Then again, while the U.S. and Kenyan governments have a strong commitment to a successful outcome, the challenges cannot be minimized.

Both sides have described what they hope to achieve in the negotiations. The U.S. objectives are predictably comprehensive. USTR has identified 24 chapters on which it plans to negotiate, including technical barriers to trade, intellectual property, digital trade, anti-corruption, good regulatory practices, and subsidies, among others. Kenya’s statement of objectives is equally fulsome if not quite as detailed. The Ministry of Industrialization, Trade, and Enterprise Development has identified 22 chapters it intends to negotiate with the U.S.

At this point, the political commitment to the negotiations of both leaders is of paramount importance. President Uhuru Kenyatta is one of the few African leaders to have established a positive rapport with President Trump and is the only African leader to have made two visits to the White House. In the wake of their second meeting in February, the U.S. Chamber of Commerce established a U.S.-Kenya Trade Working Group to build mutual trust and seek common ground between the parties on key trade priorities for the business community.

While these negotiations are intended to produce the first bilateral trade agreement with a country in sub-Saharan Africa, negotiators will have to navigate a number of challenges including:

bodog poker review One of the most frequently asked questions is how a U.S.-Kenya Free Trade Agreement will impact efforts to implement the African Continental Free Trade Agreement (AfCFTA). So far, USTR’s statement on this issue has been ambiguous, saying only that the U.S. will “support regional integration, where appropriate.” U.S. businesses and groups such as the U.S. Chamber of Commerce avow that they support both the FTA talks and the AfCFTA, and that the two mutually reinforce Kenya’s growth and development goals. President Kenyatta has also sought to dispel fears that the ongoing trade talks between Kenya and the U.S. will undermine the AfCFTA. In his view, Kenya’s trade deal with the U.S. will assist the continent more broadly by creating a reference upon which other African nations can negotiate bilateral arrangements within the AfCFTA framework going forward. Kenya also has obligations as a member of the East African Community (EAC) Customs Union. Like its fellow EAC members, Kenya applies a common external tariff and may have the limited latitude to negotiate concessions in that area. As for the future of AGOA, USTR has not indicated whether it supports an extension past 2025 for those African countries who have not negotiated a free trade agreement which, obviously, would be the majority of current beneficiaries.

Taxes on data. Few countries have advanced as quickly in the use of mobile-based financial services and digital transformation as Kenya. In an effort to derive more revenue from digital transactions, the government recently imposed two taxes: A 1.5 percent digital services tax, which will take effect on January 1, 2021 and an earlier withholding tax charged on “marketing, sales promotion and advertising services provided by non-resident persons.” American technology companies find these taxes discriminatory. In fact, last month, the U.S. announced tariffs on some French goods in retaliation for France’s unilateral digital services tax targeting American companies. While this matter has not been directly linked to the trade talks, it remains to be seen how the U.S. might approach this issue in the negotiations. How will efforts to resolve this matter in the OECD factor into discussions between the parties?

Genetically modified organisms (GMOs). U.S. agri-food industries are innovators in GMOs and related technologies that improve yields and reduce the need for chemical fertilizers and pesticides. Kenya is adamantly opposed to the importation of any foods that have been genetically modified. In fact, these foods are not allowed to enter or transit Kenyan ports for other destinations. Like the WTO Sanitary and Phytosanitary Standards (SPS) agreement, U.S. trade agreements require that SPS rules be science- and evidence-based, which sets up a clash with Kenya’s stance on GMOs. This disagreement could impact small and medium enterprises, especially in the agriculture sector, that rely on low-cost feedstock and other inputs. Based on conversations with industry representatives in the U.S. and Kenya, we anticipate that both sides will be able to find a satisfactory resolution on this issue.

The calendar. Trade agreements can take several years to negotiate. In just over three and a half months, the U.S. will hold its presidential elections. As we saw in the transition from the Obama to the Trump administrations, trade negotiations can be scuttled. If Biden wins in November, will his administration continue the negotiations with Kenya? The strong bipartisan support that has existed in Congress over the course of four administrations for programs in Africa suggests that there will be continuity on this initiative. Another challenge is that Trade Promotion Authority (TPA)—the law that lays out parameters for consultations between the administration and Congress and ensures an up-or-down vote on the final deal—will expire in July 2021. Without TPA, the eventual implementing bill could be amended by Congress, potentially unraveling it. Another potential complication is that President Kenyatta’s second term ends in 2022. He sees the FTA as a legacy issue. Will it be completed by then? And then, there is the reality of COVID-19. In fact, shortly after the first round of virtual negotiations, the Kenyan government paused the trade talks over concern that its negotiators were exposed to the coronavirus.

