Vietnam

USTR releases report from Section 301 investigation on Vietnam’s currency valuation

USTR started two 301 investigations on actions by Vietnam, one of which dealt with Vietnam’s currency valuation and whether Vietnam’s actions violate Section 301. On January 15, 2021, USTR released a press release announcing the results of the investigation.

“The U.S. Trade Representative has issued findings in the Section 301 investigation of Vietnam’s acts, policies, and practices related to currency valuation, concluding that Vietnam ’s acts, policies, and practices including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce. In making these findings, USTR has consulted with the Department of the Treasury as to matters of currency valuation and Vietnam’s exchange rate policy. The findings in this investigation are supported by a comprehensive report, which is being published today on USTR’s website.

“‘Unfair acts, policies and practices that contribute to currency undervaluation harm U.S. workers and businesses, and need to be addressed,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘I hope that the United States and Vietnam can find a path for addressing our concerns.’”

USTR press release, USTR Releases Findings in Section 301 Investigation of Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, January 15, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-section-301-investigation-vietnams-acts-policies-and-practices-related.

The report and notice sent to the Federal Register are embedded below. USTR has not recommended action at this point, leaving resolution to the next Administration.

Vietnamcurrency301report

VietnamCurrencyFRN

As reviewed in a prior post, Vietnam’s currency practices have been found countervailable by the U.S. Department of Commerce, and Vietnam has been found to be a currency manipulator by the Department of the Treasury in the most recent semi-annual report. See December 21, 2020, Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report, https://currentthoughtsontrade.com/2020/12/21/vietnam-and-switzerland-found-to-be-currency-manipulators-in-latest-u-s-treasury-semiannual-report/.

Vietnam has had rapid export growth to the United States and through 11 months of 2020 had the third largest trade surplus with the U.S. at $63.68 billion, trailing only China and Mexico. The U.S. trade deficit with Vietnam has surged from a 2017 deficit of $38.34 billion (full year). Thus, problems of currency valuation to the extent it supports an artificially undervalued currency encourages exports to the U.S. and limits U.S. exports to Vietnam. U.S. imports for consumption for the first eleven months of 2020 from Vietnam were $71.21 billion, with sixteen 4-digit HS categories showing imports from Vietnam of more than $1 billion in 2020 (the largest being over $11 billion). Failure to resolve the matter bilaterally to the satisfaction of the U.S. could result in additional duties being applied to all imported goods from Vietnam.

While U.S. importers who have shifted supply from China to Vietnam for products are assuming additional duties will be imposed, the current USTR is taking no action, meaning whatever action occurs will be left to the incoming Biden team. Unlike many press releases, USTR Lighthizer has indicated that he hopes “that the United States and Vietnam can find a path for addressing our concerns.’” Considering the stakes, look for a resolution without additional duties during the first quarter of 2021.

Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report

In the United States, there has long been a concern that trading partners not generate an artificial advantage in international trade by taking steps to undervalue their currencies. The United States Department of the Treasury issues a semiannual report which now examines major trading partners against two U.S. laws to see if consultations are appropriate with particular trading partners. The latest report was issued earlier this month on December 16th. See U.S. Department of the Treasury, Office of International Affairs, R E P O R T T O C O N G R E S S, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, December 2020, https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf. The press release that accompanied the release of the report is copied below.

“Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States

“December 16, 2020

“WASHINGTON – The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters ending June 2020.

The Report concluded that both Vietnam and Switzerland met all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review. Treasury consequently conducted enhanced analysis of Vietnam and Switzerland in the Report and will also commence enhanced bilateral engagement with each country in accordance with the 2015 Act. This engagement will include urging the development of a plan with specific policy actions to address the underlying causes of currency undervaluation and external imbalances.

Treasury also determined that, under the Omnibus Trade and Competitiveness Act of 1988 (the1988 Act), both Vietnam and Switzerland are currency manipulators. For each country, Treasury assessed, based on a range of evidence and circumstances, that at least part of its exchange rate management over the four quarters through June 2020, and particularly foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments and, in the case of Vietnam, for gaining unfair competitive advantage in international trade as well. Consistent with the 1988 Act, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments and eliminate the unfair advantages in trade that result from their actions.”

The Socialist Republic of Vietnam

Vietnam in particular is under pressure from the United States to clean up its currency practices.

First, the U.S. Department of Commerce has preliminarily found that its currency practices are countervailable subsidies in the passenger vehicle and light truck tire investigation. See U.S. Department of Commerce, International Trade Administration, C-552-829, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 Fed. Reg. 71607-71610 (November 10, 2020); U.S. Department of Commerce Issues Affirmative Preliminary Countervailing Duty Determination for Passenger Vehicles and Light Truck Tires from Vietnam, November 4, 2020,ihttps://www.commerce.gov/news/press-releases/2020/11/us-department-commerce-issues-affirmative-preliminary-countervailing (“Among the subsidies preliminarily countervailed is Vietnam’s undervalued currency – making this the first time that Commerce has ever made an affirmative CVD determination regarding a foreign currency with a unitary exchange rate.”).

Second, the U.S. Trade Representative earlier this year commenced two Section 301 investigations on practices of Vietnam, one of which involves its undervalued currency. See Office of the United States Trade Representative, Docket No USTR-2020-0037, Initiation of Section 301 Investigation: Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, 85 Fed. Reg. 63637-63638 (October 8, 2020); Office of the United States Trade Representative, Notice of Public Hearing in Section301 Investigation of Vietnam’s Acts, Policies and Practices Related to Currency Valuation, 85 Fed. Reg. 75397-98 (November 25, 2020). The notice of initiation contained the following description of the currency practices of concern to the U.S.:

“The Government of Vietnam, through the State Bank of Vietnam (SBV), tightly manages the value of its currency—the dong. The SBV’s management of Vietnam’s currency is closely tied to the U.S. dollar. Available analysis indicates that Vietnam’s currency has been undervalued over the past three years. Specifically, analysis indicates that the dong was undervalued on a real effective basis by approximately 7 percent in 2017 and by approximately 8.4 percent in 2018. Furthermore, analysis indicates that the dong’s real effective exchange rate was undervalued in 2019 as well.

“Available evidence also indicates that the Government of Vietnam, through the SBV, actively intervened in the exchange market, which contributed to the dong’s undervaluation in 2019. Specifically, the evidence indicates that in 2019, the SBV undertook net purchases of foreign exchange totaling approximately $22 billion, which had the effect of undervaluing the dong’s exchange rate with the U.S. dollar during that year. Analysis suggests that Vietnam’s action on the exchange rate in 2019 caused the average nominal bilateral exchange rate against the dollar over the year, 23,224 dong per dollar, to be undervalued by approximately 1,090 dong per dollar relative to the level consistent the equilibrium real effective exchange rate.” (85 FR 63637-38).

Third, are the Treasury Department findings under both statutes in its semi-annual report, findings which support USTR concerns being explored in the ongoing Section 301 investigation.

Thus, the pressure for Vietnam to address U.S. concerns on its currency practices is mounting.

Switzerland

For Switzerland, the pressure to date is arising only under the Treasury Department semiannual report. Treasury’s concerns as laid out in the Executive Summary of the semiannual report are copied below.

Treasury Conclusions Related to Switzerland

“Switzerland met all three criteria under the 2015 Act over the four quarters through June 2020. Treasury has conducted enhanced analysis of Switzerland in this Report and will also commence enhanced bilateral engagement with Switzerland in accordance with the Act. The bilateral engagement will include urging the development of a plan with specific policy actions to address the underlying causes of Switzerland’s external imbalances.

“The Swiss franc has long been considered a safe haven currency that investors acquire during periods when global risk appetite recedes or financial volatility accelerates. These large safe haven flows pose challenges for Swiss macroeconomic policymakers, particularly in a period of negative interest rates and deflation. The Swiss National Bank (SNB) over the years has employed a range of tools to try to offset appreciation pressure on the franc and limit any associated negative impacts on inflation and domestic growth. Over the second
half of 2019 and particularly in the first six months of 2020, Switzerland conducted largescale one-sided intervention, significantly larger than in previous periods, to resist appreciation of the franc and reduce risks of deflation, as the SNB’s policy interest rates were significantly negative. While we recognize the extraordinary financial volatility in the first half of 2020 resulting from the COVID-19 crisis, the intervention was taken in the context of an extremely large current account surplus along with a growing bilateral trade
surplus with the United States and contributed to stemming the appreciation of the franc on a real, trade-weighted basis. Further franc appreciation would help facilitate gradual adjustment of Switzerland’s excessive current account surplus. Treasury therefore assesses, based on a range of evidence and circumstances, that at least part of Switzerland’s exchange rate management over the four quarters through June 2020, and particularly its foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments. Hence, Treasury has determined under the 1988 Act that Switzerland is a currency manipulator. In the context of forthcoming negotiations with the Swiss authorities, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments.

“• Switzerland was one of the countries in Europe hit early and hard by COVID-19, leading the government to declare a national state of emergency in mid-March. The number of active and new cases declined sharply from mid-to-late April but started rising again from mid-June as the authorities eased public health and mobility restrictions. Since mid-October, the number of new COVID-19 cases has surged, with new infections significantly above spring 2020 highs, leading the Swiss Federal Council to re-introduce several containment measures.

“Switzerland has for many years run extremely large current account surpluses, with the surplus reaching 10.9% of GDP in 2019. The current account surplus declined marginally, but remained elevated, at 8.8% of GDP over the four quarters through June 2020. The United States’ goods trade deficit with Switzerland widened notably over the last year, reaching $49 billion over the four quarters through June 2020, due partially to an increase in Swiss gold exports in the first half of 2020. The SNB disclosed that it spent $93 billion (90 billion francs) on currency interventions in the first half of 2020. Between July 2019 and June 2020, Treasury estimates that SNB net foreign purchases have totaled $103 billion (or 14% of GDP).

“Switzerland should employ a more balanced macroeconomic policy mix. Monetary policy continues to be relied on heavily despite the reduced effectiveness of unconventional tools, especially against a backdrop of persistent deflationary risks. We urge the SNB to deploy a broader and more balanced mix of monetary policy instruments, including domestic quantitative easing. Central to this recommended recalibration of monetary policy, we continue to urge the SNB to limit foreign exchange intervention to lean against large appreciation surges and allow real appreciation in line with the long-term trend. Treasury welcomes the SNB’s recent step to disclose foreign exchange intervention on a quarterly basis. Increased frequency of these disclosures – such as on a monthly basis – will help further improve transparency of the SNB’s actions. Fiscal policy should be deployed to reduce the economy’s reliance on the SNB’s policy measures, rebalance its external sector, and boost potential growth. The authorities should also take steps to raise potential growth by raising labor force participation rates and productivity growth, actions that would reduce Switzerland’s external imbalances and reliance on unconventional monetary policy.” (pages 5-6)

Conclusion

As exchange rates can move by large amounts in short periods of time, whether currencies are properly aligned can be critical to achieving the benefits of liberalized trade and not seeing trade distorted because of over- or undervaluation of one or more currencies. In its recent semiannual report, Treasury notes that the IMF views the U.S. dollar as significantly overvalued which by itself reduces U.S. exports and expands U.S. imports. If the overvaluation is created in part by trading partners deliberately undervaluing their currencies, there is a significant cost to Americans in terms of jobs and performance of companies. Indeed, many industries and workers have been concerned for decades that misaligned currencies were costing the U.S. jobs and manufacturing production and capacity. Congress was pressured for the last several decades to require Treasury to better analyze whether currencies were artificially valued by government action and to call out those countries who were engaged in such activities and to consult to achieve a correction. Last week’s semiannual report reflects the Congressional demand for a more fact-based analysis.

Beside Treasury, under the Trump Administration, there is greater ability of other U.S. agencies or entities to address problems posed by currency misalignment that is caused, at least in part, by government actions. Thus, Vietnam is having to deal with the U.S. Commerce Department, the U.S. Trade Representative and the U.S. Treasury Department.

It is to be hoped that the U.S. focus on important trading partners who have undervalued currencies caused in part by government interventions will be continued by the incoming Biden Administration. Currency misalignment can cause significant distortions in trade flows. A multipronged approach to addressing such problems has been and continues to be needed.

WTO Accessions — perhaps the most valuable benefit for Members in the first 25 years of the WTO’s existence

Much has been written about the challenges facing the World Trade Organization twenty-five years after its birth at the beginning of 1995.

The Appellate Body (“AB”) has ceased functioning with the United States blocking the appointment of new AB members based on longstanding problems with the Dispute Settlement system that have not been addressed. There are fundamental differences among major Members in what the proper role of the dispute settlement system is. Because the AB’s view of its role has differed from that of at least some of the Members, many delegations have opted to litigate instead of negotiate on issues which are not covered by the actual language of existing agreements.

