MFN basis to all WTO trading partners.

The Declaration on Services Domestic Regulation and actions to implement it will be an early test of whether the WTO can proceed to update rules through open plurilaterals. While one can expect continued objections from India and South Africa, the path to renewed relevancy for the WTO will almost certainly run through finding room for open plurilaterals.

WTO-IMF COVID-19 Vaccine Trade Tracker provides useful information in analyzing vaccine equity

On November 22, 2021, the WTO and IMF announced and released their COVID-19 Vaccine Trade Tracker. See WTO News Release, WTO, IMF launch Vaccine Trade Tracker, 22 November 2021, https://www.wto.org/english/news_e/news21_e/covid_22nov21_e.htm. While the data on access to vaccines is not as granular as the UNICEF COVID Vaccine Dashboard, the new tracker provides data under six topics: summary, exports (options being by producing economy or by supply arrangement type), imports (options being by income group or by continent), total supply (options being by producing economy or by vaccine type), supply to continents (Africa, Asia, Europe, North America, Oceania, South America) and vaccination status (options being by income group and by continent). Data in the initial release are through October 31, 2021. Income groups are the World Bank’s groupings — Low income, lower-middle income, upper middle income and high income.

In recent posts I have noted that much of the discussion on vaccine equity focuses on access and affordability but doesn’t necessarily help understand widely different outcomes for countries or territories that are at the same stage of economic development. See November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/. The WTO-IMF Tracker doesn’t include the identification of countries/territories within income groups but rather reports on the entire grouping. The World Bank’s 2020 listing is the most recent. See World Bank, GNI per capita, Atlas method (current US$), https://data.worldbank.org/indicator/NY.GNP.PCAP.CD; November 15, 2021:  The folly of self-selection as a developing country at the WTO, https://currentthoughtsontrade.com/2021/11/15/the-folly-of-self-selection-as-a-developing-country-at-the-wto/.

Of the listed producing countries involved in exports of COVID-19 vaccines all are WTO Members. The EU, USA, Japan and Republic of Korea are listed as high income countries by the World Bank though Korea has treated itself as a developing country at the WTO. China, the Russian Federation and South Africa are included as upper middle income countries by the World Bank based on per capita GNI, though both China and South Africa claim developing country status at the WTO. India is listed as a lower-middle income country by the World Bank and claims developing country status at the WTO. There is a small amount of exports from other countries not broken out by individual country n the WTO-IMF tracker.

On total supply (“Total supply contains both exported and domestically delivered doses), China is the largest producing country with a total supply of 4.0811 billion doses of which 1.3294 billion doses have been exported. The European Union is the second largest producer with a total supply of 1.7077 billion doses producers of which 876.5 million have been exported. India is the third largest producers with total supply of 1.3608 billion doses of which just 66.0 million doses have been exported. The United States is fourth with total supply of 941.1 million doses and exports of 300.8 million doses. Others have much smaller total supplies and exports.

The vast majority of exports have been through bilateral deals (77.5%). The second largest source of exports has been doses contracted via COVAX (8.1%). Because of several major problems COVAX experienced from suppliers — the largest being the shut down of exports from India for much of 2021 — COVAX has been unable to supply the large volume of vaccine doses in 2021 to low income and lower middle income countries that had been planned on. The third largest source of exports was donations via COVAX (7.5%), followed by direct donations from producing countries to receiving countries (6.1%) and supply via the African Vaccine Acquisition Trust (“AVAT”)(0.8%).

The vaccination status data (item six in the Tracker) is helpful in identifying regions with the greatest needs as well as the breakout by World Bank income level. However, because of the lack of granularity to the individual country or territory, the data don’t help understand the large differences between members in the same continent or in the same income grouping.

By continent, all continents except Africa have received more than 50 courses of doses per 100 people (with North America the highest at 81.4 and Europe at 76.2). Africa was just 11.2 courses per 100 people. All but Africa have more than 50% of the population with at least one dose administered. Africa was just 8.7%. And all but Africa have more than 40% of the population fully vaccinated. Africa was only 5.8%. Thus, there is a need to expand availability of vaccine doses to most African countries

When vaccination status is examined by income level, high income and upper middle income countries and territories have much larger vaccination rates than lower middle income and low income. On courses of vaccines per 100 people, high income countries were at 89.5, upper middle income countries averaged 74.8, lower middle income countries were at just 34.8 and low income countries were at just 7.0. Similar discrepancies exist on percent with at least one dose administered and percent fully vaccinated. The inability of COVAX to receive the volumes of doses contracted for in 2021 and the slowness of donations for richer countries are certainly core reasons for the differences in doses for lower middle income and low income countries.

Yet there are major discrepancies among countries or territories in the same continent or same income grouping. I identified a few in yesterday’s post. See November 22, 2021:  Trade and Health at the WTO’s 12th Ministerial Conference, https://currentthoughtsontrade.com/2021/11/22/trade-and-health-at-the-wtos-12th-ministerial-conference/. For example, Morocco is classified as a lower middle income country by the WTO but had the highest level of administered vaccines/100 people in Africa (136.5 (assumed to be 68.25 courses of doses/100 people)) while South Africa, classified as an upper middle income country had a rate of administered vaccine doses less than 1/3 that of Morocco (41.4 (assumed to be 20.7 courses of doses/100 people). Similarly, two low income countries as classified by the World Bank have drastically different administered doses despite nearly identical per capita GNIs and both being countries in Africa. Specifically, Zimbabwe’s per capital GNI in 2020 was $1,090 and yet they had administered 42.3 COVID vaccine doses/100 people. Cameroon, with a per capita GNI in 2020 of $1,100, had COVID vaccines administered of only 2.4/100 people.

Conclusion

The WTO-IMF COVID-19 Vaccine Trade Tracker provides very useful information, although much is at a continent or income group level. It appears likely that the tracker will be updated only monthly. If not being considered, the designers of the new tracker should provide a link to a data base that provides the type of data shown in the aggregate for each country or territory. Such data would permit a better understanding of differences within continents and within income groups and potentially improve the ability to improve vaccine equity moving forward. It is also possible to update the tracker more frequently than once a month, though some charts, etc. are fine with monthly updates. .

Trade and Health at the WTO’s 12th Ministerial Conference

An area of focus the last two years at the WTO has been addressing the COVID-19 pandemic. This has included various statements from Members, monitoring by the Secretariat of export and import actions either impeding or expediting the flow of medical goods and services, and various proposals for actions to address the pandemic or for future preparation. The proposal for a waiver from various TRIPS obligations from India and South Africa (and now supported by a range of countries) is one proposal. A number of countries (Ottawa Group) have put forward a proposal for a trade and health initiative to permit a more rapid response by WTO Members in the future. See COVID-19 AND BEYOND: TRADE AND HEALTH, COMMUNICATION FROM AUSTRALIA, BRAZIL, CANADA, CHILE, THE EUROPEAN UNION, JAPAN,
KENYA, REPUBLIC OF KOREA, MEXICO, NEW ZEALAND, NORWAY, SINGAPORE AND SWITZERLAND, 24 November 2020, WT/GC/223; November 27, 2020:  The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/. The WTO Director-General and the Members have engaged in a number of meetings with other multilateral organizations and the private sector exploring options for expanding production of COVID-19 vaccines and expanding distribution to countries in need.

Amb. David Walker of New Zealand has been tasked to work with Members to see if a declaration on trade and health can be agreed to at the 12th WTO Ministerial Conference that starts on November 30.

A former Deputy Director-General of the WTO, Alan Wolff, provided his thoughts on likely outcomes at the 12th Ministerial during a WITA virtual event on November 18th and opined that a declaration on trade and health was likely only if there was some resolution of the waiver proposal for vaccines. See PIIE, Alan Wm. Wolff, Defining Success for MC12, 18 November 2021, Presented at WITA, slides 5, 7, 10-11. Slide 10 is presented below.

I have written before on the challenges of the waiver of TRIPs obligations proposal put forward by India and South Africa. See, e.g., November 2, 2020:  India and South Africa seek waiver from WTO intellectual property obligations to add COVID-19 – issues presented, https://currentthoughtsontrade.com/2020/11/02/india-and-south-africa-seek-waiver-from-wto-intellectual-property-obligations-to-address-covid-19-issues-presented/.

The EU and some others have not agreed to a waiver but have focused on making compulsory licensing more effective. See, e.g., DRAFT GENERAL COUNCIL DECLARATION ON THE TRIPS AGREEMENT AND PUBLIC HEALTH IN THE CIRCUMSTANCES OF A PANDEMIC, COMMUNICATION FROM THE EUROPEAN UNION TO THE COUNCIL FOR TRIPS, 18 June 2021, IP/C/W/681.

Thus, the outcome on trade and health heading into the Ministerial is uncertain. See WTO News Release, Members to continue discussion on a common COVID-19 IP response up until MC12, 19 November 2021, https://www.wto.org/english/news_e/news21_e/trip_18nov21_e.htm.

A driver behind the waiver proposal has been the limited availability of vaccines to least developed and some developing countries. Vaccine equity is the shorthand term for the concerns about availability and affordability of vaccines for all people. While the issue of availability and access is complicated and beyond just WTO competence, the world’s vaccine manufacturers have ramped up capacity and production, governments have belatedly gotten involved in expanding donations and some of the major bottlenecks to getting vaccines to COVAX in 2021 appear to be resolved going forward, though many LDCs and developing countries will not get large volumes of vaccines until 2022.

The pandemic and the challenges of ramping up production and ensuring access to all people has been the subject of dozens of my prior posts. See, e.g., October 12, 2021: See WTO Information Notes on COVID-19 Vaccine Production and Potential Bottlenecks, https://currentthoughtsontrade.com/2021/10/12/wto-information-notes-on-covid-19-vaccine-production-and-potential-bottlenecks/; September 27, 2021:  Global efforts to expand COVID-19 vaccine production and distribution — an all hands on deck effort being led by the U.S. and EU with active support of many governments and others, https://currentthoughtsontrade.com/2021/09/27/global-efforts-to-expand-covid-19-vaccine-production-and-distribution-an-all-hands-on-deck-effort-being-led-by-the-u-s-and-eu-with-active-support-of-many-governments-and-others/; May 6, 2021:  COVID-19 vaccines — role of WTO and developments at May 5-6, 2021 General Council meeting on TRIPS Waiver, https://currentthoughtsontrade.com/2021/05/06/covid-19-vaccines-role-of-wto-and-developments-at-may-5-6-2021-general-council-on-trips-waiver/.

Prior to 2021, global capacity for all vaccines was estimated at 5 billion doses/year. In 2021, COVID-19 vaccine production alone will be around 10 billion doses. As of November 20, 2021, UNICEF’s COVID Vaccine Market Dashboard shows 8.624 billion doses delivered to countries and territories of which COVAX deliveries were 524 million (and 565 million delivered or cleared for shipment). https://www.unicef.org/supply/covid-19-vaccine-market-dashboard (visited on November 20, 2021).

Administration of vaccine doses to populations has been less than doses delivered. Data from Blomberg’s COVID Vaccine Tracker as of November 19, 2021 9:34 a.m., shows 7.63 billion doses administered. https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/ (visited November 20, 2021). From the Vaccine Tracker data, there are a large number of countries or territories (95) that have administered 100 or more doses to every 100 people in the country. As major vaccines like Pfizer and Moderna need two shots, and as some countries have started supplying boosters, data are not necessarily comparable across countries in terms of percentage of people vaccinated. But the doses administered per 100 people is a reasonable measure of equitable distribution. A review of the data do show large differences in administration of doses. However, which countries or territories have administered large numbers of doses/100 people is not tied to a country or territory having vaccine production capacity, nor is it tied to level of income in the country or territory.

For example, the top ten countries or territories for administering doses of COVID-19 vaccine in the Bloomberg report were:

Gibraltar, 279.2 doses/100 people

Cuba, 244.2 doses/100 people

Chile, 207.5 doses/100 people

Maldives, 204.8 doses/100 people

UAE, 201.6 doses/100 people

Bahrain, 191.7 doses/100 people

Uruguay, 190.7 doses/100 people

Malta, 185.9 doses/100 people

Cayman Islands, 183.7 doses/100 people

Seychelles, 182.7 doses/100 people

China ranked 16th at 172.1 doses/100 people; the United States ranked 66th at 134.0/100 people; EU members were generally greater than 100 doses/100 people but had several member states below that (Bulgaria at 45.4 doses/100 people; Romania at 73.0 doses/100 people) and had an overall average of 138.7. Morocco had the most doses/100 people for a country from Africa — 136.5.

Twenty-eight countries or territories have administered between 75 and 99.4 doses/100 people (including India at 84.6 doses/100 people); twenty-three countries or territories have administered between 50 and 73 doses/100 people (including Rwanda at 65.2 doses/100 people and Botswana at 52.8 doses/100 people); twenty-two countries or territories have administered between 25 and 47.1 doses/100 people (including South Africa at 41.4 doses/100 people); thirty-three countries or territories have administered between 0.2 and 18.7 doses/100 people.

Obviously, there are a large number of countries (including some developed countries) where vaccines administered are far too limited. For many developing and LDC countries with low numbers of doses administered, the failure of supplies to be delivered to COVAX for shipment is certainly a significant cause. India’s need to keep vaccine doses at home was a major cause of the shortfall to COVAX in 2021, but not the only reason.

Belatedly larger volumes of vaccine doses are making it to those in greatest need. The increases flow from a combination of increased production volumes globally, India resuming exports, increases in donations from a number of countries and more. For example, the UNICEF data on deliveries shows that there have been some significant increases in doses available to the countries or territories with very low doses administered levels. For example, Nigeria shows only 4.6 doses/100 people administered in the Bloomberg vaccine tracker data. The UNICEF vaccine market dashboard shows roughly three times the number of doses delivered to Nigeria as are reported administered (29.689 million vs. 9.254 million). Benin has 1.968 million doses delivered and just 0.347 million administered (2.9/100 people). It is also true for countries receiving doses from COVAX with higher existing doses administered. For example, Zimbabwe which had 42.3 doses administered per 100 people in the Bloomberg data showed nearly twice as many doses delivered in the UNICEF data as had been administered (11.322 million doses delivered vs. 6.31 million doses administered).

What the two reports suggest is that while vaccine equity is a real issue, the causes of the very different experiences of different countries or territories in the same general area are complex and not easily or completely understood by the current discussion. For example, Zimbabwe’s per capital GNI in 2020 was $1,090 and yet they had administered 42.3 COVID vaccine doses/100 people. Cameroon, with a per capita GNI in 2020 of $1,100, had COVID vaccines administered of only 2.4/100 people. Similarly, Morocco had a 2020 per capita GNI of $2,980 and COVID vaccines administered of 136.5/100 people. In comparison, South Africa with a much higher per capita GNI in 2020 ($5,410) had COVID vaccines administered at less than 1/3rd the rate of Morocco – 41.4 vs.136.5/100 people. Nigeria, with a 2020 per capita GNI of $2,000 had administered only 4.6 COVID vaccines/100 people.

Thus, those working on improving vaccine equity need to identify and address the other causes besides vaccine production and availability through COVAX in the coming months.

I paste below the data from the Bloomberg COVID Vaccine Tracker ranked in descending order of COVID vaccine doses administered per 100 people as of November 19, 2021.

Countryvaccines

The role of plurilaterals in the WTO’s future

As the WTO is less than two weeks from the start of its 12th Ministerial Conference, an important question for the WTO Membership is whether or not the WTO will incorporate results from plurilaterals started at and after the 11th Ministerial (the so-called Joint Statement Initiatives) into the WTO or will rather limit the role of plurilaterals and effectively further reduce the relevance of the WTO going forward.

As reviewed in prior posts, India and South Africa have challenged the role of plurilaterals where WTO requirements are not followed to make it part of the WTO acquis. See, e.g., February 20, 2021:  Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/. The paper from India and South Africa, THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, 19 February 2021, WT/GC/W/819 and one revision (WT/GC/W/819/Rev.1) was the subject of discussions at the March 1-2 and 4, 2021 General Council meeting and has been raised in subsequent General Council meetings as well. See GENERAL COUNCIL, MINUTES OF MEETING HELD IN VIRTUAL FORMAT ON 1-2 AND 4 MARCH 2021, WT/GC/M/190 (23 April 2021), pages 65-78; GENERAL COUNCIL, 7-8 October 2021 PROPOSED AGENDA, WT/GC/W/828 (5 October 2021), agenda item 11 (PAPER TITLED “THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES” BY INDIA, SOUTH AFRICA AND NAMIBIA (WT/GC/W/819/REV.1)). Neither India nor South Africa are participating in any of the Joint Statement Initiatives (“JSIs”) at the present time.

