United States

The race to become the next WTO Director-General — where candidates are on important issues: reform of the Appellate Body

[Post updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova made at the WITA webinar on August 26. The post was previously updated on August 11 to incorporate comments by Minister Yoo Myung-hee of Korea at the WITA webinar that morning]

With less than a month to go before the last phase of the selection process begins for the next Director-General of the World Trade Organization, the eight candidates have engaged in large numbers of meetings (in person or virtually) with Missions in Geneva, with trade officials in capitals and have done outreach to the media and have participated in webinars put on by various organizations. These meetings and outreach are part of Phase 2 of the selection process where candidates make themselves known to the WTO Members. This phase ends on September 7.

All candidates are understandably guarded on specifics about many issues, all recognizing the WTO is a member driven organization. Similarly, with sharp divisions within the WTO membership, candidates are also careful not to express support for any of the major Members as a general rule. At the same time, all candidates have been asked about current pressing issues before the WTO and the topic of overall WTO reform.

Today’s post looks at how candidates have positioned themselves on one such issue — the impasse over the functioning of the Appellate Body.

Presentations to the General Council and Later Press Conferences

During the three days of meetings of the General Council in mid-July, each candidate was able to provide a statement of his/her vision for the WTO, answer questions posed by WTO Members and also had a thirty minute press conference. In a prior post, I had summarized the prepared statements and the press conferences. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/. In addition to prepared statements and press conferences after meeting with the General Council, I am also including selected comments made by the candidates during webinars held by the Washington International Trade Association (WITA) and the Asia Society Policy Institute (ASPI) with six of the candidates (through August 6; a seventh is scheduled for August 11).

On the topic of the Appellate Body, the eight candidates had the following public comments:

Dr. Jesus Seade Kuri (Mexico):

From his prepared statement to the General Council, Dr. Seade made it clear that a top priority for him if selected as the next Director-General would be to get the Appellate Body refunctioning, something he would work to see happened in the first 100 days he was Director-General: “It is also necessary to give back to the dispute settlement mechanism its strength and certainty.” (Google translation from Spanish) “Within the first hundred days: I will work closely with members in seeking to * * * ii. restore the second instance of the dispute settlement system.” (Google translation from French).

In the press conference, Dr. Seade was asked how he would address the Appellate Body impasse. My notes on his answer are as follows:

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

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade addressed the need to get the Appellate Body functioning again. In pointing out why he would be the right person to be the next Director-General, Dr. Seade reviewed the importance of bringing to the table a knowledge of the underlying Uruguay Round negotiations and the purpose of the provisions in the agreements. He asked “Why is the U.S. frustrated with the Appellate Body?” It is because of the history of the negotiations and what was actually agreed to. Dr. Seade also viewed restoring the dispute settlement system as important to address problems other Members are having with China (in addition to negotiations on issues like industrial subsidies). He stated that the U.S. points about problems with the Appellate Body are good. The U.S. is not challenging the Dispute Settlement Understanding (“DSU”), but rather is arguing that the provisions of the DSU are not being respected by the Appellate Body. Thus, the problem is with the application of the DSU not the terms of the DSU as such. Dr. Seade believes that it is possible to find solutions that all Members can live with. He noted that the Appellate Body issue reflects different views of the DSU by the EU and the U.S.

Dr. Ngozi Okonjo-Iweala (Nigeria):

From her prepared statement, Dr. Ngozi Okonjo-Iweala had relatively short statements about the Appellate Body: “A refreshed WTO must find solutions to the stalemate over dispute settlement. It is clear that a rules-based system without a forum in which a breach of the rules can be effectively arbitrated loses credibility over time.” “I would also prioritize updating the rulebook, unlocking the dispute settlement system, working on transparency and notification, enhancing the work of regular bodies, and strengthen the Secretariat.”

While Dr. Ngozi Okonjo-Iweala was asked many questions at the press conference, none dealt with the Appellate Body.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/

Dr. Ngozi Okonjo-Iweala noted that addressing the Appellate Body impasse was a priority for the next Ministerial and repeated her view that a WTO without effective dispute settlement would lose its legitimacy over time.

In response to a question on how she would restore dispute settlement, Dr. Ngozi Okonjo-Iweala noted that there is a common desire among WTO Members to have the dispute settlement system work and function. The question is how. There is a common belief that the panel process has been working well, so that places the focus on the Appellate Body. To address the various issues that have been raised by the United States, the WTO has the work product of the Walker process (note: Amb. Walker (NZ) was a facilitator to the General Council in 2019 to see if he could work with Members to find a solution to issues raised by the U.S.). Some of the proposals made by Amb. Walker can be used to move the process forward. The U.S. is seeking to go back to what the existing Dispute Settlement Understanding requires — 90 days for decisions, not creating rights or obligations (“overreach”), Appellate Body members working on appeals after their terms have expired, etc. We should take them up one at a time and find solutions that work. Can Members agree that appeals should be resolved in 90 days? Very likely. Can Members agree that the Appellate Body is limited to reviewing issues of law and not reviewing fact finding by panels? Very likely.

Mr. Abdel-Hamid Mamdouh (Egypt):

Mr. Mamdouh in his prepared statement reviewed the challenge to the WTO from the imbalance resulting from growing importance of dispute settlement while the negotiating function has been reduced in effectiveness:

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

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

During the press conference, Mr. Mamdouh was asked about how to bring the Appellate Body back. My notes on his answer are as follows:

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

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. There were no specific questions asked on dispute settlement, but Mr. Mamdouh provided some introductory thoughts on the genesis of the crisis in the WTO. He noted that the WTO has been suffering from a chronic imbalance between the negotiating function and the dispute settlement function.  He indicated that the negotiating function has underperformed miserably.  Dispute settlement system, being automatic adoption at the end of disputes absent a negative consensus has grown in importance and hence has created imbalance.  Mr. Mamdouh views that there is a critical need to reboot the negotiating function to help restore better balance.

Amb. Tudor Ulianovschi (Moldova):

Amb. Ulianovschi, in his prepared statement, had reform of the Appellate Body as a top priority for the incoming Director-General:

“Dispute Settlement

“The reform of the dispute settlement mechanism and particularly the reform of the Appellate Body will be one of the main priorities for the next Director General. This process needs to be open, inclusive and constructive. We need to find a way for all members to accept a two-step binding independent Dispute Settlement system.

“I believe that the issues and concerns were clarified by the members already and now they have to be addressed.

“I am aware of the on-going consultations on this important matter among the Members. In my opinion, there is a general common understanding on fundamentals of the DSU, which is already a good start.

“The least a DG can do is to facilitate discussions among Members to agree together on how to move forward and eventually agree on a roadmap and mechanisms – ‘agree on how to agree’ on this sensitive but crucial issue and devise a process of further engagement to reach an acceptable solution.”

During the press conference following his appearance before the General Council, Amb. Ulianovschi was asked several questions about the Appellate Body impasse. Below are my notes on Amb. Ulianovschi’s answers.

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

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. Amb. Ulianovschi referenced the impasse on the Appellate Body (dispute settlement system) both in his opening statement at the webinar and in answer to a number of questions. My notes on his statements are provided below.

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

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

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system.  Also the impasse on dispute settlement and the concerns raised by the United States and the EU position on an interim arbitration agreementwith MPIA.  He sees a positive signal that major players are putting forward proposals; this should be starting point for discussions.  He would invite those who have put forward proposals to start discussions.  The process will require political will, and members will need to agree on how to proceed).  Amb. Ulianovschi believes he can get Members to that point.  On dispute settlement, Members have the paper from Amb. Walker which can be used to move forward.  Will have to see how deep reforms will be.

Q:  If you are the next Director-General, what would be your priorities for the 2021 Ministerial Conference and how would you define success?

A:  In Amb. Ulianovschi’s view, the next Ministerial must show some results.  He believes the top priority would be completing the ongoing negotiations on fisheries subsidies, which is important to fulfill U.N. Sustainable Development Goal 14.6.  He believes that the Members are close to getting language agreed to.  Completing the fisheries subsidies agreement Is just the first step, but it is an important one.  On the current impasse on the Appellate Body (and hence the lack of a second-tier dispute settlement stage), Amb. Ulianovschi doesn’t see a clear cut resolution of the reform needed by the next Ministerial but rather hopes the Members will have a road map of how to proceed by the Ministerial. 

Q:  On dispute settlement, it is becoming quite clear that the divergences are growing between the Trump Administration and some of our trading partners.  Many Members have shared the view that there have been problems with the Appellate Body engaging in overreach in certain situations.  The recent Op Ed in the Wall Street Journal by USTR Lighthizer suggests that Amb. Lighthizer is looking to eliminate the Appellate Body and change the system so that panels’ role is limited to helping resove specific disputes between Members, more like commercial arbitration, without broader effect of the decisions.  Is it realistic to go back to a system without an Appellate Body?

A:  Amb. Ulianovschi responded that understand the U.S. concerns at the WTO on the Appellate Body both procedural (e.g., decisions within 90 days; Appellate Body members not involved in appeals after their four year term expires) and substantive (e.g., overreaching).  He recognizes that the U.S. concerns are shared by other members of the organization.  Amb. Ulianovschi believes that this is the moment to put forward different opinions on both problems and how to proceed, but all issues have to be negotiated.  The role of the Director-General is to put Members together to permit Members to present the details of their proposals.  In Amb. Ulianovschi’s view, the Recent Op Ed by Amb. Lighthizer is another idea put forward to find a solution to the ongoing problem at the WTO.  He has talked with all of the major Members on how to deal with the broader issue of Appellate Body reform.  The Director-General is there to encourage members to put forward proposals but also to use his/her good offices to encourage discussions.  Having said that, Amb. Ulianovschi noted that some Members have undertaken different initiatives under Rule 25 of the Dispute Settlement Understanding, such as MPIA, to provide a second-tier of review.  These initiatives are interim efforts.  Such actions don’t have to distract the Members from the main task of finding a common understanding on the purpose of the dispute settlement understanding or on a sustainable solution.  So the WTO Members have to identify the consensual solution and how we can ensure a compliance mechanism so that the system works as intended and agreed to.  This should be a top priority of the next Director-General.

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

In her prepared statement, Minister Yoo includes one paragraph on the Appellate Body impasse:

“Another urgent, pressing issue is restoring the dispute settlement system. We need a stable and fully-functioning dispute settlement system which would effectively contribute to the prompt and satisfactory resolution of the disputes. I will act as an honest broker to facilitate constructive discussions to find an effective and permanent solution.”

During the press conference, Minister Yoo was asked two questions about dispute settlement, one dealing with resolving the impasse on the Appellate Body and the other on the Multi-Party Interim Arbitration Agreement. My notes of Minister Yoo’s responses to these questions follows:

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

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

WITA had a webinar with H.E. Yoo scheduled on August 11,https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. My summary of Minister Yoo’s comments on dispute settlement follow.

from her opening comments: Restoring dispute settlement system is an urgent need.

Questions asked on Dispute settlement – do you share assessment of US and others that there have been problems of overreach by AB?  Secondly, there are procedural flaws that need to be addressed?  What can a DG do about it?

Minister Yoo’s response: Clearing impasse on the Appellate Body is a top priority.  The WTO needs a prompt resolution to restore the two-tier dispute settlement system.  There are divergent views of the proper role of the Appellate Body.  Some countries, like the United States, have said the Appellate Body has gone too far — overreaching by creating or diminishing rights and obligations of Members.  However, some members say that the Appellate Body has been working to clarify of the provisions of Agreements to provide stability to the multilateral trading system.  So there are competing views of what the role of the Appellate Body is supposed to be.  The Walker process has put forward certain ideas.  Still the gap is very wide between the two views.  If we look at three pillars of WTO (negotiations, notifications, dispute settlement), over the first 25 years of the WTO, there have been no major agreements from negotiations other than Trade Facilitiation Agreement. This failure of the negotiating function to work has put much strain on the dispute settlement system.  Members are resorting to dispute settlement to address issues not handled by negotiations.  So, lacking periodic updates through negotiations, it is easy for the Appellate Body to engage in creating obligations to fill gaps.  So Minister Yoo agrees to some extent with US (and others) about of overreach.  The question for the WTO and the incoming Director-General is how to move forward to find solutions acceptable to all.  There have been very divergent views within the WTO for a long time.  If Minister Yoo becomes the Director-General, she would try to increase communication with missions in Geneva and ministers in capital.  Need some political involvement to resolve the impasse.  Minister Yoo would also look at some ideas floated by academia as well to see if those views might provide different approaches that would be of interest of Members.  Several examples would include strengthening qualifications of AB members and what role of Appellate Body Secretariat should be, etc.  I would encourage Members to engage in open, transparent and inclusive discussions on these issues. 

Minister Yoo wanted to highlight importance of revitalizing negotiating function. If there is a more active negotiating functions, Members would be able to address needs to update and clarify agreements which should be done by Members and not the dispute settlment system.

H.E. Amina C. Mohamed (Kenya):

Minister Mohamed in her prepared statement reviewed the need for a functioning dispute settlement system:

“The WTO’s dispute settlement function is key to the credibility and effectiveness of the rules. We need to find a way through its problems to make it once again an instrument that all Members can use with confidence.”

During the press conference, Minister Mohamed was asked about the Appellate Body impasse. My notes on her response are as follows:

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

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. Minister Mohamed had a number of comments about the Appellate Body impasse.

Restoring the Appellate Body is an important priority for the incoming Director-General.

The WTO dispute settlement process is key to the credibility and effectiveness of the WTO.  Members have been working for some time on finding solutions.  Minister Mohamed takes seriously US concerns about the operation of the Appellate Body. If she becomes Director-General, she will use her skills at building consensus to help Members find solutions.  Finding solutions is important so that the WTO Members can get back to a dispute settlement system that all can use.

Minister Mohamed was Chair of the Dispute Settlement Body in 2004.  She made sure that there was continuous flow of information from the Dispute Settlement Body to the Appellate Body.  She had lunch with the Appellate Body quarterly.  Issues she had been raising back in 2004 as of concern to Members remain unresolved today. 

WTO Members designed a system that was complete from negotiations to dispute settlement.  In Minister Mohamed’s view the system was designed really well.  Now there is a gap in the system with the inoperability of the Appellate Body.  The WTO needs to fill the gap quickly. Absent a resolution, some Members will comie up with an interim system (MPIA).  Thus, Minister Mohamed believes the WTO needs to deal with the issues raised by the United States urgently.  She agrees with some of the issues raised by the U.S.  Many of those same concerns were around in 2004 when she chaired the Dispute Settlement Body.  In her quarterly meetings with the Appellate Body, Minister Mohamed told the Appellate Body members that they had a specific mandate laid out by Members in the Dispute Settlement Understanding.  It was not the role of the Appellate Body to add to or diminish the mandate.  Minister Mohamed believes that Members need to see where the Appellate Body veered off of the mandate.  She believes that the new Director-General should look at te Walker process (note: Amb. Walker (NZ), as facilitator to the General Council in 2019 had met with Members to see if solutions to the U.S. concerns could be found) and see how to move forward.  But it is critical for the WTO to resolve the issues raised by the U.S. to permit the Appellate Body to resume.

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

In his prepared statement, Minister Al-Tuwaijri referenced the challenges in the dispute settlement system but did not identify any specific approach to addressing Appellate Body reform if selected as the next Director-General other than his overall approach reviewed in the statement on all issues. Several quotes from his prepared statement follow:

“As you all know, the WTO has three main functions for monitoring trade issues, settling disputes, and negotiations, which include improvements to existing rules, new rules and market access.”

“We also need to recognize the consequences for the WTO of over-performance in litigation, while neglecting the negotiating and monitoring functions. A system out of balance cannot move forward.”

During the press conference, Minister Al-Tuwaijri was asked what his plan was to address U.S. concerns with the Appellate Body. My notes on his response are provided below.

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

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/.

Minister Al-Tuwaijri provided some comments in his opening statement and responded to a question on the dispute settlement system.

The structure of the organization is not functioning – negotiations, dispute settlement, notifications.  Key is what type of change is needed to help organization be fit for the 21st century.

Minister Al-Tuwaijri believes the correct analysis for any issue is: what is the problem, what needs to be done, consult with the Members for possible solutions.

Does Dispute Settlement reform need to be taken up as a condition precedent to broader WTO reform?

In Minister Al-Tuwaijri’s view, the role the Director-General can play is resolving the impasse on the Appellate Body is somewhat limited. Can the Director-General help with a procedural question?  Yes. Is there an interpretation issue that the Director-General may be able to assist in resolving?  Yes.  In 2019, the General Council had Amb. Walker, acting as a facilitator, work with Members to see if solutions could be found to the issues raised by the U.S. So that work product is available.  The EU has also pursued a multi-party interim arbitration agreement to help at least some Members handle a second stage dispute process while the Appellate Body is not functioning.  Despite these efforts, there is the question why resolution of the impasse is not happening.  Minister Al-Tuwaijri believes that the answer goes back to his core point, the WTO must fix its negotiating function.  If Members want to change the rules on the operation of the Appellate Body, that is for the Members to decide.  As Director-General, Minister Al-Tuwaijri would encourage Members to think differently about the impasse and the options for finding solutions.

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

Dr. Fox’s prepared statement talked about many topics, including WTO reform, but did not speak specifically about the impasse on the Appellate Body or needed reforms to permit reactivating the second stage of dispute settlement.

During the press conference, Dr. Fox was asked about how he would address U.S. concerns with the WTO. My notes on his response are provided below:

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

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. His comments on dispute settlement from the webinar are summarized below.

A rules-based system must have a functioning dispute settlement system, a top priority for the incoming Director-General.  To have a rules-based system without a functioning dispute settlement system is nonsensical.  For many countries, the dispute settlement system is the value added that membership in the WTO brings.

All members need to focus on adhering to the rules that they have already agreed to.  The WTO needs an effective dispute settlement system for that.  The WTO needs all Members to adhere to all rules they have signed up for and not decide that some rules don’t apply to them.

Questions asked of Dr. Fox: There have been some problems with the Appellate Body overreaching.  Do you agree we need a more realistic approach by Appellate Body where there is ambiguous language in an agreement?  How would you resolve the impasse on the Appellate Body?

Resolution of the Appellate Body impasse is the most urgent task facing the incoming Director-General.  Dispute Settlement is the value-added to many Members of joining the WTO.  Many members view the Appellate Body as having gone beyond the Dispute Settlement Understanding.  Moreover, the excessive length of time to render an appeal decision undermines the system by itself — Members violating their obligations can get a three-year free ride.  The WTO needs to tighten up the parameters and limit the areas that the Appellate Body examines.  While the Appellate Body can’t create binding precedent, the need for consistency supports the ability to review how issues have been handled in other cases.  Thus, looking at prior disputes makes sense, but the Appellate Body can’t create law through the process.

On any negotiation there are technical, political and timing issues. WTO Members are not going to see any concessions from the U.S. before the presidential election.  It may be possible for the U.S. to make compromises, but the timing of major political events affects the ability to do so.    

Conclusion

One of the major current challenges for the WTO and its Members is finding solutions to the impasse on the Appellate Body. The eight candidates for the Director-General post have all expressed views on the importance of resolving the issue and where in the hierarchy of issues to be addressed by an incoming Director-General the impasse is found. Presumably, most Members will be carefully considering each candidate’s views and suggested approach on all key issues, including resolving the Appellate Body impasse.

The fundamental disconnect between the EU (which has been reluctant to recognize any deviation from the Dispute Settlement Understanding by the Appellate Body) and the United States (which has focused on the limited role of the Appellate Body as laid out in the Dispute Settlement Understanding) remains. The role of honest broker and consensus builder that the incoming Director-General will assume later this year will be tested by the gulf in positions of two of the WTO’s major Members.

USTR Lighthizer on WTO dispute settlement, answers to Congressional questions from June 17 hearings

At the June 17 hearings before the U.S. House and Ways Committee and the U.S. Senate Finance Committee, the U.S. Trade Representative Robert Lighthizer testified about the Trump Administration’s 2020 trade agenda. While there were few questions during the hearing that were addressed to dispute settlement at the WTO, the Committees forwarded follow-up questions to Amb. Lighthizer for responses. Several dealt with WTO dispute settlement, in particular, reform of the Appellate Body (“AB”).