The negotiating function of the WTO has had limited success in the first 25 years of the WTO reflecting deep differences among Members in priorities and the core function of the WTO. The inability to update rules or develop new rules to address 21st century commercial realities has called into question the ongoing relevance of the organization Members have failed to honor agreement directions for periodic liberalization updates in agriculture and services trade. Members have also taken decades to tackle issues of pressing time sensitivity, such as fisheries subsidies.

And there are problems in the timeliness and completeness of notifications required by many agreements and the quality of the work of many of the Committees.

A bright spot for an organization in trouble has been the success of bringing additional countries and territories into the organization. Of the 164 members at present, 36 have joined since the WTO opened in 1995 and some 23 countries or territories are in the accession process at the moment. Some 98% of global trade is now covered by WTO Members. While there are many reasons for countries or territories to join the WTO, including integrating into the global economy and improving the competitiveness of the economy (Deputy Director-General Alan Wolff describes the benefits of accession as being a catalyst for domestic reform and economic growth), there is no doubt that accessions are of benefit to the global trading system and bring the benefits of liberalization in the acceding country or territory to the existing WTO membership. Indeed, commitments of acceding Members in terms of tariff liberalization and other obligations typically are far higher than the commitments of existing Members at the same economic stage of development. Yet, accession is of great benefit to acceding countries. See WTO press release, 8 November 2020, DDG Wolff: WTO accession is a catalyst for domestic reform and economic growth, https://www.wto.org/english/news_e/news20_e/ddgaw_06nov20_e.htm. DDG Wolff, in speaking to Arab countries in the accession process made the following comments:

“Furthermore, during the last eight months, the world has experienced unprecedented levels of disruptions in people’s daily lives and their economic activities due to Covid-19. The world is not near the end of this crisis. Despite these challenging times, trade has played a key role in addressing local shortages of food, medical supplies and other essentials during the pandemic.

“Trade will have to play an even greater role in supporting recovery of the global economy going forward. In this context, we should recognise the important role played by Saudi Arabia in steering the G20 during this difficult year, urging collective and multilateral cooperation. The Riyadh Initiative is a praiseworthy effort endorsed by the G20 nations.

“The Arab region has not escaped the dire economic consequences of this pandemic. For some, the steep fall in oil prices has aggravated existing problems. A crisis, however, also presents opportunities for closer international cooperation to limit the harm from the pandemic and to spur the recovery.

“These issues demonstrate that more, not less, global and regional trade integration is required. Integration into the world economy goes hand in hand with necessary domestic reforms. This is where WTO accession makes particularly valuable contributions. Those engaged in the reform-driven accession process are likely to experience a quicker recovery and greater resilience in the future.

“Based on evidence from the 36 accessions which have been successfully completed, the WTO accession process has served as an effective external anchor for domestic reforms, acting as a catalyst in realizing the potential of their economies. According to the last WTO Director-General’s Annual Report on WTO Accessions, Article XII Members have registered higher growth rates of GDP and trade (exports and imports), as well as increased flows of inward FDI stocks, in the years following their accession compared to the rest of the world. These results indicate that integrated, open economies tend to grow faster. In addition, by signalling a government’s commitment to international rules, WTO membership appears to also encourage the inflow of foreign investment.

“The accession process has been used by resource-based countries to diversify their economies. Economic diversification is one of the major priorities for the governments in the Arab region. Our 2016 study examined whether countries’ export structures became more diversified after gaining WTO membership. This was true for about half of the recently acceded
Members, which increased the number of exported products, measured in HS chapters, accounting for more than 60% of their exports after accession. This was achieved often through rebranding their economies with WTO membership and attracting increased FDI.”

From 1995-2016, the thirty-six countries or territories that joined the WTO included many of the major economies that were not original Members of the WTO. These included China, Chinese Taipei, Saudi Arabia, Vietnam, Ukraine, and the Russian Federation. The other countries or territories who have joined represent a wide cross-section of geographic regions and levels of development: Ecuador, Bulgaria, Mongolia, Panama, Kyrgyz Republic, Latvia, Estonia, Jordan, Georgia, Albania, Oman, Croatia, Lithuania, Moldova, Armenia, North Macedonia, Nepal, Cambodia, Tonga, Cabo Verde, Montenegro, Samoa, Vanuatu, Lao People’s Democratic Republic, Tajikistan, Yemen, Seychelles, Kazakhstan, Liberia, and Afghanistan. No accessions have been completed since 2016.

The twenty-three countries and territories that are in the process of accession often are countries or territories that have suffered from years of conflict. This has led the WTO to host the first “Trade for Peace Week” from November 30-December 4, 2020. See WTO press release, 25 November 2020, WTO to host first Trade for Peace Week, https://www.wto.org/english/news_e/news20_e/acc_25nov20_e.htm.

“In announcing the Trade for Peace Week, Deputy Director-General Alan Wolff noted: ‘The 2030 Agenda for Sustainable Development recognizes international trade as an engine for inclusive economic growth and poverty reduction that contributes to the promotion of sustainable development. This in turn can facilitate building and maintaining peace. The connection between trade and peace is the raison d’être for the creation of the rules-based multilateral trading system that led to economic recovery and prosperity after the devastation from World War II.’

“Currently, 23 countries are in the process of joining the WTO, and over a half of them suffer from a fragile situation from years of conflicts. Launched in 2017, the Trade for Peace initiative aims to assist fragile and conflict-affected (FCA) countries through WTO accession, with the emphasis on institution building based on the principles of non-discrimination, predictability, transparency and the rule of law. Based on experiences of former FAC countries, WTO accession can help set the conditions to move out of a state of fragility or conflict into a state of stability, economic well-being and peace.”

There are ten events this week. The public can register to participate in the virtual panels. See WTO Accessions, Trade for Peace Week, https://www.wto.org/english/thewto_e/acc_e/t4peace2020_e.htm.

DDG Wolff spoke at one of today’s event and his comments are embedded below. See WTO press release, November 30, 2020, DDG Alan Wolff – DDG Wolff calls for more structured WTO cooperation with humanitarian and peace communities, https://www.wto.org/english/news_e/news20_e/ddgaw_30nov20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff-calls-for-more-s

The twenty-three countries and territories in the process of accession include: Algeria, Andorra, Azerbaijan, Bahamas, Belarus, Bhutan, Bosnia and Herzegovina, Comoros, Curacao, Equatorial Guinea, Ethiopia, Iran, Iraq, Lebanese Republic, Libya, Sao Tome and Principe, Serbia, Somalia, South Sudan, Sudan, Syrian Arab Republic, Timor-Leste, and Uzbekistan.

Conclusion

The genesis for the GATT and the other Bretton Woods institutions was a desire to provide an infrastructure and global rules to minimize the likelihood of future world wars. Cooperation, collaboration and integration would all reduce the likelihood of global conflict.

The WTO provides the opportunity for countries or territories struggling to escape violence to embark on a path of hope. That is a core mission of the WTO today just as it was for the GATT in the late 1940s.

Moreover, the record over the first twenty-five years of the WTO’s existence has been that those countries and territories who take the challenging steps to become Members of the WTO improve their economies and speed growth, development and foreign direct investment. Accessions also offer real improvements in market access for existing WTO Members. A true win-win situation.

For an organization struggling to maintain relevance amidst deep divisions among Members who seem to have lost the consensus on the core purpose of the organization, the pilgrimage of non-member countries and territories to join the organization is a beacon of hope. Serious reforms and updating of the rule book are desperately needed for a better functioning system where outcomes are based on underlying economic strengths and not the interference of governments. A willingness of Members to refocus on what the purpose of the WTO is in fact and to be supporters of contributing to the maximum of one’s ability will be key to forward movement. Inspiration can be drawn from the efforts of non-members to join.

Regional Comprehensive Economic Partnership signed on November 15, 2020

On Sunday, November 15, 2020, fifteen countries signed the Regional Comprehensive Economic Partnership which will “enter into force for those signatory States that have deposited their instrument of ratification, acceptance, or approval, 60 days after the date on which at least six signatory States which are Member States of ASEAN and three signaotry States other than Members States of ASEAN have deposited their instrument of ratification, acceptance, or approval with the Depositary.” RCEP Article 20.6.2.

The fifteen countries signing the RCEP are the ten ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — and five others (Australia, China, Japan, New Zealand and the Republic of Korea). India had participated in negotiations but withdrew in late 2019. According to a CNN article, “The Regional Comprehensive Economic Partnership spans 15 countries and 2.2 billion people, or nearly 30% of the world’s population, according to a joint statement released by the nations on Sunday, when the deal was signed. Their combined GDP totals roughly $26 trillion and they account for nearly 28% of global trade based on 2019 data.” CNN Business, November 16, 2020, China signs huge Asia Pacific trade deal with 14 countries, https://www.cnn.com/2020/11/16/economy/rcep-trade-agreement-intl-hnk/index.html.

The Joint Statement released on the 15th is copied below.

“Joint Leaders’ Statement on The Regional Comprehensive Economic Partnership (RCEP)

“We, the Heads of State/Government of the Member States of the Association of Southeast Asian Nations (ASEAN) – Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam – Australia, China, Japan, Korea and New Zealand, met virtually on 15 November 2020, on the occasion of the 4th RCEP Summit.

We were pleased to witness the signing of the RCEP Agreement, which comes at a time when the world is confronted with the unprecedented challenge brought about by the Coronavirus Disease 2019 (COVID-19) global pandemic. In light of the adverse impact of the pandemic on our economies, and our people’s livelihood and well-being, the signing of the RCEP Agreement demonstrates our strong commitment to supporting economic recovery, inclusive development, job creation and strengthening regional supply chains as well as our support for an open, inclusive, rules-based trade and investment arrangement. We acknowledge that the RCEP Agreement is critical for our region’s response to the COVID-19 pandemic and will play an important role in building the region’s resilience through inclusive and sustainable post-pandemic economic recovery process.”

https://asean.org/joint-leaders-statement-regional-comprehensive-economic-partnership-rcep-2/

The agreement has twenty chapters some of which have annexes:

  1. Initial Provisions and General Definitions
  2. Trade in Goods
  3. Rules of Origin
  4. Customs Procedures and Trade Facilitation
  5. Sanitary and Phytosanitary Measures
  6. Standards, Technical Regulations, and Conformity Assessment Procedures
  7. Trade Remedies
  8. Trade in Services
  9. Temporary Movement of Natural Persons
  10. Investment
  11. Intellectual Property
  12. Electronic Commerce
  13. Competition
  14. Small and Medium Enterprises
  15. Economic and Technical Cooperation
  16. Government Procurement
  17. General Provisions and Exceptions
  18. Institutional Provisions
  19. Dispute Settlement
  20. Final Provisions

The full RCEP agreement and country schedules of tariff commitments can be found in English at the webpage for RCEP, https://rcepsec.org/legal-text/ as well as on various individual signatory web pages. See, e.g., the Australian Government, Department of Foreign Affairs and Trade, https://www.dfat.gov.au/trade/agreements/not-yet-in-force/rcep/rcep-text-and-associated-documents.

A summary of the agreement from the ASEAN webpage is embedded below. https://asean.org/storage/2020/11/Summary-of-the-RCEP-Agreement.pdf.

Summary-of-the-RCEP-Agreement

From the chapter titles, it is clear that the Agreement does not deal with issues such as labor or environment. While there is a chapter on trade remedies, a review shows no expanded rules on industrial subsidies – a matter of concern for many countries dealing with China. Similarly, under the competition chapter, the only reference (and it is indirect) to state-owned or state-invested enterprises is contained in Article 13.3.5 (“Article 13.3: Appropriate Measures against Anti-Competitive
Activities”). “Each Party shall apply its competition laws and regulations to all entities engaged in commercial activities, regardless of their ownership. Any exclusion or exemption from the application of each Party’s competition laws and regulations, shall be transparent and based on grounds of public policy or public interest.” (Emphasis added).

RCEP Chapter 7, Trade Remedies

While subsequent posts will look at other aspects of the RCEP Agreement, this post looks at Chapter 7, Trade Remedies. For convenience, the chapter is embedded below.

rcep-chapter-7

Safeguard actions

Section A of Chapter 7 deals with RCEP safeguard measures. The RCEP safeguard measure is intended to be available for a transitional period that extends to a period that is eight years after the tariff elimination or reduction on a specific good is scheduled to occur. Relief can be in the form either of stopping tariff reductions or snapping the tariff back to the MFN rate at the lower of the rates applicable at the date of entry into force of the Agreement for the country in question or the MFN rate on the date when the transitional RCEP safeguard measure is put in place. There is a three year limit on relief, with a one year extension in certain circumstances. If relief is for more than a year, the relief provided is to be reduced “at regular intervals”. Relief is not available against imports from a RCEP party whose imports are less than 3% of total imports from the RCEP parties or if the RCEP party is a Least Developed Country. RCEP has three members who are Least Developed Countries (LDCs) according to the UN’s 2020 list – Cambodia, Laos and Myanmar. Compensation is required and if not agreed to, then the party subject to the RCEP safeguard “may suspend the application of substantially equivalent concessions” on goods from the party applying the safeguard. No compensation is required during the first three years of relief if there has been an absolute increase in imports. No compensation will be requested from an LDC.