The talks between Kenya and the U.S. on a free trade agreement set a new marker for increasing the competitiveness of U.S. firms in one of the continent’s most vibrant economies and regions. They also pave a path for Kenyan businesses to build on the successes of AGOA, while locking in trade benefits such as market access beyond 2025. In completing this agreement, the U.S. will send a strong signal that it is serious about the importance of Africa, its people, and its long-term prosperity.

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In October 2019, in response to the EU’s failure to fully comply with a World Trade Organization ruling against subsidies it provided to aircraft manufacturer Airbus, the U.S. levied additional tariffs of 25 percent on more than 150 products from EU countries. Affected products included cheese and citrus from the EU or the United Kingdom; single-malt Irish and Scotch whiskeys from the UK; sweaters, pullovers, sweatshirts, performance outerwear, suits, pajamas, swimwear, blankets, and bed linen from the UK; axes, tweezers, pliers, metal cutting shears, pipe cutters, screwdrivers, knives, hand tools, and welding equipment from Germany; printed books, lithographs, and pictures from Germany or the UK; self-propelled machinery from Germany or the UK; and olives and wine from France, Germany, Spain, or the UK. The U.S. also imposed an additional 10 percent tariff on new civil aircraft from France, Germany, Spain, and the UK that was later increased to 15 percent.

In June 2020 the Office of the U.S. Trade Representative said it was considering modifying the list of EU goods subject to these tariffs. One change under consideration is to expand the list to include products such as fish, coffee, chocolate, olives, olive oil, beer, vodka, sparkling wine, polyester staple fiber, high tenacity polyester yarn, cotton twill fabric, carpets and other textile floor coverings, laminated fabrics, knitted ski-suits other than of manmade fibers, ceramic products, glassware, glass fiber yarn, table knives, wall clocks, and lifting machinery. USTR is also considering increasing the tariff on affected goods from 25 percent to 100 percent.

Also in June USTR announced a new Section 301 investigation of digital service taxes adopted or under consideration by the EU and a number of its member countries. A similar investigation of intellectual property rights protections in China resulted in a 25 percent tariff on hundreds of billions of dollars’ worth of imports from that country, and the DST investigation could result in additional tariffs or other restrictions on imports from EU countries if consultations do not yield a successful resolution. The U.S. is already moving in that direction in a separate investigation of a DST imposed by France, announcing recently plans to hit soap, cosmetics, and handbags from that country with an additional 25 percent tariff beginning in January 2021.

However, importers of goods from the EU can utilize a number of proven, legitimate strategies to prepare for and mitigate the effects of these tariffs.

– tariff engineering, where products are imported in unfinished or embellished forms to take advantage of classification provisions carrying a lower or free rate of duty

– special HTSUS Chapter 98 provisions, which cover numerous types of products used for specific purposes as well as specific production or sourcing scenarios involving the U.S. or previously imported components

– operational engineering, or changing the product’s country of origin by shifting the country in which a substantial transformation is achieved

– first sale valuation, where duty is paid on the price a trading company pays the manufacturer instead of the higher price the importer pays the trading company

– excluding certain amounts typically included in the price, such as buying commissions, shipping-related charges, inspection fees, and post-importation assembly charges, from dutiable value

– bonded facilities, such as foreign-trade zones and warehouses, and temporary importation bonds

ST&R’s Aug. 6 webinar will review the tariffs that have been and may be imposed on EU products as well as these and other strategies importers can use to ease the burden those tariffs may cause.

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In addition to the unique features of the USMCA ISDS mechanism that have been highlighted by our contributors this week, USMCA also provides noteworthy innovations in State-to-State arbitration. USMCA Chapter 31 (Dispute Settlement) provides a mechanism that largely adopts the approach of NAFTA Chapter 20, while also addressing some of its flaws, which many commentators believe led to its infrequent use.

The scope of dispute settlement under USMCA Chapter 31 is narrower than NAFTA’s State-State dispute settlement framework. NAFTA Chapter 20 permitted panels to be convened to hear both violation complaints and nullification and impairment cases (non-violation cases) for all substantive NAFTA rights, except trade remedies and the labor and environment side agreements. Meanwhile, USMCA Chapter 31 denies panels the ability to hear violation cases for trade remedies, and it further excludes non-violation cases for claims under USMCA’s chapters on labor, environment, digital trade, financial services, telecommunications, alongside a number of other chapters. Procedurally, once a Party identifies a dispute, consultation with technical experts and the Free Trade Commission is required. Upon failure of such consultations, a binational panel may be convened to assist the Parties to resolve their dispute.