Below are some excerpts from the March 2021 General Council meeting which lays out the views of a few of the WTO Members on the topic. The excerpts start with the views of India and South Africa as the sponsors of the paper and then follows with the reaction of a number of Members who support the JSI process. Many more Members expressed views. The controversy basically revolves around whether WTO Members will pursue initiatives among those with an interest with all Members being able to monitor, participate and join when desired or be limited by a system which has proven largely unable to address new issues in a timely manner.

India (pages 65-67 of WT/GC/M/190)

“10.2. The representative of India recalled that India and South Africa had submitted the paper in document WT/GC/W/819 dated 19 February 2021 on the “The Legal Status of ‘Joint Statement Initiatives’ and their Negotiated Outcomes”. As a co-sponsor, India was not questioning the right of Members to meet and discuss any issue. However, when such discussions turned into negotiations
and their outcomes were to be brought into the WTO, the fundamental rules of the WTO should be followed. The WTO had been established as a forum concerning multilateral trade relations in matters dealt with under the agreements in the Annexes to the Marrakesh Agreement and for further negotiations among its Members concerning their multilateral trade relations and to provide a framework for the implementation of results of such negotiations.

“10.3. The Marrakesh Agreement defined ‘Plurilateral Agreements’ as the agreements and associated legal instruments that were included in Annex 4 to the Agreement. The Ministerial Conference, upon the request of the Members party to a trade agreement, decided exclusively by consensus to add that agreement to the said Annex 4. Procedures for amending rules were enshrined in Article X of the Marrakesh Agreement. On the other hand, the GATT and GATS contained specific provisions for modifications of Schedules containing specific commitments of Members.

“10.4. Amendments or additions to the rules were governed by multilateral consensus based decision-making or voting – right from the outset when a new proposal for an amendment was made. On the other hand, negotiations on modifications or improvements to Schedules could arise either as the outcomes of consensual multilateral negotiations pursuant to Article XXVIII of GATT or Article XXI of GATS or be reached through a bilateral request and offer process or as a result of a dispute. In fact, even changes to Schedules could not be made unilaterally as other Members had the right to protect the existing balance of rights and obligations.

“10.5. The GATS read in concert with the Marrakesh Agreement provided for different rules and procedures for amendment of rules and modification of schedules. While the GATS rules were governed by the GATS Part II, “General Obligations and Disciplines”, Part III of the GATS contained provisions concerning Members individual “Specific Commitments” pertaining to distinctly identified services sectors which were inscribed in Members’ Schedules. In case of conflict in interpretation, Article XVI.3 of the Marrakesh Agreement provided that in the event of a conflict between a provision of the Marrakesh Agreement and a provision of any of the Multilateral Trade Agreements, the provisions of the Marrakesh Agreement should prevail.

“10.6. Each of the JSIs was likely to pose different legal challenges to the existing WTO rules and mandates given the differences in the nature and scope of issues covered under each of those initiatives. However, any attempt to bring in the negotiated outcomes of the JSIs into the WTO by appending them to Members’ Schedules, even on MFN basis, following modification of Schedules
procedures, bypassing multilateral consensus would be contrary to the provisions of the Marrakesh Agreement.”10.7. Any attempt to introduce new rules, resulting from JSI negotiations, into the WTO without fulfilling the requirements of Articles IX and X of the Marrakesh Agreement would be detrimental to the functioning of the rules-based multilateral trading system. Among others, it would erode the integrity of the rules-based multilateral trading system, create a precedent for any group of Members to bring any issue into the WTO without the required mandate. bypass the collective oversight of Members for bringing in any new rules or amendments to existing rules in the WTO, usurp limited WTO resources available for multilateral negotiations, result in Members disregarding existing multilateral mandates arrived at through consensus in favour of matters without multilateral mandates, lead to the marginalization or exclusion of issues which were difficult but which remained critical for the multilateral trading system such as agriculture and development thereby undermining balance in agenda setting, negotiating processes and outcomes and fragment the multilateral trading system and undermine the multilateral character of the WTO.

“10.8. The document listed various options to move ahead. As per the provisions of the Marrakesh Agreement, for bringing in their negotiated outcomes in the WTO, the JSI Members could seek consensus among the whole WTO Membership, followed by acceptance by the required proportion of Members according to Article X of the Marrakesh Agreement. Alternatively, they could get the new agreements included in Annex 4 following Article X.9 of the Marrakesh Agreement. They also had option to pursue agreements outside the WTO Framework, as had been envisaged in the Trade in Services Agreement (TISA) or as had been done in multiple bilateral or plurilateral FTAs or RTAs. The proponents of a “flexible multilateral trading system” could even seek amendment to Article X of the Marrakesh Agreement following procedures enshrined therein to provide for such an approach.

“10.9. Through the paper WT/GC/W/819, India and South Africa reiterated that basic fundamental principles and rules of the rules-based multilateral trading system as enshrined in the Marrakesh Agreement should be followed by all Members including the participants of various JSIs. Negating the decisions of past Ministerial Conferences by decisions taken by a group of Ministers on the sidelines of a Ministerial Conference or the side-lines of any other event would be detrimental to the existence of the rules-based multilateral trading system under the WTO.”

South Africa (pages 67-68 of WT/GC/M/190)

“10.10. The representative of South Africa said that the WTO had been established as a forum concerning multilateral trade relations. South Africa’s interest in submitting the paper was to remind Members of the legal architecture that governed the functioning of the WTO which was critical to preserve its multilateral character. The pandemic was a sharp reminder of the importance of global cooperation in dealing with global challenges. The challenges facing humanity were not limited to
the pandemic but included rising inequality both within and between countries, poverty and food insecurity, among others. Those necessitated that Members avoided measures that undermined or fragmented the trading system.

“10.11. Any group of Members could discuss any issue informally. However, when discussions turned into negotiations, and their outcomes were sought to be formalized into the WTO framework, it could only be done in accordance with the rules of procedure for amendments as well as decision-making as set out in the Marrakesh Agreement. The plurilaterals were provided for in the Marrakesh Agreement and were included in Annex 4 to the Agreement – and there were specific rules to be followed to integrate those into the WTO framework. It was however important to note that the Ministerial Conference, upon the request of the Members party to a trade agreement, decided exclusively by consensus to add that agreement to the said Annex 4.

“10.12. The provisions in the Marrakesh Agreement had been carefully negotiated and were a result of the experience acquired in the GATT which had been characterized especially after the Tokyo Round by agreement on a number of plurilateral codes. There had been recognition that those plurilateral codes had created a fragmented system of rules. In respect of some Contracting Parties,
the GATT rules had been applicable, while in respect of the rest, both the GATT rules and the rules of plurilateral codes had been applicable. That created considerable complexity in determining what obligations had been applicable in respect of which Contracting Party.

“10.13. The Preamble to the Marrakesh Agreement clearly articulated Members’ vision for the WTO and it was to develop an integrated, more viable and durable multilateral trading system. Article II.1 stated that “The WTO shall provide the common institutional framework for the conduct of trade relations among its Members.” Article III.2 stated that “The WTO shall provide the forum for negotiations among its Members concerning their multilateral trade relations”. It provided for consensus-based decision-making as enshrined in Articles III.2, IX, X and also X.9 as well as procedures for the amendments of rules as articulated in Article X.

“10.14. The Marrakesh Agreement did not make provision for the so-called open plurilaterals and flexible multilateralism. Therefore, any suggestion that when offered on MFN basis, no consensus was required for bringing new rules into the WTO was legally inconsistent with the fundamental principles and procedures of the Marrakesh Agreement. Importantly, new rules could not be brought into the WTO through amendment of Members’ Schedules. It had also been suggested that the Telecommunications Reference Paper justified why the consensus principle could be bypassed. However, as part of the package of the Uruguay Round outcome, there had been a multilateral consensus and a formal mandate for the negotiations, including agreement on inscribing outcomes into Schedules without an amendment procedure.

“10.15. There were systemic and developmental implications inherent in plurilaterals especially if they attempted to subvert established rules and foundational principles of the Marrakesh Agreement. They risked eroding the integrity of the rules-based multilateral trading system, creating a precedent for any group of Members to bring any issue into the WTO without the required consensus, including disregard of existing multilateral mandates, marginalizing issues which were difficult but yet critical
for the multilateral trading system such as agriculture and development thereby undermining balance in agenda setting, negotiating processes and outcomes, fragmenting the system and undermining the multilateral character of the WTO which Members had sought to resolve by creating the WTO following the GATT experience.

“10.16. The legal framework of the WTO provided clear options for Members who were part of JSIs as outlined in the paper. South Africa was therefore calling on Members to respect the rules which continued to underpin the functioning of the WTO.

Australia (page 69 of WT/GC/M/190)

“10.24. The representative of Australia noted Members’ commitment to improving the effectiveness of the WTO’s rulemaking function. Australia was a participant in all the current JSI negotiations under way and strongly supported that important work at the WTO. Plurilateral initiatives were neither novel nor revolutionary in the multilateral trading system. They had always been a part of the WTO architecture had constituted the predominant form of rulemaking in the multilateral trading system for decades. WTO-consistent plurilateral trade agreements with wide participation played an important role in complementing global liberalization efforts. The current JSIs had the potential to deliver vital outcomes that strengthened the WTO’s rulemaking function and its health more generally. More than 110 Members were participating in one or more of the current JSI negotiations – demonstrating the wide acknowledgement from across the Membership that that was a legitimate and useful form of rulemaking. They had and continued to be inclusive, open and transparent.

“10.25. Australia did not agree with the legal analysis in India and South Africa’s paper. For instance, the suggestion that Members could not improve their GATT or GATS Schedules without consensus agreement was not accurate. Members could always incorporate improvements to their Schedules whether unilaterally or as a group of Members. That was the legal architecture which participants had agreed to use in the services domestic regulation JSI. Australia had full confidence in the WTO consistency of that approach. In the case of the e-commerce JSI, its participants were still exploring the legal structure options they could best use to incorporate eventual outcomes into the WTO legal framework but were confident that those pathways could be found. Australia encouraged all Members to participate in or at least keep an open mind on those plurilateral discussions to pursue
outcomes that modernized and enhanced WTO rules for the whole Membership.”

Costa Rica (pages 69-70 of WT/GC/M/190)

“10.26. The representative of Costa Rica was focused on ensuring that the WTO operated within the legal framework agreed by the Members. Costa Rica would reject any attempt to force Members to abide by new obligations without their consent. Costa Rica was a participant in the Joint Statement Initiatives on Electronic Commerce, Investment Facilitation for Development, MSMEs and Services Domestic Regulation. The reason for that was simple. Costa Rica was recognizing the need to adapt to the trade policy challenges of the 21st century. But that did not mean that any Member who chose to remain outside those discussions would be forced to adhere to any new obligations.

“10.27. Costa Rica focused its remarks that day on the negotiations on services domestic regulation as that was the initiative that it had the pleasure of coordinating. Those negotiations and the outcome they would produce were firmly within the rules of the WTO. 59 proponents of services domestic regulation had established the initiative at the end of 2017 after they had to accept with
great regret that no further progress had been possible in the Working Party on Domestic Regulation. Each and every proposal submitted had been rejected in its entirety by South Africa and other Members. Proponents of domestic regulation had no choice but to accept that position.

“10.28. Since that time, work on the subject had so far advanced in the Joint Statement Initiative on Services Domestic Regulation. To the extent that participants considered it to be a viable prospect for an outcome to be delivered that year, Costa Rica clarified that the outcome would consist of a set of disciplines on licensing, qualification and standards which would bind only participating
Members but would benefit services suppliers from all Members who traded with the participating Members which currently represented more than 70% of world services trade.

“10.29. The outcome that was envisaged would be incorporated into participating Members’ GATS schedules of specific commitments. In substance, it covered precisely those types of measures that were listed in the GATS as areas for additional commitments, namely, qualification standards and licensing matters That was important because the paper introduced by India and South Africa suggested that the disciplines developed by the initiative constituted some form of not further specified rules which did not fit under the architecture of services schedules. That was quite untrue. Rather, the disciplines constituted improvements of participating Members’ existing commitments.

“10.30. Participating Members would give legal effect to the outcome by inscribing the disciplines as additional commitments in the respective GATS schedules. That would not be done by seeking to add a new agreement to the WTO architecture but by applying well established multilateral WTO procedures to improve Members’ schedules of specific commitments. Concerns about the work of the JSI had been raised already at the end of 2019. At that time, India had argued that some of the disciplines could be of a GATS minus nature and the GATS Article VI.4 mandate could be affected by the work of the initiative. As the Coordinator of the initiative, Costa Rica had had the pleasure of discussing those concerns with India in more detail and to report back to the group. While participants in the initiative did not agree that the disciplines in question could be understood to undercut existing GATS obligations, they agreed wholeheartedly with India that the disciplines should not be understood to weaken any provision contained in the GATS.

“10.31. Indeed, participants had recently incorporated in the negotiating text language expressing clearly that the disciplines should not be constructed to diminish any obligations under the GATS. The GATS Article VI.4 mandate to develop any necessary domestic regulation disciplines was not, would not and could not be affected by the fact that Members participating in the JSI would undertake additional commitments on domestic regulation. Costa Rica was therefore disappointed to see that India currently appeared to question the right of any WTO Member to improve its services commitments. The JSI on Services Domestic Regulation remained open and transparent and all Members were welcome to join the meetings and to constructively engage ensuring that the outcome benefited service suppliers across the world and included as many Members as possible.”

Chinese Taipei (page 70 of WT/GC/M/190)

“10.32. The representative of Chinese Taipei noted that the plurilateral approach had contributed to global trade in the past. The ITA was an example. Certain limited use of the plurilateral approach could support and supplement the multilateral trading system by facilitating international trade. The discussions under JSIs had given the WTO new momentum which was necessary and healthy for the multilateral system. It was an unavoidable trend that more and more trade issues were emerging that urgently needed Members to establish new disciplines for them. It was highly important to update WTO rules and to make the WTO a living organization and not be left behind by the world.

“10.33. Through Joint Statement Initiatives, Members had developed a creative way to address the trend so that the WTO’s legislative function could be improved for it to maintain its relevancy given new developments in the world – with Members still maintaining the flexibility not to opt in. Chinese Taipei called on Members to jointly think about how plurilateral agreements could be integrated into the multilateral trading system while considering Members’ needs for their respective development stages and maintaining the existing rights and obligations of non-participating Members.”

Colombia (page 70 of WT/GC/M/190)

“10.34. The representative of Colombia believed that that was an important discussion for the future of the organization as those initiatives covered the interests of many Members to move forward on crucial issues in global trade relations. Colombia appreciated the interest the Director-General had expressed on JSIs. That was a necessary step for the strengthening of the WTO. Colombia was happy to see how the path that had begun with previous processes such as the ITA was currently joined by many Members who were involved in the JSIs – an important space to resolve pending priorities.

“10.35. Such perspective had led Colombia to actively and formally participate in the JSIs on ecommerce, investment facilitation for development, services domestic regulation, MSMEs and trade and gender. Colombia also expressed its interest in other nascent initiatives which would likewise have an important impact on the WTO’s future as a driver of development for Members. With regard to the document being reviewed that day, Colombia did not share the legal analysis that the paper had set out but remained ready to continue that discussion in the appropriate forum. Colombia reiterated its commitment to the JSIs and its support for any work that could be done in that area.”

Mexico (page 70 of WT/GC/M/190)

“10.36. The representative of Mexico said that JSIs provided an excellent opportunity to furnish the WTO with tools that would allow it to face the current challenges in global trade. Members were in a situation where some of them believed that they were still not in a position to fully integrate themselves into the work under way. The JSI participants had never foreclosed the possibility for more Members to join those initiatives when they deemed it appropriate to do so nor did those initiatives diminish the rights and obligations of non-participating Members. Rather, the JSIs offered a possibility to move forward and help the WTO become more relevant by promoting trade as a vehicle for development. Mexico had been a strong proponent of the JSIs as the work had taken place openly, inclusively and transparently with voluntary participation at its core.”