RCEP countries preserve their rights under the WTO to pursue global safeguard measures. RCEP parties are not to apply both a RCEP safeguard and a global safeguard to the same good at the same time.

Antidumping and Countervailing Duties

Section B of Chapter 7 deals with antidumping and countervailing duties. While the Section starts by noting that parties “retain their rights and obligations under Article VI of GATT 1994, the AD Agreement, and the SCM Agreement,” the section adds clarity to notice and consultation requirements, timing of notice and information required for verification, maintaining a non-confidential file available to all parties and other matters. The biggest addition to parties rights and obligations is the acceptance of a “Prohibition on Zeroing” in dumping investigations and reviews. Article 7.13.

“When margins of dumping are established, assessed, or reviewed under
Article 2, paragraphs 3 and 5 of Article 9, and Article 11 of the AD Agreement, all individual margins, whether positive or negative, shall be
counted for weighted average-to-weighted average and transaction-to- transaction comparison. Nothing in this Article shall prejudice or affect
a Party’s rights and obligations under the second sentence of subparagraph 4.2 of Article 2 of the AD Agreement in relation to weighted average-to-transaction comparison.”

Considering the centrality of the WTO dispute settlement decisions on “zeroing” to the U.S. position on overreach by the Appellate Body, the actions of the RCEP parties to add the obligation contained in RCEP Art. 7.13 to their approach to antidumping investigations will almost certainly complicate the ability of the WTO to move past the impasse on the Appellate Body.

Conclusion

The RCEP Agreement is an important FTA in the huge number of such agreements entered by countries around the world. There will certainly be advantages for the RCEP countries from the regional trade liberalization and the common rules of origin adopted.

Pretty clearly, the RCEP has not dealt with some of the fundamental challenges to the global trading system from the rise of economic systems that are not premised on market-economy principles. While such issues can be addressed in the WTO going forward, the ability of China to get a large number of trading partners to open their markets without the addressing of the underlying core distortions from the state directed economic system that China employs suggests that the road to meaningful reform has gotten longer with the RCEP Agreement.

Nor have the RCEP countries chosen to include within the RCEP action on issues like the environment which are of growing importance to the ability to have sustainable development. Again while such issues can be addressed in the WTO, they are also being addressed in bilateral and plurilateral agreements by other countries and including some of the RCEP countries. Thus, RCEP is a lost opportunity for leadership by China on issues of great importance to its citizens and those of all RCEP parties.

Third Round of Consultations in Selecting new WTO Director-General – eight days to go, political outreach continues at high level

The last WTO Director-General, Roberto Azevedo, departed at the end of August. The existing four Deputy Directors-General are overseeing WTO operations awaiting the outcome of the selection process for a new Director-General. While eight candidates were put forward by early July and had two months to “become known” to WTO Members, the process of winnowing down the candidates started in September and has gone through two rounds where the candidate pool went from eight to five to two. Which brings the WTO to the third and final round of consultations by the troika of Chairs of the General Council, Dispute Settlement Body and Trade Policy Review Body with the WTO Membership to find the one candidate with the broadest support both geographically but also by type of Member (developed, developing, least developed).

The third round started on October 19 and will continue through October 27. While the process is confidential, with each Member meeting individually with the troika and providing the Member’s preference, Members can, of course, release information on the candidate of their preference if they so choose.

The two candidates who remain in contention are Minister Yoo Myung-hee of the Republic of Korea and Dr. Ngozi Okonjo-Iweala of Nigeria. While all eight of the candidates who were put forward in June and July were well qualified, Minister Yoo and Dr. Okonjo-Iweala have received high marks from WTO Members from the very beginning. While Minister Yoo has the advantage in terms of trade background, Dr. Okonjo-Iweala has an impressive background as a former finance minister, 25 years at the World Bank and her current role as Chair of GAVI.

The procedures for selecting a new Director-General which were agreed to in late 2002 by the General Council put a primary focus on qualifications as one would assume. However, where there are equally well qualified candidates then geographical diversity is specifically identified as a a relevant criteria. There has never been a Director-General from Africa and there has only been one Director-General from Asia (although there was also a Director-General from the Pacific area outside of Asia). With the UN Sustainable Development Goals including one on gender equality (SDG #5), many Members have also been interesting in seeing a Director-General picked from the women candidates. Since both of the two remaining candidates are women, geographical diversity will likely have an outsized role in the third round .

Both remaining candidates are receiving strong support from their home governments in terms of outreach to foreign leaders seeking support for their candidate. The candidates, of course, are also extremely busy with ongoing outreach.

Thus, Minister Yoo traveled back to Europe last week and had a meeting with the EC Trade Commissioner Dombrovskis on October 13, among other meetings. See https://ec.europa.eu/commission/presscorner/detail/en/cldr_20_1935; Yonhap News Agency, Seoul’s top trade official to visit Europe to drum up support her WTO chief race, October 12, 2020, https://en.yna.co.kr/view/AEN20201012003300320?section=business/industry;

Similarly, the Korean President Moon Jae-in, Prime Minister Chung Sye-kyun and the ruling Democratic Party (DP) Chairman Lee Nak-yon are engaged in outreach for Minister Yoo’s candidacy. Korea JoongAng Daily, October 12, 2020, Moon, allies intensify campaign for Yoo Myung-hee to head WTO, https://koreajoongangdaily.joins.com/2020/10/12/national/politics/Yoo-Myunghee-WTO-Moon-Jaein/20201012172600409.html. Contacts have been made with heads of state or senior officials in Malaysia, Germany, Brazil, Colombia, Sri Lanka, Guatemala, Japan and the U.S. among others. See The Korea Times, October 20, 2020, Government goes all out for Yoo’s WTO election Government goes all out for Yoo’s WTO election, https://www.koreatimes.co.kr/www/nation/2020/10/120_297887.html. President Moon has also raised the issue of support with new ambassadors to Korea — including the German, Vietnamese, Austrian, Chilean, Pakistani and Omani ambassadors. Yonhap News Agency, October 16, 2020, Moon requests support for S. Korea’s WTO chief bid in meeting with foreign envoys, https://en.yna.co.kr/view/AEN20201016008600315.

Minister Yoo is reported to be having problems in solidifying support from some major Asian Members — including China and Japan — for reasons at least partially separate from her qualifications and is facing what appears to be block support by African WTO Members for Dr. Okonjo-Iweala. Thus, broad outreach in Asia, the Americas and in Europe will be important for Minister Yoo if she is to be the last candidate standing on October 28-29.

Dr. Okonjo-Iweala is similarly receiving strong support from her government where President Muhammadu Buhari indicated full support by the Nigerian government. See The Tide News Online, Ocotber 14, 2020, Buhari Backs Okonjo-Iweala For WTO Job, http://www.thetidenewsonline.com/2020/10/14/buhari-backs-okonjo-iweala-for-wto-job/. Press accounts report that Dr. Okonjo-Iweala has the full backing of the African Union as well as support in both the Americas and Asia. See RTL Today, October 19, 2020, ‘I feel the wind behind my back’: Nigerian WTO candidate, https://today.rtl.lu/news/business-and-tech/a/1596831.html. Many have felt that Dr. Okonjo-Iweala is the candidate to beat, and she is certainly helped by the support of the African Union WTO Members but will also need broad support in the other regions of the world to be the one remaining candidate.

With just eight days to go to the conclusion of the third round of consultations, the remaining two candidates and their governments are turning over every stone in their effort to generate the support needed to come out of the third round as the sole candidate left.

While the candidate announced on October 29 as the remaining candidate still has to be put forward to the General Council for consensus adoption as the new Director-General, it seems unlikely at the moment that either candidate, should she emerge as the preference of the WTO membership, would be blocked by a Member from becoming the next Director-General. While such blockage is always a possibility, the 2002 agreed procedures have prevented such blockage and hopefully will result in a clean conclusion this year as well.

It is certain to be an interesting end of October.

U.S. commences two investigations into Vietnam under Sec. 301 of the Trade Act of 1974, as amended — on currency and on use of illegally harvested timber

On October 2, 2020, the U.S. Trade Representative announced the launch of two investigations on Vietnam’s acts, policies and practices. One involves whether Vietnam through the State Bank of Vietnam has intervened to undervalue the Vietnamese currency. The other investigation looks at whether the timber used by Vietnam to generate furniture and other products is from illegally harvested or trade timber. The USTR statement from October 2 is copied below:

“At the direction of President Donald J. Trump, the Office of the U.S. Trade Representative (USTR) is initiating an investigation addressing two significant issues with respect to Vietnam. USTR will investigate Vietnam’s
acts, policies, and practices related to the import and use of timber that is illegally harvested or traded, and will investigate Vietnam’s acts, policies, and practices that may contribute to the undervaluation of its currency and the resultant harm caused to U.S. commerce. USTR will conduct the investigation under Section 301 of the 1974 Trade Act. As part of its investigation on currency undervaluation, USTR will consult with the Department of the Treasury as to issues of currency valuation and exchange rate policy.

“United States Trade Representative Robert E. Lighthizer said, ‘President Trump is firmly committed to combatting unfair trade practices that harm America’s workers, businesses, farmers, and ranchers. Using illegal timber in wood products exported to the U.S. market harms the environment and is unfair to U.S. workers and businesses who follow the rules by using legally harvested timber. In addition, unfair currency practices can harm U.S. workers and businesses that compete with Vietnamese products that may be artificially lower-priced because of currency undervaluation. We will carefully review the results of the investigation and determine what, if any, actions it may be appropriate to take.’

“USTR will issue two separate Federal Register notices next week that will provide details of the investigation and information on how members of the public can provide their views through written submissions.”

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/october/ustr-initiates-vietnam-section-301-investigation.

The two Federal Register notices were published on October 8. Initiation of Section 301 Investigation: Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, 85 Fed. Reg. 63637-68 (Oct. 8, 2020); Initiation of Section 301 Investigation : Vietnam’s Acts, Policies, and Practices Related to the Import and Use of Illegal Timber, 85 Fed. Reg. 63,639-70 (Oct. 8, 2020).

In each notice of initiation, USTR reviews the concerns leading to the 301 investigation, indicates that consultations with Vietnam have been requested, provides a timeline for the public to submit written comments and indicates that because of uncertainties from COVID-19, USTR is not scheduling a public hearing but “will provide further information in a subsequent notice if it will hold a hearing”. Public comments in both investigations are due on November 12, 2020.

The currency investigation flows from the following concerns identified in the notice of initiation.

“The Government of Vietnam, through the State Bank of Vietnam (SBV), tightly manages the value of its currency—the dong. The SBV’s management of Vietnam’s currency is closely tied to the U.S. dollar. Available analysis indicates that Vietnam’s currency has been undervalued over the past three years. Specifically, analysis indicates that the dong was undervalued on a real effective basis by approximately 7 percent in 2017 and by approximately 8.4 percent in 2018. Furthermore, analysis indicates that the dong’s real effective exchange rate was undervalued in 2019 as well.

“Available evidence also indicates that the Government of Vietnam, through the SBV, actively intervened in the exchange market, which contributed to
the dong’s undervaluation in 2019. Specifically, the evidence indicates that
in 2019, the SBV undertook net purchases of foreign exchange totaling
approximately $22 billion, which had the effect of undervaluing the dong’s
exchange rate with the U.S. dollar during that year. Analysis suggests that
Vietnam’s action on the exchange rate in 2019 caused the average nominal
bilateral exchange rate against the dollar over the year, 23,224 dong per dollar, to be undervalued by approximately 1,090 dong per dollar relative to the level consistent the equilibrium real effective exchange rate.” 84 FR 63637-38.

The public is asked to provide written comments on six issues:

“• Whether Vietnam’s currency is undervalued, and the level of the
undervaluation.

“• Vietnam’s acts, policies, or practices that contribute to undervaluation of its currency.

“• The extent to which Vietnam’s acts, policies, or practices contribute to the
undervaluation.

“• Whether Vietnam’s acts, policies and practices are unreasonable or discriminatory.

“• The nature and level of burden or restriction on U.S. commerce caused by the undervaluation of Vietnam’s currency.

“• The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.” 85 FR at 63638.