Chapter 31 further offers detailed rules and procedures to govern the establishment of a roster of panelists, their necessary qualifications, and how panelists are then selected from the roster to hear disputes. A key critique of NAFTA was the ability of a State to engage in “panel blocking”, employing its own failure to maintain an active and complete roster of candidates to prevent panel formation. This issue is resolved in USMCA through a commitment among the States to establish their rosters by the date USMCA enters into force (July 1, 2020). To protect from any future lapse in appointments, roster members maintain their position for a minimum of three years or until the Parties constitute a new roster. To this end, for example, in March this year, the U.S. concluded its open call for applicants to the roster.

Once a panel is appointed, Chapter 31 provides detailed guidance on the conduct of proceedings, including requirements for evidentiary submissions, hearing format, e-filing, third-party participation, and the use of experts. This detailed guidance is unique to Chapter 31 and is not mirrored in Chapter 14’s ISDS mechanism. In large part, this detail was added to USMCA through the December 2019 Amendment, which immediately preceded the Parties’ rapid and successive domestic ratification processes. Finally, Chapter 31 indicates processes for the release and implementation of panel decisions, as well as the consequences of non-implementation of such decisions.

The nuances and details of Chapter 31 are welcome additions to USMCA and reflect a thoughtful evolution of NAFTA’s Chapter 20. However, many commentators question the efficiency of both the negotiating process and even of the dispute settlement mechanism itself. An obvious alternative path would have been to draw upon the dispute settlement provisions of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). Both Canada and Mexico are already parties to the CPTPP. CPTPP negotiations also took into account American input, as the U.S. was involved with Trans-Pacific Partnership (TPP) negotiations until President Donald Trump signed an executive order to withdraw prior to domestic ratification. The TPP provisions were negotiated to account for flaws in NAFTA Chapter 20 that were well-known to American, Bodog Poker Mexican, and Canadian TPP negotiators. As explained by Jennifer Hillman the approach of the TPP dispute settlement system was “designed to be broader, deeper, faster, and more transparent than either the WTO’s Dispute Settlement Understanding or [NAFTA Chapter 20.]”¹⁾

Where Does USMCA Fall in the Spectrum of Broader Global ISDS Reform?

TPP is also relevant to USMCA’s position with respect to global ISDS reform discussions. Many will recall that the TPP’s ISDS mechanism and the “risks” it posed to State sovereignty were among the U.S.’ reasons for withdrawing from the TPP. This position aligned with the “America First” rhetoric, which inspired the American negotiating position in USMCA. Yet, USMCA remains evolutionary in that it does not dispense with ISDS altogether. As Dr. Sheargold explained in yesterday’s post, the approach adopted in USMCA as between the U.S. and Canada is comparable to that adopted by Australia and the U.S. in their free trade agreement, where the exclusion of ISDS was justified – at least in part – by reference to the developed domestic legal systems of both States.

Compared to other more radical reform efforts, such as the European Commission’s proposal to implement a multilateral investment court, USMCA is not particularly revolutionary in its approach to structuring ISDS. It nonetheless incorporates many of the substantive and procedural reforms that differentiate new generation investment treaties from earlier models. As our contributors this week have noted, this includes various innovations concerning the scope and availability of ISDS itself. The treaty also imposes certain procedural safeguards for USMCA host States, including a requirement for would-be ISDS claimants to pursue local remedies for 30 months prior to filing their USMCA claim. Such innovations are reminiscent of reforms adopted in other contexts, including for example the inclusion in the 2015 Indian Model investment treaty of a five-year recourse to domestic remedies requirement.

Where ISDS is provided, USMCA builds on the legacy of NAFTA and the broader context of modern ISDS reform efforts to endorse a number of procedural safeguards and innovations. USMCA contains, for instance, detailed guidance as to the transparency frameworks applicable to ISDS proceedings. USMCA does not adopt the UNCITRAL Transparency Rules by reference but nonetheless contains many of the same disclosure requirements set out in those Rules, and in some cases, like other modern treaties, USMCA signals a willingness to go beyond the provisions on transparency contained in the UNCITRAL Rules. It imposes, for instance, obligations upon respondent States to make available to the public and the non-disputing USMCA State various documents associated with the proceeding (subject to certain safeguards). This includes the notice of intent, a notice of arbitration, pleadings, memorials and briefs, minutes and transcripts of tribunal hearings and orders, awards, and decisions of the tribunal (Article 14.D.8). The USMCA further provides for the holding of open hearings and filing of amicus curiae submissions.

While USMCA provides for significant elements of procedural transparency for ISDS, it misses others. This includes certain more specific elements of transparency, including for example transparency associated with third party funding arrangements (a topic currently under discussion in UNCITRAL’s Working Group III). USMCA nevertheless addresses other aspects of transparency even if indirectly. Article 14.D.6, for instance, governs the selection of arbitrators, including to stipulate that arbitrators shall comply with the IBA Guidelines on Conflicts of Interest in International Arbitration “or any supplemental guidelines or rules adopted by the Annex Parties”. It is, therefore, possible that additional guidance could be provided by the USMCA Parties for assessment of arbitrator conflicts, including in the event Mexico and the U.S. endorse the recently-published Draft Code of Conduct for Adjudicators in ISDS.