For example, Senate Finance Chairman Chuck Grassley (question 4) and Ranking Member Ron Wyden (question 16) each inquired about the next steps by the U.S. to achieving AB reform. Both Chairman and Ranking Member are strong supporters of achieving Appellate Body reform and limiting the Appellate Body to the role envisioned in the Dispute Settlement Understanding. Amb. Lighthizer’s answer to them was the same. Both questions asked and Amb. Lighthizer’s answer are provided below.

Chairman Grassley, Question 4
“I’m a strong supporter of reforming the WTO Appellate Body, but I’m worried that we still have not made any concrete proposal of our own for reforming dispute settlement. A number of allies who have been supportive of WTO reform have told me that they are discouraged by the continued lack of a proposal from the United States. Unfortunately, many of these countries are now signing up for the EU’s alternative: the Multiparty Interim Arbitration Arrangement.

“I believe we need to do more than identify problems. We need to propose and build consensus for solutions that will carry out what Congress understood it approved in 1995: binding dispute settlement on certain rules carefully negotiated by Members, not discovered by appointed judges. Accordingly, we need solutions that address overreach and other problems like the AB’s failure to follow the 90 day rule.

What efforts are you taking to develop a proposal that we can rally our allies around, and will you commit to working with Congress on it – as is required by the constitution and the law?

Ranking Member Wyden Question 16

“For more than a year, this Administration blocked approval for new Appellate Body Members in an effort to draw attention to concerns regarding the WTO dispute resolution system. I share these concerns, and I want them to be addressed. Last December these concerns captured the world’s attention when the Appellate Body became unable to hear new cases after the retirement of two judges left only one remaining judge. The United States has yet to put forward a reform proposal despite opposing other WTO members’ reform suggestions.

What are the next steps in addressing the problems at the WTO?

“Amb. Lighthizer Answer: The Administration is committed to working with any interested WTO Member to find solutions to the failure of the Appellate Body to follow WTO rules. This means first understanding what is the root of the problem: Why has the Appellate Body consistently broken WTO rules – that is, those rules agreed by WTO Members in the Uruguay Round and approved by the Congress in the Uruguay Round Agreements Act – despite every effort by U.S. Administrations to get it to stop.

“By exercising our right not to approve new members to the Appellate Body, the Administration has forced the WTO to engage in a long-overdue debate on this problem. My office also comprehensively detailed the Appellate Body’s pervasive rule-breaking in its Report on the Appellate Body earlier this year.1 The Report details the concerns expressed by the United States for more than 20 years and the repeated failure of the Appellate Body to apply the rules of the WTO agreements in a manner that adheres to the text of those agreements. The Report also highlights several examples of how the Appellate Body has altered WTO Members’ rights and obligations through erroneous interpretations of WTO agreements.

“Appellate Body overreaching has unfairly taken away U.S. rights and advantaged China. Through a series of deeply flawed reports, the Appellate Body has eroded the U.S. ability under WTO rules to counteract economic distortions caused by China’s non-market practices that harm our workers and businesses. For example, the Appellate Body’s erroneous interpretation of “public body” threatens the ability of WTO Members to counteract trade-distorting subsidies provided through state-owned enterprises, favoring non-market economies at the expense of market economies.

“The dispute settlement system should support, rather than weaken, the WTO as a forum for discussion, monitoring, and negotiation. The Appellate Body has facilitated efforts by some Members to obtain through litigation what they have not achieved – and could not achieve — through negotiation. If WTO Members believe in a rules-based trading system, then we must ensure the dispute settlement system follows the rules that WTO Members established. Without understanding the problem of why the Appellate Body has not followed the rules Members agreed to for it, simply writing new rules or affirming the existing rules in whatever form will not fix the problem. This is why we have continued to insist that Members need to understand why the Appellate Body does not consider itself bound by the rules so that we can find real, lasting solutions.

“Unfortunately, some of our trading partners – prominently, the EU and China – continue to deny that the Appellate Body has broken the rules. Rather than seeking reform in the areas of concern raised by the United States and other WTO Members, the EU and China have pursued an arbitration arrangement that incorporates and exacerbates some of the worst aspects of the Appellate Body’s practices. The numerous departures from agreed WTO rules in the EU-China arrangement highlight a fundamental difference among WTO Members: Some Members prefer an appellate “court” with expansive powers to write new rules and impose new obligations on the United States, instead of the more narrow appellate review as agreed to by Members in the DSU.

“The United States continues to engage with our trading partners and remains committed to working with any WTO Member that acknowledges U.S. concerns and is willing to work together to find real solutions and reform. I look forward to continuing to work with you and the Committee on these important issues.

“1 United States Trade Representative, Report on the Appellate Body of the World Trade Organization, February 2020, available at: https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf.”

In the questions from the House Ways and Means Committee members, one question dealt with WTO reform, and the answer from Amb. Lighthizer included not only reform of the WTO generally but also the needs for addressing Appellate Body overreach. See question 1 from Rep. Jason Smith:

“Rep. Jason Smith

“1. The World Trade Organization (WTO) is in urgent need of reform and modernization. For too long, the WTO has been left stagnant, unable to adapt to the challenges presented by a rapidly changing global economy. As a result, American manufacturing and other critical U.S. industries have suffered the consequences of a body that has time and again, sought to diminish US. sovereignty. I am pleased that you and President Trump have taken on this task and have put forth a vision for a reformed WTO that will better serve the interests of America and our allies. With that in mind, what steps are you and your team taking this year to advance the necessary solutions the WTO system desperately needs?

“Answer: We continue to engage extensively with WTO Members to pursue meaningful reform of the WTO. The United States is pleased that Brazil, Costa Rica, Korea, and Singapore have responded to our reform initiatives by agreeing to forego special and differential treatment in future WTO negotiations. We are continuing to work to ensure all countries are contributing to the WTO commensurate with their role in the global economy. The United States is also leading an effort to bring the WTO back to upholding its core principle of market orientation to ensure a level playing field for U.S. workers, farmers, and businesses. We have also advanced work on transparency, ensuring timely notifications that can help get the WTO back to its core function of negotiating new trade rules.

“Additionally, we cannot allow overreaching by the Appellate Body to continue to weaken our ability under WTO rules to address the harm to our workers and businesses caused by non-market practices such as China’s economic distortions. WTO Members must come to terms with the failings of the Appellate Body and understand the causes if we are to achieve lasting and effective reform of the WTO dispute settlement system. The United States will continue to engage with any WTO Member in order to restore the WTO dispute settlement system to the role given to it by WTO Members and to ensure that dispute settlement supports, rather than weakens, the WTO. The United States led a group of 11 Members to issue a statement calling for transparency in dispute settlement through open meetings and public submissions, and we will continue to work to persuade Members who did not join the statement (such as the EU, China, and India) to support greater transparency.”

No movement at the WTO

Now that the Appellate Body has been without three members for nearly eight months, one would have expected that negotiations would be intense to find a solution acceptable to the United States and the membership. But other than certain Members seeking at each Dispute Settlement Body meeting to get agreement to start looking for new Appellate Body members (which is blocked by the United States), there is no indication that any meaningful activities are being pursued in 2020 to resolve the longstanding concerns of the United States.

With Director-General Azevedo’s announcement on May 14 that he would step down as the Director-General at the end of August 2020, much attention within the WTO in recent months has understandably been focused on finding a new Director-General. The selection process will likely continue until early November. This makes it unlikely that any major effort to address U.S. concerns will happen in the remainder of 2020.

Similarly, as we are less than three months from U.S. Presidential elections, many WTO Members will likely prefer to wait to see the results of the election before engaging with the U.S. on its core concerns.

Some major Members, like the EU, keep talking about looking for permanent solutions. See August 3, 2020, European Commission, Directorate-General for Trade, The WTO multi-party interim appeal arrangement gest operational, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2176. “Commissioner for Trade Phil Hogan said: ‘With the agreed pool of arbitrators, the interim appeal arrangement for the WTO disputes is now up and running. * * * It shows that participating WTO members are willing to take concrete action to preserve an independent dispute settlement system with an appeal function. We can now turn our attention to finding a solution to the underlying problems through reform of the WTO Appellate Body and other aspects of the WTO system that need improvement.'” (emphasis added).

However, it has been the EU’s failure to recognize the departure of the Appellate Body from its limited role and the EU’s embrace of an Appellate Body creating rights and obligations that are not part of existing agreements that have significantly contributed to the problems identified by the United States. While Europe has shown some flexibility on addressing process issues, it has not acknowledged the serious overreach problems that the U.S. and many other Members have identified over the years. Thus, the EU concept of permanent solutions to the Appellate Body reform effort ignores core concerns of the U.S.

Conclusion

The U.S. has documented over the last several years the pervasive problems with the WTO’s dispute settlement system, particularly the actions of the Appellate Body. Since the Dispute Settlement Understanding already makes clear the proper role for the Appellate Body and the limitation on panels and the Appellate Body not to create rights or obligations, the U.S. insistence on Members focusing on why the Appellate Body has felt free to ignore the limits on its authority is understandable as a first step to determining what needs to be done to get the dispute settlement system back to what was agreed to by Members at the creation of the WTO. The U.S. concerns also explain its lack of support for a mere reaffirmation of the original Dispute Settlement Understanding language.

In prior posts, I have put forward thoughts on how one could make the original language self-executing or enforceable by Members to a dispute and hence address U.S. concerns if other countries will not focus on why the Appellate Body has been willing to ignore limits on its authority. See, e.g., July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

Absent an agreement among Members as to the reasons for Appellate Body departure from its limited role, Members will need to make modifications to the Agreement or to what is contained in binding interpretations that actually prevent future departures from the correct, limited role of the Appellate Body.

Don’t hold your breath that Members will find solutions any time soon.

U.S.-China Phase 1 Trade Agreement — Review of U.S. domestic exports through June 2020

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

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

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

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

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

Looking at total U.S. domestic exports to China for the period March-June 2020, U.S. exports were $31.0 billion ($7.761 billion/month) compared to $35.922 billion in 2017 ($.8.98 billion/month). In fact, 2018 shows the highest March-June exports to China ($40.998 billion ($10.249 billion/month). The March-June 2020 figures are below even 2019 which were $32.425 billion ($8.106 billion/month).

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

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49.026 billion in 2017 (full year). For the period March – June, 2020 figures for the 18 categories have increased 0.98% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 33.30%, and total exports to China are down 13.58%.

Thus, the first four months of the 1st year of the U.S.-China Phase 1 Agreement suggest that U.S. domestic exports will be $72.934 billion if the full year shows the same 0.98% increase over 2017; non-covered products would be $32.701 billion, for total U.S. domestic exports to China of $105.635 billion. This figure would be far below 2017, below 2018 and just 12.26% above 2019. It is obviously dramatically below the target of $184.0 billion.

Even accepting the steep decline in non-covered goods, the first year should result in total U.S. domestic exports of $167.683 billion if the increase in covered goods is achieved — an amount 58.7% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the July 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $114.114 billion ($14.264 billion/month) an amount more than twice the monthly rate of exports of the 18 categories to China in the March – June 2020 period.

Chinese data on total imports from all countries (in U.S. dollars) for January-June show a decline of 6.4% from the first six months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, June 2020 (in USD). China’s imports from the U.S. were down 4.8% during the same time period. Total U.S. domestic exports to China are down slightly more for the first six months vs. 2019, -4.99%.

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

Product categoryMarch-June 2017March-June 2020% change 2017-2020 March-JuneGrowth to reach 1st year of Agreement vs. projected 1st year
manufactured goods
1. industrial machinery $3724.8 $4130.5 +10.89%
2. electrical equipment and machinery $1426.7 $1634.3 +14.55%
3. pharmaceutical products $920.2 $936.9 +1.82%
4. aircraft (orders and deliveries)* NA NA NA
5. vehicles $3,675.8 $1,269.7 -65.46%
6. optical and medical instruments $1,086.8 $1,143.0 +5.17%
7. iron and steel $417.6 $164.2 -60.67%
8. other manufactured goods $3,481.9 $4,738.8 +36.10%
Total for mfg goods$14,733.8$14,017.5 -4.86% +86.18%**
Agriculture
9. oilseeds $1,029.7 $411.2 -60.07%
10. meat $216.7 1,156.4+433.72%
11. cereals $486.5 $616.4 +26.71%
12. cotton $317.0 $460.3 +45.21%
13. other agricultural commodities $1,583.4 $1,319.1 -16.69%
14. seafood $357.7 $285.0 -20.32%
Total for agriculture $3,990.9 $4248.3 +6.45% +50.26%
Energy
15. liquefied natural gas $42.2 $300.5+611.23%
16. crude oil $1,125.9 $1,811.1 +60.86%
17. refined products $608.8 $433.8 -28.75%
18. coal $164.7 $57.8 -64.91%
Total for energy $1,941.7 $2603.2 +34.07% +156.78%
Total for 1-18$20666.4$20869.0 +0.98% +85.08%**
  • HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-June 2020 period based on U.S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
  • The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

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

Conclusion

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

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement, there has been very little forward movement in expanding U.S. exports to China. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $62 – 78.4 billion.

The bilateral relationship is under increasing strains reflecting both reactions to China’s actions vis-a-vis Hong Kong, the disagreements on the COVID-19 pandemic, ongoing concerns in the United States about possible cyber espionage by Chinese entities which has resulted in the closure of a Chinese consulate in the U.S. and a retaliatory closure of one of the U.S. consulates in China, among other current flash points.

In such circumstances, it is hard to know whether China will fully implement the bilateral agreement or be willing to move forward on a Phase 2 negotiation. While the January – June data support a possible lack of interest by China in fulfilling the purchase agreement provisions, China has released its July data which show a significant increase in imports from the U.S. to $11.276 billion in July which is at least an improvement over the monthly figures for March-June ($7.761 billion/month). On the prospect for interest by China in addressing a Phase 2 negotiation, U.S. intelligence has indicated that China is hoping for a regime change in the U.S. through the November elections, a reading, if correct, which supports a likely wait-and-see approach on any renewed interest in negotiations.

Similarly, it is hard to know if the U.S. will view the agreement as being implemented by China sufficiently to move to the next stage. As the U.S. Administration is in full campaign mode, it is likely the U.S. Administration perceives more electoral value in identifying practices of concern by China than pursuing forward movement on any Phase 2 negotiations. The long distance that exists between current export levels and Agreement targets could well lead the U.S. to view the agreement on the subject of expanded exports to China as not being met and to pursue tariff action under the Agreement. September or October would be the likely months if there are not significant increases in trade volume. As noted, China reports significantly increased imports from the U.S. in July and USTR Lighthizer has indicated that there are large purchases of agricultural goods for late year delivery that are not reflected in U.S. export data. Thus, facts on the ground may lead to focusing Administration concerns with China on issues not involving the Phase 1 Agreement.

What is clear is that trade frictions between the world’s two largest economies are serious, reflect fundamental differences in economic systems, and are complicated by a myriad of other differences between the two nations.

COVID-19 — Adverse effects on gender equality and trade’s role in limiting the adverse effects on women

The UN 2030 Agenda for Sustainable Development agreed to in 2015 includes 17 broad sustainable development goals (“SDGs”). The fifth SDG is achieving gender equality and empowering all women and girls. The UN’s Sustainable Development Goals Report 2020 paints a grim picture of the challenge to meeting the gender equality SDG and the complications flowing from COVID-19. See https://unstats.un.org/sdgs/report/2020/The-Sustainable-Development-Goals-Report-2020.pdf. Specifically, pages 34 and 35 of the 2020 report review progress towards the fifth SDG. The text (but not the tables and charts) from pages 34-35 is copied below

Achieve gender equality and empower all women and girls

“International commitments to advance gender equality have brought about improvements in some areas: child marriage and female genital mutilation (FGM) have declined in recent years, and women’s representation in the political arena is higher than ever before. But the promise of a world in which every woman and girl enjoys full gender equality, and where all legal, social and economic barriers to their empowerment have been removed, remains unfulfilled. In fact, that goal is
probably even more distant than before, since women and girls are being hit hard by the COVID-19 pandemic. The crisis is creating circumstances that have already contributed to a surge in reports of violence against women and girls, and may increase child marriage and FGM. Moreover, women are likely to take on most additional care work owing to the closure of schools and day-care centres. They are also on the front lines in fighting the coronavirus, since women account for nearly 70 per cent of health and social workers globally.

COVID-19 is intensifying the risk of violence against women and girls

“The coronavirus pandemic lockdowns have confined many women and girls to their homes, sometimes with abusive partners, putting them at greater risk of domestic violence. Even before the pandemic, physical and sexual violence against women were all too common. According to surveys conducted between 2005 and 2017 in 106 countries, 18 per cent of ever-partnered women and girls 15 to 49 years of age experienced such violence by a current or former intimate partner in the 12 months prior to the survey.

“Already, data from several countries show an increase in reporting of domestic violence to helplines, women’s refuges and shelters, and the police. When considering such data, it is important to keep in mind that less than 40 per cent of women who experience violence report this crime or seek help. Being confined at home with an abusive partner and, in some countries, lacking access to mobile phones or the Internet, makes it more difficult for women to safely reach out for help. According to data from 66 countries over the period 2016 to 2018, mobile phone ownership among women was 6.8 percentage points lower than for men, on average. Women are also more likely to have their phones monitored by abusive or controlling partners. In addition, because of service disruptions and closures, women experiencing violence have less access to support and may not seek or be able to receive medical care, if needed.

The global pandemic could set back progress to end child marriage and female genital mutilation

“Marriage before the age of 18 is a human rights violation, mostly affecting girls, and can lead to a lifetime of disadvantage and deprivation. One in five women (20.2 per cent) between the ages of 20 and 24 was married before the age of 18 around 2019, compared with about one in four (23.8 per cent) 10 years earlier. Southern Asia has seen the greatest decline over this period. Today, the risk of child marriage is highest in sub-Saharan Africa, where more than one in three women (34.5 per cent) between the ages of 20
and 24 were married before the age of 18. School closures and widening poverty as a result of the pandemic could put more girls at risk.

“FGM is another blatant violation of human rights. At least 200 million girls and women have been subjected to FGM in 31 countries where the practice is concentrated; half of these countries are in Western Africa. Although this harmful practice has been declining, there are still countries where FGM is
almost universal – where at least 9 in 10 girls and women aged 15 to 49 years have been cut. Even in countries where the practice has become
less common, progress would need to accelerate by a factor of 10 to meet the global target of elimination by 2030, owing to population growth. COVID-19 is interrupting programmes to end FGM, which could threaten progress.

Women spend more time than men in unpaid work, a burden that is likely to get heavier during the pandemic

“In an average day, women spend about three times as many hours
in unpaid domestic and care work as men, according to the latest data from 89 countries and areas between 2001 and 2018. Time spent in these activities tends to be even higher for women with young children at home. In roughly 75 per cent of countries with trend data, a small decrease has been observed in the time spent by women on unpaid domestic and care work compared with that spent by men.

“The COVID-19 crisis is radically changing how people, particularly women, spend their time – often with a negative impact on their well-being. A poll conducted in 17 countries shows that both women and men are taking more responsibility for household chores and the care of children and family during the lockdown, but the majority of work continues to fall on
women and girls, reflecting a pre-pandemic pattern.

Women are increasingly assuming positions of power, but the world is still far from parity

“As of 1 January 2020, women’s representation in national parliaments (lower chamber and unicameral parliaments) had reached 24.9 per cent – up from 22.3 per cent in 2015. The share of female representation ranged from more than 30 per cent in Australia and New Zealand, Latin America and the Caribbean, and Europe to only 6.2 per cent in Oceania (excluding Australia and New Zealand). Data from 133 countries and areas show that women now have better access to decision-making positions at the local level, holding 36.3 per cent of elected seats in local deliberative bodies.
Only 13 per cent and 15 per cent of countries, respectively, have reached gender balance (40 per cent or more) in legislative bodies in national parliaments and in local government. This progress is largely attributed to legislated gender quotas.