In the timber investigation, the background information which led to the initiation of the investigation is described as follows:

“Vietnam is one of the world’s largest exporters of wood products, including
to the United States. In 2019, Vietnam exported to the United States more than $3.7 billion of wooden furniture. To supply the timber inputs needed for its wood products manufacturing sector, Vietnam relies on imports of timber harvested in other countries. Available evidence suggests that a significant portion of that imported timber was illegally harvested or traded (illegal timber). Some of that timber may be from species listed under the
Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

“Evidence indicates that much of the timber imported by Vietnam was
harvested against the laws of the source country. Reports indicate that a
significant amount of the timber exported from Cambodia to Vietnam was harvested on protected lands, such as wildlife sanctuaries, or outside of and
therefore in violation of legal timber concessions. Cambodia nevertheless
remains a significant source of Vietnam’s timber imports. Similarly, timber sourced from other countries, such as Cameroon and the Democratic Republic of the Congo (DRC), may have been harvested against those countries’ laws.

“In addition, Vietnamese timber imports may be traded illegally. For
example, it appears that most timber exported from Cambodia to Vietnam crosses the border in violation of Cambodia’s log export ban. In addition, aspects of the importation and processing of this timber also may violate Vietnam’s domestic law and be inconsistent with CITES.” 85 FR 63639.

Public comments are sought on the following six issues:

“• The extent to which Vietnamese producers, including producers of
wooden furniture, use illegal timber.

“• The extent to which products of Vietnam made from illegal timber,
including wooden furniture, are imported into the United States.

“• Vietnam’s acts, policies, or practices relating to the import and use
of illegal timber.

“• The nature and level of the burden or restriction on U.S. commerce caused by Vietnam’s import and use of illegal timber.

“• The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.” 85 FR 63639.

USTR must make a determination within twelve months of the initiation of the two investigations. USTR can seek agreement with Vietnam to address the U.S. concerns.

The investigations are being started roughly one month before the November 3 U.S. elections. Obviously, if President Trump is reelected, the investigations will continue. If former Vice President Biden is elected, it is unclear what his Administration would do with the pending investigations (if USTR has not completed them by January 20, 2021)., although presumably the investigations would be continued and completed.

The two Federal Register notices are embedded below.

2020-22271

2020-22270

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

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

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

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

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

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

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

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

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

Member of the OECD or in the accession process:

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

Member of the G-20:

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

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

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

0.5% of Merchandise Trade (includes):

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

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

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

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

“Developed Countries”

United States: 3.4%

European Union: 5.1%

Japan: 4.7%

Canada: 6.4%

“Developing Countries”

China: 10.0%

Brazil: 31.4%

Chile: 25.2%

Costa Rica: 43.1%

Republic of Korea: 16.5%

India: 50.8%

Indonesia: 37.1%

Singapore: 9.5%

South Africa: 19.2%

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

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

Dr. Jesus Seade Kuri (Mexico)

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

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

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

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

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

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

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

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

Dr. Ngozi Okonjo-Iweala (Nigeria)

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

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

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

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

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

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

Mr. Abdel-Hamid Mamdouh (Egypt)

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

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

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

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

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

Amb. Tudor Ulianovschi (Moldova)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

H.E. Amina C. Mohamed (Kenya)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Rt Hon Dr. Liam Fox MP

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

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

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

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

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

Conclusion

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

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

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

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.

The COVID-19 Pandemic – An Update on Shifting Patterns of Infections and Implications for Medical Goods Needs

Since late March there have been significant shifts in the number of COVID-19 cases being reported by countries and within countries. Many countries where the virus hit hardest in the first months of the year have been seeing steady progress in the reduction of cases. Some in Asia, Oceania and in Europe are close to no new cases. Others in Europe and some in Asia have seen significant contractions in the number of new cases. Other countries have seen a flattening of new cases and the beginnings of reductions (e.g., the U.S. and Canada). And, of course, other countries are caught up in a rapid increase of cases (e.g., Russia, Brazil, Ghana, Nigeria, India, Pakistan, Saudi Arabia).

As reviewed in a prior post, the shifting pattern of infections has implications for the needs for medical goods and open trade on those products. https://currentthoughtsontrade.com/2020/04/28/shifting-trade-needs-during-the-covid-19-pandemic/. As the growth in number of cases is seen in developing and least developed countries, it is important that countries who have gotten past the worst part of Phase 1 of the pandemic eliminate or reduce export restraints, if any, that were imposed to address medical needs in country during the crush of the pandemic in country. It is also critical that the global efforts to increase production of medical goods including test kits and personal protective equipment continue to eliminate the imbalance between global demand and global supply and to permit the restoration and/or creation of national and regional buffer stocks needed now and to address any second phase to the pandemic. And as tests for therapeutics and vaccines advance, it is critical that there be coordinated efforts to see that products are available to all populations with needs at affordable prices.

While there is some effort at greater coordination on research and development as reviewed in a post last week (https://currentthoughtsontrade.com/2020/05/06/covid-19-the-race-for-diagnostics-therapeutics-and-vaccines-and-availability-for-all/), concerns exist that as nations get past the first phase of the pandemic, countries will turn their focus to other needs and not in fact address the severe gaps between pandemic supply needs and existing capacity and inventories. Such an outcome would exacerbate the challenges the world is facing from the current pandemic and its likely phase 2 later this year.

The following table shows total cases as of May 11 and the number of cases over fourteen day periods ending April 11, April 27 and May 11 as reported by the European Center for Disease Prevention and Control. The data are self-explanatory but show generally sharply reduced rates of new infections in Europe and in a number of Asian countries, though there are increases in a few, including in India and Pakistan and in a number of countries in the Middle East, such as Saudi Arabia. North America has seen a flattening of the number of new infections in the U.S. and Canada with some small reductions in numbers while Mexico is seeing growth from currently relatively low levels. Central and South America have some countries with rapid increases (e.g., Brazil, Chile, Peru). The Russian Federation is going through a period of huge increases. While there are still relatively few cases in Africa, there are countries who are showing significant increases, albeit from small bases.

Countrycases
through 5-11
14 days
to 4-11
14 days
to 4-27
14 days
to 5-11
Austria15,7875,8631,252598
Belgium53,08119,38316,4876,947
Bulgaria1,965342625665
Croatia2,187909430157
Cyprus89843318481
Czechia8,1233,4531,413719
Denmark10,4293,7732,4011,854
Estonia1,73968333496
Finland5,9621,7441,6021,386
France139,06357,71229,17214,488
Germany169,57569,07632,17714,382
Greece2,7161,045392210
Hungary3,2849671,125701
Ireland22,9965,9689,6073,734
Italy219,07061,07941,31221,395
Latvia939332161127
Lithuania1,47964138730
Luxembourg3,8861,618442163
Malta4962117048
Netherlands42,62714,49412,2584,782
Poland15,9964,5664,9434,379
Portugal27,58111,2047,2793,717
Romania15,3624,1754,7364,326
Slovakia1,45742063778
Slovenia1,45752820250
Spain224,39092,96343,04516,756
Sweden26,3226,6398,1577,682
EU271,018,867370,221220,830109,551
United Kingdom219,18355,72968,56166,343
EU27 + UK1,238,050425,950289,391175,894
United States1,329,799396,874408,339363,889
Canada68,84817,45822,51921,964
Mexico35,0223,12710,01620,345
North America1,433,669417,459440,874406,198
Japan15,7983,8486,1302,413
South Korea10,909972201171
Singapore23,3361,17711,0929,712
Australia6,9412,860391228
New Zealand 1,1476195825
Subtotal58,1319,47617,87212,549
China84,0101,058990-189
India67,1526,57418,74039,260
Indonesia14,0322,4664,6415,150
Iran107,60335,86018,79517,122
Turkey138,65741,33153,17428,527
Israel16,4777,3734,2531,079
Bangladesh14,6573764,7959,241
Kazakhstan5,1266471,7562,409
Krygyzstan1,016281276321
Malaysia6,6562,1851,097876
Pakistan30,9413,5917,95417,613
Saudi Arabia39,0482,54713,06021,526
Taiwan4401134111
Thailand3,0151,38234393
Vietnam2888660
Sri Lanka86391313340
Subtotal529,981105,961130,234143,397
Russian Federation209,68810,88165,179128,739
Ukraine15,2321,9856,2326,223
Belarus22,9731,8877,88512,510
Georgia635153229149
Subtotal248,52814,90679,525147,621
South Africa10,0158332,3735,469
Egypt9,4001,2992,2545,081
Morocco6,0631,1032,4041,998
Algeria5,7231,4561,4682,341
Burkina Faso751302135119
Cameroon2,579715801958
Cote d’Ivoire1,700379576550
D.R. of the Congo1,024165225565
Djibouti1,280137809187
Ghana4,2632419842,713
Guinea2,1462078441,052
Kenya672158158317
Mali70483273315
Mauritius33222480
Niger821428167125
Nigeria4,3992249503,126
Senegal1,7091463911,038
Somalia1,05418411618
Sudan1,363122181,126
Tunisia1,03244424283
U.R. of Tanzania50919268209
subtotal57,4698,59315,95927,990
Switzerland30,22212,1243,7581,244
Liechtenstein832030
Norway8,0992,6631,090594
Iceland1,801785919
Subtotal40,20515,5924,9421,847
Argentina5,7761,2851,5642,009
Brazil162,69916,22139,719100,811
Chile28,8661,9346,11815,535
Colombia11,0631,9342,6035,684
Dominican Republic10,3472,0393,1684,212
Ecuador29,5595,53415,2536,840
Panama8,4482,1882,3792,669
Peru67,3075,26219,99839,790
Costa Rica79229510097
El Salvador958105173660
Subtotal325,81536,79791,075178,307
All Other Countries131,67726,78038,80955,215
Total of all countries4,063,5251,061,5141,108,6811,149,018

The WTO maintains a data base of actions by WTO members in response to the COVID-19 pandemic which either restrict medical goods exports or which liberalize and expedite imports of such products. As of May 8, the WTO showed 173 measures that the WTO Secretariat had been able to confirm, with many countries having temporary export restrictions on medical goods, some restraints on exports of food products, and a variety of measures to reduce tariffs on imported medical goods or expedite their entry. https://www.wto.org/english/tratop_e/covid19_e/trade_related_goods_measure_e.htm. Some WTO Members other than those included in the list have had and may still have informal restrictions.

The EU and its member states are presumably in a position now or should be soon to eliminate any export restrictions based on the sharp contraction of cases in the EU as a whole over the last six weeks – last 14 days are roughly 59% lower than the 14 days ending on April 11. Similarly, countries with small numbers of cases and rates of growth which seem small may be candidates for eliminating export restrictions. Costa Rica, Kyrgyzstan, Taiwan, Thailand, Vietnam, Malaysia, Georgia, Norway and Switzerland would appear to fit into this latter category. Most other countries with restrictions notified to the WTO appear to be either in stages where cases continue at very high levels (e.g., United States) or where the number of cases is growing rapidly (e.g., Russia, Belarus, Saudi Arabia, Ecuador, Bangladesh, India, Pakistan). Time will tell whether the WTO obligation of such measures being “temporary” is honored by those who have imposed restrictions. Failure to do so will complicate the efforts to see that medical goods including medicines are available to all on an equitable basis and at affordable prices.

COVID-19 – WTO report on medical goods; FAO report on food security

The World Trade Organization has a page on its website that is dedicated to COVID-19 including references to statements from various governments, international organizations, business groups, information from the WTO itself including a compilation of notifications by Members of actions (whether trade limiting or trade expanding) taken in response to COVID-19, and links to a range of websites providing important information on the pandemic. Joint statements are also included. See today’s joint statement between the WTO and the World Customs Organization, https://www.wto.org/english/news_e/news20_e/igo_06apr20_e.htm.

Last Friday, April 3rd, the WTO released a sixteen page note entitled “Trade in Medical Goods in the Context of Tackling COVID-19”. https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf. The note is very useful in terms of providing some definition to a range of products relevant to handling the COVID-19 crisis, identifying major importers and exporters of various product types and providing information on tariffs on the product categories for all WTO Members. The note identifies the following “key points”:

“• Germany, the United States (US), and Switzerland supply 35% of medical products;

“• China, Germany and the US export 40% of personal protective products;

“• Imports and exports of medical products totalled about $2 trillion, including intra-EU trade, which represented approximately 5% of total world merchandise trade in 2019;

“• Trade of products described as critical and in severe shortage in COVID-19 crisis totalled about $597 billion, or 1.7% of total world trade in 2019;

“• Tariffs on some products remain very high. For example, the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%;

“• Protective supplies used in the fight against COVID-19 attract an average tariff of 11.5% and goes as high as 27% in some countries;

“• The WTO has contributed to the liberalization of trade medical products in three main ways:

“➢ The results of tariff negotiations scheduled at the inception of the WTO in 1995;

“➢ Conclusion of the plurilateral sectoral Agreement on Pharmaceutical Products (“Pharma Agreement”) in the Uruguay Round and its four subsequent reviews;

“➢ The Expansion of the Information Technology Agreement in 2015.”

As is true with any analysis of data, the reader needs to understand what is covered and what is not and how good a fit the data provided have with the topic being discussed.