USMCA also confronts the increasingly divisive issue of “double hatting”, where arbitrators also serve in other roles linked to ISDS proceedings (most commonly, as counsel). Would-be Chapter 14 arbitrators, once appointed, are prohibited from acting as counsel or in any other capacity in another pending USMCA Chapter 14 arbitration while the arbitrations in which they sit as arbitrators remain pending. Some critics suggest that banning “double hatting” may, as a side effect, decrease diversity among the pool of prospective arbitrators in ISDS proceedings, claiming that a ban effectively limits opportunities available to younger emerging arbitrators who are “transitional” in their practice and working to move to full-time arbitrator practices, while still acting as counsel.

There are no easy answers to the arbitrator diversity problem, but commentators agree that the system itself is only one piece of the puzzle. Counsel and their clients maintain decision-making power and should select (or at least consider) diverse candidates. Important projects are being developed in relation to diversity in ISDS more broadly, and stakeholders should continue to monitor appointment practices under USMCA to ensure appropriate diversity is achieved. Even broader ISDS reform efforts focused on diversity only can go so far. For example, the roster approached recently adopted by the Comprehensive Economic and Trade Agreement between Canada, the European Union and its member states (CETA) failed to reflect diversity goals, that failure was acknowledged, and improvement efforts are apparently underway. In this respect, the selection criteria of USMCA Article 14.D.6 are helpful. Arbitrators are not required to have any specific experience or training (e.g., in public international law and/or in international investment and trade law), thereby creating avenues for entry by diverse and/or emerging arbitrators who may provide complementary expertise, for example, in international commercial arbitration or in specific relevant industries.

USMCA is noticeably silent on a range of other matters, particularly when compared to the ISDS mechanisms developed in other new generation treaties. This includes the issue of potential investor obligations, a topic gaining increased traction in other negotiation settings. While a corporate social responsibility clause is included in USMCA Article 14.17, the clause focusses upon the responsibilities of each USMCA party and is likely too permissive to result in a legal obligation on investors to make or operate their investment consistently with such standards. Further, while the ISDS Annex between the U.S. and Mexico refers in passing to possible “counterclaims” by respondent States (Article 14.D.7), it is largely structured to focus upon claims filed by investors against their host State and not vice-versa.

What’s Next?

Placing USMCA amongst these broader discussions on evolution and innovation highlights the many challenges associated with modern treaty negotiation and ISDS reform. Yet, USMCA’s entry into force remains a historic and encouraging development regionally and globally. As mentioned in the introductory post to this series, NAFTA, despite the unprecedented trade flows it heralded, needed modernization because global commerce has changed dramatically over the past quarter-century. USMCA thus brings North American regional trade into the 21^stcentury in a manner that, at the very least, takes into consideration emerging global trends in treaty law and ISDS.

While today in 2020 our focus is on NAFTA’s termination and legacy claims provisions, soon it will be time to reconsider USMCA’s bodog casino efficacy and future. A sunset provision at Article 34.7 provides that the agreement is subject to review and renewal by mutual agreement after six years (in 2026). At that time, its Parties would need to agree to a further 16-year extension, and absent mutual assent, USMCA would expire in 2036. The six-year review deadline is promising as it may provide an opportunity to revisit the challenges and opportunities already hotly debated among commentators.

This blog post originally was published on the Kluwer Arbitration Blog on June 28, 2020 as part of a series highlighting the USMCA’s entry into force.   

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The WTO has projected that global trade will decline between 13 and 32 percent in 2020 before rebounding in 2021.  https://www.wto.org/english/news_e/pres20_e/pr855_e.htm.

The IMF in its April 2020 update of the global economy modified its projection to show global GDP contraction of 3.0% for 2020 with a 6.1% contraction by advanced economies (U.S., -5.9%; Euro Area, -7.9%; Japan, -5.2) and a 1.0% contraction for emerging markets and developing economies.  https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020.

Developments in global trade and the national economy for the United States and the rising severity of the pandemic in some of the emerging and developing countries will likely cause future downward revisions to the global trade and economic fallout occurring in 2020 and reemphasize the importance of global cooperation both in responding to the pandemic but also in posturing the world for an economic recovery in the second half of 2020 and beyond.

United States data through April as an example

Gross domestic product in the United States declined 5.0% in the first quarter of 2020 based on a May 28, 2020 second estimate provided U.S. Department of Commerce’s Bureau of Economic Analysis.  https://www.bea.gov/sites/default/files/2020-05/gdp1q20_2nd_0.pdf.