Russian Federation (page 71 of WT/GC/M/190)

“10.37. The representative of the Russian Federation found the paper by India and South Africa upsetting. There was no doubt that Members should respect the right of any of them to express its attitude towards current developments within the multilateral legal system and to point out issues which it could see as contradictory to the system’s rules. The paper was however not about that but
dealt with the issue of whether the WTO should move forward and regain its relevancy amid the changing global economic environment or should it be further bogged down by disagreements among Members and lack of consensus eventually turning into an archaic and useless institution.

“10.38. The multilateral outcomes at MC11 had clearly been quite poor. The decision to promote and accelerate fisheries subsidies negotiations – the only multilateral and negotiation-related result achieved in Buenos Aires – was evidently not enough to chart a way forward for the WTO. The JSIs in which Russia was proud to participate in had been considered globally as a signal of Members’ ability and readiness to explore possible formats to move ahead. The progress achieved in all JSIs since then demonstrated the effectiveness of that approach. For example, the JSI on Services Domestic Regulation was an attempt to deliver on a long standing commitment of all Members to develop the respective disciplines as set out in GATS Article VI.4.

“10.39. As for the incorporation of new plurilateral initiatives into the WTO Agreements, Russia agreed with suggestion of India and South Africa that it should be done in accordance with the relevant provisions of the Marrakesh Agreement. However, the final goal of the JSIs was not to create a set of isolated rules among like-minded Members but rather to update the multilateral legal
system as a whole. That was why the JSIs remained open to all Members at any stage.

“10.40. The most disappointing fact about the submission was that while attacking JSIs, it did not provide any way forward essentially keeping the WTO to languish in the current limbo. No Member had taken the position to leave behind the core WTO mandated issues like agriculture or ‘horizontal’ S&DT. However, if the needs of the businesses and the people worldwide including in developing countries required Members to agree on adequate and up-to-date rules on other important issues, they had no right to keep those requests as hostages of their inability to reach progress on all fronts.”

Japan (page 71 of WT/GC/M/190)

“10.41. The representative of Japan appreciated the Joint Statement Initiatives as an essential framework to allow the WTO to address in a flexible and realistic manner the changing global economic needs of the 21st century. The JSIs responded to calls from a broad range of stakeholders by discussing key economic issues and would contribute to updating the WTO rulebook and to
ensuring the relevance of the WTO in today’s world. Without the JSIs, the WTO risked becoming less relevant and even losing its raison d’être as a cornerstone of the multilateral trading system. The JSI meetings were organized in an open, transparent and inclusive manner.

“10.42. While taking into account the convenience of respective Members including the size of their delegations in organizing the process, the fact that many of them were participating in the JSIs and actively engaging in negotiations in a creative and innovative way clearly showed the JSI’s importance. A number of achievements made in the GATT and the WTO had initially been taken up
or discussed in plurilateral initiatives which were later merged in the system. Japan believed that the JSIs were consistent with the WTO and had high hopes that they would be a key part of the MC12 outcomes. Japan would continue to work with other Members to deliver substantial outcomes in the JSIs as a positive achievement of the WTO.”

Republic of Korea (page 71 of WT/GC/M/190)

“10.43. The representative of the Republic of Korea, as a staunch supporter of the multilateral trading system, was disappointed to see the WTO in limbo in particular its failure to function as a forum for multilateral trade negotiations in response to the diverse needs and interests of Members. Upon such impasse and trade liberalization shifting weight to regional agreements outside the WTO, plurilateral negotiations could be a meaningful stepping-stone for multilateral agreement. It also served as a test pad for pioneering new trade rules as demonstrated by the GPA and the ITA. The JSIs which were held parallel with multilateral negotiations were essential to maintain the WTO’s relevance in the changing trade environment. Those negotiations were responsive to the demands of diverse stakeholders which would help rebuild trust in the multilateral trading system. Korea
therefore expressed its concern on the communication submitted by India and South Africa which raised questions on the concerted endeavours for revitalizing the WTO’s negotiating function.”

United States (pages 71-72 of WT/GC/M/190)

“10.44. The representative of the United States believed that plurilateral negotiations at the WTO could be a useful means to advance issues of interest to Members and to keep the WTO relevant. It did not view plurilateral negotiations and outcomes as undermining multilateral ones. In fact, plurilateral initiatives could foster new ideas and approaches and build momentum toward
multilateral outcomes. The various rigid positions expressed in the paper would seem to foreclose Members’ ability to pursue creative and flexible approaches at the WTO to the challenges of today and tomorrow.”

Possible JSI outcomes at the WTO’s 12th Ministerial Conference

The WTO is hoping that the 12th Ministerial Conference will finally deliver a fisheries subsidies agreement after 20 years of negotiations. It would be a multilateral agreement and only the second such agreement (the other being Trade Facilitation) concluded since the creation of the WTO in 1995. There are hopes for collective action on trade and health and some other issues. But many of the likely deliverables will involve Joint Statement Initiatives. Hence the position of India and South Africa may muddy the outlook for whether such initiatives when concluded will be incorporated into the WTO acquis.

Press accounts of a recent Chatham House event noted the view of the European Union that the WTO needs to be able to bring these initiatives into the WTO. See Inside U.S. Trade’s World Trade Online, Weyand: WTO reform should include easier’ path for plurilateral deals, November 15, 2021, https://insidetrade.com/daily-news/weyand-wto-reform-should-include-easier-path-plurilateral-deals (“World Trade Organization members need an ‘easier’ way to integrate plurilateral agreements into the organization’s rulebook, European Commission Director-General for Trade Sabine Weyand said on Friday, calling for the idea to be a part of broader WTO reform discussions.”). The EU, like most other WTO Members, has been an active participant in various JSIs.

A former Deputy Director-General of the WTO, Alan Wolff, presented views in Singapore earlier this week on the subject of the role of plurilaterals in the WTO. See Peterson Institute for International Economics, Alan Wm. Wolff, Plurilateral Agreements and the Future of the WTO, November 16, 2021, Remarks delivered at the Nanyang Technological University, Singapore, https://www.piie.com/commentary/speeches-papers/plurilateral-agreements-and-future-wto. His speech is worth reading in its entirety. A few excerpts are provided below and highlight the critical importance of plurilaterals going forward. Whether plurilaterals are within the WTO or outside will basically determine whether the WTO can maintain relevance in the future.

“Plurilateral agreements have become and will remain the primary path forward for improving the conditions for international trade.

“Insofar as the future health of the multilateral trading system is concerned, there are three alternatives:

“(1) coalitions of the like-minded will be able to conclude open plurilateral agreements within the WTO,

“(2) forward-leaning agreements are negotiated outside the WTO but become templates for the multilateral rules, or

“(3) the WTO becomes increasingly irrelevant to new global challenges and there is a consequent fragmentation of the world trading system.”

After reviewing the JSIs and other initiatives on climate change, trade and health and other matters, Amb. Wolff notes that

“Global problems need global solutions.

“The only practical way forward for the WTO is through open plurilateral agreements. Otherwise, Members who are looking for solutions will view the WTO as being increasingly irrelevant. The WTO to thrive needs to become more flexible.

“Notionally, various subjects can be negotiated on their own, in disparate venues, each unrelated to the other, without full transparency, without interested countries having a say. That is a recipe for global incoherence. It is the opposite of what is needed.

“Where trade is a vitally important aspect of meeting a global challenge – such as a pandemic or climate change, there is no clear alternative venue for addressing fully countries’ needs. The WTO must be pressed into service.

“It is time for the WTO’s Members to take the next step and embrace the open plurilateral agreements being negotiated now and those that are going to be launched to meet their needs for the 21st century.”

The 12th Ministerial Conference is the opportunity for WTO Members to embrace the future or commit the WTO to reduced relevancy. By early December, we should understand the likely direction of the WTO.

The folly of self-selection as a developing country at the WTO

In prior posts I have reviewed efforts by the United States and others to have the WTO membership modify who is entitled to special and differential treatment in light of the rapid changes in economic capabilities of a number of countries who have classified themselves as “developing” countries at the WTO under the self-designation approach that has characterized the GATT and now the WTO. See, e.g., December 14, 2020:  WTO December 14th Heads of Delegation meeting – parting comments of U.S. Ambassador Dennis Shea, https://currentthoughtsontrade.com/2020/12/14/wto-december-14th-heads-of-delegation-meeting-parting-comments-of-u-s-ambassador-dennis-shea/; 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/; February 15, 2020: The U.S. Modifies the List of Developing and Least Developed Countries Under U.S. Countervailing Duty Law, https://currentthoughtsontrade.com/2020/02/15/the-u-s-modifies-the-list-of-developing-and-least-developed-countries-under-u-s-countervailing-duty-law/; 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/.

The issue is one of importance because of the concern that many Members who have economically advanced to be fully internationally competitive or internationally competitive in significant areas of goods or services are not opening their markets to a level commensurate with their actual stage of development. A number of Members have indicated that they will not seek Special and Differential treatment in new agreements while maintaining rights under existing ones. The U.S., the EU and others have sought a more factual basis for any entitlement to differential treatment.

On November 10, 2021, Director-General Ngozi Okonjo-Iweala addressed the WTO Committee on Trade and Development (“CTD”) See WTO News Release, “Development issues should be at the heart of work at the WTO“— DG Okonjo-Iweala, 10 November 2021, https://www.wto.org/english/news_e/news21_e/devel_10nov21_e.htm. The press release starts with an overview of the importance of development in the overall WTO mission,

“Director-General Ngozi Okonjo-Iweala highlighted the key role that trade plays in economic development during a meeting of the WTO’s Committee on Trade and Development (CTD) on 10 November. She stressed that development is a priority for the WTO and that the CTD plays an important role in addressing the development dimension in the multilateral trading system.

“DG Okonjo-Iweala stressed that the work of the WTO is important for developing and least  developed countries (LDCs),  hence, it is critical for the WTO to deliver on issues of importance to them. Trade is a significant driver for economic growth and poverty reduction and ultimately for development, she added.”

The press release later has a statement that “The Secretariat presented the findings of its latest report concerning the participation of developing economies in global trade.” The latest report is PARTICIPATION OF DEVELOPING ECONOMIES IN THE GLOBAL TRADING SYSTEM, NOTE BY THE SECRETARIAT, 28 October 2021, WT/COMTD/W/262.

The problem with the note from the Secretariat and the functioning of the Committee on Trade and Development and other aspects of the WTO work is that developing countries in the note is treated as all Members so designating themselves and hence provides little useful information on the role of countries in actual need of assistance. Data in the note is skewed by information on developing Asia — an area that includes China, Singapore, the Republic of Korea and Chinese Taipei (Taiwan). On pages 8-9 of the Secretariat note, the major “developing” country traders are reviewed. The top 15 developing country exporters in 2020 were Chins (34.0%), Republic of Korea (6.7%), Mexico (5.5%), Singapore (4.8%), Chinese Taipei (4.6%), United Arab Emirates (4.2%), Viet Nam (3.7%), India (3.6%), Malaysia (3.1%), Thailand (3.0%), Brazil (2.8%), Kingdom of Saudi Arabia (2.3%), Turkey (2.2%), Indonesia (2.1%), South Africa (1.1%), other (16.4%). The top 15 importer developing countries included all of the top exporters with the exception of South Africa (Hong Kong, China was the 15th largest importer).

The World Bank provides Gross National Income per capita for most countries/territories (China blocks provision of data for Chinese Taipei). The latest data are for 2020 and include the following ranges for the four categories of World Bank countries:

Low income countries, less than $1,048/capita GNI

lower middle-income economies, $1,048-4,095/capita GNI

upper middle-income economies, $4,096-12,695/capita GNI

high income economies, $12,696 or more/capita GNI.

China in 2020 had a per capita GNI of $10,610; Singapore had a 2020 per capita GNI of $54,920; Republic of Korea had a 2020 per capita GNI of $32,860; Chinese Taipei had a per capita GDP in 2021 of $33,402; Mexico had a 2020 per capita GNI of 8,480; the United Arab Republic had a 2019 per capita GNI of $43,470; the Kingdom of Saudi Arabia had a 2020 per capita GNI of $21,930; Hong Kong, China, had a 2020 per capita GNI of $48,630; Thailand had a 2020 per capita GNI of $7,050; Malaysia had a 2020 per capita GNI of $11,230; Turkey had a 2020 per capita GNI of $9,030; Brazil had a 2020 per capita GNI of $7,850.

See New World Bank country classifications by income level: 2021-2022, July 1, 2021, https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2021-2022; World Bank Country and Lending Groups, ← Country Classification, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups; GNI per capita, Atlas method (current US$) – China, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=CN (lists all countries); Wikipedia, Economy of Taiwan, https://en.wikipedia.org/wiki/Economy_of_Taiwan.

There is obviously no justification in high income economies receiving special and differential treatment as though they are developing countries in fact. Thus, data for Singapore, Korea, Hong Kong, UAE, Saudi Arabia shouldn’t be in the developing country data base. Similarly, China and Malaysia with per capita GNIs above $10,000 and purchasing power parity gross national income per capita (2019) above the minimum high income economy threshold ($16,790 for China; $28,830 for Malaysia) shouldn’t be eligible for special and differential treatment as a general rule. Brazil, Thailand, Turkey and Mexico while below $10,000 per capita GNI in 2020 have 2019 per capita purchasing power parity GNI higher than the high income economy threshold ($14,890 for Brazil; $26,840 for Mexico; $18,570 for Thailand; $27,660). There is no apparent logic in having these countries have automatic rights to special and differential treatment.

The Secretariat, of course, cannot change the classification of Members. But the lack of a rational standard for determining appropriateness of receiving special and differential treatment undermines the functioning of the WTO and permits countries who have succeeded at rapid economic development from assuming full obligations of WTO membership. The problem also results in statistical reports that are largely meaningless.

In a consensus based system like the WTO, the road to rationality will be long at best with many WTO Members who should have accepted full obligations by now continuing to hide behind the self-selection process to claim lesser obligations.

The APEC 2021 Ministerial Meeting Joint Statement — portion relevant to WTO 12th Ministerial Meeting

The APEC 2021 Ministerial meeting was held remotely on November 8-9 and resulted in a joint statement which included ambitions of APECs 21 members for the upcoming 12th WTO Ministerial Conference which starts in Geneva at the end of November (November 30-December 3). New Zealand has chaired APEC in 2021. Because the APEC countries include members accounting for 38% of the world’s population, 62% of the world’s GDP and 48% of global trade in 2020 and includes both the United States and China among the 21 territories, what APEC members support for the upcoming WTO ministerial may offer a glimpse of what may be possible in Geneva in the coming weeks. The APEC Ministerial Meeting Joint Statement and a publication on APEC in Numbers can be found here. See 2021 APEC Ministerial Meeting Joint Statement, Wellington, New Zealand, 09 November 2021, https://www.apec.org/meeting-papers/annual-ministerial-meetings/2021/2021-apec-ministerial-meeting; APEC in Charts 2021, https://www.apec.org/docs/default-source/publications/2021/11/apec-in-charts-2021/221_psu_apec-in-charts-2021.pdf?sfvrsn=50537c36_2. APEC members include Australia, Brunei Darussalam, Canada, China, Hong Kong (China), Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russian Federation, Singapore, Chinese Taipei, Thailand, United States, and Viet Nam.

While the Declaration contains coverage of a number of issues, it has a separate section on the World Trade Organization (pages 4-5, paras. 17-22). The six paragraphs from the Joint Statement are copied below.

“World Trade Organization

“17. APEC takes pride in its long history of active support for the rules-based multilateral trading system (MTS), with the WTO at its core. The MTS has been a catalyst for our region’s extraordinary growth and we will work together to improve it. We seek a responsive, relevant, and revitalised WTO. We must support the WTO and its membership to modernise trade rules for the twenty-first century. Together, we will engage constructively and cooperate to ensure the 12th WTO Ministerial Conference (MC12) is a success and delivers concrete results.

“18. As a priority for MC12, we see an opportunity for the WTO to demonstrate that the MTS can continue to help address the human catastrophe of the COVID-19 pandemic and facilitate recovery. We call for pragmatic and effective ministerial outcomes that makes it easier to respond swiftly and effectively to the COVID-19 pandemic and accelerate the recovery. Our priorities include supporting the facilitation of manufacturing, distribution, and supply chains of essential medical goods, including vaccines. We will work proactively and urgently in Geneva to support text-based discussions, including on a temporary waiver of certain intellectual property protections on COVID-19 vaccines.