For example, the note reviews four categories of products relevant to the world addressing the COVID-19 pandemic (page 1):

  • “medicines (pharmaceuticals) – including both dosified and bulk medicines;
  • “medical supplies – refers to consumables for hospital and laboratory use (e.g., alcohol, syringes, gauze, reagents, etc.);
  • “medical equipment and technology; and
  • “personal protective products -hand soap and sanitizer, face masks, protective spectacles.”

While the four categories are, of course, relevant to addressing the COVID-19 pandemic, the products covered by the tariff schedule categories are both over- and underinclusive if one is trying to understand the size of global trade in medical products directly relevant to the global efforts to address COVID-19.

The report’s data are overinclusive because the Harmonized System of Tariffs used by most nations is only harmonized to the six-digit level of specificity. The categories included in the WTO note cover both COVID-19 related products and many others. Stated differently, nearly all of the product categories identified in Annex 1 to the note include at least some items that are not germane to the current pandemic. This is a limitation on the usefulness of the data flowing from the lack of more specific classifications that all countries adhere to. As the six-digit data are all that are available with a consistent definition around the world, it is not surprising that the WTO relied on the data. Arguably better, but not uniform data could have been derived by reviewing the 8-, 9- or 10-digit statistical data for imports and exports of at least major Members, but that was not done.

Similarly, the product coverage is underinclusive as recognized in the WTO note (page 2). “It should be noted that this note focuses solely on the final form of these products and does not extent to the different intermediate products that are used by global value chains in their production. The protective garments for surgical/medical use are not included in the analysis, because it is impossible to distinguish them from general clothing product in the HS classification.”

As governments and companies have articulated over the last several months, many of the key final products (e.g., ventilators) require a large number of inputs which are often sourced from a variety of suppliers around the globe. For example, one ventilator company which assembles the ventilators in the United States is reliant on circuit boards from its facility in China to maintain or increase production. Other companies bring various inputs in from Canada or Mexico or other countries as well as shipping U.S. components to other countries for final assembly. The same reality is obviously true for producers of medical goods in other countries as well. Thus, an inability to cover inputs significantly understates global trade volumes of products relevant to addressing the COVID-19 pandemic.

Similarly, there are shortages in many countries of the protective garments for which no data are included. These are important products traded that are directly relevant to the world’s ability to respond to COVID-19. The lack of coverage of those products understates the importance of personal protective products to the total and understates global trade.

The above is simply to say, the sections of the WTO note that look at trade patterns (imports, exports, leading players) are helpful in identifying possible breaks between products and possible major players but the data may be significantly off from the actual split among products or role of major players if complete data limited to products relevant for addressing COVID-19 were available. It may also understate the importance of keeping markets open even if there are relatively few imports of finished products.

To explore how overstated data may be, if one looks at the HS categories shown in Annex 1 for personal protective products and looks at the United States U.S. imports for consumption for 2019 at the 10-digit HTS level of detail, the top seven 10-digit categories by customs value accounted for more than 72% of the $17 billion in imports. Yet each of the categories would contain many products not actually relevant to efforts to address COVID-19. In fact five of the seven categories are basket categories.

3926.90.9990OTHER ARTICLES OF PLASTIC, NESOI
6307.90.9889OTHER MADE-UP ARTICLES NESOI
3824.99.9297CHEMICAL PRODUCTS AND PREPARATIONS AND RESIDUAL PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES, NESOI
9004.90.0000SPECTACLES, GOGGLES AND THE LIKE, CORRECTIVE, PROTECTIVE, NESOI
3926.90.7500PNEUMATIC MATTRESSES & OTHR INFLATABLE ARTICLES,NESOI
3824.99.3900MIXTURES OF TWO OR MORE INORGANIC COMPOUNDS
3926.90.4590OTHER GASKETS AND WASHERS & OTHER SEALS

Similarly, the analysis of applied tariff rates is useful in showing rates for product groupings and the rates for individual countries for those product groupings but may be less useful in identifying the assistance tariff reductions would have in the present time of the pandemic. Obviously, tariff reductions by any Member that imposes them on imported products relevant to the pandemic would reduce the cost for the importing country of the needed materials. But the extent of assistance varies significantly depending on the Member as the data in Annex 2 show.

As the EU/EEA/United Kingdom and the United States account for 73.9% of the confirmed cases in the world as of April 6, 2020, a review of the applied rates for those countries would identify likely benefit from tariff reductions by the countries with the major outbreaks at the moment. The EU has an average applied rate of 1.5%, the U.S. an average applied rate of 0.9%, Norway 0.6% and Switzerland 0.7%. These rates don’t include any special duties, such as US duties on China flowing from the Section 301 investigation (with some products being subject to potential waiver of additional duties). Thus, for the vast majority of current cases, the importing countries’ applied rates are very low and hence not a significant barrier to trade.

https://www.ecdc.europa.eu/en/geographical-distribution-2kistan019-ncov-cases; https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea

Other countries where the reach of the pandemic may intensify typically have much higher applied tariffs. As case loads intensify in other countries or in anticipation of such potential eventualities, countries with higher tariffs should be exploring autonomous duty reductions to make imported products more affordable. India has an average applied tariff of 11.6%; Pakistan an average rate of 10.0% and Malaysia a rate of 11.7% to flag just three Members with rates at or above 10%.

The WTO note is embedded below.

rese_03apr20_e

Food security and the FAO analysis of current agricultural product availability

In a prior post, I reviewed the compounding problems during the COVID-19 pandemic of some countries starting to impost export restraints on selected products (e.g., rice, wheat) to protect food supplies. Countries reported to be imposing export restraints on food had been Russia, Ukraine, Kazakhstan and Vietnam. A series of articles in Asian and European press have noted that Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia have also introduced various restraints as well. Major agricultural groups in Asia are warning that disrupting movement of food (including movement of workers to help harvest, etc.) could lead to food shortages in Asia and have reviewed that Asian countries import some 220 million tons of agricultural products which underlines the need to keep markets open. See, e.g., https://www.scmp.com/week-asia/politics/article/3078376/coronavirus-food-security-asias-next-battle-post-covid-world; https://www.dairyreporter.com/Article/2020/03/30/Major-food-shortages-possible-in-Asia-says-FIA#.

While fear can lead to panic and various border measures, the actual situation globally as laid out by the Food and Agriculture Organization of the United Nations (“FAO”) in a recent paper is that there are more than sufficient supplies of food. The key is minimizing disruptions to production and distribution. This is not a period where major disruptions from drought or floods have caused shortages of products. Specifically, the FAO’s Chief Economist prepared a document entitled “COVID-19 and the risk to food supply chains: How to respond?” which was released on March 29. http://www.fao.org/3/ca8388en/CA8388EN.pdf. The paper starts with a section entitled “What we know”:

“Countries have shut down the economy to slow the spread of the coronavirus. Supermarket shelves remain stocked for now. But a protracted pandemic crisis could quickly put a strain on the food supply chains, a complex web of interactions involving farmers, agricultural inputs, processing plants, shipping, retailers and more. The shipping industry is already reporting slowdowns because of port closures, and logistics hurdles could disrupt the supply chains in coming weeks.

“In order to avoid food shortages, it is imperative that countries keep the food supply chains going. Unlike the 2007-2008 global food crisis, scarcity is not an issue this time. The supply of staple commodities is functioning well, and the crops need to be transported to where they are needed most. Restricting trade is not only unnecessary, it would hurt producers and consumers and even create panic in the markets. For high-value commodities that require workers (instead of machines) for production, countries must strike a balance between the need to keep production going and the need to protect the workers.

“As countries combat the coronavirus pandemic, they must also make every effort to keep the gears of their food supply chains moving.”

The paper then goes on to identify five actions needed to minimize the likelihood of food shortages arising during the pandemic. These actions are:

“Expand and improve emergency food assistance and social protection programs

“Give smallholder farmers support to both enhance their productivity and market the food they produce, also through e-commerce channels

“Keep the food value chain alive by focusing on key logistics bottlenecks

“Address trade and tax policies to keep the global trade open

“Manage the macroeconomic ramifications”.

With the number of countries already taking actions that are inconsistent with keeping global markets open for the movement of food supplies, the world is at risk of having a major complication added to the extrordinary economic shocks already being felt to address the health needs of the COVID-19 pandemic. Such a major complication would, as it did in 2007-2008, directly harm developing and least developed countries, countries least able to absorb additional shocks.

The report and a powerpoint from FAO are embedded below.

COVID-19-and-the-risk-to-food-supply-chains_-How-to-respond_

ca8308en

Food security – export restraints and border controls during the COVID-19 pandemic

While COVID-19 is first and foremost a health crisis, efforts to control the fallout from the virus have led to border controls on farm workers and encouraged some countries to impose export restraints on particular agricultural products. While the border control dimension to the problem is new, the world has in recent years gone through a number of situations where large numbers of countries have imposed export restraints on core agricultural products in an effort to ensure adequate supplies at home. The results are never positive for the global community and particularly harm the least developed countries and those dependent on imported food products.

For example, in 2007-2008, there were dozens of countries that imposed export restraints on specific items such as rice or wheat leading to massive price spikes and shortages of product available to countries dependent on imports. The nature and extent of the problem was outlined in a paper I prepared back in 2008 which is embedded below.

GDP

The crisis led to coordinated efforts by the various UN organizations to find solutions and ways of avoiding repeats moving forward. A policy report from multiple UN agencies was released on 2 June 2011, Price Volatility in Food and Agricultural Markets: Policy Responses.

igo_10jun11_report_e

Unfortunately, a number of countries in reacting to the COVID-19 pandemic have introduced export restraints on certain food products. Russia, Ukraine, Kazakhstan, and Vietnam are some of the countries identified so far as introducing export restraints on selected agricultural products. In the past, export restraints by some have led to export restraints by many. The possibility of rapidly expanding restraints by trading nations is obviously a major concern and major complication to the global response to COVID-19.

Equally troubling are the potential challenges to agricultural product availability in countries that rely to some extent on temporary foreign labor to harvest produce and other products where border measures are restricting access of foreigners to reduce the potential spread of COVID-19. Coupled to that are concerns about whether imported agricultural products meet health and quality needs and any changes in approach to those issues during the pandemic.

As one example of the farm labor concern, the United States is a country that relies on temporary farm workers from outside of the country and has significant restrictions on the entry of foreign nationals from many areas at present. U.S. farmers have raised concerns about the availability of sufficient migrant labor to harvest the fields when product is ready. How the issue gets resolved in the United States is not yet clear. But the same or similar challenges will apply in any country where imported farm labor is important to the harvesting, processing or transporting of agricultural products.

That these multiple potential issues on agricultural goods trade are escalating can be seen in yesterday’s joint statement from the WTO, WHO and FAO. The joint statement is available on the WTO webpage, https://www.wto.org/english/news_e/news20_e/igo_26mar20_e.htm, and is reproduced below:

“Joint Statement by QU Dongyu, Tedros Adhanom Ghebreyesus and Roberto Azevêdo, Directors-General of FAO, WHO and WTO

“Millions of people around the world depend on international trade for
their food security and livelihoods. As countries move to enact measures
aiming to halt the accelerating COVID-19 pandemic, care must be taken
to minimise potential impacts on the food supply or unintended
consequences on global trade and food security.

“When acting to protect the health and well-being of their citizens,
countries should ensure that any trade-related measures do not disrupt
the food supply chain. Such disruptions including hampering the
movement of agricultural and food industry workers and extending
border delays for food containers, result in the spoilage of perishables and increasing food waste. Food trade restrictions could also be linked
to unjustified concerns on food safety. If such a scenario were to
materialize, it would disrupt the food supply chain, with particularly
pronounced consequences for the most vulnerable and food insecure
populations.

“Uncertainty about food availability can spark a wave of export
restrictions, creating a shortage on the global market. Such reactions can
alter the balance between food supply and demand, resulting in price
spikes and increased price volatility. We learned from previous crises
that such measures are particularly damaging for low-income, food-deficit
countries and to the efforts of humanitarian organizations to procure food for those in desperate need.

“We must prevent the repeat of such damaging measures. It is at times like this that more, not less, international cooperation becomes vital. In the midst of the COVID-19 lockdowns, every effort must be made to ensure that trade flows as freely as possible, specially to avoid food shortage. Similarly, it is also critical that food producers and food workers at processing and retail level are protected to minimise the spread of the disease within this sector and maintain food supply chains. Consumers, in particular the most vulnerable, must continue to be able to access food within their communities under strict safety requirements.   

“We must also ensure that information on food-related trade measures, levels of food production, consumption and stocks, as well as on food prices, is available to all in real time. This reduces uncertainty and allows producers, consumers and traders to make informed decisions. Above all, it helps contain ‘panic buying’ and the hoarding of food and other essential items.

“Now is the time to show solidarity, act responsibly and adhere to our common goal of enhancing food security, food safety and nutrition and improving the general welfare of people around the world.  We must ensure that our response to COVID-19 does not unintentionally create unwarranted shortages of essential items and exacerbate hunger and malnutrition.”