With more than 40 million people filing for unemployment benefits between mid-March and the end of May, the projection for second quarter GDP from at least one source on June 1, 2020 is an extraordinary contraction of 52.8%.  Seehttps://www.frbatlanta.org/cqer/research/gdpnow.  This compares to the Congressional Budget Office’s projection of a 39.6% decline in the second quarter.  https://www.cbo.gov/publication/56335.  The CBO estimate uses a 3.5% decline in GDP for the first quarter and an annual projected decline of 5.6% for 2020.

With the current first quarter data GDP contraction in the U.S. at 5.0% and the most recent data from a model similar to that used by the Bureau of Economic Analysis projecting a 52.8% contraction in the second quarter, it is highly likely that the U.S. contraction in 2020 will exceed the 5.9% projected in the April IMF data.

Indeed, with the number of bankruptcies being reported in the U.S. and the large number of small and medium sized companies that may not be able to return to operation as reopening occurs, the economic rebound may not be as strong as current projections estimate either.  The continued large number of new cases in the United States may be a contributing cause as some states either delay the speed of reopening or face larger resurgence of cases once reopening occurs because of the continued high level of COVID-19 in the population.

While the number of cases in the United States has at least stabilized and has been  trending down, the rate of decline is far lower than that experienced in western Europe.  For example, the United States continues to have the largest number of new confirmed cases of any country in the world, many weeks after the U.S. peak.  Indeed in today’s European Centre for Disease Prevention and Control report on the COVID-19 situation update worldwide, as of 2 June 2020, the U.S. has 302,679 cases reported in the last fourteen days of the continuing to grow global total of 1,477,362 new cases in the last fourteen days.  European countries have relatively few (7,973 for Spain; 7,311 for Italy, 9,188 for France and 6,818 for Germany).  https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases.  In a prior post, data were shown for various countries over the period December 31, 2019 – May 24, 2020.  Most European countries show reductions from their peak two week period of 80-90% while the United States has shown declines of only 23.5% through May 24 (slightly more through June 2, 26.0%).  See COVID-19 – new hot spots amidst continued growing number of confirmed cases,  https://currentthoughtsontrade.com/2020/05/25/covid-19-new-hotspots-amidst-continued-growing-number-of-confirmed-cases/.  To the extent that IMF projections are based on infection rates that decline more rapidly than the actual U.S. experience with COVID-19, that would be another reason to believe the IMF projected contractions for the U.S. are too low. 

On the trade front, the United States was doing well until mid-March.  But the COVID-19 challenges that resulted in government actions led to 1st quarter 2020 exports from the U.S. of goods being down 1.2%, services exports down 21.5% for a total contraction of U.S. exports of 6.7%.  U.S. imports of goods were down 11.5%, led by contraction of imports from China due to various additional duties imposed on Chinese goods.  U.S. imports of services were down 29.9% for total imports being down 15.5%.  See Bureau of Economic Analysis, News Release BEA 20-23, May 28, 2020 at 7, https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-second-estimate-corporate-profits-1st-quarter.

The U.S. Department of Commerce, U.S. Census Bureau puts out a “Monthly Advance Economic Indicators Report”.  The April 2020 report was released on May 29th and showed estimated data for imports and exports of goods (seasonally adjusted).  April exports for the U.S. were down 29.9% with individual sectors being down 5.3% (food, feeds and beverages) to 70.8% (automotive vehicles).  Similarly, U.S. imports were down 20.6% for April with sectors varying from being down 5.6% (foods, feeds and beverages) to 57.0% (automotive vehicles).  https://www.census.gov/econ/indicators/advance_report.pdf.

Thus, U.S. trade contractions in April suggest that the range put forward by the WTO (13-32% for the year) is probably the correct range. 

Rising Number of COVID-19 cases in South America and in India

The IMF revised 2020 projections from April likely understate the negative effects that emerging and developing countries are experiencing.  Specifically, Latin America and the Caribbean are seeing major outbreaks of COVID-19 cases with the peak not yet reached in a number of important countries like Brazil, Peru, Chile and Colombia and also in Mexico.  Depending on developments in these major countries and the spread in others, the likely economic contraction in the region could be significantly higher than the 5.2% contained in the April 2020 projections by the IMF.  Brazil was estimated to experience a GDP contraction of 5.3% by the IMF, but recent estimates show a steadily growing projected contraction, latest figures showing 6.25%.  See https://www.statista.com/statistics/1105065/impact-coronavirus-gdp-brazil/.  With the COVID-19 cases still growing in Brazil, the contraction in GDP for 2020 will likely continue to worsen.