“In 2019, women represented 39 per cent of the world’s workers and half of the world’s working-age population, but only 28 per cent of managerial positions (up from 25 per cent in 2000). Women face higher barriers than men in accessing employment. And when they do get a job, they are often
excluded from decision-making positions. In 2019, women accounted for 41 per cent of managerial positions in South-Eastern Asia and 40 per cent in Northern America, but only 8 per cent in Northern Africa.

“In the context of COVID-19, it is critical that women are fairly represented in leadership positions related to the pandemic. This will help to avoid deepening existing inequalities. It will also ensure that gender dimensions and investments in gender equality are included in response and recovery legislation, economic packages and budgets during and after the pandemic.

Women’s lack of decision-making power extends even to their own reproductive health

“Slightly more than half of all women (55 per cent) make their own decisions when it comes to sexual and reproductive health and rights, based on 2007–2018 data from 57 countries on women aged 15 to 49 who are either married or in union. The analysis also found that women have the most autonomy in deciding on the use of contraception (91 per cent). However, only three in four women are making their own decisions regarding health care or on whether or not to have sex.

“Progress on other fronts is encouraging: in 2019, countries had established 73 per cent of the laws and regulations needed to guarantee full and equal access to sexual and reproductive health and rights, according to data from 75 countries. The findings were particularly heartening when it comes to HIV. On average, countries had set in place 87 per cent of laws and regulations needed for HIV counselling and testing services; 91 per cent of those needed for HIV treatment and care services; and 96 per cent for HIV confidentiality. Meanwhile, countries had instituted 79 per cent of relevant laws and regulations that stipulate full, free and informed consent of individuals before they receive contraceptive services, including sterilization.”

The challenges for the world to achieve gender equality are daunting and in many ways not trade-connected. However, inequality in education, pay, access to capital and other issues have trade repercussions. Expanded trade has helped reduced some aspects of inequality. Government policies to address education and other elements can permit greater equality of opportunity and improve national competitiveness.

Trade and COVID-19

While COVID-19 is first and foremost a healthcare issue, the pandemic is having enormous economic consequences for countries around the world. A recent information note from the World Trade Organization, which builds on a World Bank and WTO report on trade and gender, reviews how women are being disproportionately harmed economically by COVID-19. The disproportionate adverse effects are making it harder to achieve gender equality and to empower all women and girls by 2030. The information note is dated August 3, 2020. See The Economic Impact of COVID-19 on Women in Vulnerable Sectors and Economies, Information Note, 3 August 2020, https://www.wto.org/english/news_e/news20_e/info_note_covid_05aug20_e.pdf. The World Bank and WTO report on trade and gender was released in July 2020, “Women and Trade: the role of trade in promoting gender equality”, https://www.wto.org/english/res_e/booksp_e/women_trade_pub2807_e.pdf.

While most business data are not collected on a gender specific basis, some information is available that reveals where there are higher levels of female employment. Some industries and service sectors where women have large numbers of workers have suffered serious contractions in work since the beginning of 2020 in response to efforts by governments to control the spread of COVID-19. One example presented in the information note is the textile/apparel sector where trade has been very severely affected by lockdowns and resulting reduced spending on clothing in many markets. Global value chains in the sector affect workers in many countries whether least-developed, developing or developed. Bangladesh is highlighted in the information note. In Bangladesh, ready-made garments comprised 84% of 2019 exports for the country. Eighty percent of the four million workers in the sector in Bangladesh are women. Economic reactions to the COVID-19 pandemic around the world resulted in a 45.8% reduction in business for Bangladesh’s ready-made garment companies in the first quarter of 2020 and an 81% contraction in April. Layoffs have been more than one million workers, mostly women. Depending on governmental safety nets and other economic opportunities in a country, a sharp contraction in a major manufacturing sector can set back efforts at gender equality and increase poverty as the Bangladesh example typifies.

Similarly, women have high employment levels in the travel and tourism sector around the world. Travel and tourism is another sector severely harmed by the response of countries to the COVID-19 pandemic. The UN World Tourism Organization has projected employment losses of as many as 100 million jobs in 2020 as international travel is severely restricted, governments impose restrictions on domestic travel and use of restaurants, bars, hotels, entertainment venues and more by the public and visitors is greatly reduced.

The information note provides a useful summary of the key points on how COVID-19 is impacting women. The following is copied from page 1 of the information note.

“KEY POINTS:

“• Women are at risk of suffering more than men from the trade disruption generated by the COVID-19 pandemic. One of the reasons for this is that a larger share of women works in sectors and types of firms that have been particularly hard-hit by the pandemic.

“• Women make up a larger share of the workforce in the manufacturing sectors, such as textiles, apparel, footwear and telecommunication products, that experienced some of the largest falls in export growth during the first months of the pandemic. For example, female employees
represent 80 per cent of the workforce in ready-made garment production in Bangladesh, in which industry orders declined by 45.8 per cent over the first quarter of 2020, and by 81 per cent in April alone.

“• A larger share of women than men works in services, such as tourism and business travel services, that have been directly affected by regional and international travel restrictions.

“• A large share of firms owned or managed by women are micro, small and medium-sized enterprises (MSMEs), and lower levels of financial resources and limited access to public funds are placing the survival of such businesses at greater risk.

“• The economic impact of the pandemic is expected to be particularly significant for women in least-developed and developing economies because fewer women than men are employed in these economies in occupations which can be undertaken remotely, and a larger share of women is employed in sectors highly exposed to international travel restrictions.

“• The effects of the pandemic are aggravating existing vulnerabilities. Many channels through which COVID-19 is having a greater impact on women are those at the heart of gender inequalities, such as lower wages for women, fewer educational opportunities, limited access to finance, greater reliance on informal employment and social constraints. Limited access to digital technologies and lower rates of information technology (IT) skills further reduce women’s opportunities for teleworking and e-commerce, and thus for adapting to the current crisis.

“• Many governments have adopted a broad range of support measures to help individuals and businesses. Some of these measures, mainly social protection initiatives adopted by some central or local governments, are specifically targeted at women.

“• Maintaining open trade during the economic recovery period is key to building faster and more inclusive growth.

“• The joint World Bank and World Trade Organization report on trade and gender, “Women and Trade: the role of trade in promoting gender equality”, published in July 2020, highlights ways in which trade can continue to benefit women in the post-COVID-19 recovery period.”

Keeping trade open will increase trade flows, increase jobs in agriculture, manufacturing, and services and will increase income of people around the world. With the sharp contraction in trade in the first half of 2020, a rapid rebound in trade is critical to support efforts at achieving gender equality.

For countries who don’t have the pandemic under control, the school year presents additional challenges

As the UN 2020 report points out, women bear the brunt of child care. In countries with households where both parents work or where there is a single female adult household, child care and school are critical elements of the infrastructure needed for the parent or both parents being able to work outside of the home.

In the United States, where we are still struggling to get the COVID-19 pandemic under control, parents now face the additional challenge of how to respond to the coming school year. While the Administration is urging all states to open all schools for in-school attendance immediately, the reality is likely to be significantly different based on the science and current rate of spread of COVID-19 in many states. Some school districts have indicated that school openings will be delayed several months. Others will handle school for at least the fall semester remotely. Some are looking at doing part of the school semester remote for each student and part where each student attends the school in person. Finally some schools intend to open requiring students to attend in person. Many school teachers are striking to keep schools closed where it is viewed as unsafe to reopen.

The experience of some school districts that have already opened is mixed in terms of whether a large number of COVID-19 cases arise. Problems with the rise in number of new cases following school reopening have also been reported by at least some countries who have done a much better job of controlling the COVID-19 pandemic than the United States. Israel, for example, has had a sharp increase in infections since reopening schools despite earlier good progress in controlling the spread of the coronavirus.

What U.S. federal stimulus programs will look like going forward for the rest of the year is not presently known. Parents are facing many challenges including whether to send children to school during the pandemic and if not how child care will be handled and who will provide in-home education/support.

News reports indicate that many mothers are making the decision to take on the child care and home education responsibilities, which will mean reduced outside-the-home economic activity for the mothers.

The most important action for the U.S. is to double down on getting the pandemic under control as quickly as possible, something we don’t have a national game plan to actually accomplish at the moment. In addition, government policies and assistance programs that get adopted/extended and private sector support of employees to permit greater telecommuting and flexible hours may hold the key to reducing the negative effects of women during the pandemic.

Conclusion

The COVID-19 pandemic has caused massive health challenges around the world and seen countries suffer the greatest economic contraction since World War II. The economic fallout from the efforts of governments to control the pandemic is harming the ability of the world to make progress on many of the UN’s sustainable development goals. SDG #5, achieving gender equality and empowering all women and girls is one of the SDGs being negatively affected.

Both during the pandemic and afterwords, it is critical that countries, businesses, multilateral organizations and others focus on pursuing actions that will minimize the loss of forward movement on achieving the SDG dealing with gender equality. In the trade arena, reducing uncertainty by keeping markets open, identifying steps that can be taken to expand liberalization particularly in goods or services employing large numbers of women, seeing that access to financing and trade finance has a focus on MSMEs, expanding infrastructure and education for broader internet access for populations with limited access at present are some of the needs for minimizing the global economic damage from the pandemic and helping promote greater gender equality.

Review of the COVID-19 pandemic — continued overall growth in cases and deaths, resurgence in some countries where COVID-19 had receded

This past week saw the release of information on GDP contraction in the U.S. in the second quarter of 2020 (9.5% (annualized at 32.9%)) and in the European Union (11.9%). See U.S. Department of Commerce Bureau of Economic Analysis, News Release BEA 20-37, Gross Domestic Product, Second Quarter 2020 (Advance Estimate) and Annual Update, https://www.bea.gov/sites/default/files/2020-07/gdp2q20_adv_0.pdf; Eurostat newsrelease 121/2020 – 31 July 2020, Preliminary flash estimate for the second quarter of 2020, GD down by 12.1% in the euro area and by 11.9% in the EU, https://ec.europa.eu/eurostat/documents/2995521/11156775/2-31072020-BP-EN.pdf/cbe7522c-ebfa-ef08-be60-b1c9d1bd385b#:~:text=The%20next%20estimates%20for%20the,released%20on%2014%20August%202020.&text=Compared%20with%20the%20same%20quarter,respectively%20in%20the%20previous%20quarter. Japan has similarly suffered substantial contraction in its GDP through the second quarter. See https://asia.nikkei.com/Economy/Japan-GDP-to-shrink-22-in-Q2-in-biggest-postwar-drop-forecast.

These sharp contractions in U.S. and EU GDP reflect the effects of the actions by governments in the U.S. and in the EU to shut down parts of their economies in an effort to control the spread of the COVID-19 pandemic. The sharp contractions would have been far worse but for government efforts to provide emergency funding to support companies, workers and local governments. While the COVID-19 pandemic has been far less severe in terms of cases and deaths in Japan and in other countries in Asia, contraction in GDP reflects both declining consumer spending and global effects of trade contraction that are occurring.

China, where COVID-19 infections were first discovered, saw a decline in GDP in the 1st quarter of 2020 with a rebound in the second quarter to a 3.2% increase. See CNBC, China says its economy grew 3.2% in the second quarter this year, rebounding from coronavirus, July 15, 2020, https://www.cnbc.com/2020/07/16/china-economy-beijing-reports-q2-2020-gdp.html.

The sharp contractions in GDP from much of the developed world is consistent with projections by the IMF from June 2020. A summary table from the World Economic Outlook Update is copied below.

The hope was that after a sharp contraction in the second quarter, the world would experience a v-shaped recovery once the pandemic was brought under control in much of the world.

As we start August 2020, expectations are turning to a longer and shallower rebound in the third and fourth quarters of 2020 which will negatively affect billions of people. The world has not yet crested in terms of new COVID-19 cases and countries that had gotten the virus seemingly under control are seeing various levels of resurgence. The United States which never got the virus under control has seen a second surge that has reached levels at least twice as high as earlier levels of new cases and has seen a resurgence in hospitalizations and deaths.

There are a few bright spots. Some countries have managed to drastically reduce the spread of the virus and have been reopening in phases with limited recurrence. Moreover, a number of pharmaceutical companies have entered phase three trials of vaccines, and governments have fronted billions of dollars to build capacity for vaccines should they prove safe and effective. While major countries like the U.S. and the EU block have secured access to potentially hundreds of millions of doses from various companies should vaccines in trial receive approval for distribution, at least a number of these pharmaceutical companies (or consortia) have arrangements for massive production around the world including billions of doses for developing and least developed countries which should enable a more equitable and affordable distribution than may have been true in the past.

COVID-19, the number of new cases in the last fourteen days

Looking at the daily reports put out by the European Centre for Disease Prevention and Control, the world saw an additional 3,568,162 cases in the fourteen days ending August 2nd. This was an increase of some 550,000 from the previous fourteen days ending July 19 where new cases were 3,018,993. The July 19 two week figures were again up close to 550,000 from the period ending July 5 when there were 2,469,859 cases. The period ending June 21 has 1,932,024 new cases; the period ending June 7 had seen an additional 1,567,983 new cases. Thus, in less than two months the global number of new cases in a fourteen-day time period increased by 127.56 percent. The COVID-19 situation update worldwide, as of 2 August 2020 is embedded below.

COVID-19-situation-update-worldwide-as-of-2-August-2020

Fourteen of the forty-two countries or customs territories that I have been tracking who account for more than 90% of total cases and total deaths from the pandemic continue to not have peaked in terms of two week number of new cases. See July 21, 2020, COVID-19 – the United States continues to spin out of control with increasing shortages of medical goods; sharp increases in developing countries in the Americas and parts of Asia, https://currentthoughtsontrade.com/2020/07/21/covid-19-the-united-states-continues-to-spin-out-of-control-with-increasing-shortages-of-medical-goods-sharp-increases-in-developing-countries-in-the-americas-and-parts-of-asia/. Japan, which had peaked a number of months ago, has a resurgence of cases, so much so that the last two weeks (11,439 new cases) exceed any other two week period for the country. Other countries which have not peaked include the United States (908,980 new cases), India (673,105 new cases) Brazil (633,017 new cases), Colombia (115,481 new cases), Mexico (95,280 new cases), Argentina (72,001 new cases) and these additional countries — Bolivia, Dominican Republic, Ecuador, Honduras, Indonesia, Iraq, and the Philippines). South Africa peaked in the prior two week period but still had an additional 152,411 new cases (93.56% of its peak).

Many developed countries have seen sharp increases in the last two weeks, albeit from much lower levels than in the spring. These include Spain, France, Germany, Italy, Canada, Australia and Japan.

Many developing and least-developed countries in Central and South America, Africa and parts of Asia are seeing growing numbers of cases. While some of these countries have seen a peak in the number of new cases, for others that is not true. India and Brazil are continuing to struggle to contain the spread as are the Latin and Asian countries reviewed above.

In the last two weeks, the United States had more new cases per 100,000 population than all of the other 41 countries being monitored other than Brazil and Panama. The U.S. number of new cases per 100,000 population was 5.88 times the number for all countries (including the U.S) and 4-50 times as high as major EU countries. And on deaths in the last fourteen days, the U.S. has more deaths per 100,000 population than all of the other 41 countries other than Brazil, Mexico, Peru, South Africa, Chile, Bolivia, Colombia and Panama. The U.S. death rate in the last fourteen days is 3.95 times the rate/100,000 population for the entire world and 25-87 times the rate for major EU countries (France, Germany, Italy, Spain).

WTO Members have the opportunity to adopt rules to minimize trade disruptions and expedite economic recovery

Many Members of the WTO have submitted proposals for action by the Membership to minimize the harm to global economies and trade flows from addressing trade restrictions, trade liberalization possibilities and other matters within the WTO’s wheelhouse.

In a previous post, I reviewed the July 25 APEC trade ministers joint statement and annex which in my view could provide the platform for WTO Members coming together to adopt a group of principles that have been endorsed not only by the APEC countries but also by G-20 members (in various G-20 releases). See July 28, 2020, APEC trade ministers’ virtual meeting on July 25 – Declaration on Facilitating the Movement of Essential Goods during COVID-19, https://currentthoughtsontrade.com/2020/07/28/apec-trade-ministers-virtual-meeting-on-july-25-declaration-on-facilitating-the-movement-of-essential-goods-during-covid-19/.

The WTO, being a member-driven organization, requires the WTO Members to come together for the common good if progress is to be made. While recent actions on seemingly non-substantive issues, like selecting an acting Director-General (largely an administrative function pending selection of a new Director-General), lay bare the lack of trust and widely divergent views among WTO Members, adopting basic principles for getting through the pandemic should be a win-win for all Members.

Conclusion

The COVID-19 pandemic is continuing to wreak havoc across the globe with new cases and new deaths continuing to mount. The health consequences are severe and are increasingly shifting to developing and least-developed countries. However, some developed countries, like the U.S., have not gotten the virus under control. Moreover, a number of countries who have had success controlling the spread of COVID-19 are seeing a resurgence as reopening of economies continues. This has led some countries to slow or even reverse some of the reopening steps.

As the sharp economic contractions in major developed economies attest, there are huge economic costs to dealing with the pandemic. The economic rebound is unlikely to be as strong or as quick as many have hoped. While much of what is needed is focus by each country and its citizenry to follow the science and get the pandemic under control, there is also an important role for multilateral organizations to play in keeping markets open, providing financing for those in need and more. The WTO has a potentially important role on the trade front. It is unclear that WTO Members will embrace the opportunities presented, but if Members would it would reduce the depth of the trade contraction and help speed economic recovery.

Selecting an acting Director-General for the World Trade Organization — the road forward

At tomorrow’s informal meeting of the Heads of Delegation in Geneva, the hoped for agenda would include both finalizing the process for phase three of selecting a new Director-General and, if progress were made in consultations with Members, reviewing selection of an acting Director-General to serve after current Director-General Roberto Azevedo steps down on August 31 until a new Director-General is in place (likely November 7 or later). If the issue of the acting Director-General is resolved at the informal Heads of Delegation meeting, then a General Council meeting would be called, presumably tomorrow afternoon, to formally select the acting Director-General by consensus.

News articles indicate that the consultation process appears at an impasse with the United States wanting Deputy Director-General Alan Wolff to serve as the acting Director-General but facing opposition from both the EU and China. Mr. Wolff is from the United States. Apparently the other Deputy Director-General being actively considered is Karl Brauner who is from Germany. See, e.g., Reuters, July 29, 2020, Exclusive: WTO unlikely to get interim leader as U.S. insists on its candidate, causes impasse, https://www.reuters.com/article/us-trade-wto-usa-exclusive/exclusive-wto-unlikely-to-get-interim-leader-as-us-insists-on-its-candidate-causes-impasse-idUSKCN24U2P2. The article suggests that Members may be considering simply leaving the WTO organization without a Director-General until the selection process is completed. But the end game won’t be known until the meeting tomorrow morning.

Efforts by WTO Members to avoid blockage of selection process

The WTO Members agreed to a process for selecting a new Director-General at the end of 2002 to try to avoid the deep divisions and chaos that had characterized the 1999 selection process where there was a deadlock over two candidates, a delay in picking a Director-General and ultimately a decision to give the position of Director-General to each of the two candidates but at reduced time periods of three years each. In 1998-1999 there were no agreed-to procedures for either the selection of the next Director-General or for choosing an acting Director-General.

The 2002 procedures adopted by the General Council were intended to address both issues, although the vast majority of the procedures pertain to the selection of the Director-General while only one sentence of one paragraph addresses the selection of an acting Director-General. See Procedures for the Selection of Directors-General, adopted by the General Council on 10 December 2002, WT/L/509 (20 January 2003), para. 23 (“In the event of a vacancy in the post of Director-General, the General Council shall designate one of the existing Deputy Directors-General to serve as Acting Director-General until the appointment of a new Director-General.”). The 2002 procedures are embedded below.

WTL509

The lack of leadership by the U.S., EU and China

If the news articles are correct that the impasse flows from the views of the United States, the EU and China, then one can only shake one’s head in disappointment at each of the three for lack of leadership. In a prior post, I reviewed that the selection of an acting Director-General should be an easy job for the WTO membership. Each of the four Deputy Directors-General are well known to the Members and each is obviously qualified. The job of acting is temporary and has been described as administrative in nature. See July 24, 2020, WTO Director-General’s farewell address to the General Council while Members can’t agree on an acting Director-General, https://currentthoughtsontrade.com/2020/07/24/wto-director-generals-farewell-address-to-the-general-council-while-members-cant-agree-on-an-acting-director-general/.