“19. We reiterate our determination to negotiate effective disciplines on harmful fisheries subsidies in line with SDG 14.6, and call for agreement to a comprehensive and meaningful outcome by MC12 in a few weeks’ time.

“20. Despite its importance for ensuring global food security and sustainable economic development, agriculture is one of the most protected sectors in global trade. We recognise the need for a meaningful outcome on agriculture at MC12, reflecting our collective interests and sensitivities, with a view towards achieving substantial progressive reductions in support and protection, as envisaged in the continuation of the reform process provided in Article 20 of the WTO Agreement on Agriculture and existing mandates.

“21. We recognise the positive role that existing plurilateral negotiations and discussions are playing in progressing outcomes. APEC member participants in the relevant Joint Statement Initiatives (JSIs) call for conclusion of negotiations on services domestic regulation by MC12; and substantial progress by MC12 in the JSIs on e-commerce; micro, small and medium-sized enterprises; and investment facilitation for development. We take note of the efforts by the APEC economies who endorsed the Joint Declaration on Trade and Women’s Economic Empowerment to deliver an ambitious outcome at MC12 that supports the advancement of trade and gender equality.

“22, We continued our frank and constructive discussions regarding improvement to the WTO’s monitoring, negotiating and dispute settlement functions. We continue to support the ongoing and necessary reform work to improve the WTO’s functioning, including the importance of making progress on enhancing transparency to support its monitoring and negotiating functions. We will work together at the WTO and with the wider WTO membership to advance the proper functioning of the WTO’s negotiation and dispute settlement functions, which require addressing longstanding issues. We urge WTO members to seek a shared understanding of the types of reform needed.”

The Joint Statement has some specific items where outcomes are pursued — conclusion of the fisheries subsidies negotiations, some outcomes in the Joint Statement Initiatives (services domestic regulation should be completed; micro, small and medium-sized enterprises is completed; progress on others). As reviewed in yesterday’s post, WTO Members still have a challenging road to achieve a completed fisheries subsidies agreement at the 12th Ministerial. See November 9, 2021:  WTO Fisheries Subsidies Negotiations — a second revised text from November 8 holds out hope for a deal by MC12; how realistic is the hope?, https://currentthoughtsontrade.com/2021/11/09/wto-fisheries-subsidies-negotiations-a-second-revised-text-from-november-8-holds-out-hope-for-a-deal-by-mc12-how-realistic-is-the-hope/. Moreover, India, South Africa and others are raising objections to having any plurilaterals being negotiated included in the WTO which will complicate what comes out of the 12th Ministerial Conference (as opposed to encouraging Members to pursue plurilaterals outside of the WTO). See February 20, 2021:  Will India and South Africa (and others) prevent future relevance of the WTO?, https://currentthoughtsontrade.com/2021/02/20/will-india-and-south-africa-and-others-prevent-future-relevance-of-the-wto/; September 18, 2021: The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance, https://currentthoughtsontrade.com/2021/09/18/the-wtos-12th-ministerial-conference-in-late-november-early-december-2021-the-struggle-for-relevance/.

The Joint Statement also seeks “pragmatic and effective” outcomes in the health and trade space to address responding to the COVID pandemic. Specifics are lacking although there is support to expanding production and access to vaccines and other medical goods. While supporting text based negotiations in the area, including on a possible temporary waiver of some TRIPS provisions on COVID vaccines, the lack of greater specificity reflects differences in positions of APEC members.

Similarly, while supporting WTO reform in all three areas of WTO activity (monitoring, negotiating and dispute settlement), APEC members have significantly different views on what is needed in these areas. Hence only general language is included in the Joint Statement.

In a prior post, I have opined that recent actions by the U.S. and EU to find ways around the civil aircaraft and steel and aluminum frictions suggests that the U.S. may agree to the start of a process to review the dispute settlement system issues raised by it as part of the 12th Ministerial (a high EU priority) and that the U.S. and EU could coalesce around an outcome acceptable to both in the TRIPS waiver dispute. See November 2, 2021:  What does the U.S.-EU Agreement on steel and aluminum imply for the upcoming 12th WTO Ministerial Conference?, https://currentthoughtsontrade.com/2021/11/02/what-does-the-u-s-eu-agreement-on-steel-and-aluminum-imply-for-the-upcoming-12th-wto-ministerial-conference/.

China has opposed greater transparency obligations and has tied reform of industrial subsidies to looking at agricultural subsidies as well. A recent post of mine reviews the need for better information on subsidies. See October 30, 2021:  WTO reform — distortions to market access and the need for better information, https://currentthoughtsontrade.com/2021/10/30/wto-reform-distortions-to-market-access-and-the-need-for-better-information/. Despite differences of view on some issues among major Members, it is not out of the question that a reform program will cover an examination of all three functions going forward.

On agriculture, there is a shared view for a need for results at the WTO 12th Ministerial and reflects on the fact that Article 20 of the WTO Agreement on Agriculture calls for periodic rounds of liberalization. However, the language of the Joint Statement doesn’t specify the areas where agreement is possible by the 12th Ministerial, reflecting different views among APEC members.

Nothing in the APEC Joint Statement addressed what, if anything should be agreed at the 12th WTO Ministerial on the climate crisis and what role trade can play in addressing the crisis. This omission is unfortunate but likely reflects large differences in views within APEC members on the topic. As I reviewed in a recent post, much more is needed but unlikely to come from the WTO and its members. See November 4, 2021:  The WTO and the environment — will the 2020s be different in terms of trade policies that are environmentally supportive?, https://currentthoughtsontrade.com/2021/11/04/the-wto-and-the-environment-will-the-2020s-be-different-in-terms-of-trade-policies-that-are-environmentally-supportive/.

Conclusion

The APEC 2021 Ministerial Meeting Joint Statement, being released three weeks before the start of the WTO’s 12th Ministerial Conference is a positive statement of support for the multilateral trading system. Coming from a group of WTO Members accounting for nearly 50% of global trade, it is a useful guide for topics these countries and territories will be pursuing in Geneva. Other group statements have been released as well as individual country or group objectives. But even within the APEC group of countries, large differences exist on outcomes of interest. With the exception of a possible conclusion to the fisheries subsidies negotiations and conclusions on several Joint Statement Initiatives, there may be only limited positive outcomes. There may be some limited agreement on the broad topic of health and trade and some agreement on topics for future negotiation. There may also be at least some provisions in a declaration dealing with the climate crisis and the important role trade can play in addressing the crisis.

Such a limited set of outcomes will likely be viewed as a success for an organization hamstrung by Members with no common vision for the role of the organization, with large differences in development levels, a cumbersome governance system and growing divergence on whether the organization can support global trade where market rules are not the required framework. More is needed for a truly relevant WTO and for a sustainable global trading system. The world is unlikely to achieve meaningful reform at the WTO in the coming decade. Progress, if any, will likely be slow and piecemeal.

WTO Fisheries Subsidies Negotiations — a second revised text from November 8 holds out hope for a deal by MC12; how realistic is the hope?

After twenty years of negotiations on fisheries subsidies, WTO Members are just weeks away from another “hard” deadline for concluding the talks — the twelfth WTO Ministerial Conference being held in Geneva November 30-December 3. On November 8, the Chair of the Negotiating Group on Rules released a second revision to the draft text of a fisheries subsidies agreement along with a detailed explanatory note on the changes made from the first revision and the road ahead. See Negotiating Group on Rules – Fisheries Subsidies, Revised Draft Text, 8 November 2021, TN/RL/W/276/Rev. 2 and Fisheries Subsidies, Revised Draft Text, Chair’s Explanatory Note Accompanying TN/RL/W276/Rev.2, 8 November 2021, TN/RL/W/26/Rev.2/Add.1.

Ambassador Santiago Wills of Colombia, the Chair of the negotiations, gave a summary of next steps in his conclusion. Paragraph 148 provides the challenge ahead:

“148. Regarding next steps, where we need to go from here is simple: we have to genuinely negotiate. We have only three weeks left until MC12 and only two weeks before we need to send something to Ministers through the General Council. Our objective before then is to collectively evolve this draft text ideally into a completely clean text, or at least as clean as possible with only
one or two issues left for our Ministers to decide. As I communicated to you in my e-mail of 4 November, and as has been the plan since we resumed our work following the summer break, we now will need to meet very frequently – essentially every day – starting tomorrow, to review everything together clause-by-clause.”

The WTO Members have a lot at stake in terms of whether an agreement can finally be achieved. In the WTO press release about the release of the revised text, the importance of getting to the finish line is alluded to by the Director-General. The agreement is in fulfilment of one of the UN Sustainable Development Goal subitems, 14.6, although the WTO already missed the completion date of 2020. See WTO News, Revised fisheries subsidies text kicks off intensified negotiations ahead of MC12, 8 November 2021, https://www.wto.org/english/news_e/news21_e/fish_08nov21_e.htm.

“The Director-General told members she has been engaging with political leaders, including at the highest levels, to get their support for a successful conclusion to the 21-year-long negotiations.

“‘The eyes of the world are really on us,’ she said. ‘Time is short and I believe that this text reflects a very important step toward a final outcome. I really see a significant rebalancing of the provisions, including those pertaining to special and differential treatment, while, at the same time, maintaining the level of ambition.’

“Members are scheduled to hold daily meetings on the basis of the latest draft text, with the goal of providing ministers a clean draft before MC12.

“Under the mandate from the WTO’s 11th Ministerial Conference held in Buenos Aires in 2017 and the UN Sustainable Development Goal Target 14.6, negotiators have been given the task of securing agreement on disciplines to eliminate subsidies for illegal, unreported and unregulated fishing and to prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, with special and differential treatment being an integral part of the negotiations.”

A review of the revised draft and the Chair’s explanatory text show a large number of issues where strong differences remain, many provisions still in brackets, some alternative texts provided and other challenges all of which need to be largely resolved within two weeks. See, e.g., Art. 3.3, alternatives for type of proof and process needed for a finding that a vessel or operator has engaged in “illegal, unreported and unregulated fishing”; Art. 3.8, period that developing countries can provide subsidies and distance from shore for the fishing activities; Art. 4.4, similar bracketed provisions for subsidies for developing countries regarding overfished stocks; Art. 5.1(i), prohibited subsidies contingent upon or tied to fishing and related activities beyond the subsidizing Member’s jurisdiction; Art. 5.3, alternatives for disciplines on subsidies to vessels not flying the flag of the subsidizing Member; Art. 5.4, exceptions for developing countries including duration of exception and area from shore to which it applies; Art. 6.2, exceptions for LDC Members; Article 7, technical assistance and capacity building; Art. 8.2(b), whether to include notification requirements by Members of “any vessels and operators for which the Member has information that reasonably indicates the use of forced labour, along with relevant information to the extent possible”; Art. 8.5, notification requirements of any regional fisheries management organization or arrangement (RFMO/A); Art. 9.1, institutional arrangements; Art. 9 and 10 (dispute settlement) more broadly; Art. 11.1 and 11.5 from final provisions.

The detailed description from the Chair of the changes made and major differences that remain confirms that the effort to get to a final agreement will be daunting. The Chair’s proposed path forward includes using several Friends of the Chair to help address a range of open issues. But it also includes daily meetings including in different configurations and the inclusion of officials from capital remotely.

Challenges facing Members include some of the broader reform issues raised by the U.S. and others. Various special and differential treatment provisions (“S&D provisions) apply to “developing countries” as well as LDCs. “Developing Country is a matter of self-selection, meaning many WTO Members claim such status despite not needing S&D to be competitive. The U.S., EU and others have raised concerns with the need to refocus S&D on those actually needing assistance. Are the qualifiers on the S&D provisions sufficient to see that major subsidizers like China and others are not eligible to avoid disciplines? Similarly, can the effort of some “developing countries” to seek S&D for decades possibly make sense if the Agreement is to achieve sustainability of wild caught fish and if there are few restrictions on who is a developing country?

The U.S. has had deep concerns about the use of forced labor on fishing vessels. See The Use of Forced Labor on Fishing Vessels, Submission of the United States, 27 May 2021, TN/RL/GEN/205. The revised draft text agreement contains only one of three proposed modifications to the draft text proposed by the U.S. to better address concerns about forced labor, and that provision (Art. 8.2(b)) is opposed by some Members, presumably those whose fleets are known or suspected of using forced labor. More broadly, will a final text result in meaningful reforms on fisheries subsidies or be so compromised that the agreement offers at best partial disciplines.

With the world watching and with the opportunity to restore at least partially the relevance of the WTO as a forum for trade negotiations, WTO Members have two weeks to get a near finished text agreed, with less than two weeks after that for Members to agree to a meaningful final text to ensure a successful 12th WTO Ministerial Conference. Let’s hope that the WTO Membership can rise to the occasion.

What does the U.S.-EU Agreement on steel and aluminum imply for the upcoming 12th WTO Ministerial Conference?

On October 31, 2021, the United States and the European Union took steps to lower the conflict over the 232 tariffs imposed in 2018 by President Trump on steel and aluminum and to start work on a new steel agreement that would protect both industries from the challenges posed by global excess capacity while moving towards a low carbon steel producing future. The Joint Statement released on October 31 is reproduced below and indicates that a tariff rate quota based on 2015-2017 volumes of steel and aluminum imports from the EU will be accepted in the U.S., duty free with volumes above that, that are not subject to exclusions entering at existing additional duty rates (25% on steel and 10% on aluminum) with periodic review. The EU will remove its additional duties that were imposed as result of the 232 action. WTO challenges by each party on the other will be stayed. And the countries will work on a new steel agreement over the next two years that will address both global excess capacity and reducing the carbon intensity of the products involved. Here is the joint statement.

“STEEL & ALUMINUM
“U.S.-EU Joint Statement
“October 31, 2021


“Given the joint desire of the United States and the European Union (“EU”) to address non-market excess capacity so as to preserve their critical steel and aluminum industries, the United States and the EU agree to the following:

1. Ongoing cooperation

“a. Trade Remedy/Customs Cooperation: To advance their efforts to address excess capacity, both sides agree to expand U.S./EU coordination involving both trade remedies and customs matters. The United States will also share public information and best practices with EU officials and/or member state officials, as appropriate, on topics including how detection of fraud/evasion and circumvention of duties is approached and possible self-initiation. Officials could also coordinate industry engagement with relevant sectors to hear their views and share observations/concerns. Insofar as customs cooperation is concerned, it may take the form of mutual administrative assistance in accordance with the U.S.-EU Agreement on customs cooperation and mutual assistance in customs matters.

“b. Monitoring: The United States and the EU will monitor steel and aluminum trade between them.

“c. Cooperation on Non-Market Excess Capacity: The United States and the EU agree to regularly meet to consult with a view to developing additional actions in order to contribute to adjustments and solutions and address non-market excess capacity in the global steel and aluminum sectors.

“d. Review: The United States and the EU agree to review the operation of this arrangement, and ongoing cooperation, on an annual basis, including in light of changes in the global steel and aluminum markets, U.S. demand, and imports.

2. Global steel and aluminum arrangements to restore market-oriented conditions and address carbon intensity

“Steel and aluminum manufacturing is one of the highest carbon emission sources globally. Excess capacity generates unnecessary greenhouse gas emissions, deflates prices of high emissions products and hinders the development and scaling up of competitive solutions for lower emissions production. For steel and aluminum trade to be sustainable, producers and consumers must address both global non-market excess capacity as well as the carbon intensity of the industries. Against this backdrop, the United States and the EU are resolved to negotiate, in accordance with their respective institutional frameworks, future arrangements for trade in these sectors that take account of both issues. The United States and the EU will invite like-minded economies to participate in the arrangements and contribute to achieving the goals of restoring market-oriented conditions and supporting the reduction of carbon intensity of steel and aluminum across modes of production. The United States and the EU will seek to conclude the negotiations on the arrangements within two years. In order to encourage similar efforts by other steel producing economies, the United States and the EU will consult with respect to bringing these matters into relevant international fora for discussion, as appropriate.