Similarly, India was projected to have GDP bodog casino growth of 1.9% in 2020.  The country’s challenges with COVID-19 cases are just starting with the current total number of confirmed cases at just under 200,000 but with nearly half of the cases reported in the last fourteen days (97,567 of 198,706).   Indeed, some recent projections by Oxford Economics now have India’s GDP contracting in 2020.  Seehttps://www.icis.com/explore/resources/news/2020/06/01/10513907/india-gdp-growth-slows-to-4-2-lockdown-stays-at-manufacturing-hubs.

Other countries are also seeing increasing case numbers and the global totals of new cases have not peaked as yet which likely mean greater numbers of cases than most models have anticipated.  If so global contraction could be significantly worse than the April estimates of the IMF.

High national debt levels are growing higher   

The collapse of economic activity even for a few months is reducing tax revenues, increasing government spending in many jurisdictions and worsening national debt levels.  For example, in the United States the Congressional Budget Office blog from April 24 estimated that the U.S. budget deficit in 2020 and 2021 will be $2.7 billion and $1.1 billion higher than earlier estimates and that federal debt held by the public is likely to grow from 79% of GDP in 2019 to 101% of GDP in 2020 and 108% of GDP in 2021.  https://www.cbo.gov/publication/56335.  The actual deficits and federal debt are likely to be significantly higher as the CBO estimates are based on forecasts for GDP contraction that already understates the severity experienced through the first quarter and assumes no further federal assistance will be required to pull the economy out of the steep contraction being experienced in the second quarter.  As governors across the country have made clear, the serious budget shortfalls being experienced by the states because of closed businesses, reduced revenues and increased expenditures are not sustainable.  If these 2020 shortfalls are not addressed through federal legislation, the outcome will be large reductions in state and local services and massive layoffs of state and municipal employees including police, fire, health care and teachers.  So either the budget shortfall of the federal government is understated because of additional stimulus funding needs or the expected recovery of the economy (and hence government revenues) is overstated because of the challenges for many states.

Virtually every country is facing budget challenges as they attempt to address the COVID-19 pandemic and its economic fallout.  See, e.g., articles on growing budget deficits for France, Italy, Brazil and India; https://www.reuters.com/article/us-health-coronavirus-France-budget/france-more-than-doubles-crisis-package-cost-to-100-billion-euros-idUSKCN21R2J2; https://www.nytimes.com/reuters/2020/05/22/world/americas/22reuters-brazil-economy.html; https://www.reuters.com/article/us-health-coronavirus-italy-budget-exclu/exclusive-italy-sees-2020-budget-deficit-near-10-of-gdp-source-idUSKBN21Y2U9; https://economictimes.indiatimes.com/news/economy/indicators/indias-fiscal-deficit-may-shoot-to-6-2-of-gdp-in-fy21-fitch-olutions/articleshow/74928660.cms?from=mdr#:~:text=NEW%20DELHI%3A%20India’s%20fiscal%20deficit,Fitch%20Solutions%20said%20on%20Wednesday.  

Budget shortfalls, the need to borrow more money and the pressure to reduce national, regional and local services all affect the ability of nations to contribute to international institutions, to provide financial assistance to the poorest countries and to facilitate short-, medium- and longer-term growth.

Conclusion

The global COVID-19 pandemic is creating economic havoc in addition to the heavy health toll on countries around the world.  A global challenge of this magnitude hasn’t been faced since World War II.  The projections that have been made by multilateral and national organizations have been for huge contractions in world trade and in global economic growth.  Unfortunately, the estimates at least on global GDP contraction are likely too optimistic both in terms of the severity of the second quarter 2020 contraction and the anticipated level of  second half 2020 recovery.  Moreover, there is likely to be significantly more national stimulus programs needed to help economies recover increasing already huge national debts for many countries and the likely greater need for trade financing and debt support for many developing and least developed countries because of the severity of the global trade and GDP contraction. 

The challenges being faced affect the health and livelihood of billions of people but are occurring at a time of reduced trust in multilateral institutions, increased trade frictions between major nations and groups of nations and a lack of strong leadership within and among nations.  

How severe the damage to the world turns out to be from the pandemic will depend on –

(1) whether countries come together to ensure open markets;

(2) whether countries both coordinate information about and promote expanded production of essential medical goods to ensure adequate and equitable availability to all at affordable prices,

(3) whether countries support efforts of both public and private players on the development of effective vaccines and therapeutics and facilitate the sharing of information while ensuring equitable availability to all at affordable prices where breakthroughs occur,

(4) whether countries support multilateral organizations’ efforts and individually support the bolstering of health care infrastructure of least developed countries and some developing countries where COVID-19 cases could easily overwhelm internal capabilities;

(5) whether countries cooperate for a strong global recovery by pursuing stimulus programs that don’t distort markets and create other challenges to global participation, and by providing multilateral organizations with the resources to address debt and trade financing needs of the poorest among us.