Alan Wm. Wolff is an exceptionally talented individual who has probably had the largest public presence of any Deputy Director-General in the history of the WTO. His speeches which are available from the WTO news archives should be collected and released as a book by the Secretariat. They reflect Mr. Wolff’s deep commitment to the multilateral trading system, his deep knowledge of history and cover a broad array of topics. For example, he speaks eloquently on the role of the World Trade Organization in maintaining peace and stability, the history of the WTO, the values undergirding the organization, the hope that the WTO provides to countries seeking accession and the work ahead to keep the organization serving its core purposes. He would be a very interesting candidate for Director-General if the United States had put him forward. He certainly would be a competent acting Director-General.

But the same can be said for each of the other Deputy Directors-General. Each will be able to handle the interim task of being the acting Director-General pending the selection of a new Director-General.

So it is obviously disappointing to see the impasse which reflects poorly on each of the major players involved.

A possible solution

While the WTO Members can obviously ignore the procedures they adopted in 2002 for selecting an acting Director-General and proceed without a Director-General, there are different paths to a possible solution that could be taken.

Obviously, Members could opt to overcome the impasse and get behind one of the four Deputy Directors-General. That is the best possible outcome.

Absent the Members fulfilling their role and finding consensus, the Deputy Directors-General who are under active consideration could withdraw their names from consideration by indicating that they would not serve if selected. While WTO Members may be unable to look out for the best interest of the organization, there is little doubt that each of the Deputy Directors-General has the best interests of the WTO at heart.

While the impasse could be solved by just Alan Wolff withdrawing, it would be a stronger message if both Messrs. Wolff and Brauner withdrew. There would still be two individuals to choose from. And a needless problem for the organization would be solved by the Secretariat leadership despite the narrow thinking of some of its Members.

The above suggestion is just a thought for the good of the WTO and its Members.

APEC Trade Ministers’ Virtual Meeting on July 25 — Declaration on Facilitating the Movement of Essential Goods during COVID-19

The Asia-Pacific Economic Cooperation (APEC) has twenty-one members whose territories borders the Pacific Ocean. The twenty-one members include Australia; Brunei Darussalem; Canada; Chile; China; Hong Kong, China; Indonesia; Japan; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; the Philippines; Republic of Korea; Russia; Singapore; Chinese Taipei; Thailand; United States; and Viet Nam. According to a 2019 USTR note on U.S.-APEC Trade Facts, APEC countries account for 38% of the world’s population, 60% of the world’s GDP and 47% of world trade. See https://ustr.gov/trade-agreements/other-initiatives/asia-pacific-economic-cooperation-apec/us-apec-trade-facts#:~:text=APEC%20has%2021%20members%2C%20referred,percent%20of%20the%20world’s%20trade.

In May 2019, APEC Ministers Responsible for Trade (“MRTs”) issued a statement on COVID-19 recognizing both the centrality for all members in halting the spread of the pandemic and the need for members to also focus on remedying the economic challenges flowing from the pandemic. Like the G20 and other groups, APEC MRTs recognized the importance of keeping markets open, of limiting emergency restrictive measures and ensuring such measures are “targeted, proportionate, transparent, temporary and should not create unnecessary barriers to trade, and are consistent with WTO rules.” APEC MRTs encouraged cooperation and the sharing of information and more. See Statement on COVID-19 by APEC Ministers Responsible for Trade, 5 May 2020, WT/GC/213. The May 2019 statement is embedded below.

213

At the July 25, 2020 virtual meeting of MRTs, the ministers issued a joint statement and included as Annex A the Declaration on Facilitating the Movement of Essential Goods. See MRTs joint statement, https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT; Annex A,https://www.apec.org/Meeting-Papers/Sectoral-Ministerial-Meetings/Trade/2020_MRT/Annex-A. Both are embedded below.

Ministers-Responsible-for-Trade-Virtual-Meeting-Joint-Statement-2020

Declaration-on-Facilitating-the-Movement-of-Essential-Goods-by-the-APEC-Ministers-Responsible-for-Trade-MRT

The joint statement reiterates the May 2019 key points and incorporates the Declaration on Facilitating the Movement of Essential Goods “which is a clear indication of the region’s continued support for WTO work.” The MRTs “recognize the need for discussions to reduce non-tariff barriers which restrict trade in essential goods.” There are other supportive statements about the importance of WTO work. “We encourage continued constructive engagement on WTO issues, including in the lead-up to the 12th WTO Ministerial Conference.” At the same time, the MRTs are looking to the development of a “post-2020 Vision” which they are hopeful leaders can launch at the end of 2020. Presumably, such a vision will include trade- related components which may include reforms at the WTO or simply be regional cooperation on certain important topics (supply chain issues on adequacy of supplies, e-commerce, movement of people as region recovers from COVID-19, etc.).

The Declaration on Facilitating the Movement of Essential Goods has ten specific actions that are declared.

The first two deal with export restrictions and prohibitions. The first is that each APEC member will ensure that any emergency trade measures introduced to address COVID-19 are consistent with WTO rules. The second commits APEC members to notify all such measures in accordance with WTO obligations.

The third declared action addresses non-tariff barriers. Specifically APEC members “are encouraged to work together to identify and resolve any unnecessary barriers to trade in essential goods.”

The next five declared actions pertain to trade facilitation — to expedite and facilitate the flow and transit of essential goods; to enhance coordination, efficiency and transparency of border clearance of essential goods; expediting the release of essential goods upon arrival; facilitating the entry, transit and departure of air cargo dealing with essential medical goods; abiding by the International Health Regulations of 2005.

The ninth declared action deals with tariffs and while not committing APEC members to liberalize tariffs for essential medical supplies, notes that some economies have taken such liberalizing actions and notes that the business community supports such action.

The last statement deals with reviewing progress on the APEC initiatives annually until COVID-19 is no longer a public health emergency.

Conclusion

Many countries and customs territories around the world have expressed objectives which are generally not significantly different than those put forward by APEC members.

With the large share of global trade accounted for by APEC members and with similar-type commitments by the G20 (which includes major members of the EU and has the EU participating), one would think it should be possible to obtain WTO commitments along similar lines to the APEC Declaration. The Declaration would need to have added some of the developing country and least developed country needs that have been already presented to the WTO so that the concerns of all are addressed.

While the WTO is doing an excellent job of providing information about the pandemic and trade measures taken by Members (at least those notified), the WTO Members have yet to get behind a set of principles that all Members can sign off on. Perhaps the APEC MRT joint statement and Declaration on Facilitating the Movement of Essential Goods provides a good starting point for the full WTO membership. While some WTO Members have not wanted to address COVID-19 issues during the pandemic, obviously collective action during the pandemic would be most effective. The post-pandemic needs also should be addressed but can await individual and group developments of views.

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

The WTO is an organization in crisis in part because of a system of rules created by market economy countries that doesn’t adequately deal with large economies with different economic systems. China is the largest and most obvious example but by no means the only WTO Member operating economic systems that are not consistent with market economy principles. While China engaged in significant changes to its system in its efforts to join the WTO and had undertaken commitments for further changes that would move China towards a market economy, changes in political leadership led to a reversal in direction, with emphasis on state planning, state-owned and state-invested enterprises to pursue the government’s objectives and massive government subsidies to take over global economic sectors. While China views opposition to its system as a means of trying to hold China back from achieving the economic growth it pursues, many trading partners view China’s approach to global trade and investment as highly disruptive and inconsistent with basic principles of reciprocity and the disciplines of the WTO on market economies.

The Trump Administration has changed the U.S. approach for trying to deal with China by its pursuit of a section 301 investigation and resulting tariffs when it could not get China to change its policies and actions. The U.S.-China Phase 1 Agreement was an effort to find a way to address at least some of the challenging practices and address resulting trade distortions through purchase objectives. Many trading partners have been concerned that the U.S. approach, at least as it involves purchasing objectives, constituted managed trade. A phase two U.S.-China negotiation to deal with remaining major concerns has not started and apparently won’t before the November 2020 U.S. elections.

The European Union and Japan have been working with the United States to put together proposed modifications to existing WTO agreements to deal with some of the aspects of the Chinese economic system (but also relevant to other Members) that cause massive distortions — industrial subsidies, excess capacity, state-owned and state-invested enterprises. China has repeatedly indicated that any efforts to address these issues at the WTO will be blocked by China as such efforts are viewed as aimed at restricting China’s rise.

Earlier this week (July 20), a former EC Director General for Trade, Peter Carl, penned an opinion piece in Les Echos with the provocative title, “A new WTO is needed without China” (literally A new WTO must see the day without China). https://www.lesechos.fr/idees-debats/cercle/opinion-une-nouvelle-omc-doit-voir-le-jour-sans-la-chine-1224748.

Mr. Carl indicates in the opinion piece that “Europe’s trade policy has stagnated for twenty years. It no longer meets the demands of today’s world and the European public attributes the loss of millions of jobs to China.” (all quotes from the opinion piece are informal translations by Google Translate ). The opinion is remarkable as it comes from a former senior EC trade official.

“Our policy is outdated and based on an outdated ideology that is identical to what it was before the arrival of China on the world state, after its accession to the WTO in 2001. Its centralized economy, its powerful industrial policy in all the key sectors, its enormous state subsidies, combined with a government apparatus and a political repression as powerful as those of the ex-USSR, swept large swathes of European and American industry. However, we act as if we were in the heyday of the 1990s, when our main competitors were other market economies, Japan, Korea, the United States. Our inaction resembles the ostrich policy and unilateral pacifism of the 1930s. We know the results. We must therefore protect our liberal economies and our open societies against adversaries. This requires a fundamental review of the trade policy of the European Union and the WTO.”

Mr. Carl calls for a complete reform of the WTO with the EU teaming up with the U.S. and other like-minded Members but recognizes that meaningful reform will be blocked by China. “The solution: withdraw from the WTO and create a new international trade organization without China. Most countries would follow our example. We would return to an open world economic order between market economy countries sharing the same ideas, on the basis of clear and reinforced principles in favor of the free market.” Mr. Carl advocates for the adoption of rules that would deal with “abuses” of the China model including improved subsidy disciplines and “rules against social, environmental dumping and inaction on climate change.” Such new rules are needed to permit the EU to green its economy.

Mr. Carl, addressing concerns that his proposal represents a turn to managed trade, says simply that “This is what we already have, although only China manages it, and we are suffering the consequences.”

That Mr. Carl felt the need to publish such a strongly worded opinion shows the underlying and growing tensions felt by major trading partners from a major economic power with a fundamentally different economic system than that pursued by the historic major players in world trade.

For WTO Members and their businesses and workers, the rising discontent by many with the functioning of the WTO and its ability to achieve meaningful reform should be a wake-up call. The WTO to be relevant must have rules that address the world in the 21st century. The WTO must also be able to have Members assume increased responsibilities as their stage of economic development evolves. Similarly, the WTO must confront whether existing rules can be modified to generate greater coverage of practices by different types of economic systems. If not, the WTO must consider whether it can survive where all Members don’t follow similar economic systems.

Unfortunately, there appears little likelihood that many of these critical reforms will be addressed in the coming years. China has objected to WTO Members trying to modify existing agreements to address distortions caused by China’s economic system. China has also objected to the U.S. effort to have Members consider whether WTO rules require Members to operate market-economy based systems. China and others have objected to U.S. efforts to define “developing country” and effectively have Members take on obligations commensurate to their stage of economic development. Stated differently, China is working hard to defend the status quo and prevent consideration of reforms that would achieve greater balance among all WTO Members.

While USTR Lighthizer and others have said that if the WTO didn’t exist, it would have to be created, Mr. Carl’s opinion suggests that one option that may take on greater appeal is the withdrawal from the WTO and the creation of a new international trade regime among countries with similar economic systems. Such a move away from the WTO would certainly involve enormous economic upheaval and political tensions. The more desirable course of action is to achieve timely reform of the WTO so that all Members feel the system achieves reasonable reciprocity.

Time will tell whether WTO Members find a path forward or whether the WTO becomes less and less relevant and even ceases to function. In a Member driven organization, the answer lies with the membership.

COVID-19 — the United States continues to spin out of control, with increasing shortages of medical goods; sharp increases in developing countries in the Americas and parts of Asia

The last two weeks have seen the case count of new COVID-19 cases in the United States surge out of control across much of the country with a staggering number of new cases reaching 871,922 cases between July 6 and July 19, up from 584,423 cases in the prior two-week period — an increase in new cases of 287,499 or 49.2% in just two weeks. The U.S. accounted for more than half of the global spike in new cases from the last two week period examined (June 22-July 5) from less than 2.5 million new cases for the world to 3,018,993 through July 19. Growth in new cases is occurring in many developing countries as well, but no developed country other than the United States has been unable to cap the level of new cases and, in most instances, bring the number down sharply over time (Russia’s number of new cases has declined but not sharply like other developed countries).

The consequences for the U.S. and the world of the continued rapid growth in new cases are significant. The U.S. is finding many states needing to slow down or reverse the reopening of the economy which will hurt the economic recovery in the United States, result in a continuation of exceptionally high unemployment, threaten hundreds of thousands of businesses with survival, put in jeopardy the ability of schools at all levels to open safely and put downward pressure on global trade based on reduced U.S. demand, restrictions on various major service sectors and production of goods at below optimal levels. Moreover, there are many states facing sharp increases in hospitalizations putting stress on the health care system in many parts of the country and returning states and local communities to scramble for medical goods, including personal protective equipment. There are news articles of some hospital systems facing the same types of shortages that were harming care in the March-April period. Congress is facing the need in the coming days and weeks to provide substantial additional support to the unemployed, to health care systems, to state and local governments, to certain sectors of the economy particularly hard hit. Thus, the U.S. drag on the global economy will likely continue while the U.S. will be chasing medical supplies at a time of growing demand in the developing world, likely making access to many medical goods more expensive and harder to find.

While the Administration has focused on reopening the U.S. economy regardless of the actual situation and has dismissed the increase in new cases as simply the result of increased testing and has claimed that the U.S. has the lowest mortality rate, the facts on the ground indicate the crisis will continue for some time. The United States has just 4.3% of the world’s population but has had 26% of the world’s cases and 23.3% of the world’s deaths from COVID-19. So the bottom line is that the U.S. has a massive and growing health crisis that is far from being under control.

On the question of the death rate and how the U.S. compares to other countries, the table below presents some data which are self-explanatory. Using the daily data from the European Centre for Disease Prevention and Control, I reviewed 42 countries and territories who collectively have accounted for 90.88% of all cases since December 31 and 91.93% of all deaths recorded as due to COVID-19. Through July 19, the U.S. had the sixth highest mortality rate looking at deaths per hundred thousand population (France, Italy, Spain, the United Kingdom and Chile had worse rates ). If one looks at the period since April 11 (three months and eight days, roughly half of the total period), the U.S. had the forth worst mortality rate (deaths per hundred thousand population; Peru, the United Kingdom, and Chile had worse rates). The U.S. death rate is worse than our neighbors, Canada and Mexico. It is worse than that of most European countries, Australia, New Zealand, Japan, South Korea, Singapore and Taiwan. And much worse than China, India, Pakistan, Indonesia, South Africa and many other countries. The U. S. rate of deaths/cases has remained unchanged at 3.78% over the total period and for the period since April 11th. It has been in the more recent period that U.S. testing has expanded significantly, but without any change in rate of death.

While the U.S. ranking of deaths as a percent of total confirmed cases of COVID-19 is better than its ranking based on the number of deaths per 100,000 population, the death rate/100,000 provides the best measure of the relative cost in deaths to each country/territory. Thus, the U.S. death rate is 3.9 times higher than the rate in Germany, 1.8 times the rate in Canada, 54.5 times the rate in Japan, 5 times the rate in Russia, 73.4 times the rate in South Korea, 133.1 times the rate in China, 1419.3 times the rate in Taiwan and 4.5 times the rate of the total of the 42 countries/territories (including the U.S.).

Countrydeaths/100,000 pop.
Dec. 31 – July 19
deaths/100,000 pop.
Aprill 11 – July 19
United Kingdom67.9354.49
Spain60.5526.80
Italy58.0626.82
France44.9925.30
Chile44.0443.70
United States42.5836.87
Peru39.9839.46
Brazil37.3236.82
Mexico30.4830.30
Ecuador30.4028.69
Panama25.2225.08
Canada23.6322.11
Bolivia18.2918.12
Iran16.8611.76
Colombia12.9412.79
Germany10.947.88
Kuwait9.679.65
Iraq9.399.21
Honduras9.148.90
Dominican Republic9.047.87
Russia8.468.40
South Africa8.458.41
Guatemala8.248.22
Saudi Arabia7.187.00
Turkey6.685.45
Oman6.196.13
Qatar5.445.23
Argentina4.924.74
Egypt4.234.10
United Arab Emirates3.463.30
Afghanistan3.063.02
Pakistan2.582.55
India1.961.95
Philippines1.641.45
Bangladesh1.581.57
Indonesia1.481.37
Japan0.780.71
South Korea0.580.17
Singapore0.470.36
Nigeria0.390.38
China0.320.08
Taiwan0.030.01
Total of 42 countries9.517.95

Growth in new cases among developing countries

With the world total confirmed cases of COVID-19 standing at 14.267 million on Sunday, July 19, there were large numbers of new cases over the last two weeks from a large number of countries. Brazil had another 497,856 cases; India had 404,453 new cases; South Africa an additional 162,902 cases; Russia 97,031 new cases; Mexico an additional 86748 cases; Colombia an additional 77,311 cases; Peru 50,420 new cases; Argentina 46,515 new cases; Saudi Arabia an additional 42,487 cases; Bangladesh 42,387 new cases; ten countries each had between 20,000 and 40,000 new cases (Indonesia, Iran, Iraq, Israel, Kazakhstan, Oman, Pakistan, Philippines, Bolivia, Chile); seven countries had between 10,000 and 19,999 new cases (Panama, Kyrgyzstan, Turkey, Guatemala, Ecuador, Dominican Republic, Egypt) with all other countries/territories having less that 10,000 new cases each.

Of the forty-two countries/territories that account for more than 90% of cases and deaths, besides the U.S., there were fourteen where the last two weeks were new highs for the country/territory, that is where the virus is continuing to expand: India, Mexico, South Africa, Argentina, Bolivia, Colombia, Dominican Republic, Ecuador, Guatemala, Panama, Indonesia, Iraq, Oman and the Philippines.

In the last two weeks, the forty-two countries listed in the table above increased their rate of new cases by 22.66%. All other countries increased by 17.46% while the total for all countries increased by 22.22%.

So just as was true in prior posts on the COVID-19 pandemic, the pandemic continues to grow rapidly and is affecting an increasing number of developing and least developed countries. This puts increased pressure on the global supply of medical goods including personal protective equipment. As noted in previous posts and as reviewed on the WTO website, many countries have introduced export restraints particularly for medical goods, but also for some agricultural products. Many have also introduced liberalizing measures to reduce the cost of imports of needed medical goods and to streamline the importing process for such goods.

Vaccines and therapeutics – developments and challenges for access

As reviewed in a prior post, “There have been extraordinary efforts to ramp up research and development around the world to address COVID-19. Through the WHO and other efforts, there have been greater efforts at coordination of R&D and at the identification of gaps in knowledge and research. Large sums are being committed by some countries and NGOs to help ensure that all countries will have access to vaccines and therapeutics that get developed and that such access will be at affordable prices.” July 5, 2020, COVID-19 – the sharp expansion of new cases will put increased pressure on finding vaccines and therapeutics and complicate global economic recovery, https://currentthoughtsontrade.com/2020/07/05/covid-19-the-sharp-expansion-of-new-cases-will-put-increased-pressure-on-finding-vaccines-and-therapeutics-and-complicate-global-economic-recovery/.