“Compatible with international obligations and the multilateral rules, including potential rules to be jointly developed in the coming years, each participant in the arrangements would undertake the following actions: (i) restrict market access for non-participants that do not meet conditions of market orientation and that contribute to non-market excess capacity, through application of appropriate measures including trade defence instruments; (ii) restrict market access for non-participants that do not meet standards for low-carbon intensity; (iii) ensure that domestic policies support the objectives of the arrangements and support lowering carbon intensity across all modes of production; (iv) refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity; (v) consult on government investment in decarbonization; and (vi) screen inward investments from non-market-oriented actors in accordance with their respective domestic legal frameworks.

“To enhance their cooperation and facilitate negotiations on a global sustainable steel and aluminum arrangements, the United States and the EU agree to form a technical working group. Through the working group, the United States and the EU will, among other things, confer on methodologies for calculating steel and aluminum carbon-intensity and share relevant data.

3. WTO Disputes

“The United States and the EU agree to suspend by November 5, 2021, pursuant to DSU Article 12.12, the WTO disputes they have initiated against each other regarding the U.S. Section 232 measures (DS548) and the EU’s additional duties (DS559). Regarding the matters that are before these panels, the United States and the EU mutually agree to resort to arbitrations pursuant to DSU Article 25, as set out below and so as to fully preserve the work of the parties and the panels and procedural steps in these disputes. The United States and the EU will agree by 17 December 2021 on the procedures to be followed in an arbitration of those matters, in accordance with the present arrangement. Upon agreement on these procedures, the EU and the United States will terminate their respective disputes before the panels, and the arbitrations will be suspended, without temporal limit. The United States and the EU intend for DSU rules and practices on panel proceedings to govern the arbitration and to be reflected as appropriate in the agreement on arbitration procedures.

“The arbitration procedures will permit the complaining party in each dispute to bring the matter forward from the panel into the arbitration, so as to preserve the work in each dispute and allow the arbitrators to continue the panel process on the basis of the procedural steps and work already performed and make findings on that matter. The three panelists in each dispute will serve as arbitrators, if available, and otherwise will be replaced by agreement of the parties or by the Director-General of the WTO, within one week from the complaining party’s request.

“Before resuming an arbitration, a complaining party will first seek to consult at the ministerial level with the other party with a view to reaching an alternative solution. A complaining party may request to resume the arbitration at any time after the lapse of a 30-day consultation period and no sooner than 12 months after the issuance of the present statement.

“An arbitration may be resumed only if a complaining party considers that this arrangement is not providing the benefits envisioned. The United States and the EU also intend not to initiate any new WTO dispute relating to these matters for so long as each party considers this arrangement to be operating satisfactorily.”

USTR press release, Joint US-EU Statement on Trade in Steel and Aluminum, October 31, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/joint-us-eu-statement-trade-steel-and-aluminum.

Under the Biden Administration, the U.S. and EU have found solutions to various trade and other bilateral conflicts (Boeing-Airbus; international taxation) and launched a the Trade and Technology Council. See, e.g., European Commission – Statement, Statement by President von der Leyen on a new Global Sustainable Steel Arrangement and EU-US steel and aluminium dispute
Brussels, 31 October 2021, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_21_5679 (“Since the beginning of the year, as you said Mr President, dear Joe, we have restored trust and communication. We put to rest our disputes on aircraft subsidies. We set up our Trade and Technology Council. We created a vaccine partnership. We reached an agreement on global minimum tax. And now, we have found a solution on EU-US steel and aluminium trade.”); White House Briefing Room, Remarks by President Biden and European Commission President Ursula von der Leyen on U.S.-EU Agreement on Steel and Aluminum
Trade, October 31, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/10/31/remarks-by-president-biden-and-european-commission-president-ursula-von-der-leyen-on-u-s-eu-agreement-on-steel-and-aluminum-trade/ (statement of President Biden)(“Over the past nine months, the United States and the European Union have come together to take on major global challenges by looking to all that unites us and the shared interests we have both in Europe and the United States. We resolved the 17-year Boeing-Airbus dispute. And we’ve been close partners to the — to address COVID-19 and combat climate change. As we move forward, we’re going to continue together to update the rules of the road and the 21st century economy, and prove to the world that democracies — democracies —are taking on hard problems and delivering sound solutions. And the European Union and the United States will continue to be the closest of friends and partners as we work together to solve the 21st century challenges.”)

The closer cooperation of the U.S. and the EU could be good news for the World Trade Organization and portend potential positive progress at the upcoming 12th Ministerial Conference in Geneva that starts in just four weeks.

Possible implications for MC12

The WTO’s Director-General has been anxious for the WTO Members achieving meaningful deliverables for the upcoming Ministerial Conference. The U.S. and EU are supportive of many initiatives — a meaningful fisheries subsidies agreement, several of the joint statement initiatives (“JSIs”) that have been pursued by certain WTO Members since the last Ministerial Conference in Buenos Aires in 2017, improved transparency and compliance with notification requirements, WTO reform particularly in terms of increased disciplines of industrial subsidies, rules of state-owned and state-invested enterprises, intellectual property theft and more.are supported by both Which of these elements will advance in Geneva at the MC12 is uncertain although two of the JSIs (services regulation; MSMEs) are reportedly complete though facing opposition from some countries (e.g., India and South Africa) in terms of being brought into the WTO. Some late progress has been reported on the fisheries subsidies negotiations which could mean an agreement may be reached in Geneva during the Ministerial Conference after 20 years of effort. For all of the above issues, progress in terms of meaningful outcomes depend on the membership as a whole. U.S.-EU solidarity are helpful, but not sufficient to resolve the issues.

In addition, there are issues where the U.S. and the EU have not been aligned including on starting a process of reform of the DSU to get back to a two tier dispute settlement system and what, if any, waiver of TRIPs rights/obligations should occur during the COVID pandemic. These are issues on which alignment of the two would likely result in resolution of the issue at least for purposes of the 12th Ministerial Conference. The EU has had as a high priority getting agreement from the U.S. to have a process start by the Ministerial with a defined deadline to find solutions on the Appellate Body and other DSU issues. If the U.S. accepts at the Ministerial the establishment of a two year program to understand the problems in the dispute settlement system and find solutions, that would be a significant victory for the EU and many other WTO Members. While not guaranteeing a resolution in two years (that would depend on whether Members will actually address the underlying problems in a way to ensure a process consistent with original DSU intent), creating a process for discussions would be a positive step forward.

Similarly, the U.S. position on the proposed waiver of TRIPs rights/obligations during the pandemic has been opposed by a number of countries with the EU having the largest voice. Efforts by the EU, U.S. and others to expand production of vaccines in Asia, Africa and South America are significant steps to address access to vaccines from regional or local sources, as are increased global production and increased shipments to COVAX. However, the U.S. could accept the EU’s more limited proposal for flexibilities under TRIPs, or the EU could move in the direction of a waiver of at least some TRIPs rights. Movement by the US to supporting the EU position or movement by the EU would likely result in some announced victory at the Ministerial.

While I have previously written extensively on both dispute settlement and on the waiver request from many TRIPS rights/obligations during the pandemic, and have supported the U.S. position on dispute settlement (and an unwillingness to proceed until there is greater agreement on the causes of the problems) and been supportive of the EU position on the proposed TRIPs waiver (not seeing practical benefits from the waiver during the pandemic), I believe that MC12 may prove to be more successful than many have thought possible. If so, it will likely flow from a decision by the U.S. and EU to find common ground on these two important issues and will be consistent with the increased level of cooperation between these historic leaders of the GATT and WTO. We will find out in the coming month if the increased cooperation can result in short term benefits at the WTO.

WTO reform — distortions to market access and the need for better information

The WTO’s role in international trade requires timely, accurate and complete information on a wide range of matters covered by existing agreements and the willingness of Members to permit the gathering of information on topics which affect or may affect international competition. While information in some Committees is relatively timely, accurate and complete, many Members have failed to provide information required under existing agreements and have prevented the gathering by the Secretariat of information on topics of potential importance to the functioning of the global trading system and whether certain actions or modes of economic activity operate to create market distortions and distortions in trade patterns. Areas where information has been particularly deficient have been the areas of subsidy notifications both under the Agreement on Subsidies and Countervailing Meausres (“ASCM”) and under the Agreement on Agriculture.

A number of countries have proposed improved transparency requirements as part of the identification of needed WTO reforms. See, e.g., PROCEDURES TO ENHANCE TRANSPARENCY AND IMPROVE COMPLIANCE WITH NOTIFICATION REQUIREMENTS UNDER WTO AGREEMENTS COMMUNICATION FROM ARGENTINA; AUSTRALIA; CANADA; CHILE; COSTA RICA; THE EUROPEAN UNION; ISRAEL; JAPAN; REPUBLIC OF KOREA; MEXICO; NEW ZEALAND;
NORWAY; THE PHILIPPINES; SINGAPORE; SWITZERLAND; THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU; UNITED KINGDOM; AND THE UNITED STATES, 14 September 2021, JOB/GC/204/Rev.7, JOB/CTG/14/Rev.7.

Some countries have attempted to address the perceived inadequacies of subsidy notifications through counternotifications. See USTR, United States Details China and India Subsidy Programs in Submission to WTO, October 2011, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-prog (“U.S. Trade Representative Ron Kirk announced today that the United States has submitted information to the World Trade Organization (WTO) identifying nearly 200 subsidy programs that China has failed to notify as required under WTO rules. Information was also submitted on 50 subsidy programs in India not previously notified. Through these actions at the WTO, the United States is seeking the prompt provision of detailed information and data from China and India regarding the operation of these subsidy programs. ‘The situation was simply intolerable,’ said Ambassador Kirk. ‘Every member of the WTO is required to come clean on its subsidy programs on a regular basis. China has not notified its subsidy programs in over five years. India only recently filed its first notification in almost ten years, and even then notified only three of the many subsidy programs we know to exist. Because China and India have failed to meet their respective obligations, we had to act – as we are entitled to under the WTO rules – and provide the voluminous information we have developed regarding subsidy programs in these two countries.’)(emphasis added); WTO news release, Concerns grow about slippage in subsidy notifications, 25 April 2017, https://www.wto.org/english/news_e/news17_e/scm_25apr17_e.htm (“The United States and the European Union questioned China about what they alleged were some 160 government subsidies or grants listed in the annual reports of six of the largest Chinese steel producers (G/SCM/Q2/CHN/70) which were not included in China’s WTO subsidy notifications. The United States also quizzed China about the non-notification of other alleged subsides in sectors such as steel, aluminium and fisheries, as well as the non-notification of subsidies under China’s ‘Internationally Well-Known Brand’ programme.  On fisheries, the United States said China had failed to notify 44 subsidy measures, including tax exemptions for certain operations such as deep water fishing ‘ identifying over 470 Chinese subsidy measures that were not notified to the WTO.”);  WTO News, Members express concerns on lack of transparency at WTO subsidies committee meeting, 27 April 2021, https://www.wto.org/english/news_e/news21_e/scm_27apr21_e.htm.

Organizations like the OECD have historically developed trade policy reports that look at subsidies and distortions in agriculture, fossil fuels and fisheries. In recent years, the OECD has done some sector specific reports based on public data on distortions in international markets from subsidies in the aluminum and semiconductor value chains. See OECD (2019-01-07), “Measuring distortions in international markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris.
http://dx.doi.org/10.1787/c82911ab-en; OECD (2019-12-12), “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade Policy Papers, No. 234, OECD Publishing, Paris, http://dx.doi.org/10.1787/8fe4491d-en. The OECD press releases on the two trade policy reports contain information on the reports and historical activity of the OECD.

“Measuring distortions in international markets: the aluminium value chain

“This report builds on the OECD’s longstanding work measuring government support in agriculture, fossil fuels, and fisheries in order to estimate support and related market distortions in the aluminium value chain. Results show that non-market forces, and government support in particular, appear to explain some of the recent increases in aluminium-smelting capacity. While government support is commonly found throughout the aluminium value chain, it is especially heavy in the People’s Republic of China and countries of the Gulf Cooperation Council. Looking across the whole value chain also shows subsidies upstream to confer significant support to downstream activities, such as the production of semi-fabricated products of aluminium. Overall, market distortions appear to be a genuine concern in the aluminium industry, and one that has implications for global competition and the design of trade rules disciplining government support.” ttps://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets-the-aluminium-value-chain_c82911ab-en.

“Measuring distortions in international markets: The semiconductor value chain

“This report builds on the OECD’s longstanding work measuring government support in agriculture, fossil fuels, fisheries, and more recently in the aluminium value chain in order to estimate producer support and related market distortions in the semiconductor value chain. Results for 21 large firms operating across the semiconductor value chain indicate that total government support has exceeded USD 50 billion over the period 2014-18. Government support provided in the form of below-market debt and equity appears to be particularly large in the context of the semiconductor industry and concentrated in one jurisdiction. Other types of support identified include support for R&D and investment incentives, which benefitted all firms studied in this report. The report also discusses the implications that these findings have for trade rules, and in particular for subsidy disciplines in a context of growing government involvement in semiconductor production and poor transparency of support measures.” https://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets_8fe4491d-en.

The 28th Global Trade Alert Report, Subsidies and Market Access

Earlier this week, Simon Evenett and Johannes Fritz released the 28th Global Trade Alert Report entitled “Subsidies and Market Access, Towards an Inventory of Corporate Subsidies by China, the European Union, and the United States.” https://www.globaltradealert.org/reports/gta-28-report. It is an important contribution to the development of a data base of possible government subsidies by the three largest trading nations or blocs. The report has used information from government sources but not the subsidy notifications filed with the WTO. The report claims to have inventoried “18,387 corporate subsidies awarded by China, the EU, and the USA since November 2008.” (page 5)

“Our study should not be read as implying that China, the European Union, and the United States are the only jurisdictions that award subsidies to organisations engaged in business; the Global Trade Alert database currently contains a total of 5,977 subsidy policy changes and awards implemented by other nations.” (Page 5) Many countries provide domestic subsidies on industrial goods and such subsidies are not presently limited by the WTO ASCM although where such subsidies cause distortions or injury to a trading partner, there are potential remedies. Many countries also provide subsidies on agriculture whether reported to the WTO or not, and there is no tracking of what, if any, subsidies are provided by WTO Members to the service industries.

At present, there are no WTO disciplines on service industries receiving subsidies whether domestic or export. Yet, the report released on Monday indicates that “a total of 4,564” of the subsidy actions catalogued “involved the transfer of state resources to service sector firms” with 12.66% to financial service sector firms (578). The service subsidy findings in the report suggest that service subsidies (in number) are more than twice the number of agricultural subsidy items catalogued (2,171) and 42% of the number found for manufacturing companies (10,814). Page 6. Agricultural subsidies are the most actively controlled in the WTO (by the WTO Agreement on Agriculture). There are limited restrictions on manufacturing subsidies under the ASCM and some disciplines on subsidies to the civilian aircraft sector for signatories to the separate plurilateral agreement. And none on subsidies to services providers. I have written in the past on the irrationality of the different subsidy disciplines under the WTO on agriculture, manufactured goods and services. See, e.g., November 23, 2020:  WTO subsidy disciplines – an update and coordination across areas is long overdue, https://currentthoughtsontrade.com/2020/11/23/wto-subsidy-disciplines-an-update-and-coordination-across-areas-is-long-overdue/. The report released yesterday provides a potential measure of why a comprehensive review of subsidy disciplines is needed by the WTO Members for all trade (goods and services).

Observations

  1. breadth of data

There have been many studies of subsidies in particular sectors or by particular governments over the years. Depending on the level of transparency in a country, publications on subsidy sources by a particular government are not unheard of. For example, in Canada there used to be annual reports on government subsidy programs put out by Statistics Canada. See Fraser Institute, Governments go subsidy-wild with $684 billion spent on subsidies since 1981, https://www.fraserinstitute.org/article/governments-go-subsidy-wild-684-billion-spent-subsidies-1981 (“Ever wonder how Canada’s net federal debt reached $671 billion by 2013? Or how net provincial debt among the provinces ended up at $509 billion that same year? Wonder no more. It’s partially due to massive subsidies to corporations, government businesses and even consumers that over three decades amounted to $684 billion. Statistics Canada once collected useful information about such taxpayer-funded government subsidies. The subsidies include funding for corporations (think selected automotive and aerospace companies), or Crown corporations like VIA Rail, or a government-owned ferry system to subsidize consumers’ ferry rides. Statistics Canada stopped tallying up the numbers in 2009 but by looking at what is available from 1981 (and adjusting for inflation to 2013 dollars to get apple-to-apple comparisons), some useful statistics pop out.”).