There are some efforts to address each of the five items above although the U.S. announced withdrawal from the World Health Organization handicaps efforts reviewed in (3). 

More needs to be done and could be done with greater cooperation among the top 50 countries in the world.  However, we may be at the maximum of what is the art of the possible at the moment.  For the 7.8 billion people living on earth in 2020, let us hope that more is possible quickly. 

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Trump announced over the weekend that the G7 summit, which was slated for this month, likely will be held in September — and said he hoped to invite South Korea, Australia, India and Russia as well. None of the four are members of the G7. Trump had hoped to hold an in-person summit in the Washington, DC, area this month but postponed it after German Chancellor Angela Merkel said she would not attend due to the pandemic.

Clete Willems, a partner at Akin Gump, said the countries must remain in touch and work toward an in-person meeting, which he said would be hard to “replicate” virtually. Willems served as the deputy assistant to the president for international economics through March 2019 and was also deputy director of the National bodog online casino Economic Council. He played a key role in the trade talks between the U.S. and China, among others, and was a lead negotiator at G20, G7 and Asia-Pacific Economic Cooperation meetings.

“I think whether or not they get together virtually now versus in person later — that’s not going to change the fact that these guys are on the phone with each other on a very routine basis,” he told Inside U.S. Trade. “I understand from the White House that they are talking almost daily to each other.”

“As long as the White House and these other countries are able to come up with safety protocols that allow them to travel, I think it’s so much more valuable to have an in-person meeting,” he added. “I think to the extent that it takes them a couple more months for them to figure that out is worth doing. My understanding is that they are all in touch anyway.”

Kelly Ann Shaw, a partner at Hogan Lovells, said postponing the summit was logical given the pandemic. Shaw took over for Willems at the White House last year and left in November.

“A few additional months to prepare and observe will create a better atmosphere for cooperation and creative thinking among Leaders on ways to rebuild the global economy,” she told Inside U.S. Trade in an email.

Wendy Cutler, vice president of the Asia Society Policy Institute and a former acting deputy U.S. Trade Representative, also lauded the administration’s decision to delay the summit.

“Postponement of #G7 meeting is a blessing in disguise,” she tweeted on Monday. “Gives over 4 months to prepare for real, meaningful outcomes instead of just grandstanding and blaming others.”

Trade policy was a focal point of last year’s G7 summit, which was held in Biarritz, France.

Shaw said the G7 “at its core” was a forum to address “global economic growth and related political challenges” and contended that trade will be discussed at this year’s meeting.

“Trade is an indelible component of growth and has been on the agenda since the original Declaration of Rambouillet in 1975 — it certainly will be a part of this year’s G7,” she continued. “There may be a number of trade issues on the table in September, including the proliferation of export restrictions, supply chain vulnerabilities, unfair trade practices, and non-market economies.”

Willems said he was less hopeful that trade would take up as much of this year’s agenda, contending it would likely take a backseat to health and economic issues related to the COVID-19 outbreak.

“I don’t know how much of a focus trade is going to be. My understanding is that there is going to be a lot of focus on coronavirus and the health and economic aspects of that. I think there is going to be a lot of focus on China, some of that may have trade ramifications,” he added. “They will definitely want to have a China focus and that is where you could get much of trade stuff. I don’t know — in terms of an independent trade section — how much I would expect there.”

He also lauded the inclusion of other countries that share G7 ideals, adding, “Australia, India and Spain all went to last year’s [summit].”

“As a neutral matter, it’s not unprecedented for there to be more than just the G7 countries,” he said. “The idea of having certain additional countries attend who share many of the same viewpoints as the other G7 members and who are going to be key allies in working on all of these issues would be important. I would definitely put Australia and South Korea on that list. I’m not so sure whether Russia meets that criteria. I think they want to think long and hard about their inclusion.”

Russia’s membership to the G8 was suspended in 2014 due to its annexation of Crimea.

Trump on Saturday called the G7’s membership “outdated,” adding, “I don’t feel that as a G7 it properly represents what’s going on in the world.”

Canadian Prime Minister Justin Trudeau said he would not support Russia’s inclusion at the G7 meeting. The United Kingdom took a similar position on Monday. — Isabelle Icso (iicso@iwpnews.com)

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Remarks at a webinar hosted by the Korean International Trade Association, 27 May 2020 (published on the WTO website here)

The pandemic is an unprecedented challenge in our time not just to world health but to the global economy. 

National governments, pressed for a response, enacted both trade restrictions and import liberalizing measures with respect to medical supplies. 