A number of vaccines are moving into the stage 3 testing of large numbers of humans in the coming weeks/months. There is hope that one or more products in tests will result in vaccines that get approved for distribution by the end of the year or early in 2021. This week’s Bloomberg Businessweek has a cover article on the University of Oxford COVID-19 vaccine that, if approved, will be distributed by AstraZeneca who has arranged global manufacturing of what could be more than two billion doses. See July 20, 2020, Bloomberg Businessweek, The Front-Runner, pages 42-47. While the University of Oxford has led in the development and testing of the hoped-for vaccine, AstraZeneca has made arrangements with a number of companies around the world to produce the vaccine if approved and has agreements with the United Kingdome for 100 million doses, with the U.S. for 300 million doses and an arrangement with an Indian company to produce 1 billion doses for developing and middle income countries. Id at 46. There are other developmental vaccines that are also making progress through testing stages though their timing for eventual approval (if found efficacious) may be a few months behind the University of Oxford program. The good news, if vaccines get developed quickly which are efficacious, is that the major producers in the west are putting in place plans to provide global production which should go a long way to ensuring equitable access for all at affordable prices. Hopefuly, the University of Oxford/AstraZeneca model will be followed by all. China also has vaccines in test mode, although it is less clear what their approach would be to production and distribution if products are approved.

While the world has seen a very large collective scientific effort to find vaccines and therapeutics, in the last week there have also been claims by three governments (the United Kingdom, Canada and the United States) of cybersecurity attacks from Russia on COVID-19 research programs. See, e.g., CNN, UK, US and Canada alleged Russian cyberattacks on COVID-19 research centers, July 17, 2020, https://www.cnn.com/2020/07/16/politics/russia-cyberattack-covid-vaccine-research/index.html. The link to the UK advisory is here. https://www.ncsc.gov.uk/news/advisory-apt29-targets-covid-19-vaccine-development.

Conclusion

Nearly seven months into the pandemic, the continued growth in the number of new COVID-19 cases is continuing to put pressure on health care systems in many parts of the world and dampen prospects for the global economy’s rapid recovery.

The United States has been unable to get the pandemic under control within its borders and has been leading the growth in new cases. The rapid rate of growth of new cases across much of the United States has led to backtracking by many U.S. states on opening measures taken in the last two months. With the growing challenges in the United States, the U.S. will be a drag on global economic recovery.

While there is more global production of many of the medical goods needed to address COVID-19 ahead of the development of vaccines and therapeutics, the enormous growth in the number of cases and the continued spread in developing and least developing countries along with the United States will continue to test the balance between demand and supply. While the WTO is monitoring developments on export restraints and liberalization measures based on country notifications, large numbers of export restraints on medical goods continue and will likely remain in place for months to come complicating the ability to maximize utilization of scarce supplies.

It has been known that the ultimate return to normal conditions for the world would have to await the development and distribution of vaccines and therapeutics that are efficacious to all peoples on an equitable and affordable basis. But the new “normal” of living with COVID-19 while we await vaccine developments is being frustrated in some countries, like the United States, by an inability to communicate the challenges with a single voice, by the politicizing of basic disease prevention steps like mask wearing and social distancing, by the failure to ramp up testing and tracing sufficiently based on the level of COVID-19 spread and by the lack of support from the body politic (which flows both from the lack of a single message from federal, state and local leaders and from lockdown fatigue). Thus, for the United States and perhaps others, we are seemingly unable to slow the spread through steps many other countries have adopted and that have been known by medical experts for decades if not centuries.

Fortunately, there is positive news coming from the research and development efforts of many companies, universities and research institutes. Let us hope that vaccines and cures are found quickly. The drag on the global economy and the enormous toll on populations will likely continue until then.

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

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

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

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

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

Summary Impressions of the Candidates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dr. Jesus Seade Kuri (Mexico)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dr. Ngozi Okonjo Iweala (Nigeria)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Abdel-Hamid Mamdouh (Egypt)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tudor Ulianovschi (Republic of Moldova)

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

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

“a 3D vision and approach:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Amb. Amina C. Mohamed (Republic of Kenya)

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

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

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

On the topic of renewal, Minister Mohamed noted that

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Minister Al-Tuwaijri identified three questions to consider:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dr. Liam Fox (United Kingdom)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WTO Director-General Selection Process — Next Steps

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

Phase 1, Nominations

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

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

WTGCINF30

Phase 2, Candidates Making Themselves Known to the WTO Members

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

A. General Council meeting

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

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

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

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

B. Length of period of outreach by candidates

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

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

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

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

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

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

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

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

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

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

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

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

WTO-_-Deputy-Directors-General

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

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

Conclusion

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

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

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

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

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

U.S.-China Phase 1 Trade Agreement — Limited Progress on Increased U.S. Exports to China (through May)

While both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, the track record through May 2020 doesn’t show significant growth in U.S. exports to China overall (in fact the opposite) or in the 18 goods categories identified in Annex 6.1. Services exports are believed to be down significantly because of the large share of total U.S. services exports to China that have been in travel and tourism and the sharp contraction in 2020 due to efforts to deal with the COVID-19 pandemic.

Looking at total U.S. domestic exports to China for the period March-May 2020, U.S. exports were $22.9 billion ($7.638 billion/month) compared to $27.1 billion in 2017 ($.9.034 billion/month) and were $24.2 billion in 2019 ($8.071 billion/month). Total 2017 U.S. domestic exports of goods to China were $119.9 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Even if all other exports (other than the 18 subcategories specified in the annex) were simply equal to 2017, this would be an increase in the first year of 53.9%. By contrast, in the first three full months after the agreement, U.S. domestic exports are down 15.5%. However, there have been increases from the January-February 2020 period as shown below:

January 2020 $6,488,386,365

February 2020 $6,028,423,474

March 2020 $6,960,879,230

April 2020 $7,381,615,579

May 2020 $8,571,128,814

Thus, U.S. exports in May were close to the monthly average from 2017 for March – May and were 94% of May 2017 in May 2020.

Chinese data on total imports from all countries (in U.S. dollars) for January-May show a decline of 8.2% from the first five months of 2019. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, May 2020 (in USD). Total U.S. domestic exports to China are down slightly less for the first five months vs. 2019, -6.8%.

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

Product categoryMarch-May 2017March-May 2020% change 2017-2020 March-MayGrowth for 1st year of Agreement
manufactured goods
1. industrial machinery $2,807.5 $3,147.2 +12.1%
2. electrical equipment and machinery $1,056.6 $1,259.3 +19.2%
3. pharmaceutical products $734.1 $729.3 -0.7%
4. aircraft (orders and deliveries)* NA NA NA
5. vehicles $2,679.4 $788.7 -70.6%
6. optical and medical instruments $787.8 $868.0 +10.2%
7. iron and steel $329.5 $128.4 -61.1%
8. other manufactured goods $2,614.7 $3,509.8 +34.2%
Total for mfg goods$11,009.6$10,430.7 -5.3% +77.5%**
Agriculture
9. oilseeds $898.2 $292.0 -69.5%
10. meat $163.2 $918.6+463.2%
11. cereals $384.6 $421.0 +9.5%
12. cotton $278.7 $311.5 +11.8%
13. other agricultural commodities $1,239.2 $996.0 -19.6%
14. seafood $291,0 $229.9 -21.0%
Total for agriculture $3,254.9 $3,169.0 -2.6% +59.9%
Energy
15. liquefied natural gas $42.2 $259.8+515.6%
16. crude oil $944.9 $1,148.2 +26.9%
17. refined products $520.9 $274.7 -47.3%
18. coal $134.3 $25.5 -81.0%
Total for energy $1,642.3 $1,708.2 +4.0% +144.3%
Total for 1-18$15,906.8$15,307.9 -3.8% +90.1%**
  • HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-May 2020 period based on U.S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
  • The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

The U.S. Trade Representative, Ambassador Robert Lighthizer, in testimony to the House Ways and Means Committee and the Senate Finance Committee in June when asked about the U.S.-China Phase 1 Agreement and whether he expected China to fulfill its purchase commitments, focused on agricultural exports and indicated that for major export categories, like soybeans, there were large orders in the pipeline and shipments were heavily weighted to the end of the year. Thus, the early months of actual exports for at least some agricultural categories were not viewed as representative of the level of purchases from the U.S. by China that are ongoing. Soybeans were the most important U.S. export of agricultural products in 2017 with exports of more than $12 billion. Thus, how well U.S. agricultural interests do in the remainder of 2020 depend heavily on how large the purchases of soybeans that get shipped actually will be.

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

There is, of course, wide variability in U.S. export performance by product category and within product category by individual products. Some categories of U.S. exports have seen large rates of growth. Meat is one such category. Liquefied natural gas is another. With the huge consumption of pork in China and in light of the challenges China has faced with the health of its own pigs, there has been a very large increase in pork exports to China during 2020 for the U.S. On beef, where China had largely stopped importing most types of U.S. beef after an animal was diagnosed withbovine spongiform encephalopathy (BSE) in Washington many years ago, there are some exports from the U.S. starting to show up in the March-May time period.

But there are also large declines on categories of importance to the U.S., such as motor vehicles, though much of the decline is presumably due to the sharp contraction in purchases in China during the early months of 2020 and to the additional duties imposed by China.

For categories where there are increases in U.S. domestic exports over 2017, it may also be the case that there has been an acceleration of U.S. domestic exports to China since the Agreement went into effect. For example, the category of industrial machinery which has March-May US exports up 12.1% saw a much larger increase from the levels of exports in January-February 2020. Specifically, the US exports under the category had averaged $745.6 million each month in the first two months and then increased 40.7% in the next three months, averaging $1.049 billion each month. Thus, large increases are certainly possible in many categories and many individual products based on Chinese demand and past experience.

Some sectors where China purchases via state-owned or state-invested entities can see both sharp declines in purchases and, when China chooses to, sharp increases in purchases. Thus, on liquefied natural gas, US domestic exports to China were $0 for both January and February 2020 but then ramped up to $58.7 million in March and roughly $100 million in each of April and May. Similarly, crude oil exports from the U.S. were $0 in both January and February but jumped to just under $1 billion in May.

Considering importance of the Agreement, Administration could improve transparency through periodic update reports

It would be useful if the U.S. government provided monthly data reviewing progress under the Phase 1 Agreement which would permit an understanding of future purchases and of orders of aircraft so complete data are available. The Peterson Institute for International Economics has a U.S.-China Phase One Tracker which looks at data on a more aggregate data level and looks at the full year 2020, even though the Agreement did not kick in until February 14, 2020. See https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods. Thus, a monthly report that provides the Administration’s understanding of shipments and purchases would fill existing gaps in data and improve the public’s understanding of whether the Agreement is fulfilling the purchase commitments. It would also be helpful if the Administration provided an overview of all provisions contained in the Agreement and if changes have been made to laws, regulations or otherwise, and, if made, whether the market barriers of concern to U.S. companies are in fact now removed.

Conclusion

The U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun. With the complexities in the bilateral relationship flowing from a wide range of trade and non-trade events, it is hard to know whether China will fully implement the bilateral agreement or be willing to move forward on a Phase 2 negotiation. Similarly, it is hard to know if the U.S. will view the agreement as being implemented by China sufficiently to move to the next stage. A more sustainable trade relationship should be in both countries’ interest. But trade is, of course, just one important topic in a series of topics where the U.S. and China have very different views which can complicate forward movement on trade.

For the public, the Administration could improve an understanding of how the Agreement is being implemented by providing periodic updates of how all elements in the agreement are being implemented, how U.S. companies are viewing the changes on the ground in China, and how the Administration sees the U.S. export data that comports with the Annex 6.1 objectives.

COVID-19 — the sharp expansion of new cases will put increased pressure on finding vaccines and therapeutics and complicate global economic recovery

The last two weeks have seen an extraordinary explosion of new cases of COVID-19 in the United States, the rest of the Americas, and in many developing and least developed countries in Asia and Africa. Total infections globally now exceed 11.2 million up close to 2.5 million in the last two weeks (from 8.767 million) and up close to 100% from the two week period ending May 24. All figures are taken from the European Centre for Disease Prevention and Control daily reports.

The top five countries in the world with most cases account for 53.94% of global cases through July 5 and are:

United States 2,839, 542

Brazil 1,577,004

Russia 674,515

India 673,165

Peru 299,080

Three of these countries (the United States, Brazil and India) have not yet reached a peak and had the three largest number of new cases in the last two weeks — 584,423 for the U.S.; 509,425 for Brazil; 262,704 for India. While Russia and Peru appear to have peaked (last two weeks are 28.89% and 37.18% below their respective peak periods), the number of new cases in the last two weeks was the fourth and eight largest of any country (97,563 for Russia; 47,742 for Peru). The top five countries for cases to date also accounted for 60.81% of new cases during the last two weeks.

The U.S. which had seemingly peaked in the two weeks end April 26 at 409,102 and seen declines to 297,391 for the two weeks ending June 7, has seen a resurgence since then (335,058 for two weeks ending June 21) with a staggering growth in the last two weeks to 584,423 new cases. Thus, the U.S. has seen a dramatic growth in cases — up 96.52% from the June 7th two weeks; up 74.42% from the prior two weeks ending June 21; and up 42.86% since the prior peak for the two weeks ending April 26.

The United States has been in the process of opening up over the last two months after lockdowns in most states and has seen dramatic growth in cases in large parts of the country (south, southwest, west coast), with some substantial contraction in areas hardest hit back in March and April (Middle Atlantic states including New York and New Jersey). While other countries that have been opening up have had some resurgence as well (e.g., France, Germany, South Korea, Japan), the growth has been from very low numbers and has typically been relatively small absolute increases.

The United States is the only developed country to be having the challenges it is having getting the COVID-19 pandemic under control. Indeed, no other developed country has not peaked in the number of new cases. All other developed countries have generally seen very large decreases in the number of new cases from their peaks back in March or April. Dr. Anthony S. Fauci, Director, National Institute of Allergy and Infectious Diseases in the U.S., has warned that the United States could reach infection rates of 100,000 cases per day without increased adherence to the straightforward but challenging control criteria of social distancing, wearing masks, handwashing, testing, tracing and isolation.

With mixed messages from government leaders at the federal, state and local levels, with COVID-19 fatigue among many U.S. residents, and with lower rates of infection and generally less severe infections for younger people (leading many to be less concerned about the pandemic), the path forward in the U.S. is unclear particularly prior to the development of effective vaccines and therapeutics.

So large are the increases in new cases from the U.S., Brazil and India in the last two weeks that the U.S. and Brazil’s two week totals exceed the total cases since December 31 for all other countries except Russia and India; India’s new cases over the last two weeks exceed every country’s total number of COVID-19 cases since December 31 except the U.S., Brazil, Russia, Peru, Chile, and the United Kingdom).

The alarming rate of growth in the United States is masking the focus on the rapid growth of the pandemic in many developing and least developed countries. For countries with the largest number of confirmed cases, Brazil, India, Mexico, South Africa, Nigeria, Argentina, Bolivia, Colombia, Dominican Republic, Ecuador, Guatemala, Honduras, Panama, Bangladesh, Indonesia, Iraq, and the Philippines are seeing cases grow in number with no peak as yet. This is also true among many countries in the Middle East where World Bank listings would not have them as lower income countries – Kuwait, Oman, Qatar, and the United Arab Emirates. For the developing and least developed countries who are not among the forty-two countries who account for 90.62% of total cases through July 5, the rate of growth of new cases in the last two weeks is roughly 50% greater than for the 42 countries — 39.59% increase versus 26.87% increase (47.34% greater).

So the pandemic continues to grow rapidly and is affecting an increasing number of developing and least developed countries. The WHO has repeatedly reviewed the steps any country needs to take to bring the COVID-19 pandemic under control. See WHO Director-General’s opening remarks at the media briefing on COVID-19 – 1 July 2020, https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—1-july-2020. The world is not adhering to the required steps, at least for many countries including the United States.

Trade implications

Prior posts have reviewed the array of health and economic challenges for governments that are going through increasing cases during the pandemic. The WTO and others have cataloged the number of export restraints on medical goods imposed by certain countries during the pandemic. Because of the huge increase in demand that occurs for many medical goods when the pandemic spreads in a country, the world has been faced with challenges of adequacy of supplies, openness of markets, and ability to ramp up production as needed. While some restraints have been lifted, many continue. There have also been some export restraints on agricultural goods introduced by countries concerned about access to food supplies during the pandemic despite no actual global food shortage for major crops.

There also have been many efforts at liberalization by countries as they attempt to lower the cost of imported medical goods, streamline customs procedures to expedite delivery of goods, maintain open markets and for other reasons.

Groups of countries at the WTO, in the G20 and through other entities have put forward a range of proposals and action steps to ensure that trade plays its part in minimizing the downside to countries from the pandemic both in terms of health consequences and in terms of economic activity.

With rapidly growing numbers of new COVID-19 cases, one can predict that pressures will continue on export restraints and on needed efforts to ramp up production and inventories of key medical goods. As the number of tests, number of hospitalizations and other medical activities increase, governments will be struggling to find supplies. The United States has had significant problems in the past and will likely experience medical goods shortages again if the number of new cases in the U.S. is not brought under control.

For many developing and least developed countries, there are joint efforts by countries through the Supply Chain Task Force (chaired by the World Health Organization and World Food Programme) to identify medical equipment needs and to work to develop contracts to secure needed supplies and get them to the countries in need. See COVID-19 supply chain system, requesting and receiving supplies, https://www.who.int/publications/m/item/covid-19-supply-chain-system-requesting-and-receiving-supplies. The write-up explaining how it operates is embedded below and reflects the global commitment to see that both medical goods and any eventual vaccines and therapeutics and improved diagnostics are equitably available at affordable prices.

covid-19-supply-chain-system-requesting-and-receiving-supplies-2

While the joint efforts of various UN and other organizations are providing assistance to some 130 countries, challenges exist both as to funding and to access to adequate supplies as demand grows. Below are notes for the record from the Supply Chain Task Force meeting of 23 June 2020 followed by the catalogue of products being covered by the Emergency Global Supply Chain System.

supply-chain-taskforce-nfrs-20200623

20200207233119365

Availability of medical goods should improve as many countries who have gone through the worst of the pandemic (at least phase 1) who produce medical goods are increasingly in a position to increase exports. The challenges will be with overall global capacity and whether certain countries tie up global supplies to safeguard against growing demand in the current phase or to develop inventories should there be a second phase.

Vaccines and therapeutics – developments and challenges for access

There have been extraordinary efforts to ramp up research and development around the world to address COVID-19. Through the WHO and other efforts, there have been greater efforts at coordination of R&D and at the identification of gaps in knowledge and research. Large sums are being committed by some countries and NGOs to help ensure that all countries will have access to vaccines and therapeutics that get developed and that such access will be at affordable prices.

On July 1-2, the WHO held a two day virtual conference both to track progress on COVID-19 research and development efforts and to identify new research priorities. See https://www.who.int/news-room/feature-stories/detail/global-scientific-community-unites-to-track-progress-on-covid-19-r-d-identifies-new-research-priorities-and-critical-gaps.

The WHO has a summary table that shows where different vaccine development projects are. The document is embedded below.

novel-coronavirus-landscape-covid-19-1

However, a major challenge for equitable and affordable access to both vaccines and therapeutics involves the needs of major governments to lock- up capacity for potential vaccines and early therapeutics to take care of their own populations regardless of global giving events or commitments of individual countries to the principles of equitable and affordable access for all.

Prior posts have reviewed efforts of the United States, the European Union and others to lock up large quantities of vaccines from particular manufacturers of vaccines in trials should the trials prove successful. Most countries don’t have the financial capabilities to copy that approach. In addition, many vaccine trials are in China by Chinese pharmaceutical companies raising questions as to how vaccines developed by those companies (in which the Chinese government has investments for some or all of the companies) will be handled and made available to other countries with needs.

Developments in the last week show the challenge will apply equally with therapeutics that are viewed as effective in treating COVID-19. For example, there is one treatment which to date has been shown to shorten the recovery time in patients who have COVID-19. The product is remdesivir produced by U.S. company Gilead. A preliminary report on the results of testing of remdesivir was published in May 2020. See The New England Journal of Medicine, Remdesivir for the Treatment of COVID-19 — Preliminary Report, May 22, 2020.