The usefulness of the 28th Global Trade Alert report is its focus on the three largest trading nations or blocks and a compilation of data points for a lengthy period of time (since 2008). The data base is also available for evaluation. There is partial data for other countries in the data base as well.

Missing is an evaluation of how many of the inventoried items are covered by notified subsidy programs by Members to the WTO. While there are concerns about completeness of notifications and timeliness of notifications, it would have been helpful to flag how many of the items would be covered by the notifications.

Similarly, while the report lays out what it treats as a subsidy, there are likely areas where clarification would be helpful. For example, on export financing, the U.S. has long been a participant in the OECD undertaking on export credits. Yet, of the 5,962 “subsidies” identified by the report, more than 1500 were from U.S. Eximbank. These are not likely prohibited export subsidies. So presumably, any loan from U.S. Exim was treated as a domestic subsidy. Whether that would be factually accurate is an open question. Similarly, more than 1,000 of the subsidy items are actions by the U.S. Department of Agriculture. Since the U.S. has reported every year operating within the limits of its obligations under the WTO, the relevance of the notices would presumably be simply in cataloging subsidies provided. It is not clear how the information would be an improvement on what is reported by the U.S. to the WTO Committee on Agriculture.

2. Rise in trade remedy cases –a reaction to global excess capacity and a source of information on distortions to trade

Countervailing duty investigations by national authorities on imports from a particular country can reveal information on the type and level of subsidies. Much of the information developed in an investigation may not be otherwise publicly available. And GATT Contracting Parties and, now, WTO Members have been able to challenge perceived subsidy practices at the WTO under various agreements.

The 28th Global Trade Alert report notes the increase in CVD investigations and in WTO disputes on subsidies and CVD cases. While the observation is correct that there are more cases in the last decade or so, it is unclear that the authors explored the information from the CVD investigations to determine the extent of subsidy practices in particular industries which may vary considerably from the sources they used. Having been a trade practitioner for 40 years, it is clear particularly for countries like China that there are many programs that are not flagged in corporate documents as having been used and many other state interventions which distorted competition that are not available from public sources in China. Indeed, in at least one CVD case in the U.S., documentation was submitted by a petitioner indicating that the Chinese government was ordering companies not to cooperate — hence minimizing the understanding of subsidy practices in particular sectors in China. Moreover, many of the cases brought involve sectors where China’s (and other countries’) policies resulted in massive global excess capacity.

China has been the subject of 176 of 431 CVD investigations brought by WTO Members since 2008. 285 OF 632 CVD investigations since 1995 involved base metals products of base metals (e.g., steel and aluminum), with higher numbers in recent years. Chemicals, plastics, rubber products were the subject of 127 additional cases since 1995, with more cases in recent years. All of these sectors reflect problems of global excess capacity.

Historically, GATT Contracting Parties were all market economies. Thus, there has never been any question that market economy countries or territories often use domestic or export subsidies. This was true under the GATT and now under the WTO. What is different in 2021 and since 2001 is that with non-market economies like China now in the WTO and with their combination of massive government intervention in the domestic market, industry plans, government funding, tolerance of IP theft, limitations on operations of foreign companies, export restrictions on raw materials and other identified distortions of competition, distortions in global markets have gotten much worse.

Many sectors have found themselves characterized by massive global excess production capacity, often largely driven by China, including in sectors where China has no inherent competitive advantages such as aluminum or steel. Indeed, China has identified sectors where it acknowledges massive excess Chinese capacity since at least 2007. With limited transparency, China will note closed capacity in these sectors but will seldom acknowledge additions to capacity being made at the same time. I testified before the U.S.-China Commission in February 2016 on the problems flowing from the massive global excess capacity created by China’s economic system and multitude of distortions to market forces. See HEARING ON CHINA’S SHIFTING ECONOMIC REALITIES AND IMPLICATIONS FOR THE UNITED STATES, HEARING BEFORE THE
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION, ONE HUNDRED FOURTEENTH CONGRESS, SECOND SESSION, WEDNESDAY, FEBRUARY 24, 2016 at 92-100 (statement of Terence P. Stewart), https://www.uscc.gov/sites/default/files/transcripts/February%2024,%202016_Hearing%20Transcript.pdf; see also Rui Fan, ‘‘China’s Excess Capacity: Drivers and Implications,’’ Stewart and Stewart, June 2015 (cited in USCC 2016 annual report at 104, 116, 134). Excerpts from my prepared statement to the USCC are copied below.

“Generally, an economy that follows state planning has the ability to pour resources into industries on a scale that doesn’t reflect underlying demand patterns or that overshoots actual demand trends. In the past several decades, a massive amount of industrial capacity has been added in China in a large number of manufacturing sectors to enhance the competitive position of the country and to provide employment to large numbers of people, many in state-owned enterprises. These actions have created massive disequilibrium in China and globally in various important manufacturing sectors. This imbalance was exacerbated by the 2007-2008 global financial crisis and recession and has again surfaced as a destabilizing force amidst slowing global demand. In fact, the US and many other countries are suffering the consequences of China’s actions as seen in the closure of aluminum smelters and steel mills and the layoff of thousands of workers.

“Indeed, the scope of the excess capacity in certain major industries is extraordinary by any measure and flows from state planning, funding and subsidization on a massive scale. The central government of China has recognized that the problem is a serious one and has been trying to deal with it, often with little actual effect as planned capacity closures are undermined by local
governments focused on creating or maintaining employment and by central government efforts to add capacity in the western part of the country. So mandated closures have in many sectors been more than offset by other capacity additions in the country.1

“However, with the recent and increasingly slowing internal growth in China, the increasing capacity overhang in China is
creating very real problems for Chinese companies and their international competitors. These capacity increases in a time of declining global demand are destabilizing global markets as exports have increased in some cases by 100% in short periods. The result is depressed global prices for products and waves of dislocations around the world as producers in other markets shift product to export2 as they lose market share at home. Ultimately, China must play a leadership role in the global economy to help find a way to rebalance supply and demand in each of these sectors. While it is doing so, the sectors will be depressed around the world with companies, workers and their local communities paying the price for the massive excess capacity created and maintained by the Chinese economic system.

“Because there are no multilaterally agreed rules to address situations of massive global excess capacity in a rapid or comprehensive manner, Chinese action now to get rid of excess capacity is critical to preventing the serious global dislocations caused by overcapacity in many critical industrial sectors. Otherwise market economy producers will respond to the market signals
flowing from the excess capacity that prices are unsustainable by closing plants, writing off assets and laying off workers even if the plants being closed are in fact internationally competitive.3

“For example, in the aluminum sector, western aluminum producers have been closing aluminum smelters in many parts of the world because of the depressed prices caused in large part by China’s massive excess capacity and inventories of product overhanging the market. In the US, six aluminum smelters have closed or been announced as closing in the last six months, leaving the US with a capacity back at 1950s levels. Yet China has no natural competitive advantage in the production of aluminum and environmentally its production is not desirable being largely coalpowered for energy. Nonetheless, China has expanded its aluminum capacity from 1.75 million tons in 1996 to an estimated 36 million tons in 2015.4 And in 2014 alone, Chinese excess capacity was estimated at more than 10 million tons.5 China now accounts for more than half of the world’s aluminum smelting capacity (52.3% vs. 7.9% in 1996).6

“Meanwhile, US capacity has declined by 52 percent from 4.2 million tons in 1996 to 2 million tons in 2015 and will be much
smaller in 2016 following the announced closures or planned closures of six smelters since September 2015 (one million tons).7
Thousands of aluminum workers in the US have lost or are losing their jobs. America now has less than 3 percent of the world’s primary aluminum production capacity and will have less than 2 percent in 2016.8

“The global steel sector is also in crisis.9 China’s steel capacity has skyrocketed from 145 million tons in 2000 to more than 1 billion tons today (some estimates are as high as 1.4 billion tons) with excess capacity of as much as 40% – equal to the total capacity in the US, EU and Japan.10

“The problem of excess capacity in the steel sector has been studied for a number of years within the OECD,11 has been the subject of bilateral discussion between the US and China12 as well as the EU and China. Over the past few years, the Chinese have announced a series of production cuts with little or no actual net reductions in steel capacity to date. The government of China has announced in recent weeks a program to close 100-150 million tons of capacity in the steel sector over the next five years13 – a huge sum of capacity if actually achieved but as little as one fourth of what is needed in fact.

“Companies harmed by globally depressed prices and rising import levels can seek relief through trade remedies.14 However, for products like aluminum or steel, problems often reflect loss of export markets (China or third country) as well as loss of one’s home market. Trade remedies are generally available for import problems. WTO cases can be brought for loss of third country
markets or loss of the market by the subsidizing country but require the willingness of the home government to bring such a case. However, existing WTO rules do not provide members with quick and effective means to address excess capacity.

“1. See, e.g., Biman Mukherji, Rising Chinese Production Keeps Lid on Aluminum Prices, Wall Street Journal, Nov. 10, 2015 (noting that, since 2010, Chinese producers have closed 3 million tons of annual aluminum production capacity but have added an additional 17 million tons of capacity), http://www.wsj.com/articles/rising-chinese-production-keeps-lid-on-aluminum-prices1447186082 (requires subscription). See also Aluminum producers staggering as factories lack orders, http://china.org.cn/business/2013-08/27/content_29835483.htm; China’s aluminum glut set to continue, http://asia.nikkei.com/Markets/Commodities/China-s-aluminum-glut-set-to-continue.

“2 Will China Finally Tackle Overcapacity?, http://blogs.piie.com/china/?p=3857; OECD China Economic Survey (March 2015),
http://www.oecd.org/eco/surveys/China-2015-overview.pdf.

” 3 The US Trade Representative’s Office, in its December 2015 Report on China, summarized the problem of excess capacity:

“Excess Capacity

“Chinese government actions and financial support in manufacturing industries like steel and aluminum have contributed to massive excess capacity in China, with the resulting over-production distorting global markets and hurting U.S. producers and workers in both the United States and third country markets such as Canada and Mexico. While China recognizes the severe excess capacity problem in the steel and aluminum industries, among others, and has taken steps to try to address this problem, there have been mixed results.

“From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth. Currently, China’s capacity alone exceeds the combined steelmaking capacity of the European Union (EU), Japan, the United States, and Russia. China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued to grow exponentially and is estimated to have exceeded 1.4 billion metric tons (MT) in 2014, despite weakening demand domestically and abroad. While China’s steel production is slowing and China may
produce approximately 2 to 3 percent less steel in 2015 than in 2014, steel demand in China is projected to decrease 5 percent this year. As a result, China’s steel exports grew to be the largest in the world, at 93 million MT in 2014, a 50-percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015, there is rising concern that China’s steel exports are still growing and may have increased 25 percent in the first ten months of 2015, as compared to the same period in 2014.

“Similarly, monthly production of aluminum in China doubled between January 2011 and July 2015 and continues to grow. Large new facilities are being built with government support, including through energy subsidies. China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices, harming U.S. plants and workers.

“Excess capacity in China – whether in the steel industry or other industries like aluminum – hurts U.S. industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable. Domestic industries in many of China’s trading partners have continued to respond to the effects of the trade distortive effects of China’s excess capacity by petitioning their governments to impose trade remedies such as antidumping and countervailing duties.

“2015 USTR Report to Congress on China’s WTO Compliance (December 2015) at 12-13, https://ustr.gov/sites/default/files/2015-
Report-to-Congress-China-WTO-Compliance.pdf.

“4 U.S. Geological Survey, Mineral Commodity Summaries, 1998 and 2016, http://minerals.er.usgs.gov/minerals/pubs/commodity/aluminum/050398.pdf;
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf. See also Attachment 2 (chart and table
showing China’s aluminum capacity).

“5 U.S. Geological Survey, Mineral Commodity Summaries, 2016, http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“6 U.S. Geological Survey, Mineral Commodity Summaries, 1998 and 2016, http://minerals.er.usgs.gov/minerals/pubs/commodity/aluminum/050398.pdf;
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“7 Id.

“8 U.S. Geological Survey, Mineral Commodity Summaries, 2016, http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2016-alumi.pdf.

“9 See generally, Surging Steel Imports Put Up To Half A Million U.S. Jobs At Risk, Terence P. Stewart, Elizabeth J. Drake,
Stephanie M. Bell, and Jessica Wang (Stewart and Stewart), and Robert E. Scott (The Economic Policy Institute),
http://www.epi.org/publication/surging-steel-imports/#iv.-the-future-of-the-domestic-steel-industry-depends-on-effective-traderemedy-enforcement.

“10 See Attachment 2 (chart and table showing China’s steel capacity). See also .Developments in Steelmaking Capacity of NonOECD Economies, http://www.oecd-ilibrary.org/industry-and-services/developments-in-steelmaking-capacity-of-non-oecdcountries_19991606; China’s excess crude steel still a problem, http://asia.nikkei.com/Politics-Economy/Economy/China-sexcess-crude-steel-still-a-problem.

“11 See, e.g., OECD, Steelmaking Capacity, http://www.oecd.org/sti/ind/steelcapacity.htm.

“12 The United States and China engaged in discussions regarding excess capacity in the steel sector at the SE&D meeting in July
2014 and regarding the steel and aluminum sectors at the JCCT meeting in November 2015. See USTR December 2015 Report
on China, at 104-105, https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-Compliance.pdf.

“13 China to cut steel capacity by 100-150 mln tonnes in 5 years, http://news.xinhuanet.com/english/2016-
02/04/c_135075575.htm.

“14 Pain Spreads From China’s Excess Production, http://blogs.wsj.com/chinarealtime/2014/07/16/pain-spreads-from-chinasexcess-production/ (noting that “China’s vast excess capacity makes it the biggest target of [trade] sanctions”).”

Conclusion

For the WTO to regain full relevance, its rule book needs to be updated to reflect both the current developments in world trade but also to ensure that all trade distortions are addressable in a meaningful and timely way by Members. A review of subsidy disciplines is certainly an important topic (including finalizing the GATS to address how subsidies will be handled for services). But there are many other distortions that are not currently fully or even partially addressable within the WTO in a meaningful way. State owned and invested enterprises are a growing factor in a number of countries and can seriously distort trade flows and competition. Government policies that restrict exports of inputs have had dramatic skewing effects on where downstream producers invest. State supported or sanctioned industrial espionage skews competition and drastically reduces the cost of production in countries that permit the theft. Economies that don’t function on market principles fundamentally distort market outcomes and invite use of non-WTO tools to address resulting distorted outcomes. And the WTO has no rules for addressing quickly any sector with massive global excess capacity.

Efforts to get greater transparency, completeness and timeliness in notifications are obviously a necessary and important element of WTO reform. Reports like that put out as the 28th Global Trade Alert report can be an important source of additional information to help WTO Members understand the extent of practices that may be of concern to themselves or others. However, in 2021, the array of market distortions pursued by governments like China (and others) are far broader than simply government subsidies. A road forward must include an analysis and update or creation of rules for all such distortions.

WTO reduces transparency of Trade Policy Reviews — what is the possible justification?

Through September 2021, when a country went through a Trade Policy Review, a large amount of material was made available to the public at the time of the TPR meeting with additional information (minutes, questions and answers, corrections to Secretariat report and/or government report) released a number of months later. The WTO press releases at the time of the TPR meeting were similar. The one for Singapore from 22 and 24 September 2021 is typical.

As can be seen from the press release, the public could access the full report of the Secretariat, the full report of the Government of Singapore, the concluding comments of the Chairperson as well as an Executive Summary of the Secretariat report at the time of the two day meeting to review the reports. Moreover, minutes from the meeting were available to the public typically about six weeks after the meeting as were the written questions and written answers.

Beginning in October, the press release has been modified and far less information is made available immediately to the public. There have been two TPRs so far in October, the Republic of Korea (13 and 15 October) and China (20 and 22 October). A TPR of the Russian Federation is scheduled for next week.

The WTO press release for the Republic of Korea is copied below. The current one for China is similar.

All that is made available to the public at the time of the meeting is a short executive summary of the Secretariat report and the concluding remarks of the Chairperson. No reference is made to how to access the full report of the Secretariat or the Government (here Republic of Korea), nor is there an indication as to when minutes or written questions and written answers will be available.