Fortunately, in terms of numbers, the liberalizing trade measures have exceeded those restricting it. 

The WTO Secretariat has obtained notifications of measures from its Members and published information on its website.  This provides essential transparency for planning both by national policy makers and for businesses. 

The WTO has also alerted members to the effects of the pandemic and the responses to it, by issuing a Trade Forecast.  Due to the direct effects of the pandemic, depressing both supply and demand, as well as to a much lesser extent trade measures, the WTO has projected that global trade will decline by 13% to 32% this year.  

Keeping trade open in the face of the pandemic has been the subject of trade initiatives led by Singapore, New Zealand, Canada and Switzerland.  These initiatives have been circulated to the 164 Members of the WTO and have gained additional adherents. 

The evolving shape of world trade, including global supply chains, will be shaped primarily by how businesses view future economic conditions.  There will be some limited on-shoring to the extent that government policies will be available to support this reflow from an era of globalization.  But government budgets will already have been strained by fiscal measures to fight the pandemic.  The availability of funds to support on-shoring is likely to be limited to targeted efforts, primarily perhaps for medical supplies.  And even there, government stockpiles (with domestic sources preferred) may be preferred to direct industrial support.  The products effected and duration of the support may be limited.  On-shoring is likely also to be affected by tax measures designed to restore government finances.

Supply chains will also be affected by some likely diversification among foreign suppliers.  But again, this will be limited by economic viability.  Businesses can plan for contingencies but in the end, must preserve revenues and profits.

The leanest of just-in-time supply chains may be a level of efficiency that can no longer be afforded.  So, inventories will rise but again be constrained by the economics of running a business.

Outside of supporting the production and stockpiling of medical supplies and vaccines, technology and market forces will be much greater factors determining trading patterns than government policies, including the use of regional trade agreements.  In an extreme emergency, even membership in a customs union did not prevent some individual national actions which were at odds with the ideal of a single market.

Regional trading arrangements can be useful for exploring paths forward for rule-making where progress would be more complicated to achieve on a global basis.  In addition, regional integration can be productive and should be fostered.  Nevertheless, in terms of total trade flows, sub-multilateral agreements are not determinative.  Businesses still have to serve markets wherever they are located and will continue to need to reach out beyond the regions in which they are located. 

As a WTO official, my primary concern is with how well-prepared the multilateral trading system is for the challenges that it now faces and that it will face.  For the World Trade Organization, there are three classes of challenges:

• first, dealing with the bodog sportsbook review trade aspects of the pandemic;
• second, discerning trade measures that can aid in the economic recovery; and
• third, planning systemic reforms. 

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Despite the positive role trade has played, the COVID crisis has witnessed the rise of several protectionist policies (González 2020). For instance, many nations imposed export restrictions on medical supplies in an effort to boost local availability (Figure 1). And the possibilities of further and wider trade restrictions have multiplied as US-China trade tensions have reignited. 

More broadly, some policymakers are calling for greater self-reliance in general and repatriation of international supply chains in particular. The US Trade Representative Robert Lighthizer wrote last week, “businesses have been rethinking the way that overextended, overseas supply lines expose them to unacceptable risk … the era of reflexive offshoring is over… ” (Lighthizer 2020). Similar sentiments were expressed in a 17 April 2020 resolution in which the European Parliament declared it “supports the reintegration of supply chains inside the EU” (European Parliament 2020).

In this column, we argue that policies geared towards restricting exports and dismantling supply chains could backfire with negative consequences for trade in both the short and long term – and not just trade in medical equipment. Our argument is based on three facts. First, the interdependence of national manufacturing sectors is pervasive. Second, it has grown substantially in recent years. And third, China plays a unique role in the global network of trade in intermediate inputs. 

Figure 1 Export controls on medical supplies and medicines reported in 2020: 83 nations have imposed a total of 150 measures

Source: Global Trade Alert website,  https://www.globaltradealert.org/, accessed 9 May 2020.

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If the world is to ramp up the production of essential medical equipment to meet the swift rise in pandemic-driven demand, there is no alternative to international trade given the integrated nature of global manufacturing. The same is true for medicines, vaccines, and medical tests that will become important in defeating the virus. Trying to shut down this sort of supply-chain trade will simply make it harder to fight the virus for all nations.

Whatever merits there may be to addressing risk in international supply chains, pursuing this goal in the midst of a pandemic could lead to serious, unintended consequences. Pursuing policies aimed at forcing companies to alter their supply chain practices can easily lead other nations to respond. A spiral of retaliation could disrupt world productive capacity in virtually all manufacturing sectors given the high level of interdependence we documented. This could make economic recovery more challenging, to say the least. In short, keeping trade channels open will help us fight the disease and help the world economy recover. 

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