Conclusion

There is little doubt that COVID-19 is placing extraordinary strains on countries, their peoples, their economies and the ability and willingness to act globally as opposed to locally. The strains and how the world reacts will shape the world going forward and determine the magnitude of the devastation that occurs in specific markets and the broader global community.

The UN report released yesterday, Shared responsibility, global solidarity: Responding to the socio-economic impacts of COVID-19, and the statement from UN Secretary-General Antonio Guterres outline the enormity of the global challenges and a potential path to a better future. See https://news.un.org/en/story/2020/03/1060702; https://reliefweb.int/sites/reliefweb.int/files/resources/sg_report_socio-economic_impact_of_covid19.pdf.

The global health emergency is significantly worsened by the introduction of food security issues. Despite a better understanding of the causes and necessary approaches to minimize food security issues, the world has a poor track record on working for the collective good in agriculture when fears of food availability arise. An eruption of export restraints at the time of the global COVID-19 health crisis could indeed undermine societal stability.

Export restraints vs. trade liberalization during a global pandemic — the reality so far with COVID-19

The number of confirmed coronavirus cases (COVID-19) as of March 26, 2020 was approaching 500,000 globally, with the rate of increase in cases continuing to surge in a number of important countries or regions (e.g., Europe and the United States) with the locations facing the greatest strains shifting over time.

In an era of global supply chains, few countries are self-sufficient in all medical supplies and equipment needed to address a pandemic. Capacity constraints can occur in a variety of ways, including from overall demand exceeding the supply (production and inventories), from an inability or unwillingness to manage supplies on a national or global basis in an efficient and time responsive manner, by the reduction of production of components in one or more countries reducing the ability of downstream producers to complete products, by restrictions on modes of transport to move goods internationally or nationally, from the lack of availability of sufficient medical personnel or physical facilities to handle the increased work load and lack of facilities.

The reality of exponential growth of COVID-19 cases over weeks within a given country or region can overwhelm the ability of the local health care system to handle the skyrocketing demand. When that happens, it is a nightmare for all involved as patients can’t be handled properly or at all in some instances, death rates will increase, and health care providers and others are put at risk from a lack of adequate supplies and protective gear. Not surprisingly, shortages of supplies and equipment have been identified in a number of countries over the last three months where the growth in cases has been large. While it is understandable for national governments to seek to safeguard supplies of medical goods and equipment to care for their citizens, studies over time have shown that such inward looking actions can be short sighted, reduce the global ability to handle the crisis, increase the number of deaths and prevent the level of private sector response that open markets would support.

As we approach the end of March, the global community receives mixed grades on their efforts to work jointly and to avoid beggar-thy-neighbor policies. Many countries have imposed one or more restraints on exports of medical supplies and equipment with the number growing rapidly as the spread of COVID-19 outside of China has escalated particularly in March. Indeed, when one or more countries impose export restraints, it often creates a domino effect as countries who may depend in part on supplies from one or more of those countries, decides to impose restraints as well to limit shortages in country.

At the same time, the G-7, G-20 and others have issued statements or other documents indicating their political desire to minimize export restraints and keep trade moving. The WTO is collecting information from Members on actions that have been taken in response to COVID-19 to improve transparency and to enable WTO Members to identify actions where self-restraint or roll back would be useful. And some countries have engaged in unilateral tariff reductions on critical medical supplies and equipment.

Imposition of Export Restraints

The World Customs Organization has developed a list of countries that have imposed some form of export restraint in 2020 on critical medical supplies. In reviewing the WCO website today, the following countries were listed: Argentina, Bulgaria, Brazil, Colombia, Ecuador, European Union, India, Kazakhstan, Kyrgyzstan, Russia, Serbia, Thailand, Ukraine and Vietnam. Today’s listing is copied below.

List-of-Countries-having-adopted-temporary-export-control-measures-Worl.._

While China is not listed on the WCO webpage, it is understood that they have had some restrictions in fact at least during the January-February period of rapid spread of COVID-19 in China.

While it is surprising to see the European Union on the list, the Official Journal notice of the action indicates that the action is both temprary (six weeks – will end around the end of April) and flows in part from the fact that sources of product used by the EU had been restricting exports. The March 15, 2020 Official Journal notice is attached below.

EC-Implementing-Regulation-EU-2020-402-of-14-March-2020-making-the-exportation-of-certain-products-subject-to-the-production-of-an-export-authorisation

Professor Simon Evenett, in a March 19, 2020 posting on VOX, “Sickening thy neighbor: Export restraints on medical supplies during a pandemic,” https://voxeu.org/article/export-restraints-medical-supplies-during-pandemic, reviews the challenges posed and provides examples of European countries preventing exports to neighbors — Germany preventing a shipment of masks to Switzerland and France preventing a shipment to the U.K.

In a webinar today hosted by the Washington International Trade Association and the Asia Society Policy Institute entitled “COVID-19 and Trade – A WTO Agenda,” Prof. Evenett reviewed his analysis and noted that the rate of increase for export restraints was growing with 48 of 63 actions occurring in March and 8 of those occurring in the last forty-eight hours. A total of 57 countries are apparently involved in one or more restraints. And restraints have started to expand from medical supplies and equipment to food with four countries mentioned by Prof. Evenett – Kazakhstan, Ukraine, Russia and Vietnam.

Efforts to keep markets open and liberalize critical medical supplies

Some countries have reduced tariffs on critical medical goods during the pandemic and some countries have also implemented green lane approaches for customs clearance on medical supplies and goods. Such actions are clearly permissible under the WTO, can be undertaken unilaterally and obviously reduce the cost of medical supplies and speed up the delivery of goods that enter from offshore. So it is surprising that more countries don’t help themselves by reducing tariffs temporarily (or permanently) on critical medical supplies and equipment during a pandemic.

Papers generated by others show that there are a large number of countries that apply customs duties on medical supplies, equipment and soaps and disinfectants. See, e.g., Jennifer Hillman, Six Proactive Steps in a Smart Trade Approach to Fighting COVID-19 (graphic from paper reproduced below), https://www.thinkglobalhealth.org/article/six-proactive-steps-smart-trade-approach-fighting-covid-19

Groups of countries have staked out positions of agreeing to work together to handle the pandemic and to keep trade open. For example, the G20 countries had a virtual emergency meeting today to explore the growing pandemic. Their joint statement can be found here and is embedded below, https://www.wto.org/english/news_e/news20_e/dgra_26mar20_e.pdf.

dgra_26mar20_e

There is one section of the joint statement that specifically addresses international trade disruptions during the pandemic. That language is repeated below:

“Addressing International Trade Disruptions

“Consistent with the needs of our citizens, we will work to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders, and work to resolve disruptions to the global supply chains, to support the health and well-being of all people.

“We commit to continue working together to facilitate international trade and coordinate responses in ways that avoid unnecessary interference with international traffic and trade. Emergency measures aimed at protecting health will be targeted, proportionate, transparent, and temporary. We task our Trade Ministers to assess the impact of the pandemic on trade.

“We reiterate our goal to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.”

The WTO Director General Roberto Azevedo participated in the virtual meeting with the G20 leaders and expressed strong support for the commitment of the G20 to working on the trade related aspects of the pandemic. https://www.wto.org/english/news_e/news20_e/dgra_26mar20_e.htm.

Separately, New Zealand and Singapore on March 21st issued a Joint Ministerial Statement which stated in part,

“The Covid-19 pandemic is a serious global crisis.

“As part of our collective response to combat the virus, Singapore and New Zealand are committed to maintaining open and connected supply chains. We will also work closely to identify and address trade disruptions with ramifications on the flow of necessities,”

https://www.thestar.com.my/news/regional/2020/03/21/new-zealand-works-closely-with-singapore-to-maintain-key-supply.

The Joint Ministerial Statement was expanded to seven countries (Australia, Brunei Darussalam, Canada, Chile, Myanmar, New Zealand and Singapore), on March 25th and is reportedly open to additional countries joining. See https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2020/03/updated-joint-ministerial-statement-25-mar.pdf

Conclusion

When a pandemic strikes, many countries have trouble maintaining open trade policies on critical materials in short supply and/or in working collaboratively to address important supply chain challenges or in taking unilateral actions to make critical supplies available more efficiently and at lower costs.

The current global response to COVID-19 presents the challenges one would expect to see – many countries imposing temporary restrictions on exports — while positive actions in the trade arena are more limited to date with some hopeful signs of a potential effort to act collectively going forward.

Time will tell whether governments handling of the trade dimension of the pandemic contributes to the equitable solution of the pandemic or exacerbates the challenges and harm happening to countries around the world.

The U.S. Modifies the List of Developing and Least Developed Countries Under U.S. Countervailing Duty Law

During the Uruguay Round, various special and differential treatment provisions were included in the agreements being negotiated. The Agreement on Subsidies and Countervailing Measures (“ASCM”) included provisions that would give developing countries and least developed countries higher subsidy de minimis levels and higher negligibility levels. See ASCM Art. 11.9 (de minimis level of subsidies is 1%; negligible imports not subject to orders), Art. 27.10 (de minimis level of subsidies is 2% for developing countries; negligibility is 4% of total imports for developing countries or 9% for multiple developing countries).

The Uruguay Round Agreements Act implemented these requirements within U.S. law. Negligible imports from any country are 3% of total imports (7% for multiple countries each less than 3%) and 4% and 9% for developing/least developed countries. De minimis subsidy levels are 1% generally but 2% for developing and least developed countries. See 19 U.S.C. 1671b(b)(4) and 19 U.S.C. 1677(24)(A) and (B).

Under U.S. law, the U.S. Trade Representative is charged with developing a list of developing and least developed countries for purposes of U.S. countervailing duty law. Such a list should be published and should be updated as necessary. 19 U.S.C. 1677(36). While some criteria are listed in the statute, USTR is given discretion on what other criteria to consider.

The first list was published in 1998 on June 2, 63 FR 29945-29948. https://www.govinfo.gov/content/pkg/FR-1998-06-02/pdf/98-14737.pdf. A revised list was published on February 10, 2020, 85 FR 7613-7616. https://www.govinfo.gov/content/pkg/FR-2020-02-10/pdf/2020-02524.pdf.

The New List Brings Forward the U.S. Position at the WTO on Need for Differentiation Among Countries

The Federal Register notice of February 10, while not referencing the U.S. position at the WTO on the need for differentiation for purposes of which WTO Members take advantage of special and differential treatment, largely uses the same factors proposed at the WTO for determining which countries should not be afforded developing country/least developed country status for purposes of U.S. countervailing duty law.

Specifically, USTR for its new list looked to (1) per capita GNI excluding any country listed as a high income country by the World Bank, (2) share of world trade (reduced from 2% in 1998 to 0.5% in 2020), (3) membership or application for membership in the OECD, (4) G20 membership, (5)(not in the WTO differentiation proposal) membership in the EU and (6) any WTO members who did not declared itself a developing country during accession to the WTO where its per capita GNI is lower than high income. A country that satisfied any of the five criteria are excluded from the higher de minimis and higher negligibility standards

High income countries based on World Bank June 2019 data

The World Bank list shows 218 countries/territories and identifies whether they are high income or lower income countries on a per capita GNI. The last data for June 2019 shows 80 of 218 countries being high income. See https://blogs.worldbank.org/opendata/new-country-classifications-income-level-2019-2020.

Various countries or territories like Korea, Taiwan, Saudi Arabia, UAE, Qatar, Hong Kong, Macao, Singapore, Oman, Chile are listed as high income and would not be eligible for increased de minimis or higher negligibility standards under U.S. countervailing duty law based on this criteria.

Share of world trade (0.5% or greater)

Besides Korea, Hong Kong and Singapore which had been excluded from the 1998 list based on their share of global trade, the new list excludes Brazil, India, Indonesia, Malaysia, Thailand and Viet Nam based on share of world trade figures. 85 FR at 7615.

Membership in or application to the OECD

Colombia and Costa Rica are excluded from higher de minimis and negligibility levels under U.S. countervailing duty law based on their application for membership to the OECD. 85 FR at 7615.

Membership in the G20

The G20 came into existence in 1999, thus after the 1998 list was published by USTR. China has not been treated as eligibile for higher de minimis or higher negligibility levels and continues not to be considered for eligibility. Other G20 countries (besides China) who are not eligible despite per capita GNI levels below high income are Argentina, Brazil, India, Indonesia, and South Africa. 85 FR at 7615.

Membership in the EU

Several EU member countries are not high income countries on the World Bank list but are excluded from higher de minimis and negligibility levels on the new list — Bulgaria and Romania. 85 FR at 7615.

WTO Members who have not claimed developing country status at accession

While the U.S. would not have flagged countries who did not claim developing country status at accession but whose per capita GNI was below high income as needing to be addressed in its differentiation papers at the WTO, such countries are not included in the list of countries eligible for higher de minimis and negligibility levels under U.S. countervailing duty law. This list includes Albania, Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Montenegro, North Macedonia and Ukraine.