There is nothing on the WTO webpage which describes why so little information is being provided beginning this month on new Trade Policy Reviews. For the public, the drastic reduction in transparency makes the WTO operations even less understandable.

If the WTO will be releasing all of the documents it has historically but with significant time delays on all documents, what is the justification? For 25 years, TPRs have been conducted with the type of information released that gave the public a good understanding of the Secretariat’s and the government’s review of its trade policy. That understanding has been timely, consistent with the meeting and supplemented within several months with minutes and the written questions and answers.

If the WTO is not intending on releasing all of the documents it has historically released, what is the possible justification?

China, which is going through a Trade Policy Review this week, also went through a TPR in 2018. In 2018, the Secretariat Report released to the public at the time of the TPR meeting was 193 pages (along with a summary of 6 pages). See WT/TPR/S/375. China’s Report on its trade policy was 23 pages. See WT/TPR/G/375. These documents are dated 6 June 2018. A revision to the Secretariat Report is dated 14 September 2018 and was also 193 pages ( WT/TPR/S/375/Rev.1). The Concluding remarks by the Chairperson are contained in a separate press release from the WTO at the time of the TPR meeting but linked from the main notice of the TPR. See WTO news, Trade Policy Review: China, 11 and 13 July 2018, https://www.wto.org/english/tratop_e/tpr_e/tp475_e.htm linking to the concluding remarks of the Chairperson at https://www.wto.org/english/tratop_e/tpr_e/tp475_crc_e.htm. The minutes of the meeting are contained in WT/TPR/M/375, 21 November 20218 and are 98 pages in length with statements from 66 Members (two on behalf of larger groups). The written questions and answers are contained in WT/TPR/M/375/Add.1, dated 1 February 2019 and being 729 pages in length. The WTO Members who submitted questions (including follow-up questions) are shown on pages 2-3 of the document.

Because the current TPR on China (20 and 22 October) does not provide either of the full reports (Secretariat and Government) and because there is no indication of when minutes or written questions and answers will be available, there is certainly delayed access and potentially denial of access of the same type of information on China (or any other country) that was been released in the past. This should be viewed as unacceptable by the WTO Secretariat and WTO Members and certainly should be so viewed by the public.

Conclusion

What is available to the public from a Trade Policy Review is critical for an understanding of concerns raised by WTO Members about any other Member’s trade policy as well as the level and openness of the response from the Member being reviewed. The Secretariat’s report is an important factual analysis of developments in the Member being reviewed. The recent curtailment of access to the full Secretariat Report and the full Government Report greatly harms transparency and the ability of the public to understand developments within WTO Members in a timely manner. Should the WTO cease to release any of the information heretofore available to the public in current and future TPRs, the WTO will be further damaging the public’s perception of the WTO and will be further retreating from openness and transparency towards the public..

What role China could play in WTO reform — possibilities are real but chances of a positive role are not

On October 14, 2021, Amb. Alan Wolff (former Deputy Director General of the WTO, former Deputy U.S. Trade Representative and now Distinguished Visiting Fellow at the Peterson Institute for International Economic Policy) spoke to the PIIE-CF40 Young Economist Forum on the topic “China in the World Trade System, The Role of China in WTO Reform”. Amb. Wolff’s paper provides an interesting overview of the many areas where China could provide positive leadership at the WTO to achieve meaningful reform. The paper also identifies what China has identified as its priorities for reform, most of which cut against positive leadership. His paper can be found here. Ala Wm. Wolff, China in the World Trading System, The Role of China in WTO Reform, October 14, 2021, https://www.piie.com/commentary/speeches-papers/china-world-trading-system.

Amb. Wolff, when he was Deputy Director General at the WTO made points on the need for reform, key values of the WTO, some of which to be continued would require China to make some important adjustments to its economic system. See November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/. As DDG, Amb. Wolff spoke often on the future of the WTO, reforms needed, and more. He has continued that since leaving the WTO. See, e.g., May 1, 2021:  Alan Wolff’s vision for saving the WTO — aspirational but is it achievable?, https://currentthoughtsontrade.com/2021/05/01/alan-wolffs-vision-for-saving-the-wto-aspirational-but-is-it-achievable/.

Among the values of the WTO identified by Amb. Wolff while serving as DDG were two that remain critical in the continued relevance of the WTO:

The primacy of market forces — Commercial considerations are to determine competitive outcomes.

Convergence —The WTO is not simply about coexistence; differences among members affecting trade which deviate from the principles governing the WTO, its core values, are to be progressively overcome.”

These two issues are among the areas where Amb. Wolff identifies the opportunity for China to take an active role in ensuring WTO relevance and WTO reform. But there are many areas where China could be active in a positive maner.

Many of the suggested areas for Chinese action are straight forward. For example, China is not a member of the Pharmaceutical Agreement but is now a very important producer and trader of pharmaceutical products. Joining would be an important step. Similarly, Amb. Wolff urges China to participate in updating the Information Technology Agreement to include medical equipment and eliminate duties on such equipment.

On the negotiating function, Amb. Wolff states,

“There are a number of important opportunities for Chinese leadership in negotiations.

“A positive substantive outcome is necessary in the fisheries subsidies negotiations, which it is hoped will be concluded shortly. China has by far the world’s largest long distance fishing fleet. China’s full and active participation is essential to attaining this objective.

“Another marine issue in which China is prominent is its co-sponsoring with Fiji of an environmental initiative targeting the problem of plastic waste in the oceans. This is a praiseworthy endeavor in which all should join.

“China should also take a lead in re-starting and concluding an Environmental Goods Agreement (EGA).” (pages 10-11).

On the Joint Statement Initiatives, China has the ability to determine the level of ambition in the e-commerce negotiations on issues like privacy, cross border data flow and forced localization of servers. It also is involved in JSIs on Investment Facilitation for Development and on Domestic Regulation of Service. Amb. Wolff notes that China will need to take a position on whether JSIs become part of the WTO acquis or not –

“Any results from the JSIs will add to the world trade rule book and constitute reform. It remains to be seen how valuable these agreements will be, and it is not yet clear how they will be incorporated into the WTO acquis. Either the WTO will be a venue for the negotiation of these crucial open plurilaterals or it will not, and China will have to make a choice as to its position on
the subject. Open plurilateral agreements are essential to the future health of the international trading system.” (page 12)

On WTO reform, both in terms of new rules and restoring the dispute settlement system, Amb. Wolff notes that the two areas will be intertwined and will require addressing “industrial subsidies, state intervention in the economy and technology transfer.” China views these issues defensively which will not help restore the system.

“As a major economy and important stakeholder in the multilateral trading system, China has a pivotal role to play which it should approach positively and constructively – rather than defensively, engaging actively in deliberations on reform. There is a choice between seeing areas of emerging rules as targeting or threatening China’s practices or, more fruitfully, seeing how they can serve the trading system more broadly. Either the WTO will be the venue for setting the rules of engagement or it will be done regionally, bilaterally or unilaterally. It should be in China’s interest to seek resolutions where it has a seat at the table.” (page 13)

On transparency, China will play an important role in whether the WTO 12th Ministerial Conference requires greater transparency and whether Members requires the Secretariat to “independently and aggressively report on all measures affecting trade flow, those that impede trade and those that facilitate it.” (page 14)

Amb. Wolff then addresses several sensitive issues: self-designation of developing country, “market-oriented policies” (what the U.S. would term China’s non-market economy). Amb. Wolff views the self-designation issue as less important for China since China “states that it will accept obligations commensurate with its capacity.” (page 14)

On the question of “market oriented policies,” Amb. Wolff has a long section.

“More serious than the rhetorical issue of whether China is or is not a developing country is the heated discussion over ‘market-oriented policies’. The Riyadh Initiative for the Future of the WTO reached a highly interesting outcome in its November 2020 G20 meeting. The Saudi chair reported that all members agreed to the following list as part of the principles of the WTO under the heading of ‘Rule of Law’:

“o Transparency

“o Non-discrimination

“o Inclusiveness

“o Fair competition

“o Market openness

“o Resistance to protectionism

“o Reciprocal and mutually advantageous arrangements, acknowledging that agreements provide for differential and more favorable treatment for developing economies, including special attention to the particular situation of least developed countries

“The Saudi chair reported that Members could not reach agreement that ‘market-oriented policies’ is a principle of the WTO.

“China defends the role of the state in its economy. However, whether it should be as sensitive as it is to the adoption of this principle is questionable. China already committed in the Working Party Report accompanying its Protocol of Accession that its state-owned enterprises (SOEs) would behave in effect in a market-oriented manner:

“‘44. In light of the role that state-owned and state-invested enterprises played in China’s economy, some members of the Working Party expressed concerns about the continuing governmental influence and guidance of the decisions and activities of such enterprises relating to the purchase and sale of goods and services. Such purchases and sales should be based solely on commercial considerations, without any governmental influence or application of discriminatory measures. . . …

“‘46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.

“This commitment already applies to government influence over private or quasi-private enterprises as well, foreign or domestic, where the role of the state is even less overt, because any government intervention that favors national goods, services, or IP, or treats one foreign supplier less favorably than another, violates fundamental and binding WTO non-discrimination rules: National Treatment and the Most-Favored Nation Principle. The hurdle is often not the legal principle involved but adducing proof of the influence.

“China’s Accession Protocol itself, providing other Members with additional flexibilities to restrict imports from China, indicates a belief of the negotiators for China’s entry into the WTO that there would be continuing progress toward China allowing market forces to determine competitive outcomes in its market, to determine investment, and to avoid artificially supporting
its exports.

The golden rule of the multilateral trading system is that competitive outcomes should be determined by market forces and not state intervention. Without this rule, the system cannot function as intended. As the world’s largest exporting country, China should recognize that this fundamental principle is in its commercial interest. Its enterprises require access to markets around the world. That market forces are to determine competitive outcomes is the basis for the WTO and the GATT before it. Were this precept not accepted and applied, there would no effective alternative but to adopt additional interface mechanisms, far beyond the transitional antidumping and safeguard flexibilities applied to China in the first 12-15 years of its WTO membership under the terms of its accession.” (pages 15-16)(Emphasis added)

Amb. Wolff flags climate change and how WTO Members chose to deal with it as a possible third major area of disagreement, focusing on carbon border adjustment measures.

Amb. Wolff then looks at what the WTO would look like if China’s proposals for reform were adopted. See page 17-19. While some of the proposals are noncontroversial, China argues for self-designation of developing country status, right to have as much state involvement in the economy without WTO scrutiny as a Member wishes, selective reductions in agricultural subsides (US and EU but not China or India), no disciplines on industrial subsidies among others which clearly are contrary to what Amb. Wolff has identified as the necessary course for maintaining WTO relevance.

The paper identifies a series of statements on “What can and should be anticipated going forward with respect to WTO reform, including China’s role in it?” (page 21; nine statements). The list identifies both what needs to be done and what is likely if such actions are not achieved.

“1) Despite the valuable everyday work of the WTO — from standards notifications, assisting developing countries with a wide variety of challenges posed by trade, to trade policy reviews that are among the most civilized interactions of sovereign nations in accepting scrutiny of their policies — absent negotiation of new agreements the WTO will continue to lose credibility. In particular the WTO Members must act to allow their organization to rise to the trade challenges of pandemics and climate change and conclude the fisheries subsidies negotiations. China is central to making the WTO responsive to current challenges.

“2) China is active in JSIs. It should press for open plurilaterals to become a regular and accepted feature of the WTO system.

“3) There will be no restoration of an appellate function for dispute settlement without dealing with issues surrounding China’s trade practices. This will of necessity include addressing substantive rules, and not just how the appellate and panel functions are managed. It will be a difficult negotiation.

“4) The WTO must adopt and implement an explicit rule that market-forces will determine competitive outcomes. China is already pledged to this. This prospective fight can be avoided because it is unnecessary and because it cannot be won by China.7 But then China would have to have its economy be consistent with any resulting new rules that might be constructed. China is not the only economy with state involvement, although it is more pervasive and has more global systemic relevance than is true for any other country. For the sake of the future of the WTO, for the multilateral trading system, this challenge, however daunting, must be met for the WTO to survive as an effective system of rules for global trade.

“5) China, the U.S. and the EU each need to recognize the essential value of the WTO and invest in it accordingly. (This goes for India, South Africa, and others as well.)


“6) De-globalization, were it more than a correction for overly lean and extended supply lines, is not in the interests of any of the WTO Members, least of all, China. It is, avoidable. Re-balancing too far inward, over-emphasizing near-shoring, will hurt all
economies, disproportionately for the largest trading WTO Members. Some shortening of supply lines as a hedge against disruptions can be expected but will be limited by the need to avoid unnecessary costs.

“7) International agreements function on trust. It is up to the Members with the largest trade to increase the level of trust in the system. Trust is not created by stipulating it; it must be earned by experience. To say that there is a trust deficit between the two
largest trading nations would be a gross understatement. Within the WTO, it is time to consider how they can engage in putting into place confidence-building measures.

“8) If the WTO is not able to function, regional agreements will be where serious trade negotiations take place. This will be against the interests of all, including the big three.

“9) China needs to become an effective champion in the cause of preserving and enlarging the scope and effectiveness of the WTO. A major objective of China’s national interest must remain integration into, not retreat from, the world economy.
This can only be achieved through investing in the multilateral trading system. “

“7 Two distinguished academics, Mavroidis and Sapir, have written that the WTO Members must reinforce the
WTO’s fundamentals, which means market-based trade. They say that China must evolve its system to be
compatible. There is little belief in academia that this will occur. It does not seem to be the direction of change in
China at present.” (pages 21-23)(Emphasis added)

Amb. Wolff adds “A cautionary note” several paragraphs of which are copied below

“The life span of any trade agreement, including the WTO acquis, depends on the underlying evolution of the commerce of the parties toward greater openness. If there is stasis, or retreat from openness, then the duration of the agreement will be short.

The WTO is about convergence not coexistence. That is why transition periods exist to deal with differences rather than permanent exclusions. The rules emerging from a process of ‘WTO reform’ will either trend toward reinforcing convergence or increasing the use of interface mechanisms, the safeguards against governmental measures that distort the market. There is no middle ground if the WTO is to be effective. What we do not know is how long the multilateral trading system can endure if convergence is not going to take place.” (page 24)(Emphasis added)

Comments and Conclusion

Trade and the WTO have obviously been highly beneficial to China and to many other Members. Nonetheless, China has been working hard not to have its economic system evolve to a market-based one. It has generally not pursued liberalization that benefits all versus favoring China. It insists on coexistence vs. convergence. It uses the consensus system to prevent evaluation of its practices which distort trade It has limited transparency of its actions and has engaged in actions against individual Members that are retaliatory and coercive. As the world’s largest exporter, China has a critical role in global trade. But the dangers Amb. Wolff has outlined in his speech where market principles and convergence are not the core values are manifesting themselves in the world marketplace as countries look for alternative approaches to deal with China’s trade distortions.

Amb. Wolff’s speech outlines a number of ways that China can improve the functioning of the WTO and exhibit leadership in WTO reform. His speech is an important one which hopefully has had a receptive audience in China. Unfortunately, while there are some identified actions that China may take, it is unlikely that China will do anything to address the critical differences that its economic system poses to the survival of the global trading system.

G20 Trade and Investment Ministerial Statement of October 12 and Amb. Tai’s comments on the WTO from October 14 — the ongoing divide among major Members makes a meaningful WTO MC12 less likely

In prior posts, I have reviewed the challenges facing the WTO as it approaches the 12th Ministerial Conference in Geneva at the end of November, beginning of December. See, e.g., October 8, 2021: The gap between WTO activity and the needs of businesses and workers for the international trading system, https://currentthoughtsontrade.com/2021/10/08/the-gap-between-wto-activity-and-the-needs-of-businesses-and-workers-for-the-international-trading-system/; September 18, 2021: The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance, https://currentthoughtsontrade.com/2021/09/18/the-wtos-12th-ministerial-conference-in-late-november-early-december-2021-the-struggle-for-relevance/; May 10, 2021:  World Trade Organization — possible deliverables for the 12th Ministerial Conference to be held in Geneva November 30-December 3, 2021, https://currentthoughtsontrade.com/2021/05/10/world-trade-organization-possible-deliverables-for-the-12th-ministerial-conference-to-be-held-in-geneva-november-30-december-3-2021/.