In a July 4 article in The Guardian, entitled, “Trump is scooping up the world’s remdesivir. It’s a sign of things to come,” the author states “Trump boasted this week that the US had bought the world’s entire supply of remdesivir, the antiviral drug produced by the U.S. biotechnology company Gilead. Though low- and middle-income countries can still produce their own generic versions of the drug, European and other high-income countries are not able to buy remdesivir or produce it for three months. Fortunately the UK and Germany have stockpiled enough of the drug to treat all the patients who need it.” https://www.theguardian.com/commentisfree/2020/jul/04/trump-remdesivir-covid-19-drug.

A Reuters article from July 3rd reviews remdesivir getting conditional EU clearance. See Reuters, Gilead’s COVID-19 antiviral remdesivir gets conditional EU clearance, July 3, 2020, https://www.reuters.com/article/us-health-coronavirus-eu-remdesivir/gileads-covid-19-antiviral-remdesivir-gets-conditional-eu-clearance-idUSKBN2441GK. “”The EU’s green light broadens the use of remdesivir around the world – the United States has cleaered it for emergency use and it is also approved as a COVID-19 therapy in Japan, Taiwan, India, Singapore and the United Arab Emirates, Gilead said on Friday.”

It is fair to say that with the huge growth in the number of confirmed cases in the U.S. and with the U.S.’s control of supply for the next three months, remdesivir is likely the poster child of the challenges the global community will face in ensuring equitable and affordable access to vaccines and therapeutics going forward.

Conclusion

More than six months into the COVID-19 pandemic, the world continues on a sharp upward trajectory of new cases with a major shift from developed countries to developing and least developed countries as nearly all developed countries (excluding the United States) have managed to get the pandemic under control. With the United States apparently unable to get its house in order, there will be increased stress on medical goods supplies as demand from the U.S. will certainly continue to grow. Global efforts to arrange supplies for developing and least developed countries are showing some positive results. However, such efforts will become more challenging in the coming months as the number of cases in those countries continue to surge and those countries and buying groups compete with the U.S. for supplies.

It has long been known that the world would not be safe from COVID-19 until there were vaccines and therapeutics equitably available to all. For that to be the case, the vaccines and therapeutics need to be affordable for all.

There has historically been the perceived need for countries with the means to secure supplies for their populations during pandemics before making supplies available to all on an equitable basis and at affordable prices. With the COVID-19 seemingly out of control in the United States, there is little doubt that the United States will be doing its best to lock up supplies of vaccines and therapeutics as it has done and as it apparently will need to do to get to the other side of the pandemic.

Activities by the U.S., the EU and others on arranging commitments for promising vaccines and therapeutics will make the global objective of equitable and affordable access harder to achieve.

The reasons for optimism that a better approach will be followed during this pandemic include commitments made by many countries to ensure equitable access at affordable prices, the existence of multilateral organizations working to get getting vaccines to those in need, and the global footprint of at least some of the major companies and consortia developing vaccines and therapeutics which should provide regional production capabilities better able to service global demand.

Look for a challenging rest of 2020 and first half of 2021.

WTO Dispute Settlement — How to Handle Allegations That an Appellate Body Member is Affiliated with a Government and Hence Not Properly an Appellate Body Member?

In the first twenty-five years of the World Trade Organization, there have generally been few challenges to Appellate Body members in terms of violations of their obligations under Art. 17.3 of the Dispute Settlement Understanding or of the Rules of Conduct, WTO/DSB/RC/1.

The dispute brought by Canada against a countervailing duty order issued by the United States on supercalendered paper from Canada has resulted in such an issue arising. The WTO summary of the case is contained here, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds505_e.htm. The Appellate Body Report was circulated on February 6, 2020 under the document number WT/DS505/AB/R.

The United States had taken an appeal from certain aspects of the panel report. At the Dispute Settlement Body meeting of February 26, 2020, the U.S. had objected to the DSB considering the Appellate Body report as invalid for various reasons, including the fact that two of the three AB members’ terms had expired and had not received authorization from the DSB to continue to participate in appeals, that the report was issued far beyond the maximum 90 days laid out in the DSU (Art. 17.5 of the DSU). Most importantly, the United States claimed that the third person hearing the appeal was in fact affiliated with a government in contravention of DSU 17.3 and that her participation in the appeal was inappropriate for that reason and the fact that many of the cases relied upon by Canada to establish a practice were cases involving the government of China, the government with which the AB member was allegedly affiliated creating justifiable doubts as to the person’s independence or impartiality (WT/DSB/RC/1, Art. III.1). The U.S. position was that in light of the problems, the only consensus possible would be a positive consensus and that the U.S. would agree to a positive consensus on certain findings by the panel that were not appealed by the U.S.

Canada, the EU, and China all made comments at the DSB meeting in late February. Canada argued that despite the allegations raised by the US which should be looked at but not in the context of a DSB meeting, the DSB would adopt the Appellate Body report absent negative consensus. China agreed and defended the Appellate Body member who was from China. The EU reviewed procedures for raising the types of allegations raised by the US but like Canada and China viewed the DSU as mandating adoption of the AB report where a negative consensus did not exist.

The U.S. did not agree that adoption was permitted or appropriate and continued to oppose. The WTO webpage coverage of the dispute view the AB and panel reports as adopted on 5 March 2020. The minutes of the WTO DSB meeting of February 28 and March 5, 2020 are presented in WT/DSB/M/441 at pages 18-25 (14 May 2020). The document is embedded below and the reader is encouraged to read the discussion on those pages in full to understand the competing positions of the parties and major third parties.

WTDSBM441

While the Rules of Conduct describe a process for presenting information “of a material violation of the obligations of independence, impartiality, or confidentiality or the avoidance of direct or indirect conflicts of interest by covered persons which may impair the integrity, impartiality or confidentiality of the dispute settlement mechanism,” parties are told “at the earliest possible time and on a confidential basis, submit such evidence to the Chair of the DSB, the Director-General or the Standing Appellate Body, as appropriate.” WT/DSB/RC/1 Art. VIII.1. Paragraph 2 of Art. VIII says that the alleged failure to disclose by itself is not a sufficient ground for disqualification “unless there is also evidence of a material violation of the obligations of independence, impartiality, confidentiality or the avoidance of direct or indirect conflicts of interests and that the integrity, impartiality or confidentiality of the dispute settlement mechanism would be impaired thereby.”

Paragraphs 14-17 address how to address alleged violations by a member of the Appellate Body basically calling for the information to be shared with the other party to the dispute and to the Standing Appellate Body.

But the basic premise of the Rules of Conduct is that allegations and resolutions will occur before the panel or Appellate Body process is complete to permit time to substitute a new panelist or an Appellate Body member into the dispute before final resolution.

Challenges of the Supercalendered Paper case

After December 10, 2019, there was only one Appellate Body member. The United States communicated with the Director-General of the WTO and the Chair of the Dispute Settlement Body (the other two entities to whom evidence of possible violations could be sent if other than an Appellate Body member) on January 30, 2020 about the alleged violation of the one remaining AB member as she was affiliated with the government of China and the case, while brought by Canada involved mainly cases in which China was involved. While the evidence wasn’t sent to the Standing Appellate Body, that was not a practical option under the circumstances.

It is unclear whether the Director-General or the Chair of the Dispute Settlement Body did anything with the information provided. Certainly, no action was expeditiously undertaken to permit a resolution of the allegation before the time when the DSB would take up the Appellate Body Report and panel report. There is no reference in the minutes of the March 5, 2020 meeting to any action being taken.

The position of Canada and the EU was that the U.S. would have to wait until the Appellate Body was functioning again to have the issue reviewed. Yet such an approach is counter to the need to determine whether a material violation has occurred expeditiously so that corrective action (e.g., replacement of AB member or panelist) could occur if appropriate.

What is clear is that a system which doesn’t permit the timely evaluation of allegations against the propriety of an Appellate Body member, a panelist or other individual involved in the dispute settlement system, serving on a dispute weakens the integrity of the system and the perceived impartiality of the AB members and panelists.

Nor have Canada, the EU, China or others identified what a later review of allegations would permit in terms of correction of the particular dispute if the allegations are deemed to be confirmed. Nor do the Rules of Conduct seem to provide for retroactive correction of earlier disputes where a panelist or Appellate Body with a demonstrated serious violation of obligations served (and hence either there may have been a split decision on certain issues if there was a dissenting view and where you would not have had three proper AB members participate).

One would assume that the U.S. will make addressing these shortcomings in the existing system part of what needs to be addressed before the Appellate Body is reconstituted.

Continuing saga

Despite the fact that Canada agrees that the U.S. has raised serious issues, Canada has sought rights to retaliation and the topic was discussed at Monday’s Dispute Settlement Body meeting (June 29, 2020). The WTO press release on the meeting included this summary of the discussion of supercalendered paper:

“Paper from Canada

“Canada noted its request to suspend concessions against the United States for the US failure to comply with the WTO’s ruling in DS505. Canada said the US has neither informed the DSB of its intentions in regard to complying with the ruling, nor has it proposed a reasonable period of time to ensure compliance. Thus, Canada was pursuing its right to retaliate.

“The United States objects to the premise that the DSB adopted the ruling in this dispute on 5 March. The US position is that there was no valid Appellate Body report, and there was no consensus for the DSB to adopt the ruling. The report was not valid for three reasons: 1) the ruling was issued after the 90-day deadline set under the Dispute Settlement Understanding (DSU); 2)
two of the Appellate Body members were not authorized by the DSB to continue working on the case after their terms as members expired; and 3) the third Appellate Body member — Hong Zhao of China — was disqualified from serving as a member because she currently serves as vice president of an academy which is a public institution under Chinese law and subordinate to China’s Ministry of Commerce (MOFCOM), and thus she was neither independent nor impartial.

“The US also said Canada was not suffering any trade impact from the measures in question, particularly since the countervailing duties had been removed two years earlier. Nevertheless, the US said it had objected to the Canadian request on 26 June, meaning that the matter is automatically referred to WTO arbitration.

“Canada was joined by China, the EU, Japan, Australia and Mexico in rejecting the notion that the Appellate Body ruling in DS505 was not valid and that the DSB never adopted the ruling. Canada said the minutes of the DSB meeting on 5 March show that the ruling was adopted on the basis of Article 17.14 of the DSU, whereby a ruling can only be rejected if all WTO members present agree to reject it. Canada added that its request is based on a formula to ensure that retaliation can be exercised only if and when the US applies its WTO-inconsistent ongoing conduct to imports from Canada in the future.

“China rejected the accusations that Ms Zhao was not impartial and independent, declaring that the Chinese institute with which she is affiliated is an independent legal entity, and that the US raised no objections to her when she was first appointed to the WTO, nor when she was involved in rulings that were favorable to the United States.

“The US countered that China has not denied US statements regarding Ms Zhao’s affiliation with the institute and its affiliation with, and financial support from, MOFCOM.”

https://www.wto.org/english/news_e/news20_e/dsb_29jun20_e.htm.

The United States releases its statement to the Dispute Settlement Body meetings on the US Mission Geneva webpage. See Statement of the United States at the Dispute Settlement Body Meeting, Geneva, June 29, 2020, https://geneva.usmission.gov/wp-content/uploads/sites/290/Jun29.DSB_.Stmt_.as-deliv.fin_.public13218.pdf The relevant portion (pages 20-24) of the U.S. statement this past Monday is copied below.

“12. UNITED STATES – COUNTERVAILING MEASURES ON SUPERCALENDERED PAPER FROM CANADA

“A. RECOURSE TO ARTICLE 22.2 OF THE DSU BY CANADA (WT/DS505/13)

“ On June 18, 2020, Canada filed a request that the DSB authorize Canada to suspend concessions because it considers that the United States failed to comply with the recommendations of the DSB.

“ The United States objects to the premise of Canada’s request, which is that the DSB adopted recommendations in this dispute on March 5, 2020. As we will explain again, the position of the United States is that no DSB recommendation was or could be adopted because there was no valid Appellate Body report, and there was no consensus for the DSB to adopt the reports.

“ The United States has also repeatedly expressed concern that Canada continues to pursue a dispute that has no real world effect on Canadian exporters – a fact conceded by Canada’s recent request.

“ Canada’s request asks for authorization based on speculation – that is, related to an alleged nullification or impairment that occurs ‘if the ‘ongoing conduct’ continues to exist and [if it] applies to exports from Canada in the future’.

“ Canada is unable to even assert that it suffers from any nullification or impairment today because the alleged conduct is not applied to any Canadian good.

“ Only one determination in this dispute involved Canada – Supercalendered Paper – and that countervailing duty order was revoked two years ago.

“ Therefore, Canada suffers no nullification or impairment from the alleged measure, nor can it say that the alleged measure continues to exist, nor that Canada will suffer nullification or impairment in the future.

“ Nevertheless – and without prejudice to the U.S. position that no recommendations were adopted by the DSB – by letter dated June 26, 2020, the United States also objected to the level of suspension of concessions or other obligations proposed by Canada.

“ Under Article 22.6 of the DSU, the filing of the objection by the United States automatically results in the matter being referred to arbitration. Article 22.6 does not refer to any decision by the DSB, and no decision is therefore required or possible.

“ Consequently, because of the U.S. objection under Article 22.6, the matter already has been referred to arbitration. Although unnecessary, the DSB may take note of that fact and confirm that it may not therefore consider Canada’s request for authorization.

“ The United States recalls that at the March 5, 2020, DSB meeting, we did not join a consensus to adopt the reports put forward. There were multiple reasons why the appellate document was not a valid Appellate Body report under Article 17 of the DSU. First, the DSB had taken no action to permit two ex-AB members to continue to serve after their terms expired; second, the report was not issued within 90 days, as required by Article 17.5; and third, one person serving was affiliated with the Government of China, and therefore was not a valid member of the Appellate Body under Article 17.3.12

“ Indeed, separate from this dispute, on January 31, 2020, the United States informed the WTO Director-General and the DSB Chair by letter of discovered information that disqualified a Chinese national, Ms. Zhao, from the Appellate Body.

“ At the March 5 meeting, the United States detailed for Members the evidence demonstrating that Ms. Zhao is not “unaffiliated with any government.” No information has been presented, before, during, or after the March 5 DSB meeting that contradicts that evidence.

“ Because of Ms. Zhao’s affiliation with the Government of China, the appellate document is not a valid Appellate Body report because it had not been provided and circulated on behalf of three Appellate Body members, as required under DSU Article 17.1.

“ At the March 5 DSB meeting, Canada agreed that the allegations of Ms. Zhao’s lack of independence are serious and stated that they deserve full and impartial consideration. Canada asserted that the Rules of Conduct addressed such situations.

“ The United States agrees with Canada’s apparent concern that Ms. Zhao’s participation in the appeal may also be inconsistent with the Rules of Conduct.

“ The procedures under the Rules of Conduct for the Appellate Body itself to conduct an inquiry are not available in current circumstances. However, this does not mean that no inquiry may be conducted. To the contrary, in general the Rules provide for the DSB Chair or the Director-General to conduct the relevant inquiry.

“ The DSB Chair and Director-General would be natural leaders of such an inquiry given their roles in the WTO dispute settlement system and the trust Members repose in them.

“ The United States notes that the conduct at issue also would have constituted a breach of the obligation in DSU Article 17.3 to avoid a direct or indirect conflict of interest.13 Ms. Zhao was demonstrably connected with the Chinese Government, which had a direct interest in this appeal as the “ongoing conduct” complained of related almost exclusively to China.14 This reinforces the importance of an alternative form of ethical inquiry.

“ Therefore, given Canada’s acknowledgement of serious issues of independence and impartiality, the United States would support an alternative inquiry under the Rules of Conduct.

“ Even aside from the fact that Ms. Zhao was not a valid Appellate Body member under DSU Article 17.3, such an inquiry would confirm her disqualification from serving on the appeal.

“Second Intervention

“ Canada asserts that the appellate report must have been adopted by negative consensus. But it is evident that not any document issued with the title “Report of the Appellate Body” is such a document. For example, if such a document were signed by three members of the Appellate Body Secretariat, no one would seriously argue the report must be adopted by the DSB by negative consensus. That is because the alleged “Report” would not be consistent with DSU Article 17, which requires an appeal to be decided by three Appellate Body members.15

“ In this dispute, the facts are not seriously contested. First, the DSB had taken no action to permit two ex-AB members to continue to serve after their terms expired; this is evident from the fact that no such decision was ever proposed to the DSB.

“ Second, the report was not issued within 90 days, as required by Article 17.5; this too is not contested.

“ Third, one Appellate Body member was affiliated with the Government of China; as the United States has pointed out, the evidence of affiliation brought forward by the United States has not been directly contested. Therefore, this affiliated person was not a valid member of the Appellate Body under Article 17.3.

“ Given that there was no valid Appellate Body report before the DSB, the document could not be adopted by negative consensus under Article 17.14 as that rule did not attach to this document. Therefore, the DSB could only adopt the document by positive consensus. The United States made clear at the DSB meeting that it objected and did not join a consensus on adoption.

“ As there was no consensus for adoption, the DSB did not adopt any reports in this dispute. Accordingly, there was no recommendation for the United States to bring a measure into conformity with a covered agreement.

“ Regarding Canada’s comments concerning application of the Rules of Conduct, we note these rules were agreed by Members in order to help preserve the integrity and impartiality of the WTO dispute settlement system. That does not mean that the Rules are all that is necessary to do so. Rather, first and foremost, it is for WTO Members, and all participants in the system, to take responsibility for safeguarding that system.

“ When Canada says only the Appellate Body may apply the obligations of impartiality and independence to a person serving on an appeal, and therefore the Rules cannot be applied now, Canada would actually use the Rules to undermine the integrity and impartiality of the WTO.

“ If there are valid ethical concerns with the service by a person in an appeal, they should be investigated. It would be thoroughly inconsistent with our experience and close relationship with Canada to see it defend the behavior of the Chinese official in this dispute.

“ And there is no question that Ms. Zhao’s professional connections with the Government of China raise serious ethical concerns. For instance, given Ms. Zhao’s professional connections with the Government of China, her participation in the appeal is not consistent with the obligations to be ‘independent and impartial’ and ‘avoid direct or indirect conflicts of interest,’ provided for in paragraph II:1 of the Rules of Conduct.16

“ We therefore look forward to further conversations with Canada to find a shared approach through which we can maintain the integrity and impartiality of WTO dispute settlement.

“ At the March 5 DSB meeting and again today, China has responded to the evidence explained by the United States. Importantly, and revealingly, China has not denied the following:

“o Ms. Zhao serves as Vice President of MOFCOM-AITEC.

“o Ms. Zhao receives or has received a salary for her position of Vice President.

“o MOFCOM-AITEC is an “affiliated” entity “subordinate” to MOFCOM.

“o MOFCOM-AITEC’s budget is part of MOFCOM’s budget, such that the salary for Ms. Zhao’s Vice President position at MOFCOM-AITEC is funded by the Government of the People’s Republic of China.

“ The fact that China did not deny these statements or assert that they are incorrect only confirms that Ms. Zhao is affiliated with the Government of China and is therefore not a valid member of the Appellate Body.

“12 See U.S. Statement at the March 5, 2020, Meeting of the Dispute Settlement Body (Item 8).

“13 See DSU Art. 17.3 (“They [persons serving on the Appellate Body] shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.”).

“14 See United States – Countervailing Measures on Supercalendered Paper from Canada (Panel), WT/DS505/R, para. 7.295 and Tables 1-4 (seven of nine proceedings involving China).

“15 DSU Art. 17.1 (“The Appellate Body shall hear appeals from panel cases. It shall be composed of seven persons, three of whom shall serve on any one case.”).

“16 Rules of Conduct, Section II (“Governing Principle”), para. 1 (“Each person covered by these Rules … shall be independent and impartial [and] shall avoid direct or indirect conflicts of interest . . . so that through the observance of such standards of conduct the integrity and impartiality of that mechanism are preserved.”).”

Conclusion

The dispute settlement system at the WTO is facing challenges flowing from long standing concerns about the Appellate Body conforming to the limited role given it by the Dispute Settlement Understanding, the expansive reading of the Appellate Body’s role by AB members over time and the largely ineffective negotiating function of the WTO which has prevented meaningful oversight of the Appellate Body by WTO Members.