Likely Importance of the Changes in the USTR List

Data compiled by the WTO from country notifications of investigations brought under national countervailing duty laws, shows that between January 1, 1995 and June 30, 2019 (latest data presently available), the U.S. initiated 254 countervailing duty investigations. One or more investigations were brought against imports of products from 37 countries. See the WTO chart below.

CV_InitiationsRepMemVsExpCty

While there have been no countervailing duty cases in the United States against the vast majority of WTO Members during the first twenty-five years of the WTO, the changes in the list could be relevant for some countries where there have been CVD cases in the past — Argentina, Brazil, India, Indonesia, Malaysia, South Africa, Vietnam being the most likely countries affected. Any changes in results would depend on the underlying facts and may be relevant in only some cases or for one or more producers in a given case.

Conclusion

Monday’s Federal Register notice from the U.S. Trade Representative will not result generally in significant changes in how U.S. countervailing duty law operates. It could be important in particular cases or against particular exporters.

The real importance would appear to be the Administration’s taking its views on differentiation and applying them to an important U.S. trade remedy as a sign of the seriousness of the need to obtain a modification to who is eligible for special and differential treatment. The larger issue is viewed by the United States as critical to restoring the negotiating function at the WTO.

Fisheries Subsidies – Will the WTO Members Reach Agreement Before June 2020?

When WTO Members launched the Doha Development Agenda in November 2001, one of the topics to be explored was fisheries subsidies as outlined as part of the Rules paragraph 28:

“In the context of these negotiations, participants shall also aim to clarify and improve WTO disciplines on fisheries subsidies, taking into account
the importance of this sector to developing countries.” Ministerial Declaration, para. 28, WT/MIN(01)/Dec/1.

Fisheries subsidies were also mentioned in paragraph 31 of the Declaration dealing with topics within trade and environment that would be explored.

More than 18 years later, WTO members are pushing to reach agreement on new disciplines on fisheries subsidies by the time of the 12th Ministerial Conference to be held in Nur-Sultan, Kazakhstan in early June 2020.

The push is related to the 2020 deadline included in the September 2015 UN Sustainable Development Goals (“SDG”) 14.6: “by 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU fishing, and refrain from introducing new such subsidies, recognizing that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the WTO fisheries subsidies negotiation.” The term “IUU” refers to “illegal, unreported, and unregulated” fishing.

At the 11th WTO Ministerial Conference, WTO members adopted a decision to complete fisheries subsidies negotiations by the next Ministerial Conference. See WT/MIN(17)/64; WT/L/1031:

“FISHERIES SUBSIDIES

“MINISTERIAL DECISION OF 13 DECEMBER 2017

“The Ministerial Conference

Decides as follows:

“1. Building on the progress made since the 10th Ministerial Conference as reflected in documents TN/RL/W/274/Rev.2, RD/TN/RL/29/Rev.3, Members agree to continue to engage constructively in the fisheries subsidies negotiations, with a view to adopting, by the Ministerial Conference in 2019, an agreement on comprehensive and effective disciplines that prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU-fishing recognizing that appropriate and effective special and differential treatment for developing country Members and least developed country Members should be an integral part of these negotiations.

“2. Members re-commit to implementation of existing notification obligations under Article 25.3 of the Agreement on Subsidies and Countervailing Measures thus strengthening transparency with respect to fisheries subsidies.”

Why the interest in fisheries subsidies?

For decades, the world has been experiencing overfishing of various species of fish in different parts of the world. The U.N.Food and Agriculture Organization (FAO) reports that between 1974 and 2015 fish stocks that are not within biologically sustainable levels increased from 10% in 1974 to 33.1% in 2015. FAO, The State of World Fisheries and Aquaculture 2018 (“2018 Report) at 6. This decline has occurred despite efforts made by various countries to regulate capture/production.

“Despite the continuous increase in the percentage of stocks fished at biologically unsustainable levels, progress has been made in some regions. For example, the proportion of stocks fished within biologically sustainable levels increased from 53 percent in 2005 to 74 percent in 2016 in the United States of America, and from 27 percent in 2004 to 69 percent in 2015 in Australia.” 2018 Report at 6.

Because of, inter alia, the importance of the fishing industry to many countries and fish to the diets of many peoples, there has been concern for many years with actions needed by nations to ensure the sustainability of fish captures.

The FAO’s 2018 Report provides a great deal of information on the importance of fish to developing and least developed countries and the various actions being taken to address meeting the Sustainable Development Goals (“SDGs”) pertaining to fish and the oceans.

The WTO’s negotiations on fisheries subsidies are just one part of the much larger group of SDGs being pursued by countries as part of the UN targets and only deals with ocean/sea wild caught fish, not with aquaculture and not with inland caught fish. The FAO’s 2018 Report is attached below.

2018-FAO-the-state-of-world-fisheries-and-aquaculture

As Table 1 in the 2018 Report shows, there has been a rapid growth in aquaculture so that by 2016, there was greater volume from aquaculture than there was from “marine caught”. Specifically, in 2016 aquaculture accounted fro 80.0 million metric tons (46.8%) of the total production/ capture, marine capture was 79.3 million metric tons (46.4%) and inland capture was 11.6 million metric tons (6.8%) – for a total of 170.9 million metric tons. Data do not include information on aquatic mammals, crocodiles, alligators, caimans, seaweeds and other aquatic plants. 2018 Report, Table 1, page 4.

While aquaculture has grown, marine capture has declined or stagnated over time and with growing levels of overfishing, longer term decline will occur in this sector absent concerted steps to manage the volume pursued at sea. Overfishing is believed due to overbuilding of fishing fleets and the level of fishing that contravenes national laws, is unrecorded and/or unregulated. Thus, the efforts within the WTO to impose disciplines on subsidies benefiting IUU fishing and/or contributing to overfishing are an important element in achieving catch rates that are sustainable versus unsustainable and declining.

Importance of marine fishing to developed, developing and least developed countries

The FAO gathers information on the amount of marine capture (as well as inland capture and aquaculture) annually. The latest data available from FAO are for 2017. FAO, Fishery and Aquaculture Statistical Yearbook 2017, http://www.fao.org/fishery/static/Yearbook/YB2017_USBcard/index.htm. The average marine caught volumes for the years 2015-2017 from the FAO data base were summarized for WTO Members in a July 11, 2019 submission to the WTO rules negotiations addressing fisheries subsidies. The submission was made by Argentina, Australia, the United States and Uruguay. Top marine caught Members are presented below in millions of metric tons and percent of world production:

CountryProduction (mm tonnes)% of World Production
China13.8 17.30%
Indonesia 6.2 7.76%
European Union 5.3 6.68%
United States 5.0 6.25%
Russian Federation 4.4 5.53%
Peru 4.2 5.31%
India 4.6 4.57%
Japan 3.2 4.06%
Vietnam 3.0 3.71%
Norway 2.2 2.80%
Chile 1.7 2.18%
Malaysia 1.5 1.90%
Republic of Korea 1.4 1.82%
Morocco 1.4 1.73%
Mexico 1.4 1.73%
Thailand 1,3 1.65%
Myanmar 1.2 1.49%
Iceland 1.2 1.48%
Chinese Taipei 0.8 1.04%
Canada 0.8 1.03%
Argentina 0.8 0.98%
Ecuador 0.7 0.84%
Bangladesh 0.6 0.78%
Mauritania 0.6 0.74%
South Africa 0.6 0.71%
Subtotal 68.8 86.36%
All Other 10.9 13.64%
World Total 79.7 100.00%

TN/RL/GEN/197/Rev.2, pages 4-7, Annex I (11 July 2019). Data for the EU and the US contain data from various islands referenced on page 4 in fotnotes a and b. The Annex lists 136 of the 164 WTO members and their production/volumes although no data are available for 28 WTO members (some of which are landlocked and hence may have no marine caught fish). The full listing is attached below.

TNRLGEN197R2

As reviewed in the 2018 Report (page 2), fish make up an increasing share of animal protein for humans, with 100% of the increase being accounted for by expanding aquaculture:

“The expansion in consumption has been driven not only by increased production, but also by other factors, including reduced wastage. In 2015, fish accounted for about 17 percent of animal protein consumed by the
global population. Moreover, fish provided about 3.2 billion people with almost 20 percent of their average per capita intake of animal protein. Despite their relatively low levels of fish consumption, people in developing countries have a higher share of fish protein in their diets than those in developed countries. The highest per capita fish consumption, over 50 kg, is found in several small island developing States (SIDS), particularly in Oceania, while the lowest levels, just above 2 kg, are in Central Asia and some landlocked countries.”

Fishing/fisheries are an important source of employment for many countries, with the vast majority of such employment being in countries in Asia, Latin America and Africa. Specifically in 2016 worldwide fisheries employment was estimated at 40.338 million people (no breakout between marine and inland caught). Of this number, 31.990 million were in Asia ((79.3%), 5.367 million were in Africa (13.3%) and 2.085 million were in Latin America and the Caribbean (5.2%) , with just 896,000 jobs in North America, Europe and Oceania. Several important individual countries are shown in the 2018 Report — China with 14.5 million jobs in fisheries in 2016 (36% of global) and Indonesia with 2.7 million folks employed in fisheries (6.7% of global employment in the sector). 2018 Report at 32-33. Much of the employment in fisheries around the world is from family run operations, often subsistence in nature, and mainly using small boats (less than 12 meters in length and a large portion of which are not motorized).

The 2018 Report indicates that in 2016 the number of fishing vessels in the world were 4.6 million, 2.8 million of which were motorized. Of the 4.6 million vessels, 75.4% were in Asia, 14.0% in Africa, 6.4% in Latin America and the Caribbean, 2.1% in Europe, 1.8% in North America and 0.3% in Oceania. 100% of Europe’s vessels were motorized, more than 90% of those in North America, but only some 25% in Africa. See pages 36-38 of the 2018 Report.

WTO Efforts at Increasing Disciplines on Marine Fisheries Subsidies

Negotiations at the WTO have had periods of greater activity since 2001 than in other periods. 2005-2011 was a particularly active period according to the WTO webpage, with an uptick in efforts beginning in late 2016 and continuing to the present time. See https://www.wto.org/english/tratop_e/rulesneg_e/fish_e/fish_intro.htm.

The negotiations have been complicated by many issues that are not typical for trade negotiations. Here are a few of the perceived problem issues:

(a) problem being addressed relates to depletion of scarce global resources through overfishing flowing from subsidies that create excess capacity;

(b) production occurs not only in national waters but in the open seas and through contracts to capture fish in third countries’ waters;

(c) concerns about effect of negotiations on outstanding territorial disputes/claims;

(d) the challenge of disciplining subsidies provided by one country on fishing vessels which are flagged in a different country;

(e) the lack of meaningful data from many developing and least developed countries which complicates understanding the level of marine capture;

(f) for many developing and least developed countries, the large part of fishing fleets which are subsistence or artisanal in nature;

(g) the large portion of global capture which is developing and least developed country in origin vs. desire for special and differential treatment for such countries;

(h) challenge of whether traditional S&D provisions (exclusion from disciplines, lesser reductions, longer implementation periods) are actually harmful to developing and least developed countries where continued erosion of marine catch from overfishing will actually hurt the fishermen and fisherwomen of the countries receiving S&D consideration;

(i) whether dispute settlement as applicable to other WTO agreements (whether SCMA or other) will serve the underlying objectives of any negotiated agreement or needs to be modified to reflect the unique objectives of the agreement.

On the question of level of subsidization, there are the usual questions of what, if any, subsidies will be allowed as not causing concerns re growing capacity or overfishing and whether there is some level of acceptable subsidies even if adding to capacity.

While the set of public documents from the negotiations are reasonable through much of 2018, the resort to Room Documents (which are not made public) and other classification of documents, means that much of the current drafts of sections of a possible agreement are not publicly available. For example, there were ten documents identified as made available to WTO Members for the May 8, 2019 Informal Open-ended Negotiating Group on Rules (Fisheries Subsidies). Seven of the ten documents are not available to the public as “Room Documents” even if the documents were generated weeks or months before the meeting. See, e.g., RD/TN/RL/72 (17/12/2018); RD/TN/RL/81 (21/03/2019); RD/TN/RL/77/Rev.1 (21/03/2019); RD/TN/RL/82 (08/04/2019); RD/TN/RL/79/Rev.1 (18/04/2019); RD/TN/RL/83 (02/05/2019); RD/TN/RL/84 (06/05/2019).

Similarly, WTO Members have done a relatively poor job of notifying the subsidies provided to marine fisheries. Even with improvements in notifications in 2019, as late as November 2019, nine of the 26 largest providers of fisheries subsidies had not provided notifications and some who had done so in 2019 submitted the first notifications of such programs in 20 years. Members welcome progress in notification of fisheries subsidies, https://www.wto.org/english/news_e/news19_e/scm_19nov19_e.htm.