The G20 Trade and Investment Ministerial Statement of October 12, 2021

WTO Reform

While the vast majority of WTO Members profess an interest in a successful MC12 beginning in late November, the reality is that success means very different things to different Members. The G20 countries have repeatedly called for a successful MC12, but this week’s meeting in Sorento Italy and resulting Ministerial statement on trade and investment shows limited actual convergence on what should be achieved at the upcoming WTO Ministerial Conference. See G20 TRADE AND INVESTMENT MINISTERIAL MEETING – OCTOBER 12, 2021, G20 MINISTERIAL STATEMENT ON TRADE AND INVESTMENT, https://www.g20.org/wp-content/uploads/2021/10/G20-TIMM-statement-PDF.pdf.

Paragraph 6 of the G20 Trade and Investment Ministerial statement reiterates support for a successful MC12.

“We commit to a successful and productive WTO 12th Ministerial Conference as an important opportunity to advance WTO reform to revitalise the organisation. We commit to active engagement in this work to provide the political momentum necessary for progress.”

Yet the statement is short on specific areas of reform other than improving rule making and dispute settlement — areas where there has been no meaningful forward movement ahead of MC 12 and where there are major divisions among G20 countries.

Trade and Health

On the topic of “trade and health” there is support among G20 countries for equitable access to vaccines, therapeutics, diagnostics and personal protective equipment, and G20 countries are making belated contributions to increased supplies to the most vulnerable. However, with the exception of export restraints where there is language recognizing the right of countries to take actions in limited circumstances, the divisions amongst the G20 make specifics on WTO issues merely aspirational.

“10. We will work actively and constructively with all WTO members in the lead up to the 12th Ministerial Conference and beyond to enhance the capacity of the multilateral trading system to increase our pandemic and disaster preparedness and resilience by adopting a multifaceted response. Trade-related aspects of intellectual property rights, contributions to international efforts to expand production and delivery of vaccines, therapeutics and essential medical goods, diversifying manufacturing
locations and fostering equitable distribution, trade facilitation measures, export restrictions, encouraging regulatory compatibility, are among the areas where our constructive engagement in the WTO, notably in the TRIPS Council, the Council for
Trade in Goods, the Council for Trade in Services, and other relevant bodies and processes, can enhance global public health efforts.”

While there may be language in an MC12 declaration and a work program for the future, there will not likely be any meaningful results announced at MC12.

Services and Investments


Embarrassingly for the WTO, Members, efforts to develop multilateral rules for digital trade and e-commerce continue to be far from concluded. This has led to the Joint Statement Initiative (“JSI”) on E-Commerce and other JSIs being launched at the 11th WTO Ministerial Conference in Buenos Aires in 2017 amongst a subset of WTO Members but open to all. Two of the other JSIs are Investment Facilitation for Development and Services Domestic Regulation. The JSI on Services Domestic Regulation has reportedly reached an agreement that will be presented at MC12. However, within the G20, there are some countries who oppose bringing JSIs into the WTO — most notably, India and South Africa. See WTO News, Participants in domestic regulation talks conclude text negotiations, on track for MC12 deal, 27 September 2021, https://www.wto.org/english/news_e/news21_e/serv_27sep21_e.htm; THE LEGAL STATUS OF ‘JOINT STATEMENT INITIATIVES’ AND THEIR NEGOTIATED OUTCOMES, submission from India, Namibia and South Africa, 30 April 2021, WT/GC/W/819/Rev.1. This difference of views is reflected in the G20 Trade and Investment Ministerial Statement.

“14. G20 participants in the Joint Statement Initiatives on E-Commerce, Investment Facilitation for Development and Services Domestic Regulation encourage and support the active participation of all WTO members in the initiatives and look
forward to meaningful progress in the lead up to the 12th WTO Ministerial conference. Concerns have been expressed on rule-making by some G20 members that are not part of the JSIs.”

Government Support and Level Playing Field

The section of the Ministerial Statement looking at government support and level playing field issues recognizes that there are “structural problems in some sectors, such as excess capacities” which cause problems and note that “Many G20 members affirm the need to strengthen international rules on industrial subsidies and welcome ongoing international efforts to improve trade rules affecting agriculture.” As is clear “many of us” means a number of G20 countries don’t agree. Industrial subsidy rule improvement is intended to address the distortions caused by China’s programs (and of others). Agriculture market access and agricultural subsidies and transparency are also issues where there is a significant division among G20 countries.

Trade and Environmental Sustainability

The challenges to the world from a warming climate are existential. The Ministerial Statement contains useful language of a general nature in terms of the importance of addressing environmental issues and that “trade and environmental policies should be mutually supportive”. The G20 support reaching a conclusion to the fisheries subsidies negotiations even though there have been recent actions by some G20 countries — again, India and South Africa — to weaken disciplines on “developing” countries which threaten the achievement of a meaningful agreement 20 years after negotiations commenced.

MSMEs

Micro-, small- and medium-sized enterprises are a critical part of most countries economies and make up a larger share of business in lower income countries. While the Ministerial Statement addresses MSMEs importance and need for additional assistance, there is no mention of the Joint Statement Initiative on MSMEs among some WTO Members and the fact that an agreement is ready for presentation at MC12 with the agreement being open to all. See WTO News, Working group on small business finalises MC12 draft declaration, 27 September 2021, https://www.wto.org/english/news_e/news21_e/msmes_28sep21_e.htm. India and South Africa and others have raised the same objection to the MSME JSI as they have to the others.

Conclusion on G20 Trade and Investment Ministerial Statement

The deep divisions within the WTO membership are reflected as well among the G20 countries with China, India, South Africa and others having much different priorities that the historic leadership of the GATT/WTO including the U.S., EU, Canada, United Kingdom, Australia and others. It is the lack of a common purpose and agreement on basic principles that has largely paralyzed the negotiating function at the WTO. The disappointing G20 Trade and Investment Ministerial Statement reflects that same lack of common purpose and agreement on basic principles.

USTR Katherine Tai’s October 14, 2021 Prepared Remarks on the WTO

The U.S. Trade Representative traveled to Geneva after the G20 Trade and Investment Ministers meeting in Italy and spoke on the WTO at an event hosted by the Graduate Institute of International and Development Studies’ Geneva Trade Platform on October 14. Ambassador Tai’s prepared statement is available on the USTR webpage and is reproduced below. See USTR,Ambassador Katherine Tai’s Remarks As Prepared for Delivery on the World Trade Organization, October 14, 2021, https://ustr.gov/about-us/policy-offices/press-office/speeches-and-remarks/2021/october/ambassador-katherine-tais-remarks-prepared-delivery-world-trade-organization.

” Good afternoon.  Thank you to Dmitry and Richard, the Geneva Trade Platform, and the Graduate Institute of International and Development Studies for hosting me today and putting together this event.

“It is a pleasure to be back in Geneva.  I have looked forward to making this trip since becoming the United States Trade Representative in March, and I am grateful to be here with all of you today.  

“I spent a lot of time in this city earlier in my career representing the United States Government with pride before the World Trade Organization.  

“I appreciate the importance of the institution.  And I respect the dedicated professionals representing the 164 members, as well as the WTO’s institutional staff working on behalf of the membership.  I also want to thank Director-General Dr. Ngozi for leading this organization through a difficult and challenging year. 

“Let me begin by affirming the United States’ continued commitment to the WTO.  

“The Biden-Harris Administration believes that trade – and the WTO – can be a force for good that encourages a race to the top and addresses global challenges as they arise.  

“The Marrakesh Declaration and Agreement, on which the WTO is founded, begins with the recognition that trade should raise living standards, ensure full employment, pursue sustainable development, and protect and preserve the environment. 

“We believe that refocusing on these goals can help bring shared prosperity to all.

“For some time, there has been a growing sense that the conversations in places like Geneva are not grounded in the lived experiences of working people.  For years, we have seen protests outside WTO ministerial conferences about issues like workers’ rights, job loss, environmental degradation, and climate change as tensions around globalization have increased. 

“We all know that trade is essential to a functioning global economy.  But we must ask ourselves: how do we improve trade rules to protect our planet and address widening inequality and increasing economic insecurity?

“Today, I want to discuss the United States’ vision for how we can work together to make the WTO relevant to the needs of regular people.

“We have an opportunity at the upcoming 12th ministerial conference – or MC12 – to demonstrate exactly that.

“Throughout the pandemic, the WTO rules have kept global trade flowing and fostered transparency on measures taken by countries to respond to the crisis.  But many time-sensitive issues still require our attention.  We can use the upcoming ministerial to deliver results on achievable outcomes.

“The pandemic has placed tremendous strain on peoples’ health and livelihoods around the world.  The WTO can show that it is capable of effectively addressing a global challenge like COVID-19, and helping the world build back better. 
  
“There are several trade and health proposals that should be able to achieve consensus in the next month and a half.  

“I announced in May that the United States supports text-based discussions on a waiver of intellectual property rights for COVID-19 vaccines.  The TRIPS Council discussions have not been easy, and Members are still divided on this issue.  The discussions make certain governments and stakeholders uncomfortable.  But we must confront our discomfort if we are going to prove that, during a pandemic, it is not business as usual in Geneva.  

“The United States is also working on a draft ministerial decision aimed at strengthening resiliency and preparedness through trade facilitation.  Our proposal would improve the sharing of information, experiences, and lessons learned from COVID-19 responses to help border agencies respond in future crises.  

“It is important that our work on trade and health does not end at MC12.  This pandemic will not be over in December, and it will not be the last public health crisis we encounter.  In the next six weeks, we also have an opportunity to conclude the two-decades-long fisheries subsidies negotiations and show that the WTO can promote sustainable development.  

“We want to continue working with Members to bridge existing gaps in the negotiations.  

“To this end, the United States is sharing options to respond to developing countries’ request for flexibilities.  We believe that any agreement must establish effective disciplines that promote sustainability.  

“It must also address the prevalence of forced labor on fishing vessels.  We call on all Members to support these goals.

“I recognize that discussing these complex issues during a pandemic is hard.  Despite this challenge, we can reach meaningful outcomes and set ourselves up for candid and productive long-term conversations on reforming the WTO.

“As I mentioned earlier, the reality of the institution today does not match the ambition of its goals.  Every trade minister I’ve heard from has expressed the view that the WTO needs reform.  

“The Organization has rightfully been accused of existing in a ‘bubble,’ insulated from reality and slow to recognize global developments.  That must change.

“We are used to talking to each other, a lot.  We need to start actually listening to each other.

“We also must include new voices, find new approaches to problems, and move past the old paradigms we have been using for the last 25 years.  

“We need to look beyond simple dichotomies like liberalization vs. protectionism or developed vs. developing.  Let’s create shared solutions that increase economic security.

“By working together and engaging differently, the WTO can be an organization that empowers workers, protects the environment, and promotes equitable development. 

“Our reform efforts can start with the monitoring function.  In committees, Members deliberate issues and monitor compliance with the agreements.  This important work is a unique and underappreciated asset of the WTO. 

“Increasingly, however, Members are not responding meaningfully to concerns with their trade measures.  The root of this problem is a lack of political will.  But committee procedures can be updated to improve monitoring work.  

“At MC12, Ministers can direct each committee to review and improve its rules. 

“It is also essential to bring vitality back to the WTO’s negotiating function.  We have not concluded a fully multilateral trade agreement since 2013.

“A key stumbling block is doubt that negotiations lead to rules that benefit or apply to everyone. But we know that negotiations only succeed when there is real give and take.

“We can successfully reform the negotiating pillar if we create a more flexible WTO, change the way we approach problems collectively, improve transparency and inclusiveness, and restore the deliberative function of the organization.

“Over the past quarter century, WTO members have discovered that they can get around the hard part of diplomacy and negotiation by securing new rules through litigation.    

“Dispute settlement was never intended to supplant negotiations.  The reform of these two core WTO functions is intimately linked.  

“The objective of the dispute settlement system is to facilitate mutually agreed solutions between Members.  Over time, ‘dispute settlement’ has become synonymous with litigation – litigation that is prolonged, expensive, and contentious.  

“Consider the history of this system.  

“It started as a quasi-diplomatic, quasi-legal proceeding for presenting arguments over differing interpretations of WTO rules.  A typical panel or Appellate Body report in the early days was 20 or 30 pages.  Twenty years later, reports for some of the largest cases have exceeded 1,000 pages.  They symbolize what the system has become: unwieldy and bureaucratic. 

“The United States is familiar with large and bitterly fought WTO cases.  Earlier this year, we negotiated frameworks with the European Union and the United Kingdom to settle the Large Civil Aircraft cases that started in 2004.  

“We invoked and exhausted every procedure available.  And along the way, we created strains and pressures that distorted the development of the dispute settlement system.

“With the benefit of hindsight, we can now ask: is a system that requires 16 years to find a solution ‘fully functioning?’

“This process is so complicated and expensive that it is out of reach for many – perhaps the majority – of Members. 

“Reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.  

“It is about revitalizing the agency of Members to secure acceptable resolutions.

“A functioning dispute settlement system, however structured, would provide confidence that the system is fair.  Members would be more motivated to negotiate new rules.

“Let’s not prejudge what a reformed system would look like. While we have already started working with some members, I want to hear from others about how we can move forward.

“Reforming the three pillars of the WTO requires a commitment to transparency.  Strengthening transparency will improve our ability to monitor compliance, to negotiate rules, and to resolve our disputes. 

“I began these remarks with an affirmation of commitment.  I’d like to conclude with an affirmation of optimism.

“I am optimistic that we can and will take advantage of this moment of reflection.

“In reading over the Marrakesh Agreement’s opening lines, I was struck by the founding Members’ resolve to develop ‘a more viable and durable multilateral trading system.’  

“These words are just as relevant today as they were then. We still need to work together to achieve a more viable and durable multilateral trading system.

“It is easy to get distracted by the areas where we may not see eye to eye.  But in conversations with my counterparts, I hear many more areas of agreement than disagreement.  

“We all recognize the importance of the WTO, and we all want it to succeed. 

“We understand the value of a forum where we can propose ideas to improve multilateral trade rules.  We should harness these efforts to promote a fairer, more inclusive global economy.  

“WTO Members are capable of forging consensus on difficult, complicated issues. It’s never been easy, but we’ve done it before.  And we can do it again.  

“Thank you.”

Comments on USTR Tai’s statement on the WTO

The Biden Administration has been supportive of multilateral institutions, and that support is relfected in Amb. Tai’s comments. At the same time, the U.S. has believed that a small package of deliverables is achievable for MC12 with hopefully a work program for the serious reform that is needed also being agreed to at MC12. Amb. Tai’s comments reflect both optimism and a limited set of deliverables being sought.

The Fisheries Subsidies negotiations has made limited progress on a range of important issues. The U.S. is attempting to find answers to problems raised by others while still achieving a meaningful outcome. With the limited time remaining, this suggests either a less robust agreement or movement by others to a higher level of ambition or to no agreement being finalized. Addressing forced labor in fishing and more broadly should be important to all WTO Members, was raised by the U.S. (and is important to Democratic leadership in the Congress) but is opposed by some, including China. If the U.S. continues to pursue the addition of this issue to the fisheries subsidies text,

On greater transparency, Members agreeing to have Committees review their procedures to improve the monitoring function are important steps that could be taken to improve Member confidence in actions of trading partners and affect negotiations and dispute settlement as well. Even such seemingly simple steps, however, may not move forward as at least one major country — China — has as one of its negotiating priorities not changing transparency obligations.

Revitalizing the negotiating function and restoring a dispute settlement system are longer term efforts, with the U.S. vision on dispute settlement (focus on what dispute settlement is doing vs. ensuring a two stage process) far apart from that of the EU and many other Members.

And, of course, the U.S. is supportive of some form of outcome on addressing the pandemic and trade and health moving forward. Whether there will be outcomes in this area are dependent more on flexibility by others as the U.S. has been looking for solutions that will meet the pandemic needs and prepare for the future.

Conclusion

With very limited time until the 12th WTO Ministerial Conference begins at the end of November, it is hard to see an ambitious outcome emerging from the efforts of WTO Members. The G20 Trade and Investment Ministerial Statement from October 12 reflects the divisions amongst the major WTO Members. Amb. Tai’s statement yesterday in Geneva while positive on the WTO and its important role tees up a relatively limited outcome as likely for MC 12. Even Amb. Tai’s more realistic set of expectations are likely to be challenging to achieve.