Added to the longstanding concerns raised by the United States and others comes a concern that goes to the heart of the dispute settlement system’s legitimacy — the need for impartial decision making and how to ensure prompt resolution of allegations of violations of obligations by AB members or panelists. The allegations against the remaining Appellate Body member raised by the United States in the supercalendered paper dispute have not been addressed by the Director-General of the WTO or by the Chair of the Dispute Settlement Body. Other WTO Members seem to be willing to see challenged reports adopted instead of having allegations pursued. Adopting a report put out by the AB including the challenged member and Canada’s pursuit of retaliation rights make a mockery of a properly functioning system and will do lasting harm to the DSB’s legitimacy. And so the downward spiral at the WTO continues in its dispute settlement function.

WTO Dispute Settlement – With Appellate Body Currently Non-Operational, AB Secretariat Personnel Have Been Shifted to Other Divisions

As of December 11, 2019, there was only one remaining Appellate Body member whose term had not expired. Agreement amongst WTO Members permitted a number of pending appeals (those where hearings had already happened) to be completed even though this would mean completion by individuals whose terms had terminated but who would operate under AB rule 15. The last Appellate Body reports were released on June 9, 2020. AUSTRALIA – CERTAIN MEASURES CONCERNING TRADEMARKS, GEOGRAPHICAL INDICATIONS AND OTHER PLAIN PACKAGING REQUIREMENTS APPLICABLE TO TOBACCO PRODUCTS AND PACKAGING, WT/DS435/AB/R and WT/DS441/AB/R (9 June 2020).

The WTO has contractual arrangements with the remaining Appellate Body member and with many of the Appellate Body Secretariat staff. As a result, the WTO Director-General has worked to move the AB Secretariat staff to other Divisions within the WTO in light of the reduced 2020 Appellate Body budget, the reduced workload and now the termination (at least temporarily) of any work by the Appellate Body.

For example, the Committee on Budget, Finance and Administration meeting of March 9, 2020 had an appearance by Director-General Azevedo. The write-up on the meeting noted that “Turning to the Appellate Body Secretariat, the Director-General observed that until a political agreement emerges as to the format of the future appeals process, 23 staff members of the Appellate Body Secretariat have been temporarily re-assigned to other Divisions.” Committee on Budget, Finance and Administration, Report of meeting held on 9 March 2020, WT/BFA/185/Rev. 1 at para. 1.10.

Last Friday, June 26, 2020, Director-General Azevedo wrote to all the WTO membership to alert them to the creation of a new Division on July 1 “responsible for Knowledge and Information Management, Academic Outreach and the WTO Chair’s Programme”. The new Division will be headed by Mr. Werner Zdouc who was being reassigned. Mr. Zdouc has since 2006 served as the director of the Appellate Body Secretariat. It is assumed that by July 1st all Appellate Body Secretariat staff have either left the WTO or been reassigned. The June 26 letter is embedded below.

DG-letter-to-PRs-re-New-Division-Zdouc-June-2020

Press accounts from 2019 suggested that Mr. Zdouc was viewed as contributing to the problems at the Appellate Body long complained of by the United States and some others, particularly on the issue of precedent (i.e., whether AB reports were precedential) and on the practical problem of whether the Appellate Body would correct elements of decisions that were viewed as wrongly decided by Members. See Inside U.S. Trade’s World Trade Online, Appellate Body’s future could depend on whether its director keeps his job, December 8, 2019.

Movement of WTO Appellate Body Secretariat staff doesn’t end the conflict on second-tier review

While there has been hope amongst some that WTO Members would continue to pursue in 2020 a path to reform that would permit the reactivating of the Appellate Body, that hope seems to have no short-term prospect for fulfillment.

Parties remain locked in their existing positions. With U.S. elections scheduled for November, some WTO Members may be deciding that they will simply await the outcome of the election before further engaging. Ambassador Lighthizer said at the recent U.S. House of Representatives Committee on Ways and Means hearing on the President’s 2020 trade agenda that it would be ok if the Appellate Body never comes back.

Without an operational Appellate Body, WTO Members have various options including arbitration under DSU Article 25. However, there are ongoing skirmishes at the WTO pertaining to the coverage of costs by the WTO of arbitration costs for Members pursuing arbitration through the interim arbitration agreement to which the EU, Canada, China and many other countries are signatories. See JOB/DSB/1/Add. 12, 13 and 14.

During the 2020 budget discussions held at the end of 2019, the U.S. had pushed for a clarification for how arbitrators would be paid (same as panelists which was significantly lower than AB member daily charges; no monthly retainer) and for a reduction in the Appellate Body budget in light of the lack of sufficient AB members. See, e.g., Committee on Budget, Finance and Administration, Report of the Meeting Held on 12 and 27 November and 5 December 2019, WT/BFA/183 (6 December 2019).

Recent press accounts have reported that there continue to be challenges by the United States to the interim arbitration agreement on various fronts including payment from the WTO budget. See Inside U.S. Trade’s World Trade Online, June 12, 2020, Shea: U.S. opposes use of WTO budget for interim appellate plan (article includes a link to the June 5 letter from Amb. Shea to DG Azevedo). As stated in Amb. Shea’s June 5th letter to DG Azevedo, the U.S. objects to the interim arbitration agreement that the EU, China and others are party to because it “exacerbates some of the worst aspects of the Appellate Body’s practices.” The U.S. also objected “to the use of WTO budget funds for a process that is clearly far more than a simple Article 25 arbitration.” The letter is embedded below.

June-5-2020-letter-from-Amb.-Shea-to-DG-Azevedo

Conclusion

With a reduced 2020 budget for the Appellate Body and with the conclusion of disputes on which Appellate Body reports will be prepared until such time as the Appellate Body is reactivated, the WTO has reassigned Appellate Body Secretariat staff to other divisions and has started a new division which will be headed by the former Director of the Appellate Body Secretariat.

Unfortunately, shifting personnel to different divisions does nothing to eliminate the deep divisions on how to proceed with dispute settlement after panel reports. Moreover, there is no apparent willingness to move reform of the dispute settlement system forward at the present time. Efforts by the EU and others to create an interim process that mirror many of the problems found in the Appellate Body practices have simply moved the deep divisions among Members over the Appellate Body into what is permissible under DSU Art. 25. So we will have a crisis in the dispute settlement area at least until 2021 and probably beyond.

Candidates for the Next Director-General of the WTO — four and counting, an update

Two weeks after the WTO opened the nomination process for candidates to fill the Director-General post which becomes vacant on September 1, 2020, four countries have put forward candidates — Mexico, Nigeria, Egypt and Moldova. The period for nominations will come to a close on July 8 (COB Geneva time), so there are still sixteen days for additional candidates to be put forward.

There are many rumors and a few facts on possible candidates not yet announced. Press have indicated that Benin, which had had a candidate identified for consideration by the African Union, has withdrawn H.E. Mr. Eloi Laourou (Benin’s current Ambassador and Permanent Representative to the WTO) from consideration and will be supporting Nigeria’s candidate, Dr. Ngozi Okonjo-Iweala. See The Africa Report, Benin drops its WTO candidate in support of Nigeria’s Okonjo-Iweala (15 June 2020), https://www.theafricareport.com/29941/benin-drops-its-wto-candidate-in-support-of-nigerias-okonjo-iweala/.

The other African name floated as a possible candidate has been Kenya’s Amina Mohamed, current sport and culture minister and former Kenyan Ambassador to the WTO who was the first woman to chair the WTO’s General Counsel. She was also a candidate for the Director-General position in 2012-2103 when Roberto Azevedo of Brazil was selected. While mentioned early, there has been little in the press indicating Kenya will be nominating her, but there is obviously still time if Kenya so chooses. See Financial Times, Contenders Set Out Stalls to Succeed Azevedo at Helm of WTO, May 17, 2020, https://www.ft.com/content/fc5fda8e-56cb-4866-b477-f4c3af603b5c.

Possible Developed Country Candidate(s)?

It has been rumored that there would be one or more developed country candidates and some WTO Members or their trade ministers, like the EU, have articulated a belief that the next Director-General should be from a developed country, consistent with the recent rotation between developed and developing country having the post of Director-General. Since DG Azevedo is from Brazil, a developing country, developed countries should take the next turn, according to this logic.

An article in the New York Times indicates that the European Trade Commissioner, Phil Hogan (Ireland) has confirmed he is considering a bid. See New York Times, Who’s Bidding to Be Next World Trade Organization Chief?, June 22, 2020, https://www.nytimes.com/reuters/2020/06/22/business/22reuters-trade-wto-factbox.html.

Spain’s Foreign Minister Arancha Gonzalez Laya has also been repeatedly identified as a potential candidate. She was chef de cabinet for Director-General Pascal Lamy who served from 2005-2013.

Other developed countries could decide to nominate one or more candidates, though press accounts indicate that Australia is not planning on submitting a candidate (at least not at present) and the U.S. has historically not put forward a candidate from the U.S. See Financial Review, No Australian candidate for WTO boss, Birmingham says, June 22, 2020, https://www.afr.com/world/europe/no-australian-candidate-for-wto-boss-birmingham-says-20200619-p554gf

Rumors have suggested that the Republic of Korea may submit a candidate. Japan has been very active in recent years through their ambassadors to the WTO but is not believed to be likely to put forward a candidate.

New Zealand had a Director-General two decades ago, Michael Moore, and its Trade Minister and former Ambassador to the WTO, Tim Groser, ran in 2012-2013. It is unclear whether New Zealand will put forward a candidate, whether former Minister Groser or someone else.

There is a rumor in Geneva that more nominations are likely and that at least one more may materialize later this week. If such an event materializes, I would suspect someone from an EU country or from Korea will become the fifth candidate.

Outreach by existing candidates and legal wrangling between African countries

The advantage of being an early announced candidate in the current process is that candidates can get their views out through the media ahead of the General Council meeting, and there is more time for their governments to court support from other WTO Members. Particularly when there is interest in expediting the selection process because of the near-term departure of existing Director-General Azevedo, such opportunities for pre-General Council wooing of other Members and media outreach will be more limited for candidates joining closer to the end of the nominating time period. The General Council meeting to meet and hear from the candidates is understood to likely be sometime in the week of July 12. If there is actually an effort to expedite the selection process after July 8, time will be very limited for candidates after the General Council meeting.

It is clear that at least the first three candidates are taking advantage of media to articulate their vision for the WTO and their role if selected as the next DG. Nominating governments are also doing outreach to trading partners seeking to build up support for their candidate.

For example, Jesus Seade Kuri, the Mexican candidate, provided an interview to the South China Morning Post which was published on June 18, 2020, Mexico’s nominee for top WTO job, Jesus Seade, vows to ‘bring US and China back to the table’, https://www.scmp.com/economy/china-economy/article/3089452/mexicos-nominee-top-wto-job-jesus-seade-vows-bring-us-and.

Similarly, Dr. Ngozi Okonjo-Iweala had her views on the WTO DG job published in various publications including the Pulse, ‘I’m a strong negotiator, reformer,’ Okonjo-Iweala makes her case for ‘challenging’ WTO job, June 17, 2020, https://www.pulse.ng/business/okonjo-iweala-former-minister-makes-case-for-wto-job/y123dsb.

Outreach has also been made by Egypt’s Abdel Hamid Mamdouh as he laid out what he considered to be important aspects of his candidacy in an article that appeared in The Africa Report on June 11. See Egypt’s Abdel Hamid Mamdouh bid for the WTO – Five things to know, June 11, 2020, https://www.theafricareport.com/29730/egypts-abdel-hamid-mamdouh-bid-for-the-wto-five-things-to-know/.

All candidates have recognized the challenges with the tensions between the United States and China, the need to be an honest broker, how their background gives them strengths needed to address the role of Director-General amidst the COVID-19 pandemic and need for reform at the WTO.

While Mexico is working on shoring up support for Mr. Seade amongst WTO Members in the Americas (and elsewhere), the two African candidates are working to gain support from their African colleagues (and others). Little has been in the press as yet as to what actions Moldova or its candidate are taking in the early days after Tudor Ulianovschi’s nomination.

Egypt has attempted to have Nigeria’s candidate disqualified on the grounds that Nigeria had another proposed candidate submitted to the African Union but withdrew that candidate and put forward Dr. Ngozi Okonjo-Iweala past the deadline for such nominations. The African Union’s counsel concurred but that position has been challenged by Nigeria. In any event, WTO procedures limit who may nominate candidates to WTO Members. Nigeria is a member while the African Union is not. Therefore, whatever is relevant for African Union member consideration, it is not relevant to whether Nigeria or any other AU member can propose a candidate to the WTO by July 8. See The Cable, Okonjo-Iweala still eligible to run for office of DG, says, WTO, June 20, 2020, https://www.thecable.ng/exclusive-okonjo-iweala-still-eligible-to-run-for-office-of-dg-says-wto. This type of public discord will not be helpful to obtaining solidarity around a single African candidate which has been the presumed purpose of the African Union’s process.

Conclusion

With roughly half of the nomination time period having run, it is clear that there will be a significant number of candidates. It is unclear how many developed country candidates will end up running and to what extent members will focus more on geographical area, development status, or gender of the candidates in their considerations.

With the U.S., the EU and China having very different views of what needs to be done to return the WTO to relevance and with the recent USTR statement that any candidate to receive U.S. backing must “understand the need for reform and the problems of free economies in dealing with China” (New York Times, U.S. Wants WTO Head Who Understands Problems Dealing with China: Lighthizer, June 17, 2020, https://www.nytimes.com/reuters/2020/06/17/world/asia/17reuters-usa-trade-wto.html), the road ahead will be challenging for all candidates with no guarantee that the process will succeed in either an expedited or normal time period.

Hopefully, the Chairman of the General Council (Amb. David Walker) and the WTO Secretariat have the four Deputy Directors-General warming up in case one of them is needed to serve as the Acting Director-General beginning September 1st.

COVID-19 — the global rate of increase of confirmed cases is surging

By the close of business on June 22, there will be more than 9 million confirmed cases of COVID-19 with the rate of growth exploding more than six months after the first cases were reported in China, with deaths approaching a half million. For the two weeks ending June 21, the number of new cases approached 2 million (1,932,024), up 24.0% from the two weeks ending June 7 (1,557,983) which in turn were up 21.5% from the two weeks ending May 24 (1,281,916). Thus, the last six weeks have seen the rate of new cases grow by 50.7%. Indeed, the last six weeks account for 54.25% of total cases since the end of 2019 (roughly 25 weeks).

As the worst of the pandemic has passed (at least the first wave) for most of the developed world (other than the United States and countries in the Middle East), the sharp growth in cases is mostly due to the spread of the virus in the developing world where healthcare infrastructure and ability to handle the challenges of the pandemic are likely less than for the developed world.

Central and South America, parts of Asia and the Middle East are the current hot spots of infections with growth in a number of African countries as well. The United States which peaked during the two week period ending April 26, has by the far the largest number of total cases (more than 2.2 million) and is seeing the number of cases rise again in the most recent two weeks.

Afghanistan, Argentina, Bangladesh, Bolivia, Brazil, Chile, Colombia, the Dominican Republic, Ecuador, Egypt, Guatemala, Honduras, India, Indonesia, Iraq, Kuwait, Mexico, Nigeria, Oman, Pakistan, Panama, the Philippines, Qatar, Saudi Arabia, South Africa and the United Arab Republic all have significant numbers of cases and all but Kuwait, Qatar and the UAE are still growing rapidly in terms of new cases where peaks have not been reached. Thus, the likelihood of even greater number of new cases is a near certainty for the coming weeks.

Some recent developments

Most of western Europe has been engaged in reopening in recent weeks as the rates of infection are dramatically lower than in the March-April period. Indeed, travel within the EU and some neighboring countries is opening up in time for the July-August vacation season. Time will tell if the steps being taken to test, trace and quarantine any cases found going forward will minimize any upward movement in cases.

China and parts of Asia with low rates of infections where economic interruption has been less (e.g., Taiwan, the Republic of Korea, Singapore and Japan), are seeing low numbers of new cases. China has taken strong measures to address a new outbreak in Beijing (numbers are a few hundred cases).

Australia and New Zealand have few if any new cases and the numbers for Canada are also way down with reopening occurring as would be expected.

The U.S. and Canada and the U.S. and Mexico are maintaining travel restrictions between themselves (though excluding movement of goods and services).

In the United States, the story on the control of the pandemic is very mixed as individual states have been engaged in reopening at different rates in part reflecting different infection rates and growth rates. However, reopening in some states is occurring despite conditions in the state not being consistent with the Administration’s guidelines from the Center for Disease Control ad Prevention (“CDC”) on when reopening should occur. Thus, there are states seeing large increases in recent days and weeks while many other states are seeing significant declines or at least stable rates of infection. It is unclear how the infection rate in the U.S. will progress in the coming weeks and months.

Trade Considerations

As my post from last week on the Ottawa Group communication reviewed, there are lots of proposals that have been teed up by WTO Members to keep trade flowing during the pandemic and to potentially reduce the likelihood of such trade disruptions as are being experienced at present in future pandemics.

But large numbers of export restraints remain in place, transparency is better than it was in the first quarter but still not what is needed. However, import liberalization/expedition is occurring in many countries to facilitate obtaining medical goods needed at the lowest price.

The toll flowing from the pandemic and the closing of economies to control the pandemic is enormous despite efforts of governments to provide funding to reduce the damage. This has led the WTO to project 2020 trade flows to decline between 13 and 32% from 2019 levels. As data are available for the March-June period, the severity of the decline for various markets is being fleshed out and resulting in lower global GDP growth projections.

Because the COVID-19 pandemic hit many developed countries hard before spreading to most of the developing world, developing countries have seen economic effects from the pandemic preceding the health effects in their countries. Reduced export opportunities, declining commodity prices (many developing countries are dependent on one or a few commodities for foreign exchange), reduced foreign investment (and some capital flight), higher import prices for critical goods due to scarcity (medical goods) and logistics complications flowing from countries efforts to address the spread of the pandemic are a few examples of the economic harm occurring to many developing countries.

The needs of developing countries for debt forgiveness/postponement appears much larger than projected although multilateral organizations, regional development banks and the G20 have all been working to provide at least some significant assistance to many individual countries. Trade financing will continue to be a major challenge for many developing countries during the pandemic. Harm to small businesses is staggering and will set many countries back years if not decades in their development efforts when the pandemic is past.

As can be seen in developed countries, sectors like travel and tourism (including airlines, hotels, restaurants, entertainment venues) are extraordinarily hard hit and may not recover for the foreseeable future. The need for social distancing makes many business models (e.g., most restaurants, movie theaters, bars, etc.) unworkable and will result in the loss of large portions of small businesses in those sectors in the coming months. For many developing countries, travel and tourism are a major source of employment and income. Losses in employment will likely be in the tens of millions of jobs, many of which may not return for years if at all.

Role of WTO during Pandemic

The WTO views itself as performing the useful functions of (1) gathering through notifications information from Members on their actions responding to the pandemic and getting that information out to Members and the public, (2) providing forecasts of the trade flows during the pandemic, and (3) providing a forum for Members to bring forward proposals on what action the WTO as a whole should consider. Obviously the success of all three functions depends on the openness and engagement of the Members.

WTO agreements don’t really have comprehensive rules for addressing pandemics or for the policy space governments are likely to need to respond to the economic tsunami that may unfold (and will unfold with different intensities for different Members). Some recent proposals would try to address some of the potential needs for the trading system to better respond to pandemics. However, most proposals seem to suggest narrowing the policy space. Last week’s Committee on Agriculture was reported to have had many Members challenging other Members actions in the agriculture space responding to the extraordinary challenges flowing from the pandemic. While Committee activity is designed to permit Members the opportunity to better understand the policies of trading partners, a process in Committee which focuses simply on conformance to existing rules without consideration of what, if any, flexibilities are needed in extraordinary circumstances seems certain to result in less relevance of the WTO going forward.

Most countries have recognized that the depth of the economic collapse being cased by the global efforts to respond to COVID-19 will require Members to take extraordinary steps to keep economies from collapsing. Looking at the huge stimulus programs put in place and efforts to prevent entire sectors of economies from collapsing, efforts to date by major developed countries are some $10 trillion. Concerns expressed by the EU and others have generally not been the need for such programs, but rather have been on ensuring any departures from WTO norms are minimized in time and permit a return to the functioning of market economies as quickly as possible.