There is a draft document from the Chair of the negotiations from 14 November 2018, TN/RL/W/274/Rev.6 which lays out the Chair’s understanding of negotiations as of that date. The document is attached below and is heavily bracketed meaning that at the time of the draft there was not agreement on the bracketed text or options were shown.

TNRLW274R6

Some public submissions show that countries or groups of countries are still putting forward approaches on topics of importance. For example there are 2019 submissions on the following topics: fishing vessels not flying the member’s flag (e.g., TN/RL/GEN/201/Rev.1 (proposed prohibiting subsidies to such vessels)(Argentina, Australia, Indonesia, Japan, New Zealand, the United States, and Uruguay), on a cap-based approach to addressing certain fisheries subsidies [(TN/RL/GEN/197/Rev.2) and TN/RL/GEN/203)(Argentina, Australia, the United States, and Uruguay) vs. different approach put forward by China (TN/RL/199)], on whether different dispute settlement principles need to be considered (TN/RL/GEN/198, Canadian discussion paper), the breadth of special and differential treatment for developing and least developed countries (TN/RL/200, submission from India).

Interestingly, a submission from New Zealand and Iceland in 2018 warned other WTO members that a focus on fishing in international waters vs. marine catch in national waters would result in any agreement addressing very little of the marine catch volume as would other overly narrow scope approaches:

‘6.SDG Target 14.6 is clear that subsidies that contribute to both overcapacity and overfishing must be prohibited. An outcome which excluded the most harmful types of subsidies which contribute to overcapacity and overfishing would therefore not satisfy SDG Target 14.6. An outcome that addressed capacity or overfishing in just a hortatory way or in a manner that applied disciplines only to a small subset of subsidies or the world’s fishing fleet would similarly fail to meet the requirements of SDG Target 14.6.

“7. For example, the current emphasis on subsidies to fishing beyond national jurisdiction is warranted given the weaker governance and resource and development impacts of such fishing. This however must not be at the exclusion of waters under national jurisdiction where the vast majority of global catch – 88% – is taken.1 Similarly, the emphasis on overfished stocks should not equate to an exception for other stocks as doing so would exclude nearly 70% of the world’s fisheries.2 Taken together, these two approaches alone would result in barely 8% of the world’s fisheries being subject to subsidy prohibitions.3
“2 FAO. 2016. The State of World Fisheries and Aquaculture 2016.
“3 Two thirds of fish stocks managed by RFMOs are overfished or depleted: Cullis-Suzuki, S. & Pauly, D. (2010). Failing the high seas: a global evaluation of regional fisheries management organization. Marine Policy 34: 1036–1042.”

Advancing Fisheries Subsidies Prohibitions on Subsidies Contributing to Overcapacity and Overfishing, TN/RL/W/275 at 2 (8 May 2018)(New Zealand and Iceland).

Will WTO Members Deliver Meaningful Fisheries Subsidies Reform

The fact that the negotiations have taken more tan 18 years and that major countries appear to remain widely apart on many key issues suggests that the road to success will be challenging.

For example, India’s proposal for S&D would result in large amounts of fisheries subsidies not being addressed by the agreement (whatever the scope of subsidies addressed) rendering any agreement of minimal assistance in fact if adopted following that approach.

There are significant differences in approaches to limiting subsidies as can be seen in the different cap approaches presented by China and a group of other countries (Argentina, Australia, the United States and Uruguay).

Similarly, there is a disconnect between the problems being addressed (overcapacity and overfishing) and the traditional role of S&D to eliminate, reduce and/or delay obligations. For the fisheries subsidies negotiations to achieve a meaningful result, the WTO Members need to revisit what the role of special and differential needs to be to achieve better marine catch for developing and least developed countries. The focus needs to be on helping LDCs and developing countries develop accurate data on marine catch, developing the capacity to participate in regional management programs, finding assistance to fishermen and fisherwomen affected by depleted marine catches to survive/choose alternative work until such time as sustainable levels of wild caught fish are again available. But all countries need to contribute to limiting fisheries subsidies where excess capacity or overfishing are the likely result.

And there is the U.S. position that S&D will only be approved in any new agreement if it is limited to those countries with an actual need (i.e., certain countries would not take such benefits). Considering the role of major countries like China and India in marine catch, one can expect challenges in having those countries (and possibly others) agree to forego S&D provisions.

Net/net – as most Members seem to be focused on the wrong questions, there is a reasonable probability that the Kazakhstan Ministerial will not see a meaningful set of disciplines adopted on fisheries subsidies to address the challenges to marine catch from overcapacity and overfishing.

Let’s hope that the above forecast proves wrong.

The U.S. Trade Deficit – Data for First Thirty-Three Months of the Trump Administration (2017-Sept. 2019)

The U.S. trade deficit has been at extraordinarily high levels for many years, having ranged from $766.6 to 818.0.billion/year during 2005-2008 (2nd term of President George W. Bush).  After a sharp contraction in trade during the 2009-2010 period as the country dealt with the great recession flowing from the financial crisis that started in 2008 (with resulting significantly lower trade deficits), trade deficits ran from $689.5 to $745.5 billion/year during the 2011-2016 years of President Obama’s tenure (2016 trade deficit was $735.3 billion).

President Trump has had a significant focus on trade issues during his presidency.  His Administration has attempted to address the chronic trade deficit the country has developed over the last fifty years through improved trade deals, aggressive enforcement of various trade laws and some domestic actions (regulations and taxation).  Despite these actions, the first two years and nine months of the Trump Administration saw a significant expansion of the trade deficit in 2017 ($793.4 billion) and 2018 ($874.8 billion) – an increase by 2018 of 18.97% over 2016 levels) – with a stabilization in the first nine months of 2019 (up 1.43% from the first nine months of 2018 at $647.6 billion).

A growth in the trade deficit during 2017-2019 reflects various causes including:  (1) continued economic growth in the U.S. and slower growth rates in much of the rest of the world; (2) a delay in the trade balance effects flowing from the Administration’s trade actions against China under Section 301 of the Trade Act of 1974 and against many countries on steel and aluminum under Section 232 of the Trade Expansion Act of 1962; (3) retaliation by various trading partners for actions taken by the U.S.; and (4) shifts in currency values.

The huge trade deficit with China declined by $38.5 billion or by 12.77% in the first nine months of 2019 reflecting the large tariffs applied by the U.S. on huge parts of Chinese exports to the U.S. which exceeded the contraction in U.S. exports to China flowing from retaliation by the Chinese.  However, there was more than a $47.7 billion increase in the deficit from trade flows with other countries during the first nine months of 2019.  Below are some of the countries with whom the U.S. trade deficit has increased in the first three quarters of 2019 by more than $5.0 billion.  Data reflect the size of the increase in the U.S. trade deficit with the particular country: :

Country or Group of Countries Increase in U.S. Trade Deficit
9 months 2019
Mexico $17.0 billion
European Union (28) $12.0 billion
Vietnam $11.7 billion
Switzerland   $7.3 billion
Taiwan   $6.5 billion
Subtotal $54.5 billion

Vietnam and Taiwan could be in some significant part the result of shifting shipments from China to neighboring countries where Chinese or other producers have investments, where producers have found alternative sourcing or where there has been shipment of products from China which have been mislabeled as to origin.

Similarly, the large increase from Mexico may reflect in part a move back to Mexico or increased sourcing from Mexico for companies previously sourcing from China.    An UNCTAD Research Paper (No. 37) entitled “Trade and trade diversion effects of United States tariffs on China” released recently made similar findings for imports in the first half of 2019.  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2569.  As noted in the Abstract to the paper (page 1):

“This paper finds that United States tariffs against China have resulted in a reduction in imports of the tariffed products by more than 25 percent. The analysis finds that China’s export losses in the United States have resulted in trade diversion effects to the advantage of Taiwan Province of China, Mexico, the European Union and Viet Nam among others. The analysis also finds that those effects have increased over time. The analysis finds some preliminary evidence that Chinese exporters may have started to bear part of the costs of the tariffs in the form of lower export prices. Overall, the results indicate that the United States tariffs on China are economically hurting both countries. United States losses are largely related to the higher prices for consumers, while China’s losses are related to significant export losses.”

The shift in trade balance for the mentioned countries and for the U.S. as a whole is explained in the following table which shows the change in U.S. total exports and in U.S. general imports during the first nine months of 2019 vs. the same period of 2018:

Country US Exports US Imports US Trade Balanace
China  -$15.2 BN  -$53.0 BN  +$47.7 BN
Mexico    -$4.3 BN +$12.8 BN   -$17.0 BN
European Union (28) +$14.0 BN +$26.0 BN   -$12.0 BN
Vietnam   +$1.0 BN +$12.7 BN   -$11.7 BN
Switzerland    -$4.5 BN   +$2.8 BN     -$7.3 BN
Taiwan   +$0.5 BN   +$7.0 BN     -$6.5 BN
Subtotal (Mex.-
Taiwan)
  +$6.7 BN +$61.3 BN   -$43.5 BN
From all countries =$15.2 BN    -$6.0 BN     -$9.2 BN

Thus, in the first nine months of 2019, US trade with China fell in both directions, with imports from China declining by $53.0 billion and U.S. total exports to China declining $15.2 billion.  Trade with Mexico and Switzerland saw declines in U.S. total exports to each country (-$4.3 billion and -$4.5 billion respectively) while imports from those countries into the U.S. increased (+$12.8 billion and +$2.8 billion).  For the European Union, Vietnam and Taiwan, the U.S. saw total exports increase, but at much slower amounts than the increase in U.S. imports from those countries.  

When looking at the 2-digit HS categories that saw the largest changes in the U.S. trade balance with China in 2019, the three largest improvements in the U.S. trade balance with China were in HS chapters 84, 85 and 94 dealing with nonelectrical equipment, electrical equipment and furniture respectively. The U.S. trade balance with China improved by $17.0 billion, $18.8 billion and $4.0 billion for these three chapters respectively, largely due to contractions in imports from China on those items.  In a prior post (October 13) on the announced likelihood of a first phase U.S.-China agreement, I reviewed the contraction in U.S. exports of agricultural products, particularly soybeans, that happened in 2018 (down $10.2 billion from 2017).  There has been some limited improvement in U.S. exports of soybeans in the first nine months of 2019 and so no agriculture products saw huge declines in exports in 2019 or large reductions in the US trade surplus with China this year.

 Some of the U.S. trade balance improvement vis-à-vis China on these specific manufactured  goods was offset by increased deficits with Mexico ($1.7 billion for Chapter 84, $1.3 billion for Chapter 85), the EU ($6.9 billion for Chapter 84), Taiwan ($4.3 billion for Chapter 84, $1.7 billion for Chapter 85) and Vietnam ($0.5 billion for Chapter 84, $7.6 billion for Chapter 85, $1.3 billion for Chapter 94).

The challenge for any administration attempting to change trade flows is the time it takes to achieve new agreements, to implement specific actions, and to design and obtain approval for new legislation.  Such challenges reflect the state of play for many of the Trump Administration’s trade efforts to date.  Benefits from the initial agreements with Japan signed on October 7 will likely be seen in 2020 if Japan is able to implement the agreements through legislation this month as is reported as possible in the media.  Changes from the USMCA will depend on whether and when Congress takes up implementing legislation.  The Administration is hoping to conclude and sign a first phase trade agreement with China yet this year.  Such an agreement with China will likely result in at least a standstill on tariffs against China and likely some reductions in tariff levels phased in over time based on results of implementation efforts by both sides.  An agreement with China would also improve market conditions for some U.S. products shipped to China, with reported commitments for increased purchases of various U.S. agricultural products as but one example.  Discussions are ongoing with other countries on specific trade concerns, and so additional improvements in market access may yet occur during the current term of President Trump’s Administration. 

Businesses understandably look for predictability in both the trade environment and the rules of engagement with trading partners.  With the heavy focus on revising domestic trade policy and the aggressive use of legislative tools on the books, the Trump Administration’s efforts to date have created a great deal of uncertainty for businesses.  Some businesses have been harmed at least short term, others have benefited from the actions taken by the Administration.  Whether the changes being pursued by the Administration will achieve the objectives sought is an open question.  A review of the changes in trade flows (U.S. imports and U.S. exports) from the Trump Administration’s first thirty-three months in office show that changes towards greater trade balance will not occur quickly nor without a fair amount of disruption to supply chains, business models and companies and many workers.  A more sustainable trade environment is an important objective.  Not since the early 1970s has an Administration been concerned about large and increasing trade deficits.  The Trump Administration has been concerned and has been attempting to change domestic and international trade policy to restore greater balance.  Whether meaningful change will occur is almost certainly a multiple Administration project.  Whether the project will be pursued will depend in part on what is achieved under the current Administration.

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