Members have not to date proposed, but should agree, that the WTO undertake an evaluation of programs pursued by Members and how existing rules do or do not address the needs of Members in these extraordinary times.

WTO possible actions to facilitate recovery from COVID-19, the Ottawa Group’s June 16 Communication

A number of WTO Members have submitted proposals for action by the WTO Membership to address the global trade challenges flowing from the COVID-19 pandemic including speeding recovery and minimizing future disruptions from later health challenges. Most proposals address what to do about export restrictions, simplifying import procedures and/or reducing import duties, and improved transparency of actions taken.

The Ottawa Group June 2020 Statement: Focusing Action on COVID-19

The latest contribution comes from the “Ottawa Group” and was submitted on June 16, 2020. June 2020 Statement of the Ottawa Group: Focusing Action on COVID-19, WT/GC/217. The Ottawa Group is a group of WTO Members who describe themselves as “champions of WTO reform”. The group consists of the following WTO Members — Australia, Brazil, Canada, Chile, European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland.

The Ottawa Group statement provides the following introduction followed by six areas for potential WTO action:

“The world continues to grapple with the profound human health and economic impacts of the COVID-19 pandemic. In response to these challenges, thinking has begun on trade policy actions that would support an inclusive, sustainable, and resilient recovery as well as what trade rules should be adapted or developed to guide collaborative policy responses to future global crises. In this context, the WTO must play an important role in helping ensure coordination and coherence between actions its members take. This will require initiative and engagement by WTO Members in order to be successful.

“In this environment, there is an opportunity for the Ottawa Group to provide leadership, critical thinking and analysis, as well as ideas and proposals on potential actions that the broader WTO membership could take. In order to make best use of resources, this paper sets out six areas where concrete actions could be taken.” Page 1

The six action items are identified with a discussion of why the area is important and what steps the Group views as important to take. The Ottawa Group recommendations are summarized at the end of the communication (pages 4-5):

Summary:

Action Item 1: Transparency and Withdrawal of Trade-Restrictive Measures

Action Point: Ministers instruct officials to: 1) ensure any measures introduced in response to COVID-19 are promptly notified in accordance with relevant WTO requirements; 2) support efforts by the WTO Secretariat to collect and share information and best practices on trade-related measures taken in response to COVID-19 5/; 3) discuss the principle of ‘targeted, proportionate, transparent, temporary and consistent with WTO rules’; and 4) lead by example and withdraw or end any trade restrictive measures introduced in response to COVID-19 as quickly as possible.

“5/ Including by: (a) returning to the quarterly cycle of trade monitoring reports as during the financial crisis; and (b) including trade-related economic support measures in the trade monitoring reports and (c) and to the extent possible, making a technical assessment of members’ trade-related economic support measures in reaction to COVID-19.

Action Item 2: Keeping Open and Predictable Trade in Agricultural and Agri-Food Products

Action Point: Ministers instruct officials to: 1) engage in ongoing discussions on the fulfilment of joint declarations on maintaining predictable and open agriculture trade; 2) lead by example, and withdraw or end any emergency measures introduced in response to COVID-19 that may adversely affect trade in agriculture as quickly as possible; and 3) advance analysis and consideration on what steps WTO Members could take to continue improving agriculture trade based on the lessons learned from COVID-19 to ensure that future crises will not undermine trade, food security, and the stability of agricultural markets in the long-term.

Action Item 3: E-commerce

Action Point: Ministers instruct officials to prioritize and accelerate work on the Joint Statement Initiative on E-commerce, including through informal and virtual discussions, ahead of the rescheduled MC12 in 2021, including by the development of a consolidated negotiating text by the end of 2020 at the latest. In this regard, we will support the efforts of the co-convenors.

Action Item 4: Trade Facilitation – Use of Information Technology and Streamlined Procedures

Action Point: Ministers instruct officials to identify ways to take full advantage of the opportunities for trade facilitation in the Trade Facilitation Agreement (TFA) and to promote best practices for the implementation of the TFA. This includes how the adoption of digital solutions can support the movement of essential goods across borders as smoothly as possible.

Action Item 5: Initiative on Medical Supplies

Action Point: Ministers instruct officials to advance analysis and consideration in order to identify what steps WTO Members could take to facilitate trade in medical supplies to help ensure that the world is better positioned to deal with future health emergencies and to help ensure that versatile, diversified and resilient supply chains exist that allow all members access to vital medical supplies. This work should include analysis of the objectives and effects of policies affecting trade of medical supplies in response to the current pandemic and support for international organizations, including the WTO, in analyzing the potential impacts and outcomes of measures and recommending policies.

Action Item 6: Deepen Engagement with Stakeholders

Action Point: Ministers instruct officials to explore how best to pursue intensified engagement with stakeholders in order to better inform policymaking.”

The Ottawa Group proposals include topics not addressed in other proposals, such as the importance of prioritizing conclusion of the e-commerce joint statement initiative. During the pandemic, the critical importance of e-commerce to and expanded use by many businesses and consumers has reduced the damage to economies and to global trade. All Ottawa Group members are participating in the ongoing e-commerce talks, talks involving 84 countries or territories.

On issues like export restraints, the Ottawa Group has some positive ideas while reflecting the reality that some Ottawa Group members have used export restraints on medical goods during the pandemic. The idea of giving definition to the terms “targeted, proportionate, transparent, temporary and consistent with WTO rules” could be useful for administrations to be able to evaluate intended actions. However, the spread of a pandemic such as COVID-19 and internal political pressures to help one’s own population will render any such clarifications of marginal actual assistance if the underlying challenge of global supply/demand imbalance is not addressed on an ongoing basis.

As has been seen in agricultural goods, increasing information on global supplies both reduces the likelihood of countries imposing export restraints and gives trading partners greater leverage in pushing for roll backs of export restraints imposed by individual countries where there is no actual shortage. The Ottawa Group’s recommendations on agricultural goods reflects that the ability to disarm restrictions where shortages do not in fact exist.

The Ottawa Group submission from June 16 is embedded below.

WTGC217

EU’s June 11, 2020 Concept Paper, Trade in Healthcare Products

Some WTO Members, including Ottawa Group member countries, have taken unilateral action to liberalize trade in medical goods by reducing tariffs (at least temporarily) and by streamlining entry of medical goods needed for handling the pandemic. Some members, like the EU, have suggested creating an expanded medical goods duty-free agreement to go beyond the 1995 pharmaceutical agreement. For example, in a concept paper of 11 June 2020 entitled Trade in Healthcare Products, the EU, inter alia, provides in the Annex (pages 9-14) a list of goods that WTO Members could consider for total duty elimination. https://trade.ec.europa.eu/doclib/docs/2020/june/tradoc_158776.pdf The EU notes in a footnote that its concept paper “is meant to contribute to an exploratory discussion on a possible initiative to facilitate trade in healthcare products and is without prejudice to the EU’s position in potential negotiations.” Page 1 footnote 1.

The EU concept paper covers a number of other areas besides tariff eliminations, but for purposes of this note, the discussion will be limited to the product coverage for possible duty elimination. The EU provides a list of 152 6-digit HS categories in its Annex. At the six-digit level, import categories may cover many products not relevant to a particular pandemic, but the six-digit HS level is the most fragmented level of harmonization provided by the Harmonized Commodity Description and Coding Systems. Interestingly the EU Annex does not cover all products identified by the World Customs Organization and World Health Organization as relevant to fighting the COVID-19 pandemic. Specifically, there are thirty products (with accompanying HS numbers that are in the WCO list that are not in the EU proposed Annex. See World Customs Organization Prepared jointly with the World Health Organization, HS classification reference for Covid-19 medical supplies, 2.1 Edition, http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/nomenclature/covid_19/hs-classification-reference_2_1-24_4_20_en.pdf?la=en.

Specifically, under the WCO’s Section II dealing with face and eye protection, there are two face and eye protection products which are not part of the EU list (HS 9004.90 and 3926.90); four of five glove categories are not in the EU list (HS 3926.20, 4015.19, 6116.10, 6216.00); and eight of nine of the other products are not in the EU list (HS 6505.00, 3926.20, 4015.90 and 4818.50, 6210.40, 6210.40, 6210.50, 6210.50).

Similarly, in Section III, disinfectants and sterilisation products, two products in the WCO list are not covered by the EU (HS 2207.10, 2208.90).

In Section IV, oxygen therapy equipment and pulse oximeters, there is one product in the WCO list not covered by the EU Annex (HS 9026.80).

In Section V, other medical devices and equipment, the EU Annex doesn’t cover three products covered by the WCO list (HS 8413.19, 9028.20, 7324.90).

In Section VI, other medical consumables, there are four products shown in the WCO list that are not part of the EU Annex (HS 2804.40, 3923.29, 3926.90, 3926.90).

Section VII of the WCO list covers vehicles; with the exception of wheelchairs (which are covered by the EU Annex), the other three WCO products are not covered — ambulances, mobile clinic vehicles, mobile radiological vehicles (HS 8703, 8705.90, 8705.90).

Finally, in the WCO’s Section VIII, other products, three of four products in the WCO list are not covered by the EU Annex (HS 8421.39, 7311.00, 7613.00).

Because the WCO/WHO list reflects items needed by countries dealing with the COVID-19 pandemic, it is unclear what the logic is of not including such items in a proposed duty-free list compiled by the EU. Many of the items not included in the EU Annex (e.g., gloves, face shields, etc.) would be needed in addressing the current as well as future pandemics. If there is an effort to seek a duty-free agreement on medical goods, presumably the list will change from that put forward by the EU to be more comprehensive.

While the United States under the Trump Administration is not likely to enter into an agreement to eliminate tariffs on medical goods while the pandemic is afoot (as indicated by Amb. Lighthizer), the reality is that nearly all of the goods in the EU Annex are already duty free in the United States. Specifcally, 135 of the 152 6-digit HS items are duty free (Column 1 rate) in the U.S. in 2020. That is 88.8% of the HS categories. On a dollar value basis, 98.4% of imports into the U.S. during 2019 of products in the EU Annex are under HS numbers that are duty free. Of the remaining 1.6% of imports, a large part of the imports would be duty free under an FTA or GSP or other preferential program. Imports from China, some of which may be subject to supplemental duties flowing from the Section 301 investigation and resulting additional tariffs on Chinese goods, are 6.2% of total imports and some of those goods, if covered by additional duties, are subject to existing or potential exclusions.

Stated differently, should there be an effort to do a sectoral duty free agreement, in considering whether there is a critical mass, sponsors should be evaluating the existing tariff structures of non-participants.

The EU Concept Paper and the WCO list are embedded below.

tradoc_158776

hs-classification-reference_2_1-24_4_20_en-1

Deputy Director-General Alan Wolff’s Jun 17 speech, Pandemic underlines need to improve trading system’s relevance and resilience

This past week, Deputy Director-General Wolff spoke at a Think20 virtual panel on Policy Recommendations for a Post-COVID 19 World. DDG Wolff reviewed both actions that the WTO has taken (transparency on actions taken by Members; developing a trade forecast; providing a forum for members to share proposals and consider collective action) and proposals that had been put forward by Members. See https://www.wto.org/english/news_e/news20_e/ddgaw_18jun20_e.htm.

DDG Wolff identified two imperatives — “where the current rules are least prescriptive, they should be strengthened”; “where collective action would be helpful it should occur.” He then reviews WTO Members who have put forward proposals (Korea, Canada, Singapore, New Zealand, Switzerland, the Ottawa Group, the Cairns Group) and provided his summary of some of the suggestions made:

“Some specific suggestions that have been made include the following:

” A major effort can be undertaken to increase transparency. Member notifications can be supplemented by enhanced monitoring and reporting of measures by the Secretariat.

“There is little guidance in the WTO rules as to the appropriate use of export controls where it is felt that there exists short supply. Further guidance could be crafted. Sometimes the existence of extensive policy space is contrary to the common interests of all.

“Government interventions to procure needed supplies reduce the scope for market forces to determine competitive outcomes. A number of the practices witnessed in the last three months in response to the pandemic are not explicitly regulated by the current WTO rules. Included under this heading would be subsidization conditioned on supplying the domestic market, and pre-emptive government purchasing and investment. Additional disciplines could be considered.

“Leaving the allocation of scarce necessities solely to market forces may also not be a completely satisfactory alternative if the poorest countries are priced out of participation.

“Consideration can be given to agreeing, as in the WTO Agreement on Agriculture, to require that a country planning to impose an export restriction consider the effect on others of applying the measure.

“Additional provisions could provide for prior notice before export restrictions are put into place and a commitment to engage in timely consultations.

“Consideration can be given to including in any restrictions a sunset clause and providing for a roll-back of current trade restrictions.

“Multilaterally-agreed guidance could be given for the sharing of scarce medical supplies, including vaccines.

“Concerted efforts could be made to have relevant tariff liberalization, not just for medical goods, equipment and pharmaceuticals, but more broadly.

“Consideration can be given to creating, a Members’ Emergency Task Force or other mechanism to flesh out options for consideration by Members.

“Where options are devised by groups of Members, an effort and process are needed to gain broader Member support for their recommendations and to assure implementation of concrete steps forward.

“A Long-Range Policy Planning Network for the Multilateral Trading System could be created. There is insufficient attention paid to assessing the future needs of the multilateral trading system, in part due to the daily need to deal with current challenges.

“For the recovery, there are at least three immediately identifiable ways
in which the multilateral trading system can contribute. Consideration
can be given to:

“Lowering the costs of trade by lowering tariffs and other impediments to trade broadly;

“Engaging in a collective effort to accelerate the implementation of
the Trade Facilitation Agreement, and

“Working with international financial institutions and banks to
foster the restoration of trade finance.”

A broad array of suggestions have been made at the WTO as can be seen. The challenge, of course, is in generating momentum for group action. If the major players are not pulling in the same direction, it is hard to see how that momentum will be generated. Typically times of crisis create opportunities for bold action. Is today’s crisis such an opportunity considering the significantly different perspectives of China, the EU and the U.S.?

Many developing countries (and those who claim developing status at the WTO) typically have the highest tariffs and can be motivated for short-term tariff action on specific goods (as this pandemic has demonstrated), but have not shown a willingness to lead on tariff liberalization when developed countries typically have very low tariff levels already. Is the pandemic a reason for such countries to rethink their contribution to the global trading system?

A number of the proposals go to the functioning of the WTO and its governance. Considering the desire by many for broader reform but with significant differences in what type of reforms are appropriate, can the proposals identified generate consensus support in the coming months?

With the economic damage to the world’s economies much larger than originally projected, certainly there has never been a greater need for collective action to minimize human health and economic costs from the pandemic and to speed economic recovery. The coming months will show whether the great divides among the majors can be bridged for the good of all.

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

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

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

The Foreign Affairs article

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

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

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

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

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

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

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

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

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

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

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

Congressional Hearings

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

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

17JUN2020LIGHTHIZERSTMNT1

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

061720-Wyden-Trade-Agenda-Hearing-Opener1

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

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

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

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

Grassley-at-Hearing-on-the-President

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

Qatar’s WTO dispute with Saudi Arabia — panel report released on June 16, 2020

A panel report in the dispute between Qatar and Saudi Arabia, Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights, WT/DS567/R, was released to the public today, June 16th.

Saudi Arabia and a number of other countries in the MENA (Middle East and North Africa) region had severed all relations with Qatar on June 5, 2017. Report, Section 2.2.2. “The June 2017 severance of relations and events leading up to it”. A Qatari company with exclusive rights of broadcasting in the MENA region (including Saudi Arabia) a range of sports for various leagues around the world found its materials used by a Saudi company without authorization. The Qatari company was unable to hire Saudi counsel to pursue enforcement actions in Saudi Arabia and criminal actions were not pursued by the Saudi government.

The dispute was one of several by Qatar against Members who cut off all relations for alleged violations of WTO Agreements. In the challenge of Saudi Arabia, various violations of the Trade-Related Aspects of Intellectual Property Rights Agreement were alleged by Qatar. While Saudi Arabia participated in the panel process, its main argument was that the matter was not properly the subject of dispute settlement or was justified by TRIPS Article 73.

Because the question of whether actions by countries pursuant to their national security concerns are properly the subject of WTO dispute settlement is important to many Members and in a number of ongoing disputes, there were many third parties (13 in total) to the dispute, including the United States, the European Union, China, Canada, Japan and others.

Panel findings

The panel did not find that the issues presented could not be decided by the panel. Based on the facts that were before the panel, the panel report had little trouble finding violations of various TRIPS Articles, with the key issue being whether security interests of the defending Member permitted an override of the other obligations. On this latter issue, the panel had different views on the two main violations, finding one (Art. 41.1 and 42) covered by the security exceptions and the other (Art. 61) not. More specifically, the panel found that the inability of the Qatari company to obtain local counsel in Saudi Arabia flowed directly from Saudi Arabia’s actions considered “necessary for the protection of its essential security interests” and which were “taken in time of war or other emergency in international relations.” TRIPS Art. 73(b) and (b)(iii). The panel did not find that the claim surrounding the non-application of criminal procedures and penalties to the Saudi company was factually related to the worsened relationship between Saudi Arabia and Qatar and hence did not find Art. 73 overrode the violation of TRIPS Art. 61.

The conclusion to the panel report is embedded below.

567r_conc_e

The earlier case that looked at security interests under the GATT, Russia – Measures Concerning Traffic in Transit, WT/DS512/R (adopted 26 April 2019; panel report was not appealed), was an object of interest for a number of the third parties who filed comments. While the U.S. supported the Saudi position that security interests are a matter of self-determination and are not subject to dispute settlement, that view was not supported by most other Members including Canada, China, the EU or Japan. WT/DS567/R/Add.1 at Annex C-4 (Canada), C-5 (China), C-6 (European Union), C-7 (Japan), C-13 (United States). With many countries (but not Japan) having challenges to the United States Section 232 national security action on steel and aluminum pending before panels, the third party positions mirror arguments being presented in those other disputes.

Next Steps

It is not clear that either Qatar or Saudi Arabia will pursue arbitration under DSU Art. 25 or some other approach to reach a final resolution of the dispute. While Saudi Arabia lost the overarching issue at the panel stage, having cut off all relations with Qatar, it is unclear why it would pursue next steps. For Qatar, having obtained a legal victory on some issues at the panel stage and with relations severed with Saudi Arabia, it is unclear what additional benefit they get from pursuing arbitration. They could decide to leave the issue for later appeal by agreeing with Saudi Arabia that they reserve the right to appeal at such time as the Appellate Body is functioning again. As neither Qatar nor Saudi Arabia are parties to the interim arbitration agreement that the EU and 20 other WTO Members are party to (JOB/DSB/1/Add.12, 13 and 14), any decision to pursue arbitration would have to be negotiated between the two countries including procedures, etc.

Conclusion

The panel report released today is important both in terms of providing some interpretation of TRIPS provisions but also for its interpretation of TRIPS Art. 73, which mirrors the language in GATT Art. XXI.

Bigger panel decisions are due out later this year in the large number of challenges to U.S. Section 232 of the Trade Expansion Act of 1962, as amended, and the actions taken on steel and aluminum products. The U.S. now has two panel reports that don’t agree with the U.S. basic premise that determination of national security interests and appropriate actions to take to defend are matters for Members to determine on their own without review by the dispute settlement system.

Assuming that the upcoming panel decisions go against the United States on that core principle, how the U.S. responds will depend on whether the panel report otherwise upholds the U.S. action as permissible in fact. If the U.S. loses the cases in toto, look for the U.S. to not accept the panel results, and to either negotiate with trading partners individually or take no action. The many countries who took unilateral retaliatory action without WTO disputes will likely continue to do so and may increase the level of retaliation based on the specifics of the decision.

At the same time, the United States has filed a series of challenges to the unilateral imposition of retaliation duties by many trading partners who treated Section 232 relief as being safeguard relief or without any WTO justification. Assuming that the U.S. wins all of these cases at the panel stage, the net outcome for the U.S. and each individual WTO member who has challenged Section 232 relief will depend on the combination of results and presumably bilateral consultations. It is unlikely that the United States will engage in arbitration with any of the disputants.